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
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
22 October 2012
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.