Using mediation to resolve high-stakes disputes

Timing can be everything with market conditions, particularly when moving from the spot to the period charter trade, to protect your revenue and lock in a good rate when the spot trade may tank.

SK Shipping timed that move well with four of its very large crude carrier tankers, when fixing all of them to Capital Maritime, as explained in The “C Challenger” in the English High Court late last year.

Unfortunately, in the rush to beat the market movement, SK Shipping did not correctly modify the vessel performance data accumulated over many years when setting the performance warranties.

SK Shipping allowed an honest and well-meaning but inadequately experienced employee to “verify” the data, who discussed with commercial colleagues only as the technical department was busy.

In the event, the data presented to Capital Maritime was not sufficiently accurate and this, given the unrealistic performance warranties, led to multiple speed and consumption claims arising.

While Capital Maritime considered themselves to have been wronged, the final result was a High Court decision being made in SK Shipping’s favour, due to Capital Maritime’s bullish approach.

Factually and legally complex disputes

The dispute took years to resolve, consumed a great deal of management time that could have been used far more productively elsewhere, and led to an embarrassing public airing of “dirty linen”.

The lawyers on both sides would no doubt have benefitted from being kept busy with the dispute, although a privately agreed solution may well have been best for both parties in this instance.

As it happened, the parties were able to come to commercial terms in relation to three of the vessels, although the failure to do so on the fourth vessel, sadly, led to a costly imposed resolution.

Capital Maritime had to prove SK Shipping had knowingly misrepresented the vessel performance data and to convince the High Court to grant rescission, having earlier terminated the charter.

Establishing misrepresentation and also being granted rescission, particularly when Capital Maritime at most paid US$500 per day over the odds in hire, would be complex and challenging to achieve.

As Capital Maritime had a warranty remedy for excess fuel and time used on voyages, the High Court was not convinced, which put the “wronged” party itself in repudiatory breach of the contract.

How could mediation have helped?

While a mediator sometimes does not become involved until after litigation is well underway, once the parties’ positions are fully developed, that really does not have to be done in many cases.

At that point, often when substantial costs have already been incurred, achieving a satisfactory settlement can become difficult and there is a real risk the parties’ views have become intractable.

As some contractual disputes are disproportionately expensive to resolve by final judgment and invite unwanted publicity, mediation could have facilitated a commercial and discreet resolution.

A number of commercial solutions, aside from pursuing a final judgment, could have been contemplated in this case – a discount on the daily hire rate is but one possible example.

A specialist commercial mediator is not only an expert at helping parties reach a mutually acceptable agreement but will understand the commercial situation of both sides and their place in the market.

The mediator will use this in-depth understanding of the way the market does business to help the parties to come up with innovative solutions that might not otherwise have been considered.

The benefit of seeking an earlier resolution to the dispute

Time is often a big factor in resolving a dispute – in this case, Capital Maritime met a finding that their rights had been waived, despite reservations, by continuing with the charter for too long.

Addressing the problem as soon as it was apparent and having an early session with a mediator may have resolved the issues quickly to put the parties back on track and preserved the relationship.

Where difficulties are allowed to fester and communication is sporadic and reluctant, it is possible to spend months achieving very little except a worsening of relations, as had happened in this case.

It would have been important to approach the problem with an open mind and some flexibility as resolving a dispute of this type at an early stage would have involved willingness to compromise.

As the parties came from different cultures, one South Korean and the other Greek, a mediator would have needed to use their knowledge of cultural sensitivities to bring the parties together.

In helping the parties to see the pros and cons of fighting the disputes out, a mediator could have helped the parties to appreciate the risks and to see the importance of improving the situation.

Contact us

At Lux Mediation, we offer a range of different Dispute Resolution Services, designed to deal with all types and stages of disputes. We are experienced in and understand the subtleties of online mediation. Our mediators have extensive credentials and experience in areas including maritime, international, EU and general commercial and civil law.

We can step in early to advise you in respect of seeking to resolve a dispute. We work internationally and have an in-depth understanding of cultural differences, often of great importance in a successful mediation.

Our mediators are experts in both mediation and commercial enterprise and we have an excellent track record of success in helping businesses put difficulties behind them so that they can focus on their goals.

If you would like to explore further whether we can help you to resolve a dispute or you have any questions about the process, please call Lux-Mediation on +44 (0)7876 232305 or email mediation@lux-mediation.com.