Using mediation to resolve disputes arising from major incidents

The “Ever Given” blocking the Suez Canal for almost a week, leading to delays for over 400 vessels and rerouting for some, has brought shipping and international trade into the news spotlight.
The old-fashioned system of holding substantial inventory stock, which was seen as more capital intensive, has by-and-large been replaced by the more cost-effective use of just-in-time logistics.

Unfortunately, major events, such as a blocking of the Suez Canal, can have a wide-ranging adverse impact on those involved in shipping, trade and beyond, with a trickle down effect resulting.
In a world more reliant on just-in-time logistics and already adversely impacted by the effects of COVID-19, causing delays to vessels and crew changes, this event has exposed the weaknesses.
The obvious issue that arises from this event is delay to many vessels and cargoes reaching their destinations, as a result of which disputes will inevitably arise as to which party bears the risks.

The consequences can be direct, such as an increase in the cost of shipping due to the delay, and a reduction in the availability of unrefined, semi-processed and finished goods in the market.
There can also be indirect consequences; such as further delay once vessels arrive on mass at their destination ports, and the inability of vessels timely to commence their next commitments.
Beyond this, there is a heightened risk of perishable and other time-sensitive goods deteriorating, becoming redundant or losing market value, although scarcity can increase profits for some.
The parties potentially impacted are likely to be very diverse, given the trickle down effect that will arise through contractual and non-contractual relationships, including but not limited to:

Most Directly Affected

• The Suez Canal Authority;
• Owners of “Ever Given”;
• Charterers of “Ever Given”;
• Cargo interests of “Ever Given”;
• Salvors of “Ever Given”;
• H&M insurers of “Ever Given”;
• P&I insurers of “Ever Given”;
• FD&D insurers of “Ever Given”;
• P&I insurers with the International Group of P&I Clubs;

Others Directly Affected

• Owners of other vessels delayed or rerouted;
• Charterers of other vessels delayed or rerouted;
• Cargo interests of other vessels delayed or rerouted;
• P&I insurers of other vessels delayed or rerouted;
• FD&D insurers of other vessels delayed or rerouted;
• Cargo insurers of other cargoes delayed or rerouted;
• Delay insurers of other vessels delayed or rerouted;

Others Indirectly Affected

• Destination ports;
• Destination agents;
• Destination distributors;
• Destination customs clearers;
• Destination haulage contractors;
• Destination port services providers;
• Cargoes sales and purchases financiers;
• Destination market traders and consumers;
• Buyers and sellers of vessels delayed or rerouted;
• Shipyards awaiting arrival of vessels delayed or rerouted;
• Reinsurers of all insurers of vessels, goods and parties impacted.

Diverse, far-reaching and complex disputes

Despite the spotlight and goodwill of the world presently on the Suez Canal Authority, they have already stated they are to claim for US$1 billion of losses and may detain “Ever Given” as a result, despite the incident mainly causing a delay to receiving canal dues, with rerouting as the exception.

Initial estimates from industry participants expected the incident to quantify in favour of the Suez Canal Authority in the region of US$90 million, for lost income and the expenses of removing “Ever Given” and making repairs to the section of channel that was damaged to enable her refloating.

Owners of “Ever Given” have declared general average (“GA”) and appointed GA adjusters and have appointed London lawyers and commenced High Court proceedings naming Charterers and all other interests that may have a claim against them in relation to the consequences of the grounding. Owners having commenced proceedings in that way could potentially herald a class action lawsuit. It was also no doubt designed to secure English High Court jurisdiction for as many of the claims as possible.

Charterers of “Ever Given” have already made public statements that they are unlikely to have any responsibility for the incident despite knowing of the risks of strong winds from a prior incident, which may put into question whether Owners may seek an indemnity for the consequences.

Salvors of “Ever Given” will be entitled to substantial remuneration for their success too. As the investigation of the cause of the incident gets underway, the results will be of interest to many, including the cargo interests of “Ever Given” who may wish to challenge liability to contribute in GA.

All of the above suggests many major disputes are already brewing between the parties most directly impacted by this incident, and the scale and quantum involved could be very significant.

For others directly impacted, the position is likely to be, to the extent that they are not adequately insured (which will be the case for the majority), that cargo interests of vessels delayed or rerouted are unlikely to have claims against shipowners, many charterers of time chartered vessels are likely to bear the financial consequences of the delay, and many owners of voyage chartered vessels are likely to bear the financial consequences of the delay, by way of just some contractual examples.

Guidance provided by North P&I Club to their membership, in an article authored by Jim Leighton and David Richards, is a good example of how certain disputes are already being analysed: see https://www.nepia.com/articles/the-ever-given-and-the-blockage-of-the-suez-canal-what-next/.

