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Mediation: An offer you can’t refuse?

Traditionally, the view of the English courts has been that mediation is, entirely, a voluntary process. Litigants have held the right to have their cases heard by the court and were not obliged to engage in mediation in order to try to settle a dispute before a final hearing. This position has been severely diminished in recent years by courts which are very much in favour of urging parties to mediate disputes as an alternative to having them heard before a judge in court.

It may seem a somewhat curious trend that so many judges appear so keen to keep litigants from bringing their cases to trial. One might suggest that surely it is a matter for the parties to agree, or not, to attempt to resolve disputes by mediation. If one of them refuses to do so, they should not be penalised by the courts for making such a decision.

Nevertheless, there is a plethora of recent cases demonstrating that the courts will generally disfavour a party that wilfully refuses to mediate.

Northrop Grumman Mission Systems Europe Limited v BAE Systems

The most recent example of this growing trend is the thoughtful judgment of Ramsey J in Northrop Grumman Mission Systems Europe Limited v BAE Systems (Al Diriyah C4I) [2014] EWHC 3148. As is clear from the names of the parties, this dispute involved large international companies, well versed in expensive commercial litigation, and benefiting from the services of highly experienced legal teams. In essence, the Defendant, BAE, refused to mediate and subsequently went to trial and won. The company then had to contend with an application by the Claimant, Northrop, for costs orders adverse to BAE on the ground that BAE had refused – unreasonably – to mediate the dispute.

Ramsey J set out the factors that the court must take in to account when considering questions relating to the exercise of its discretion, with regard to costs, under the Civil Procedure Rules.

Civil Procedure Rules

In particular, he referred to CPR 44.2(4) and (5). The factors include:

  1. The nature of the dispute
  2. The merits of the case
  3. The extent to which other settlement methods have been attempted
  4. Whether the cost of mediation was disproportionately high
  5. Whether any delay caused by a mediation would have been prejudicial
  6. Whether a mediation had a reasonable prospect of success.

PGF 11 SA v OMFS Company 1 Limited

The Judge referred also to the reported case of PGF 11 SA v OMFS Company 1 Limited [2013] EWCA Civ 1288. In this case, the Court of Appeal concluded that any party refusing to mediate must explain the reasons for the refusal and run the risk that the court might find those reasons “unreasonable” even if the refusing party won its case at trial.

It is clear from Ramsey J’s judgment in the Northrop case that the lawyers involved were well aware of the need to explain to their opponents why they considered that a mediation would be inappropriate. BAE’s reasons in this respect were:

  1. A mediation would not have resulted in a settlement and so would have been a waste of money.
  2. The dispute was an “all or nothing” dispute.
  3. BAE were confident that they would win at trial.
  4. Each time Northrop had suggested a mediation, BAE carried out a formal assessment as to whether or not a mediation at that point would be appropriate and on each such occasion concluded that it would not.
  5. Northrop were reluctant to give a breakdown of costs, resulting in BAE being unable to assess, effectively, an appropriate settlement figure.

Unsurprisingly, given the nature of the argument put before Ramsey J, the “without prejudice save as to costs” correspondence between the parties was before the court, with privilege being waived in relation to such correspondence.

The correspondence included the typical posturing one might expect from parties in litigation and, as mentioned above, both parties were clearly thinking about the arguments there would be after the trial regarding costs, in the light of BAE’s continuing refusal to mediate.

Northrop’s legal counsel made the point to Ramsey J that the dispute centred on matters of construction of the wording of two agreements. However, by itself, this did not mean that the dispute was unsuitable for a mediation.

This was not a case where determination of the legal effect of certain words, in certain agreements, would impact a range of contracts in a particular market or particular trade. Shrewdly, Mr Taverner QC, appearing on behalf of BAE, suggested to Ramsey J that BAE had not in fact turned down mediation, but had merely requested information concerning Northrop’s case. He pointed out that BAE’s solicitors had, at all times, responded to Northrop’s suggestions that there should be a mediation. Accordingly, there could be no suggestion that BAE were at any time silent in the face of an invitation from Northrop to mediate.

Ultimately Ramsey J held that BAE were reasonably entitled to consider that they had a strong case. However, echoing the words of other judges in previous mediation costs cases, he suggested that this was a classic case where a mediator could have brought the parties together to a settlement. The judge asked also whether it was unreasonable for BAE to reject Northrop’s offer to mediate. He came to the conclusion that it was unreasonable.

Despite the fact that BAE had acted unreasonably in refusing to mediate, Ramsey J held that there was a countervailing point in favour of BAE which had to be considered when deciding what was the “just” order for costs that he should make.

CPR44.2(4)(c) provides that one of the matters to be taken into account when considering what costs order to make is whether “any admissible offer to settle has been made by a party and which is not an offer to which costs consequences under part 36 (of the CPR) apply”.

Ramsey J referred to a specific “without prejudice save as to costs” letter which was an admissible offer that had been made by BAE. In this letter, BAE had offered that they would settle the dispute on the basis that there was a “drop hands” settlement, with each party bearing its own costs associated with the claims and no payment being made by one party to the other. Since BAE won at trial, this offer was one which Northrop had not bettered by pursuing the litigation. Ramsey J decided that Northrop’s failure to beat the offer made by BAE counteracted BAE’s unreasonable refusal to mediate.

The result?

In short, Ramsey J decided that because BAE had done better at the trial than the offer they had made to Northrop previously, they should be entitled to a costs order in their favour. He ordered that Northrop had to pay BAE’s costs, and these would be assessed by the Court if the parties were not able to agree what the costs figure should be.

Taking the above analysis into consideration, if you refuse to mediate, you would be well advised to make a generous “without prejudice save as to costs” settlement offer which could potentially be used against your opponent after the judge has decided your case.

Michael Wood is a member of Keystone’s dedicated Mediation team and is a highly skilled commercial litigator, with over 30 years of experience. During his career he has resolved over 90 domestic and international disputes through mediation and alternative methods of dispute resolution.

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This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.

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