You are a defendant faced with an unmeritous claim. You are confident you have a strong case. The claimant proposes a mediation but it is clear that it is only willing to settle for a monetary payment. Based on the strength of your case you are not willing to contemplate making any payment. The case therefore proceeds to trial where you are successful in your defence. Surely you are entitled to your costs of the litigation?

Perhaps – but not necessarily. In Northrup Grumman v BAE Systems ([2014] EWHC 3148 (TCC)), Mr Justice Ramsey concluded that the defendant should not have refused mediation. The case is useful both as a recap on the current case law and guidance on ADR and as an interesting demonstration of the judicial direction of travel, which strongly favours the use of ADR, even in cases in which it may not appear appropriate.

Refusal to mediate is a relevant factor which the court will consider in deciding which party should pay the legal costs of the proceedings. The court has a wide discretion on how to apply any refusal to participate but is guided by the 'Halsey Guidelines' (Halsey v Milton Keynes General NHS Trust [2004] EQCA Civ 576) which list the factors to be taken into account in this respect. Relevant factors include the merits of the case, the extent to which ADR was attempted and whether ADR would have had a reasonable prospect of success.

The Defendant (perhaps understandably) felt that it was on firm ground here in refusing to mediate. It was confident in its defence. It had also rationalised its refusal to mediate. Its view was that mediation had been suggested in order to put it under pressure to settle a claim which it viewed as having no prospects of success. It would not have agreed to pay to settle the case. Objectively and reasonably therefore, mediation, it argued, stood no prospect of success. In Ramsey J's view, this in itself was insufficient:

"[T]he authors of the Jackson ADR Handbook properly, in my view, draw attention at paragraph 11.13 to the fact that this seems to ignore the positive effect that mediation can have in resolving disputes even if the claims have no merit. As they state, a mediator can bring a new independent perspective to the parties if using evaluative techniques and not every mediation ends in payment to a claimant… [On] the merits of the case, I consider that BAE’s reasonable view that it had a strong case is a factor which provides some but limited justification for not mediating." [emphasis added]

The court cited with approval the conclusions of Lord Justice Briggs in PFG II (PFG II v OMFS Company 1 Limited [2013] EWCA Civ 1288) that the Jackson ADR Handbook "sends out an important message to civil litigants, requiring them to engage with a serious invitation to participate in ADR, even if they have reasons which might justify a refusal, or the undertaking of some other form of ADR, or ADR at some other time in the litigation".

The court found that, despite the polarised position of the parties, mediation would nevertheless have stood a reasonable prospect of success. A skilled mediator could have found a middle ground by forcing each party to reflect on its and the other party's position. The court seemed particularly persuaded by the fact that, outside of this dispute, the parties had a pre-existing and continuing relationship. A mediator could therefore have brought other commercial arrangements into the discussion or found future business opportunities between the parties, finding solutions which would have avoided the need to take the case to trial. It concluded that a refusal to mediate was therefore unreasonable, and should be reflected in the recovery of its costs.

There are two important reminders here. ADR must always be considered even in cases in which it may not appear appropriate. ADR should never be rejected without stated reasons, but even where reasons are given, these must be sufficient to outweigh the benefit of the proposed method of resolution.