Why should the existence of an offer to settle excuse a refusal to mediate?

Written on 30 Oct 2014

A recent court decision on mediation sends the wrong decision to the construction industry.

Do two wrongs make a right? It is accepted practice that mediation is to be encouraged. The courts should use its power to continue to encourage mediation at all times and not encourage its tactical use or refusal to use mediation.

In Northrop Grumman Mission Systems Europe Ltd v BAE Systems (Al Diriyah C4I) Limited the court found that a refusal to mediate was unreasonable but no costs sanction due to other factors under CPR 44.2(4) (TCC). 

We think that the court missed an opportunity forcefully to promote mediation, and perhaps gave too much weight to an offer of settlement made by BAE. NGM lost the case. It accepted the principle that BAE was entitled to its costs to be assessed on a standard basis if not agreed, but contended that those costs should be reduced by 50% by reason of BAE’s unreasonable refusal to mediate the dispute. 

When the court comes to consider costs and to exercise its discretion, it has regard to all the circumstances including the conduct of the parties before as well as during the proceedings. That conduct includes conduct by which a party refuses to agree to alternative dispute resolution such as mediation.

One of the other factors included the existence of offers to settle made by BAE. Why should the existence of an offer to settle excuse a refusal to mediate? Offers to settle are common place and are made, routinely before, during and after mediations. With good reason: offers help settle disputes.

The issue for the TCC was whether the successful defendant, BAE, had unreasonably refused to mediate, and what, if any, the appropriate costs order would be.
BAE believed its case was strong. The court decided this did not justify BAE’s refusal to mediate was unreasonable. This part of the decision must be correct. The court correctly observed that a skilled mediator could have helped the parties to resolve the dispute. The costs of mediating would have been proportionate and there were prospects of mediation succeeding. BAE’s refusal to mediate was unreasonable. 

Although BAE succeeded at trial and had made a competitive offer to settle the Judge strongly endorsed the benefits of mediation.

Given the judge’s observations we find it difficult to reconcile with the conclusion, having regard to the various factors under CPR 44.2(4), that BAE’s refusal to mediate and NGM’s failure to accept BAE’s offer to settle should, in effect, cancelled each other out. Two wrongs it seems effectively making a right.

A refusal to mediate means that there will risk losing the opportunity to resolve the dispute without a court hearing. Making offers to settle should be encouraged but not at the risk of limiting the obligation to mediate. A more positive judicial approach to advocating mediation is required. Penalising a party on its cost recovery is an effective method of encouraging a party to mediate.