Mediation: unreasonable refusal to mediate and adverse costs orders

Mediation: unreasonable refusal to mediate will not automatically lead to an adverse costs order (United Kingdom, High Court of Justice)

In Northrop Grumman Mission Systems Europe Limited v. BAE Systems, the English High Court confirmed the English law policy that a successful defendant’s refusal to mediate would not automatically justify a reduction in the costs it was to receive as the Court should always exercises its discretion to award costs, having regard to all circumstances, including the conduct of the parties.

In a recent case, the successful party was found to have unreasonably refused to mediate. The Court could have penalised the successful party in costs as a result, but did not. The Judge found that the refusal to mediate was not the only factor to take into account. The unsuccessful party’s conduct in failing to accept an earlier settlement offer which it had not beaten at trial was also relevant and the refusal to attend to mediation was cancelled out by the unsuccessful claimant’s refusal to accept a settlement offer which it had not bettered at trial.

The judge had to balance those two aspects of conduct where BAE had been, overall, the successful party. He concluded 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. The appropriate order was for NGM to pay BAE’s costs on the standard basis without any reduction.

BAE Systems successfully defended a claim brought by NGM regarding the termination of a licence agreement. NGM accepted liability for BAE’s costs, but argued that BAE’s costs should be reduced by half because of BAE’s refusal to mediate. The judge disagreed:

• In considering costs, the Court has regard to all circumstances including the conduct of the parties both before and during proceedings.
• Where there are reasonable prospects of resolving a case by mediation, refusal to participate will generally amount to unreasonable conduct.
• Even though BAE considered it had a strong case which provided limited justification for not mediating, this ignored the positive effect that mediation can have in resolving disputes even if the claims have no merit. Its refusal lost the opportunity of resolution prior to the hearing.
• The refusal was not, however, the only conduct to be taken into account – NGM’s conduct in not accepting an earlier offer which it did not better at trial was similarly a matter to be considered. The failure to accept equally meant that the parties lost the opportunity of resolution prior to the hearing.

This case demonstrates that it is possible to refuse to mediate, even unreasonably, and escape adverse cost consequences. However, it was only on the particular facts of this case that BAE escaped such consequences.

The recent decision highlights:

• That parties must maintain oversight of their opponent’s conduct, particularly if it could be considered unreasonable – a party can use such conduct strategically to advance or defend its position against its opponent; and
• That parties must exercise care in considering offers to mediate disputes, even where it considers it is justified in refusing to mediate because of the strength of its case or other factors.

Further reading: Northrop Grumman Mission Systems Europe Limited v. BAE Systems (Al Diriyah C4I) Limited (No. 2) [2014] EWHC 3148 (TCC)