The facts and terms of contracts will, of course, have an important bearing on the end result, such that there may well be grounds for disputes as to which contractual party bears the consequences. To add to the difficulties, this will fall for consideration under numerous different contracts with differing law and jurisdiction provisions. Equally, many coverage disputes under insurance contracts can be expected to arise, as the COVID-19 business interruption insurance litigation, which went to the UK Supreme Court, has exemplified.

To the extent there will be many parties bearing the brunt, without obvious contractual recourse to their counterparties, the seemingly tempting option would be to look to the Suez Canal Authority and Owners of “Ever Given” and her insurers, although this proposition is far from easy to pursue.

First, the Suez Canal Authority itself has a waiver from vessels that go through the canal and are entitled to an indemnity from any claims pursued against them by third-parties under the applicable rules of navigation, with vessels not having any right to limit their liability for any such claims. Egypt itself would be a challenging jurisdiction in which to pursue such claims, and so it is not attractive.

Second, if “Ever Given” and related interests are pursued, which would be by way of tort actions, there are a plethora of issues that must be overcome before any recovery is possible, including:

• Which jurisdiction can be used procedurally to found such a claim?
• What law would apply to the substantive claim in such a jurisdiction?
• Does the law applicable to the substance of the dispute provide a sound cause of action?
• To what if any extent are the legal costs in pursuing such a claim recoverable?
• Would it be possible to obtain security for principal, interest and costs too?
• What are the prospects of successfully enforcing a favourable judgment?

Founding a right to pursue a claim in other jurisdictions may well depend on having a right to arrest “Ever Given”, which could realistically expect a substantial delay in Egypt before she is again on her way, or any sister ships, in that jurisdiction, or pursuing her Owners in their home jurisdiction.

Many, although not all, jurisdictions could be expected to apply Egyptian law, as the law of the place of the incident, which would require expert opinion on Egyptian law, which is far from clear-cut.

It is often, although not universally, the case that causes of action in tort for pure economic loss are simply not allowed or can be exceedingly difficult or uncertain to prove in many jurisdictions.

While costs are recoverable in many jurisdictions, this can in some instances be only a token sum. Even to the extent substantial costs are recoverable, this can present a double-edged sword for those who may have uncertain claims that, if they fail, could further add to their financial woes.

Even where a successful arrest leads to security being obtained, as there can be anticipated to be multiple claimants in view of the large impact this incident has had, that could potentially eat into the recoverable funds available, given the right of vessels to limit their liability for certain claims.

To the extent enforcement of a judgment cannot be made against security funds obtained by arrest or against the proceeds of a sale of “Ever Given”, if strictly required, judgment creditors would then have to search the globe to find any other (possibly land-based) assets of her Owners. This then presents much time, expense and risk, meaning a favourable judgment is only half of the battle.

All of the above indicates there is much uncertainty involved in resolving disputes arising from this incident, which could, realistically, take many years to be resolved formally, when many parties will lack the resources and risk appetite to await a long and costly outcome in the present climate.

How could mediation help?

While a mediator sometimes does not become involved until after litigation is well underway, once the parties’ positions are fully developed, there is no necessity to delay mediation until then and in a case such as the present there are good reasons not to delay.

At the point 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.

Disputes arising from this incident are a good example of where, given the difficulties, mediation could reduce the cost and time within which parties can resolve issues and move on with business.

As many contractual and tort disputes are disproportionately expensive to resolve by final judgment and invite unwanted publicity, mediation could facilitate a commercial and discreet resolution.

A number of commercial solutions, aside from pursuing a final judgment or an arbitral award, could be contemplated for disputes arising from this incident that are beneficial to all parties involved.

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 and, indeed, which no judge or arbitrator would have the power to order.

The benefit of seeking an earlier resolution to the disputes

Time is often a big factor in resolving a dispute, so addressing the problem quickly and having an early session with a mediator may put the parties back on track and preserves the relationship.

When difficulties are left to fester and communication is sporadic and reluctant, many months may pass by with very little achieved except a worsening of relations, as could flow from this incident.

It would be important for parties to approach difficulties with an open mind and some flexibility as resolving disputes in this context at an early stage would have to involve willingness to compromise.

As parties can be expected to come from many different cultures, as the impact is global, a mediator would have to use their knowledge of cultural sensitivities in order to bring the parties together.

In helping parties to see the pros and cons of fighting their disputes out, a mediator could help them to appreciate the risks and to see the importance of pragmatically improving the outcome for all.

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 in the present environment. Our mediators have extensive credentials and experience in areas including maritime, international, EU and general commercial and civil law matters.

We can step in early to advise you in respect of seeking to resolve a dispute before difficulties escalate too far. We work internationally and have an in-depth understanding of cultural differences, which is often of great importance to achieve a successful outcome in 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 to 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.