Think carefully before refusing to mediate

The court may penalise a party in costs even if it takes the view that any mediation would have been unlikely to succeed: Attorney General of Zambia v Meer Care & Desai (A Firm) and others [2007] EWHC 1540 (Ch). 

Background

The court considered a number of consequential matters identified in an earlier judgment where it held that there had been a conspiracy fraudulently to misappropriate Zambian government money.

One issue that arose for determination was whether the claimant (the Attorney General of Zambia) should be penalised in costs for refusing to attempt mediation with one of the defendants, a former Zambian Ambassador to the USA who had defrauded the country and then fled to avoid criminal proceedings. In refusing to mediate, the claimant had pointed out that the claims raised serious issues of governance for the Zambian government in relation to the activities of former senior government officials, and stated that in these circumstances it considered that it would be inappropriate for there to be a mediation of the claims.

Decision

The judge (Peter Smith J in the High Court) ruled that the claimant should be penalised in costs for its refusal to attempt mediation, despite the judge's view that a mediation with this defendant would probably have been unsuccessful. The judge said that he did not think the claimant's reasons for refusing to mediate were justified, as they applied equally to other defendants with which the claimant did attempt a mediation (though unsuccessful).

The judge said that there was a prospect of a successful mediation which was lost by what was, in his view, an unreasonable stance. This was to be assessed by a loss of a chance. The judge said that the fairest way of dealing with the matter was to mark his disapproval of the refusal of mediation by disallowing 5% of the claimant's costs in relation to the relevant conspiracy. The judge commented that although 5% may not seem a large amount, the claimant's costs were believed to be over £6 million.

Comment

This seems, on its facts, a surprising decision. It demonstrates that a party must think very carefully before refusing to mediate, even if it takes the view that any mediation is unlikely to succeed. The court has a wide discretion on costs, and it is open to the court to penalise a party in costs for refusing to mediate if that refusal was unreasonable. This case demonstrates that a party's refusal to mediate may be considered unreasonable even if the court accepts that any mediation would probably have been unsuccessful.

The judge said that he was approaching the issue on a "loss of chance" basis and disallowed 5% of the relevant costs. Although it is not clear from the judgment, this would seem to indicate that he thought a mediation would only have had a 5% chance of success. It is not clear whether this approach will be followed in future cases and it is difficult to reconcile with the Court of Appeal's guidance in Halsey v Milton Keynes General NHS Trust that one of the factors to be taken into account by the Court in assessing an alleged unreasonable refusal to mediate is whether, objectively, the mediation had a reasonable prospect of success (see post).

This case does, however, emphasise that the (largely historical) view that fraud disputes are by their very nature unsuitable for mediation will not of itself justify a refusal to mediate. Whilst certain fraud disputes may be unsuitable for mediation, a party refusing to mediate in such circumstances will need to justify the refusal by reference to all relevant factors in Halsey, not simply because it is a fraud case.