Mr McGrath was seeking $US400,000 from the Samoa Rugby Union.
RNZ reports the judge said mediation on grievances between the head coach and the union was part of the contract but it didn't happen when the union terminated Mr McGrath's contract last year.
Mr McGrath has claimed wrongful dismissal and said the SRU and its chief executive defamed him.
The plaintiff has sought mediation but the SRU told the court it had enough evidence and wanted the court case to proceed.
Justice Nelson said 75 percent of impossible cases are settled by mediation.
