The scenario posed was
‘During the course of a mediation where one party was pursuing the other for non-payment of monies and the other was resisting on the basis of excessive charging, it becomes apparent to the mediator that the contract between the parties included a payment by cash to avoid incurring value added tax’. What should the mediator do?
The scenario generated a very fulsome debate on how the dispute had progressed this far, that is to the mediation, without it being dealt with by the parties’ solicitors. Was it the lawyer’s suspicion of the parties’ avoidance of vat by that was the driver towards a confidential mediation instead of litigation?
The assembled mediators were all in agreement with what should happen in that it falls under the Proceeds of Crime Act 2002. As soon as the mediator is satisfied that non-payment of vat was the intention of one or both of the parties, then the mediator should terminate the mediation and report the matter to HMRC.
There was some debate over the confidentiality of the proceedings and what is said in the mediation stays in the mediation but it was agreed the Proceeds of Crime Act 2002 superseded the mediations confidentiality in this instance.
It was also agreed that failure to report the matter to the HMRC could place the mediator on a criminal charge.
An interesting side debate was whether the mediator should return part of the fee to the parties for the non-completed mediation, pay it over to HMRC as being a potential proceed from a crime or simply walk away with the fee providing any vat on the fee had been accounted for. The consensus was for the latter course of action.