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15th August 2018

Refusing to mediate: reasonable or not

Failure to mediate can often be very costly, with courts imposing strict penalties on any party that does not engage in Alternative Dispute Resolution. Company Commercial partner David Patterson considers the recent case of Aeroflot and the trustees of the estate of Boris Berezovsky.

The dispute between Russian airline, Aeroflot, and various individuals, including former business oligarch, Boris Berezovsky, was long running, complex and acrimonious.

The trial was due to commence when Aeroflot applied to discontinue its proceedings subject to paying the defendants’ costs. An argument then took place about how the court would assess those costs.

The defendants argued that costs should be paid on an indemnity basis, being on a much more favourable principle to the defendants of assessing costs.

The court proceedings alleged that some of the defendants had misappropriated large sums of money from Aeroflot, accusing them of serious wrongdoing, alleged dishonesty and fraud. Aeroflot discontinued the proceedings at the start of the trial listed for 28 days. No reasons were given by Aeroflot as this was clearly covered by legal professional privilege.

The court followed earlier authorities which held that where a claimant had made serious allegations of fraud and then abandoned those allegations, an order for indemnity costs was likely to be the “just result”.

Aeroflot’s main argument in opposing indemnity costs was that some of the defendants had refused to mediate, and that the refusal was “unreasonable”. Aeroflot argued that the court should penalise the defendants in costs.

The court was referred to a number of authorities in which an “unreasonable refusal” to mediate had been a relevant consideration in deciding to reduce the level of costs.

It decided it would be inappropriate to take the refusal to participate in Alternative Dispute Resolution (ADR) mediation into account. It accepted the submissions made on behalf of the defendants that “…where allegations of fraud and serious wrongdoing are made, the proceedings are intrinsically unsuitable for mediation”.

The court agreed that the defendants were entitled to reject mediation, and “…for insisting on their right to have their reputations vindicated by the decisions of the court following the trial”. The court therefore held that the defendants were entitled to costs on an indemnity basis.

In summary, sanctions may be imposed on a party “unreasonably” refusing to enter into ADR. In most cases a refusal to mediate will be deemed unreasonable. However – and as confirmed in this case – any party accused of fraud and serious wrongdoing is entitled to look to the court to make a decision, and to refuse to mediate.

For help and advice on dispute resolution issues, please contact David Patterson.

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