Unreasonable refusal to mediate cancelled out by other side’s failure to beat offer

Ramsey: positive effect of mediation

The High Court has cancelled out a successful defendant’s unreasonable refusal to mediate with the claimant’s failure to accept an offer it failed to better when making the costs order.

As a result, Mr Justice Ramsey, the judge in charge of Jackson implementation, decided not to take either into account to modify what would otherwise be the general rule that the claimant – BAE Systems – should have its costs.

The dispute between Northrop Grumman Mission Systems Europe (NGM) and BAE was over the latter’s termination of a licence agreement, and Mr Justice Ramsey found that BAE was entitled to act as it did.

NGM argued that BAE’s costs should be cut by half due to its unreasonable refusal to mediate. The judge ruled that it was a case where the nature of the dispute was susceptible to mediation and where mediation had reasonable prospects of success.

However, he also accepted that BAE – which was advised by Herbert Smith Freehills – reasonably considered that it had a strong case, noting that in the key ‘refusal to mediate’ case of Halsey, the Court of Appeal accepted that a party which reasonably believes it has a watertight case may well have sufficient justification for refusing to mediate.

But he also pointed to the Jackson ADR Handbook, which “properly, in my view, drew attention… to the fact that this seems to ignore the positive effect that mediation can have in resolving disputes even if the claims have no merit”.

Ramsey J said: “Was it unreasonable for BAE to reject NGM’s offer to mediate? I have come to the conclusion that it was. Whilst BAE’s view of the claim provided some justification for not mediating, I consider that the other factors show that it was unreasonable for BAE not to mediate the dispute.”

However, he said he also had to take account of a settlement offer BAE made that NGM did not better.

“The issue is how those two aspects of conduct should be taken into account where BAE has been, overall, the successful party. A refusal to mediate means that the parties have lost the opportunity of resolving the case without there being a hearing.

“A failure to accept the offer has equally meant that the parties have lost the opportunity of resolving the case without a hearing. Whilst mediation at an earlier stage might have avoided costs, if BAE had mediated even at a later stage, its conduct would not have been unreasonable.

“Overall, in the case, I have come to the conclusion that the fair and just outcome should be that neither party’s conduct should be taken into account to modify what would otherwise be the general rule on costs.”

Northrop Grumman Mission Systems Europe Ltd v BAE Systems (Al Diriyah C4I) Ltd (No2) [2014] EWHC 3148 (TCC)


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19 January 2021
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