Failure to Mediate: Part 2

In my previous article "Failure to Mediate" I considered two cases that demonstrated the costs implication that a party could face (even if they successfully won their case) by refusing, or failing, to participate in mediation. There have now been two further cases on this subject. In contrast, these cases demonstrate how a party's decision to refuse mediation can actually be justified and not incur cost penalties.

In the Commercial Court case of Euroption Strategic Fund Ltd v Skandinaviska Enskilda Banken ("SEB"), Euroption brought a claim against SEB for €135 million caused from losses in equity options trading. Euroption's claim failed and SEB sought the recovery of their costs. Throughout, SEB had refused to mediate. When Judgment was given, it was argued by SEB that their costs should be assessed on an indemnity basis due to the inconvenience of the litigation. In contrast, Euroption argued that costs should be on a standard basis (being the assessment of what is proportionate and reasonable) and that there should also be a 15% deduction due to SEB's failure to participate in mediation.

The trial Judge did not agree with Euroption and found that there was "no reason whatsoever" for SEB to bear a 15% reduction in their costs and their decision to not mediate was not unreasonable; in particular, when such would have incurred costs that, SEB always saw as being unnecessary due to the unmeritorious claim against them.

The second case is the Court of Appeal decision of Swain Mason v Mills & Reeve. Mills & Reeve successfully defeated a claim of professional negligence and were consequently awarded 50% of their costs; this, being on the basis that there was some criticism for consistently refusing to mediate. On appeal it was held that such penalty was not correct. As with Euroption, Mills & Reeve had made it clear from the outset that the claim was unmeritorious and that there was actually no realistic prospect of a successful mediation; at all stages throughout the proceedings, the "parties in reality were 100 miles apart". The trial Judge agreed with Mills & Reeve and, as a result, exercised its discretion and awarded them 60% of their costs instead.

In Euroption and Swain Mason, the Defendants were clear that the case brought against them was unmeritorious and this had been conveyed to the other side. These cases do not mean that parties can now refuse to mediate and not be penalised, but rather, highlights that in limited cases, mediation is not always appropriate and discretion in terms of cost penalties must be used.

If a party refused to mediate on the grounds that the claim against then has no merit, they must do so carefully and be sure of their position. There can be no guarantees that a Judge will share their view and if they don't, severe costs penalties could follow regardless of the outcome of the case.

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.