UK: Unreasonable Refusal To Mediate Without Adverse Cost Consequences: A Departure From Halsey And PGF?

Last Updated: 27 October 2014
Article by Ben Rees

Northrop Grumman Mission Systems Europe Limited v BAE Systems (Al Diriyah C4I) Limited [2014] EWHC 3148 (TCC) ("NGM v BAE")

In a recent update, consideration was given to Halsey principles relating to the costs consequences of an unreasonable refusal to mediate and the 'modest extension' to those principles in PGF ( click here). This issue is one that has recently been back before the court.

In NGM v BAE the court did not depart from the general rule on costs in circumstances where one of the parties had unreasonably refused to mediate; concluding that, having taken all factors into account (in accordance with CPR 44.2), there was no reason to do so.

Facts

Part 8 proceedings were commenced by NGM in October 2013. Prior to issue, NGM made several offers to meet with BAE with a view to resolving the dispute; initially by way of communication between in-house legal teams and, latterly, through a formal request to mediate made by NGM's solicitors.

These requests were rejected by BAE. In their evidence to the court, BAE confirmed that detailed consideration was given by them to each ADR request, but that they had concluded that mediation did not have a prospect of leading to a resolution of the dispute; it was, in their eyes, a matter of contractual interpretation which led to an 'all or nothing' outcome and was therefore not suited to mediation. BAE's solicitors also set out, in response to NGM, that it would not be appropriate to meet or mediate prior to the provision of further information by NGM.

In January 2014 BAE made a without prejudice save as to costs offer of a drop hands. The offer was stated to be non-negotiable and was rejected by NGM.

Judgment

The Judge gave judgment for BAE. The issue of costs then fell to be determined.

In reaching judgment, Ramsey J applied the Halsey principles to the facts in this case. These principles, and the court's findings in relation to each, can be summarised as follows:

(i) Nature of the dispute: This was a case where the central issue was one of contractual interpretation, with the sum of £3m riding on it. Nonetheless, in such cases a "skilled mediator can assist the parties in resolving the dispute by finding a solution to disputes which each party would regard as incapable of being settled and would be unable to settle without such assistance" (at paragraph 57).

(ii) Merits of the case: BAE considered, reasonably as was borne out by the judgment of the court, that it had a strong case. Whilst a party's reasonable belief that it has a watertight case may be a sufficient justification for refusing to mediate, parties should not ignore the "positive effect that mediation can have in resolving disputes even if the claims have no merit" (at paragraph 59). In this case, BAE's reasonable view was "a factor which provides some but limited justification for not mediating" (emphasis added, paragraph 60).

(iii) Extent to which other settlement methods were attempted: the request to mediate and the 'posturing' by the parties was, in the eyes of the court, a classic situation where a mediator could have knocked heads and "cut through the positions of the parties" (paragraph 62). The court did also have a mind to the drop hands settlement offer made by BAE.

(iv) Costs of ADR: The court accepted that the costs associated with a mediation may well have been in the region of £40,000; in a dispute where the legal costs of both parties' totalled £500,000, and where the claim was for £3m, it could not be said that the ADR costs were unreasonably high.

(v) Prejudicial delay caused by ADR: there would have been no prejudicial delay in this case, and so this head was not a relevant consideration.

(vi) Prospects of successful ADR: the court, in looking at the case of two parties with entrenched positions and ever-souring relationships, considered it a "classic case" where a mediator could have brought the parties together.

Having considered these principles the court concluded that, despite its reasonable belief that it had a strong case, BAE's failure to mediate was unreasonable; this, as we know from Halsey and PGF, would normally result adverse costs consequences. Not here – the court holding that, as set out in CPR 44.2(4), a refusal to mediate was but one of the factors a court must take into account when considering costs. Another such factor was "any admissible offer to settle made by a party which is drawn to the court's attention, and which is not an offer to which costs consequences under Part 36 apply" (CPR 44.2(4)(c)).

NGM's refusal to accept BAE's drop hands offer (an admissible offer - which NGM did not beat at trial) was clearly a relevant factor; had it been accepted, costs plainly would have been saved. Whilst the making of the offer could not justify BAE's refusal to mediate, it was nonetheless conduct that the court could take into account when exercising its discretion on costs.

In essence, BAE's unreasonable refusal to mediate and NGM's failure to accept an offer that it did not beat at trial, served so as to cancel each other out – the court's rationale that the refusal to mediate and the failure to accept the offer both meant that the parties lost the opportunity to resolve the case without a hearing. The court therefore made a standard costs order, namely that NGM, as the losing party, pay BAE its costs on the standard basis.

Comment

With a glance only as to the costs ruling, the case may be seen as a weakening by the courts of its stance on an unreasonable refusal to mediate (as had been clearly set out in Halsey and PGF). On closer inspection, this is not so – the court finding that BAE had been unreasonable in refusing to mediate despite this being a case where: (i) it was seen as an 'all or nothing' dispute based on a discrete contractual interpretation; (ii) the winning party had correctly identified the strength of its position; and (iii) the party refusing mediation could demonstrate a detailed and measured consideration as to its refusal.

In avoiding an adverse costs order in this case, BAE was able to point to its drop hands offer, and NGM's rejection of it, as conduct which restored a level of equality to the court's costs balancing exercise.

The case highlights the importance, not only of ADR, but also of the other factors set out in CPR 44.2(4) on which the court can place weight in deciding the costs order it is to make. Further, it serves to add some further meat on the bones of the Halsey principles, thereby assisting parties (and their legal teams) in identifying those cases (which, from the PGF and NGM judgments will be rare) in which would be reasonable to refuse to mediate.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Ben Rees
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.