Northrop Grumman Mission Systems Europe Ltd v BAE Systems (Al Diriyah C4I) Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Ramsey |
| Judgment Date | 03 October 2014 |
| Neutral Citation | [2014] EWHC 3148 (TCC) |
| Docket Number | Case No: HT-13-388 |
| Court | Queen's Bench Division (Technology and Construction Court) |
| Date | 03 October 2014 |
[2014] EWHC 3148 (TCC)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Ramsey
Case No: HT-13-388
Alex Charlton QC (instructed by King & Spalding LLP) for the Claimant
Marcus Taverner QC (instructed by Herbert Smith Freehills LLP) for the Defendant
Hearing dates: 9 September 2014
Judgment (No 2)
Introduction
In these Part 8 proceedings I gave judgment upholding BAE's contention that on a true construction of the Licence Agreement, BAE was entitled to terminate that agreement for convenience under the provisions of Clause 10.4 of the Enabling Agreement which governed the Licence Agreement.
In relation to costs NGM 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. BAE challenges both the premise and the appropriateness of any reduction in its costs in this case.
Refusal to Mediate
When the court comes to consider costs and to exercise its discretion under CPR 44.2, it has regard to all the circumstances including the conduct of the parties before as well as during the proceedings: see CPR 44.2 (4) and (5).
That conduct includes conduct by which a party refuses to agree to alternative dispute resolution: see White Book Part 1 at paragraph 44x.3.21, Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576 and PGF II SA v OMFS Company 1 Limited [2013] EWCA Civ 1288.
In Halsey the particular factors which the Court of Appeal identified as being relevant included the nature of the dispute, the merits of the case, the extent to which other settlement methods had been attempted, whether the costs of ADR were disproportionately high, whether any delay in setting up or attending the ADR would have been prejudicial and whether ADR had a reasonable prospect of success.
In PGF II the Court of Appeal referred to the Jackson ADR Handbook where, at paragraph 11.56, it sets out practical steps which a party should take if it considers it has reasonable grounds for refusing to participate in an ADR process following a request from the other party. Briggs LJ, giving the judgment with which the other members of the court agreed, commented on that paragraph and said at [30]:
" The ADR Handbook, first published in 2013, after the period relevant to these proceedings, sets out at length at para 11.56 the steps which a party faced with a request to engage in ADR, but which believes that it has reasonable grounds for refusing to participate at that stage, should consider in order to avoid a costs sanction. The advice includes: (a) not ignoring an offer to engage in ADR; (b) responding promptly in writing giving clear and full reasons why ADR is not appropriate at the stage based if possible on the Halsey guidelines; (c) raising with the opposing party any shortage of information or evidence believed to be an obstacle to successful ADR together with consideration of how that shortage might be overcome; (d) not closing off ADR of any kind and for all time in case some other method than that proposed or ADR at some later date might prove to be worth pursuing. That advice may fairly be summarised as calling for constructive engagement in ADR rather than flat rejection, or silence. It is apparent from the footnotes that the authors drew heavily on the first instance decision in the present case…"
Briggs LJ then concluded at [56]:
" Finally, as is recognised by the weight placed on the judge's decision in the passage in the ADR Hand-book to which I have referred, this case 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. To allow the present appeal would, as it seems to me, blunt that message. The court's task in encouraging the more proportionate conduct of civil litigation is so important in current economic circumstances that it is appropriate to emphasise that message by a sanction which, even if a little more vigorous than I would have preferred, none the less operates pour encourager les autres…."
Chapter 11 of the Jackson ADR Handbook, dealing with sanctions for refusing to engage in ADR processes, usefully summarises the relevant principles to be derived from cases where a refusal to engage in an ADR process had been considered, to the date of publication of the book in early 2013.
The facts
On the application for costs NGM provided a witness statements from Jane Elizabeth Player of NGM's Solicitors, who has been involved from an early stage. This was responded to, on behalf of BAE, by a witness statement from Michael Peter Stocks, a senior counsel with BAE Systems plc, who has had day-to-day responsibility for this dispute on behalf of BAE.
Ms Player says that NGM and BAE, together with other companies in the groups to which they belong, are major participants in the defence industry, with long-term contracts running into millions of pounds and with relationships which are significant to both companies. She says that, because of the longstanding and continuing relationship, NGM approached BAE on several occasions at management level to try and resolve the dispute amicably but she says these efforts were "spurned", both by BAE and its legal representatives.
She says that, in essence, NGM's claim was about money and that it considered BAE had obtained deployment licences at a price to which it was not properly entitled by purporting to terminate the Licence Agreement. She said that whilst it was necessary to construe the two agreements, the Licence Agreement and the Enabling Agreement, to arrive at conclusions as to what was payable for those licences and whether or not payment was due for the second tranche of deployment licences, the issue of interpretation did not alter the financial basis for the claim which she believed made the case suitable for mediation.
Mr Stocks says that he is convinced that if a mediation had taken place, the case would not have settled. He says that, if he had thought there had been a realistic possibility of there being a settlement which would have plainly been in the legal and commercial interests of BAE, he would have strongly recommended it. He says that BAE ultimately rejected mediation for proper and sensible reasons. He says that the dispute was about contractual interpretation so that the outcome was "all or nothing" in that if NGM were right it would recover in excess of £3 million, but if it were wrong it would receive nothing.
He says that, as a result of legal advice received from solicitors and leading counsel, BAE was confident of its legal position and was prepared to abide by the terms of the termination and pay NGM's reasonable termination costs. However, he says that obtaining information from NGM about those costs proved to be a lengthy and difficult process. He says that BAE were aware that NGM was a successful company which could afford to litigate and could afford to lose and that this meant that it had no reason to settle the case for financial reasons.
Mr Stocks says that, each time NGM contacted BAE suggesting mediation, an assessment was made. That assessment identified whether BAE was in possession of what was necessary to analyse and assess NGM's position properly; it considered the procedural requirements of a mediation and what the costs to BAE of a mediation were likely to be and it assessed whether mediation had any prospect of leading to a resolution of the dispute, all against the background of the parties' commercial relationship.
He says that, on each occasion, BAE concluded that mediation did not have a prospect of leading to a resolution of the dispute. He says that BAE was not prepared to countenance paying a sum of money on the basis of the commercial relationship which, if anything, tended the other way. He says that, if BAE paid money on what it considered to be an un-meritorious claim, it had the prospect of leading to other un-meritorious claims and may have wrongly provided NGM and its parent and affiliated companies with the view that BAE and BAE Systems plc more widely, was not prepared to defend itself in cases where it had strong grounds for doing so.
In relation to information, he says that NGM was reluctant to provide an analysis of the costs that had been reasonably and properly incurred by it, on the basis that the termination was lawful. Although NGM did finally articulate a claim for some £2.6 million, its explanation of its termination costs, following a termination for convenience, in fact meant that no costs were payable and thus nothing could form the subject of a mediation.
Mr Stocks says that BAE thought that the mediation had been suggested on the basis that it would put BAE under some pressure to make a settlement payment with respect to a claim which BAE considered had no real prospect of success, as a matter of law and no merit, even in the abstract. He says that BAE therefore considered it unreasonable to expend resources on a mediation which was viewed as having no prospect of success. He says that NGM was not going to give up its claim, however speculative BAE viewed it, for anything other than a substantial payment and BAE was not prepared to pay because of its view and the advice it was getting that BAE had no liability for the sums claimed.
The correspondence exhibited to the witness statements included some...
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