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Will a refusal to mediate mean a reduction in the amount of costs you can recover?

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24/10/2014

The answer was “no” in Northrop Grumman Mission Systems Europe Ltd v BAE Systems (Al Diriyah C4I) Limited [2]. However, parties should not take this decision as a green light to refuse to mediate without expecting costs consequences, as this decision is likely to be the exception rather than the rule.

The question at the centre of the dispute was whether the defendant was entitled to terminate a licence agreement for convenience under the terms of the enabling agreement which governed the licence agreement. The court found that the defendant was indeed entitled to terminate the agreement.    The court was then asked to rule on the appropriate costs award.

The claimant accepted the principle that the defendant was entitled to its costs to be assessed on a standard basis, if not agreed. However, it argued that the defendant’s costs should be reduced by 50% as the defendant had unreasonably refused to mediate. The defendant argued that it should be awarded the full amount of its costs as it had made an admissible offer to settle which the claimant had not accepted and the claimant had not beaten the terms of that offer.

The court found that, although the defendant reasonably believed that it had a strong case, the dispute was one which was suitable for mediation, and the defendant’s decision to refuse to mediate was unreasonable. However, the refusal to mediate was not the only factor which should be taken into account in deciding what costs order should be made. Under CPR 44.2(4)(c), any admissible offer to settle which is brought to the court’s attention and which is not a Part 36 offer should also be taken into account. The claimant’s refusal to accept the defendant’s offer therefore also had to be considered.

The court held that, on balance, the “fair and just outcome should be that neither party’s conduct should be taken into account to modify what would otherwise be the general rule on costs“.

The case is yet another example of the courts’ strong endorsement of the benefits of mediation. Even where there is a dispute on an “all or nothing” legal interpretation, a skilled mediator can often assist the parties to find a solution.

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[2] [2014] All ER (D) 66

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