While the overall trend in cases before Halsey had been to encourage parties to mediate whenever possible, decisions such as that in Corenso (UK) Limited v The Burnden Group Plc (see below) indicated that the law was still developing ([2003] EWHC 1805 (QB)). The key case law before Halsey was:

The overriding objective in Part 1 of the CPR includes an obligation on the court to manage cases actively and this includes encouraging the parties to use an ADR procedure if the court considers that appropriate.

Although the judgment in Halsey supports judicial encouragement for the parties to enter into ADR, the court held that to make mediation compulsory for unwilling parties would be an "unacceptable obstruction to the right of access to the court" under Article 6 of the European Convention on Human Rights (the right to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law). Even if a court does have jurisdiction to make such an order, it would, it was held, be inappropriate for the court to exercise it.

The judgment also noted that one of the key features of ADR processes is that they are procedures entered into voluntarily by the parties. The role of the court was to encourage, not to compel.

In Halsey the court also stated that to deprive a successful litigant of some or all of his costs on the grounds that he had refused to agree to ADR is an exception to the general rule that costs should "follow the event", namely that the unsuccessful party should pay to the successful party his costs of the action.

The judgment emphasises that the burden is on the unsuccessful party to show why there should be a departure from the general rule. Such a departure is not justified unless the unsuccessful party shows that the successful party acted unreasonably in refusing to agree to ADR.

The court held that the question whether a party has acted unreasonably in refusing ADR must be determined having regard to all the circumstances of the particular case. Factors that may be relevant to that question will include (but are not limited to) the following:

The nature of the dispute. The court accepted that ADR is not appropriate in all cases: the parties may require the court to determine issues of law or construction, set a binding precedent or give injunctive or other relief. However, most cases are not by their very nature unsuitable for ADR.

The merits of the case. If a party reasonably believes he has a strong case (for example, where he believes he would have succeeded in an application for summary judgment) he may act reasonably in refusing ADR. The court should be astute to the danger of claimants seeking to use the threat of costs sanctions to extract a settlement where the claim is without merit.

Other attempts at settlement. The court noted that mediation often succeeds where previous attempts at settlement have failed.

The costs of mediation. Where the sums at stake in the litigation are comparatively small and the costs of mediation disproportionately high, this is a factor to be taken into account.

Delays. If mediation is suggested close to trial and acceptance would delay the trial, this factor may be taken into account.

The prospect of success. The burden is on the unsuccessful party to show that there was a reasonable prospect that the mediation would have been successful. This is not an onerous burden to discharge and it would be fairer and easier than for the successful party to prove the mediation would not have succeeded.

Judicial encouragement. The stronger the degree of judicial encouragement, the easier it would be for the unsuccessful party to discharge its burden of showing that the successful party's refusal was unreasonable. So although the court must not compel parties to undertake ADR, if it has robustly encouraged ADR, a party who refuses runs a higher risk of being penalised in costs for that reason alone.

The court also considered the issue of when public bodies may refuse ADR despite the government's ADR pledge. The court said that the pledge was no more than an undertaking that ADR would be considered and used in all suitable cases. If a case is not suitable for ADR, a refusal to agree to it would not breach the ADR pledge and the judge in Royal Bank of Canada (see "Background" above) was wrong to attach such weight to that pledge.

Halsey confirms the central place of ADR in dispute resolution and is a clear reminder that litigants and their lawyers must routinely consider whether their dispute is suitable for ADR.

It also redresses the balance in favour of a successful party who has refused to mediate and marks a step back from the high-water mark of Hurst v Leeming. Halsey now makes clear that a properly reasoned refusal to mediate on the facts of the case should not affect a successful litigant's ability to recover its costs.