Northrop Grumman Mission Systems Europe Ltd v BAE Systems (Al Diriyah C4I) Ltd (No 2)

Refusal to mediate may be unreasonable even where a party reasonably considers that it has a strong case. The court should assess the nature and merits of the dispute, previous settlement efforts, the proportionality of mediation costs, any delay, and the prospects of successful mediation. A strong merits assessment provides some, but limited, justification for refusing mediation. A mediator may create realistic settlement possibilities despite apparently opposed positions. Costs conduct must be assessed cumulatively. An unreasonable refusal to mediate may be offset by the successful party’s admissible settlement offer, with the result that the usual costs order remains appropriate.

In earlier Part 8 proceedings, the court upheld the defendant’s construction of the contractual arrangements and held that it was entitled to terminate the licence agreement for convenience. The claimant accepted that the defendant was in principle entitled to its costs, but sought a 50 per cent reduction because the defendant had unreasonably refused mediation. The defendant disputed both the alleged unreasonableness and the proposed reduction.

The court considered the parties’ correspondence, settlement efforts, the merits and nature of the contractual dispute, the likely cost of mediation, delay, prospects of settlement, and a later admissible settlement offer. The central issue was the appropriate costs consequence of the parties’ conduct.

1. Application dismissed. The claimant was ordered to pay the defendant’s costs, to be assessed on the standard basis if not agreed, without reduction.
2. Under Civil Procedure Rules 1998, r 44.2, the court must consider all relevant circumstances, including conduct before and during proceedings. Refusal to engage in alternative dispute resolution is relevant conduct.
3. The factors identified in Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576 remain relevant: the nature of the dispute, merits, other settlement methods, proportionality of ADR costs, delay, and reasonable prospects of success.
4. This was a financial dispute centred on contractual construction. The fact that construction issues were central did not make mediation unsuitable. A skilled mediator could help the parties test their positions and identify commercial solutions.
5. The defendant reasonably regarded its case as strong. That supplied some, but only limited, justification for refusing mediation. The approach in Daniels v Commissioner of Police for the Metropolis [2005] EWCA Civ 1312, that the court should be slow to characterise resistance to an unfounded claim as unreasonable, was applicable but did not determine the matter.
6. The parties had attempted other communications and settlement methods, but their correspondence showed entrenched positions. Mediation could have cut through those positions. There was no prejudicial delay, the cost of mediation was proportionate, and there were reasonable prospects of settlement. The principles concerning constructive engagement in PGF II SA v OMFS Company 1 Limited [2013] EWCA Civ 1288 supported that assessment.
7. The refusal to mediate was therefore unreasonable. However, the defendant had made an admissible offer under Civil Procedure Rules 1998, r 44.2(4)(c), which the claimant had failed to better. Considering both aspects of conduct together, the fair result was to apply the usual costs order without modification.

The judgment records that the court had previously determined the underlying Part 8 contractual claim in favour of the defendant. No citation for that earlier judgment is stated.