Under the reformed Hong Kong civil procedural rules which came into effect on 2 April 2009, one of the most important changes is the emphasis on the use of alternative dispute resolution to settle or resolve disputes. Mediation as a form of alternative dispute resolution will increasingly become an important feature of dispute resolution in Hong Kong.

Mediation is the use of a trained and impartial third party, a mediator, to facilitate settlement of a dispute between parties held in a private and confidential setting. It is fundamentally different from litigation or arbitration as the mediator does not decide a case and thus, his impression of the merits of the case is generally irrelevant. It is also not the role of the mediator to ensure that the result of the mediation is fair or represents the likely outcome of the case had there been a trial or arbitration. The role of the mediator is to help the parties reach a settlement agreement.

Currently, due to the existing limited number of accredited mediators in Hong Kong, the judiciary has postponed the requirement that parties must consider whether mediation is suitable in resolving the litigated dispute. However, as at 1 January 2010, pursuant to the practice direction given by the judiciary, all parties to civil proceedings begun by writ in the High Court, except for certain construction and personal injuries related proceedings, will be required to consider the appropriateness of mediation as a means of alternative dispute resolution. Any party who unreasonably fails to engage in mediation could be penalized by the court with adverse costs orders. What this means is that even if a party succeeds at trial, the court may not exercise its discretion to award costs in full or in part for that party if he had unreasonably failed to engage in mediation.

The court will not find a party to have acted unreasonably where :-

  1. That party has engaged in mediation to the minimum level of participation agreed by the parties or as directed by the court under the relevant procedures as set out in the practice direction; or
  2. That party has a reasonable explanation for not engaging in mediation. The fact that there is active without prejudice settlement negotiations between the parties or the parties are actively engaged in some other form of alternative dispute resolution may provide the required reasonable explanation.

Advantages of Mediation

There is hardly any disadvantage to parties attempting mediation as an alternative dispute resolution. This is because mediations often achieve a speedy settlement and yet can be carried out at relatively low costs. The basic costs for parties to mediate is the costs of the mediator, venue for the mediation and the parties' own legal representative (if desired).

If parties to mediation reach a settlement, such settlement will be reduced to a new contract which may include terms that the court could not have otherwise ordered. For instance, the court cannot order a party to continue to conduct business with a counter party as part of the judgment award. In a settlement contract, parties can state, for instance, that in consideration of forbearance to continue to sue, the parties must continue to conduct business with each other under agreed terms and conditions.

However, a settlement reached during mediation is unlike a Court judgment which can be enforced by the usual way of execution. If a party fails to honour the settlement contract, the non defaulting party can only sue the defaulting party in court for relief.

Mediation Clause in an Agreement

If parties to an agreement wish to stipulate that any dispute arising from the agreement is first to be resolved by mediation, the mediation clause in the agreement should expressly adopt a set of mediation rules (for example those issued by the Hong Kong International Arbitration Centre or Hong Kong Law Society) and provide for a default procedure to appoint a mediator in the absence of consensus of parties. A bare mediation clause that requires any disputes arising under an agreement to be mediated before commencing legal proceedings is not adequate and is unenforceable because such mediation clause only amounts to an agreement to agree to mediate.

Civil Proceedings from 1 January 2010

From next year, all parties to court proceedings (unless otherwise excepted) must at the close of pleadings file a Mediation Certificate stating whether that party is agreeable to mediation, and if not, the reason why. Where parties consent to mediation but are unable to agree on how mediation should be conducted (such as which mediation rules to apply, the venue and appointment of mediator), either one of the parties may apply to court for appropriate orders as to the conduct of the mediation. Again, a party who unreasonably refuses to mediate may be subject to adverse costs consequences.

If parties have agreed to mediate, any party may apply for a stay of the court proceedings pending the outcome of the mediation. The court may stay the proceedings while ensuring as far as possible that the milestone dates of the proceedings will not be disrupted. Milestone dates include the date of case management conference, pre-trial review, and the trial date.

Role of a Lawyer in Mediation

When parties conduct a mediation, they need not be represented by lawyers. However, a lawyer is better able to assist his client in preparing materials for mediation that is focused to persuade the counter party to move closer to a settlement deal. A lawyer can also assist his client to evaluate the risks and settlement options that may arise during mediation.

Experienced lawyers in our litigation practice are able to assist clients not only in litigation and arbitration but also in alternative dispute resolutions. If you have any question on the above Article, or on any mediation or other dispute matters, please do not hesitate to contact us.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.