Successful refusal to mediate

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Northrop entered into a software licensing agreement with BAE.  The following year BAE terminated the agreement for convenience.  Northrop disputed BAE’s interpretation of the contractual clauses and said that it was not entitled to terminate them in the particular circumstances.  Northrop therefore sought £3m in compensation.

The key issue was the meaning of the particular form of words.  Either one party was right or the other.  Northrop repeatedly suggested mediation and BAE repeatedly rejected it.  On the other hand BAE made a drop-hand settlement offer which Northrop rejected.

Northrop Grumman v BAE Systems (2014) CILL, TCC


The case went to court and BAE won.  On the question of costs the judge held:

  1. Northrop’s refusal to mediate was unreasonable, and ordinarily its costs recovery would be reduced by 50% as a penalty; but
  2. BAE had made a reasonable settlement offer which Northrop had unreasonably rejected.
  3. Consequently Northrop would be ordered to pay all of BAE’s assess costs without any discount.


BAE repeatedly refused to mediate because it was confident of its case.  This is almost always foolish.  In the circumstances, a really competent mediator could have helped Northrop to realise its mistake.  The skills of a good mediator include helping the parties to evaluate their own positions, analyse their respective strengths and weaknesses, and explore commercial alternatives to fighting it out in the courts.

For further information, help or advice please contact Rob Langley on 0191 211 7975.