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Don’t ‘refuse to explore mediation’

An expert is warning businesses not to refuse to explore alternatives to litigation which would result in expensive court cases.

The warning follows a high profile case involving a contract between defence giant BAE Systems and aerospace and defence company Northrop Grumman.

In 2010 BAE had entered into a Licence Agreement with Northrop Grumman for the use of certain software but the following year terminated the Licence Agreement. Northrop Grumman disputed BAE’s right to terminate and claimed approximately £3m in compensation.

In the litigation case, after a successful outcome BAE Systems claimed their legal costs from Northrop Grumman, but Northrop Grumman argued that these costs should be reduced by 50 per cent as BAE Systems had refused to enter into mediation.

Iain Wharton, head of Litigation and Dispute Resolution at Lancashire Law firm Napthens, reports that BAE argued that the reason that they refused to enter into mediation was because they believed they had such a strong case that they didn’t believe that they should compromise at mediation.

However the judge found that such an explanation was not a reasonable basis to refuse to mediate, but as Northrop had rejected an offer from BAE he didn’t accept Northrop’s argument that BAE’s costs should be reduced.

Iain is warning that the case highlights the importance of mediation, he said: “The real message from the case is that even if one party thinks it has a cast-iron case, it can’t use that as a reason to refuse to explore alternative dispute resolution, in this case mediation, and force the case to an expensive trial.

“This is important to be aware of, as parties to litigation will often use their stronger financial position to economically out-muscle their opponent and so might refuse to mediate if they believe they have a good case and that the opponent will have difficulty funding the case to trial. This judgment, however, should make lawyers considering that tactic think twice.

“Mediation should always be considered where it is possible, as the benefits are wide-ranging to both sides. This case shows that courts recognise this and will make judgments accordingly.”