The Court of Appeal freed successful litigants who refuse to mediate from automatic cost sanctions in a landmark personal injury and clinical negligence ruling this week.

In Halsey v Milton Keynes General NHS Trust and Steel v Joy and Halliday [2004] EWCA (Civ) 576, Lord Justice Dyson set down clear guidelines for the use of mediation.

He confirmed that the court may displace normal costs rules to order a winning party to pay costs if it acted unreasonably in refusing to mediate.

But crucially, he placed the burden of showing that the refusal was unreasonable on the unsuccessful party - reversing previous case law.

He also said that the unsuccessful party must also show that the mediation had a reasonable chance of success.

Lord Justice Dyson added that when deciding how a dispute should be settled, there should be no presumption in favour of mediation.

However, he acknowledged that all those involved in litigation should routinely consider with clients whether disputes are suitable for alternative dispute resolution (ADR).

He said the court's role was to encourage mediation not to compel it, which would violate human rights legislation.

The Court of Appeal received submissions from the Law Society, and three ADR organisations in relation to the consolidated appeal.

Glyn Jones, a partner at Ricksons in Leeds who acted for one of the defendants, said: 'This judgment is a step back from what seemed to be the tide of authority at first instance which was pushing mediation in such a way as to essentially become another weapon in the armoury of the litigators.'

Paul Hughes, litigation partner at Crutes in Newcastle, said: 'Starting from the assumption that it is reasonable to refuse mediation shows a lack of understanding of the way mediation can move intransigent parties by using different tools to the litigators.'

The Law Society opposed automatic sanctions, saying the element of effective compulsion worked against a successful mediation.

President Peter Williamson said: 'This judgment endorses the Law Society's position on mediation...

We will now be looking to provide practical guidance to help solicitors enhance their understanding of the application of the mediation process.'

Rachel Rothwell