A note on Northrop Grumman Mission Systems Europe Ltd v BAE Systems (Al Dariyah C41) Ltd) [2014] EWHC 3148 (TCC)

Another case has applied the Halsey factors in deciding whether a successful party who declined to mediate should not receive their full costs, in the course of which reference was also made to two more recent contrasting Court of Appeal decisions, namely Swain Mason v Mills & Reeve and PGF v OFMS, casting light upon their relative impact on current judicial thinking on this topic.

BAE and NGM entered into agreements over technology related to the supply of defence systems to Saudi Arabia. BAE asserted that these agreements gave them the right to terminate their contractual obligations for convenience - subject only to paying NGM’s duly incurred expenses. NGM invited BAE to negotiate and mediate on a number of occasions but BAE broadly argued that NGM were not disclosing what, if any, duly incurred expenses they were claiming. This correspondence (including one unproductive meeting between senior managers) plus the issue of Part 8 proceedings seeking construction of the contract all took place prior to the Court of Appeal decision in PGF of October 2013.  In a letter of January 2014, BAE offered a drop hands settlement with each party bearing their own costs. NGM’s solicitors replied by regretting yet again that their proposal of mediation had been rejected and said that they would continue their Part 8 proceedings as this made “no meaningful offer for our client to even think of accepting”.

In the Part 8 proceedings in September 2014 Ramsey J found for BAE declaring that they had been entitled to terminate. He then heard submissions on costs, when NMG argued that their liability should be limited to 50% of BAE’s costs because of their unreasonable refusal to mediate. 

Ramsey J went through the Halsey factors one by one. In summary he found that there was nothing which made this kind of contractual construction issue unsuitable for mediation, there being no other litigation or contracts dependent on the outcome; mediation would not have jeopardised a trial date or generated delay in the litigation; nor was its cost disproportionate (with estimates of £40,000 costs in total as opposed to £1 million for the summons). As to previous settlement attempts...

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by Tony Allen

Tony Allen is a Solicitor, Direct Mediator and Senior Consultant for The Centre for Effective Dispute Resolution (CEDR).