The Difficulties Posed in Mediating Cases Relating to Fraud and How to Overcome Them

The first thing to consider is: What type of mediation is best suited for the particular fraud dispute in question? There are two types of mediation: facilitative mediation and evaluative mediation.

Facilitative mediation

In a facilitative mediation the mediator’s role, as the title of the type of mediation suggests, is to facilitate the participants to reach an agreement. I would recommend that those attending a fraud mediation should be called “participants” and not “parties”. My recommendation in a fraud dispute is to set the tone, both in pre-mediation correspondence and at the mediation, by using the word “participants”. Choosing to do so helps to promote a friendly atmosphere in a fraud dispute; it is conducive for a settlement and it helps attention to be diverted away from entities, personalities, dislikes – by and against both -, and onto the real issues in dispute.

One key characteristic of facilitative mediation is that the mediator has no form of judicial, arbitral or other decision-making function. This is particularly important when considering what sort of mediation to recommend to clients in fraud disputes. If the fraud dispute lends itself to one where some sort of decision may be needed to help reach a settlement, then a stand-alone facilitative mediation may not be the most appropriate form of mediation. Below, I list the situations where a facilitative mediation on its own might not stand in a fraud dispute.

Evaluative mediation

Returning to the types of mediation, the other type of mediation is evaluative mediation.

In this type of mediation, the mediator is asked to give a (normally) non-binding opinion on the merits of the matters in dispute.

An alternative to the provision of an opinion prior to the participants meeting with the mediator in a fraud dispute is for the mediation to commence and then agree on a set time (say, in four subsequent hours) for a non-binding opinion to be obtained from the mediator.

This opinion can be provided at various stages in the mediation process. It could be provided before the participants meet with the mediator; the opinion is thereafter used as a basis of settlement discussion between the participants at the mediation. I am very keen on this form of process, and I have written about the mediation process, including a form of Practice Note, as an Appendix to the next edition of Contentious Trusts Handbook, the leading textbook written by Carl Islam of 1 Essex Court. This way of using the evaluative form of the mediation process, on which I am, as I have said, very keen, either with or without a facilitative mediation, will, I believe, become more and more popular in fraud disputes because it takes the heat out of the situation, which is very helpful in fraud disputes where almost always the temperature is very high.

An alternative to the provision of an opinion prior to the participants meeting with the mediator in a fraud dispute is for the mediation to commence and then agree on a set time (say, in four subsequent hours) for a non-binding opinion to be obtained from the mediator. The mediation is thus adjourned with a fixed date/time to continue. I would recommend set times in fraud cases because it concentrates the mind. I also recommend fixing the next date in fraud cases because it keeps the participants feeling that they are very much in mediation-mode. The particular advantage of this process is that the non-binding opinion can take into account all that has been said to date at the mediation. Further, in fraud disputes, a break in the mediation process allows the dust to settle and wiser counsels to prevail. In my experience, fraud disputes are often complicated and are tangled affairs; therefore clear heads and a pause for thought often pay serious dividends.

Considerations for settling a dispute

I address now what the participants to a fraud dispute should consider in order best to settle the dispute.

First, they should, in my opinion, consider whether the fraud dispute is amenable to settlement at all. I am not one of those mediators who says that every fraud dispute is amenable to mediation. Some may be too intractable to resolve without court or arbitral process.

Another classic example is a case where creditors are seeking to trace assets and get behind various companies into which relevant assets have been placed as a result of fraud.

Secondly, and in any event, my recommendation is that mediation should certainly be considered in every fraud dispute, not least because the courts in these modern times increasingly say that mediation should be considered in every case with costs consequences following if it is not. However, if mediation is not suitable, my recommendation is that this should be made plain in correspondence so that this can be referred to at the costs stage of the fraud dispute, after final court or arbitral resolution, by way of corroboration.

Thirdly, if it is considered that mediation is a sensible route for the fraud dispute to be resolved, then I recommend that the issue of which type of mediation to use should be carefully examined. There is not a specific rule that can be applied to all types of fraud disputes; they all need to be carefully analysed.

It is worth looking at some examples of fraud disputes as these can be used as a guide. A classic example is a case where there is an issue about whether a trust-creating instrument has been procured by fraud. In order to achieve the best result on a settlement, this type of fraud dispute may well be one where it would be very beneficial to have a non-binding opinion as to the validity of the trust, including the circumstances surrounding its creation, coupled with a facilitative mediation.

Another classic example is a case where creditors are seeking to trace assets and get behind various companies into which relevant assets have been placed as a result of fraud. In order to achieve the best result in a settlement in this type of fraud dispute, it may well be the case where a facilitative mediation will be the most beneficial form of mediation, because there may be a deal to be struck between allowing the asset tracers to have some of the assets – but leaving the companies otherwise intact –  coupled with an undertaking by the tracers not to wind-up the companies and not to seek an opportunity to trace any further assets.

Using the mediation process to settle

I recommend that, even if the mediation is getting bogged down, the participants should try and keep the mediation from coming to an end.

I have considered how best the choice of mediation can be used to settle fraud disputes. I now look at how best to use the procedure in mediations in order to reach a settlement in fraud disputes.

1. First, as I have already touched upon, there is the question of how to address the attendees to the mediation in a fraud dispute: I recommend that they should be referred to as “participants”, as it promotes a friendly atmosphere and creates an atmosphere of coming together.
2. Secondly, as I have already touched on, careful consideration should be given to the nature of the mediation process in a fraud dispute. In particular, one should consider whether the participants should have some form of non-binding opinion as part of the process. I should make clear that any such non-binding opinion should be provided by the mediator. This is a considerable saving of costs and allows for discussion of the facts with the mediator, who will necessarily be fully up to speed with all the facts because otherwise the non-binding opinion could not be/have been written.
3. Thirdly, detailed thought should be put into what documents should be provided in a fraud dispute to the mediator, and what position statements should be provided and the length thereof. My recommendation, from my experience of mediating fraud disputes, is that, as far paperwork is concerned, “less is more”; as far as position statements are concerned, they should be as skeletal as possible. Cutting down paperwork not only saves costs and time, but it also keeps the participants in a fraud dispute focussed on the matters at hand.
4. Fourthly, the structure of the day in a mediation of a fraud dispute is, I recommend, of great importance. As is well-known, a classic form of mediation is that the participants meet with the mediator in one room in a “plenary session”, as it is called. The participants “vent” their feelings, as referred to in mediation-speak. Then, the participants go into their own rooms, referred to as “break-out rooms”. This process, however, from my experience of mediating fraud disputes, is not conducive to promoting settlement. I never use it for that reason, and I strongly counsel against it. From my experience, in fraud disputes, it is far better to keep the participants as dispassionate and separate as possible if a settlement is sought to be reached. It may be sensible in certain extreme cases for the participants to meet at some stage in the mediation process, but I have never done so during a fraud dispute, and in any event, I do not recommend it.
5. Fifthly, I would advise that fraud dispute mediation be as informal as possible. For example, it is sensible, in my experience, to ask to see the mediator in a fraud dispute for a friendly chat before the mediation begins. This relaxes clients and helps to build up confidence in the mediator, which assists with reaching a settlement.
6. Lastly, given that fraud disputes are complex affairs, I recommend that, even if the mediation is getting bogged down, the participants should try and keep the mediation from coming to an end. In other words, when settlement at the mediation looks very difficult indeed, it is sensible, in my view, to seek to keep the mediation process open and fix another date to meet. I have known fraud disputes to settle on the later date.

ANTHONY TRACE QC

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