This issue was considered in Northrop Grumman Mission Systems Europe Ltd v BAE Systems (Al Diriyah C4I) Limited [2014] EWHC 3148 (TCC). The case looked at whether the Defendant was entitled to terminate a licence agreement for convenience.

Before proceedings had commenced the Claimant requested mediation on numerous occasions but the Defendant declined. The Defendant did however make a settlement offer, which the Claimant also declined. It was later found that the Defendant was entitled to terminate the agreement.

The Claimant then sought a reduction of the Defendant’s recoverable costs because of its unreasonable refusal to mediate. Often, instead of moving straight to litigation, parties choose to engage in forms of Alternative Dispute Resolution (“ADR”) like mediation to avoid the cost of litigation and try to resolve the dispute without resorting to court action.

In deciding this point and the issue of costs, the Judge considered the factors identified in Halsey v Milton Keynes General NHS Trust:

  1. The nature of the dispute. Some cases are not suitable for ADR where, for example, it is important to establish a principle which can be applied in similar disputes.
  2. The merits of the case. A party who reasonably believes he has a strong case may be justified in refusing ADR, whereas a party who unreasonably holds that view may not.
  3. The extent to which alternatives to a trial have already been tried.
  4. The cost of ADR. In many cases the cost is modest, especially when compared to the costs of a lengthy trial but in low value cases the cost of ADR may be disproportionate.
  5. The damaging effect of delay caused by a stay for ADR, especially when a trial date is imminent.
  6. Whether ADR has a reasonable chance of succeeding.
  7. Whether ADR has been encouraged by the court.

In Northrop v BAE, although the Judge held that the Defendant had reasonably believed it had a strong case, a skilled mediator could have helped the parties resolve the dispute. Further, the costs of mediating would not have been disproportionately high and there had been reasonable prospects of mediation succeeding. The Judge’s opinion was that this was a “classic case” for mediation. Therefore the Defendant’s refusal to mediate was unreasonable.

However, as mentioned earlier the Defendant had made the Claimant an offer which the Claimant did not accept and did not better at trial. The Judge took this into account and concluded that neither party’s conduct should be taken as modifying the usual approach to costs. Therefore, the usual “loser pays” rule applied.

The above shows that the courts will take a number of factors into consideration when deciding costs and your approach to ADR and settlement should be considered carefully throughout the litigation process.

If you would like to discuss mediation or Alternative Dispute Resolution, call our Dispute Resolution on 0116 289 7000.

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