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mediate or face the consequences

13 October 2014

The overarching message from the courts has for many years been that parties should attempt alternative dispute resolution (‘ADR’). Refusal to discuss or engage in such a process has often resulted in adverse costs orders.

But what happens if you believe that you have a case with overwhelming prospects? Should you still look at ADR or is it tactically better to press on to trial rather than give your opponent a chance to negotiate down where you believe that there are no grounds for a discount? The court has recently looked at these circumstances in the case of Northrop v BAE Systems [2014] EWHC 3148 TCC giving guidance generally on when parties should mediate and what cost consequences may follow. What is clear is that parties need to be careful when refusing to mediate, even in situations where one party reasonably believes it has a ‘slam dunk’ case. The case and its implications are essential reading for anyone engaged in litigation.

Northrop v BAE Systems

In this case the court was being asked to make declarations to terminate an agreement between Northrop and BAE, companies which had an ongoing commercial relationship. BAE believed that it had a very strong case. Therefore when an offer was made to mediate, BAE believed that Northrop was using it as a tactic to settle on better grounds than it ought to in a case where it had no prospects of success.

As a result BAE refused to mediate and the case proceeded to hearing where BAE succeeded with Ramsey J commenting that BAE had a “strong case”. However Ramsey J then went on to consider whether that was a factor which would justify refusing to mediate and as to whether that ought to impact on the order he would make on costs.

Ramsey J drew attention to the Jackson ADR Handbook and it is clear that he regards this guide as being very important. He commented that one needs to look at the positive effect that a mediator can have on cases, even ones where one side’s case lacks merit. He stated:

“… a mediator can bring a new independent perspective to the parties if using evaluative techniques and not every mediation ends in payment to a claimant.”

The judge also went on to look at whether it was cost effective to hold a mediation saying:

“I accept that the costs of mediation may well have been of the order of £40,000. This compares to the overall costs incurred by both parties which are said to total about £500,000. The claim was for some £3m. On this basis, I consider that the costs of ADR cannot be said to be disproportionately high. They would, at the very least, have saved some of the costs of the correspondence between the parties by avoiding the positions taken.”

He then concluded:

“This was a classic case where I consider that a mediator could have brought the parties together. In assessing the prospects of success I do not consider that the court can merely look at the position taken by the parties. It is clear that if BAE did not want to pay anything and if NGM would not settle without payment then there would not be a settlement. However this is the position in many successful mediations. It ignores the ability of the mediator to find middle ground by analysing with each party its expressed position and making it reflect on that and the other parties’ position. It allows the mediator to bring the necessary skills of evaluation and facilitation to find solutions which have not been considered. These may include such things as bringing other commercial arrangements or disputes into the discussion or, in this case, resolving the consequences of termination or finding future opportunities for the software or licences.

“The published success rate of mediation (see para 13.03 of the Jackson ADR Handbook) shows that generally mediation is likely to be successful. In this case for the reasons set out above, I consider that this is a dispute between parties where a mediated settlement would have been likely. There were therefore reasonable prospects of success.”

However, in this case BAE was not penalised financially for failing to mediate as BAE had made an offer to settle which Northrop did not better at trial. Northrop’s conduct in rejecting BAE’s offer was therefore taken into account. Northrop was ordered to pay BAE’s costs on the standard basis.

Conclusion

This case carries on from the cases of PGF II SA v OMFS Company 1 Ltd [2013] EWCA Civ 1288 and Garritt-Critchley & Ors v Andrew Ronnan and Solarpower PV Ltd [2014] EWHC 1774 Ch, and demonstrates that the courts take the concept of ADR very seriously. This case also forms a departure from the early Halsey judgment demonstrating that even in cases with extremely strong prospects of success, a party should still be amenable to ADR and that cost consequences will follow if ADR is refused.

Therefore ADR should always be seen as an option whatever the chances of winning the case.

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

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