Hong Kong: New Practice Direction On Mediation For Compulsory Sale Cases

Last Updated: 10 February 2011
Article by FK Au and Yeda T.Y. Hong

Keywords: compulsory sale cases, Lands Tribunal, Civil Justice Reform

Summary

On 28 January 2011, the Lands Tribunal (the "Tribunal") issued a new Practice Direction (LTPD: CS No.1/2011) (the "Direction") on Mediation for all cases ("Compulsory Sale Cases") under the Land (Compulsory Sale for Redevelopment) Ordinance (Cap.545) (the "Ordinance"). The Direction will come into effect on 15 February 2011 (the "effective date").

Background

The Civil Justice Reform has been implemented since 2 April 2009. One of the underlying objectives, as set out in Order 1A of the Rules of the High Court, is to facilitate the settlement of disputes. The Court has the duty, as part of active case management, to further that objective by encouraging the parties to use an alternative dispute resolution ("ADR") procedure if the Court considers that appropriate. Mediation is a common mode of ADR in which the parties agree to appoint a third party to act as mediator and to assist them to settle or resolve their dispute. The outcome of the mediation is not binding on the parties unless the same is reduced into agreement in writing.

Order 1A of the Rules of the High Court is of general applicability in the context of cases in the Tribunal. The Tribunal has the same duties as the High Court to facilitate the settlement of disputes.

Prior to the issue of the Direction, the Tribunal, in Compulsory Sale Cases, would sometimes, at the call-over hearing, ask whether the parties are willing to proceed with mediation in parallel with the proceedings. If the parties are willing to do so, a direction will be given by the Tribunal to proceed with mediation and to report the progress and results of the mediation to the Tribunal from time to time.

The Direction serves to formalise the steps that the parties (and their legal representatives involved in the cases) must take in all Compulsory Sale Cases. It also forewarns the parties of the consequence of any unreasonable failure to engage in mediation.

What if a party fails to engage in mediation?

Section 4(2) of the Ordinance provides that the Tribunal shall not make an order for sale unless it is satisfied that, amongst other things, the majority owner has taken reasonable steps to acquire all the undivided shares in the lot (including, in the case of a minority owner whose whereabouts are known, negotiating for the purchase of such of those shares as are owned by that minority owner on terms that are fair and reasonable).

Under the Direction, parties in Compulsory Sale Cases should attempt mediation to settle the dispute including the purchase of the shares that are owned by the minority owner. If an applicant (i.e. the majority owner) in a Compulsory Sale Case unreasonably fails or refuses to attempt mediation with the minority owner,

  1. the applicant may not be considered by the Tribunal as having taken all the reasonable steps under section 4(2) of the Ordinance;
  2. the Tribunal is entitled to take into account such failure or refusal in determining whether an order for sale should be granted;
  3. in exercising its discretion on costs, the Tribunal shall take into account all the relevant circumstances, including any unreasonable failure of a party to engage in mediation, where it can be established by admissible materials.

Originally published February 8, 2011

However, the Tribunal should not refuse to grant an order for sale or make any adverse costs order against a party on the ground of unreasonable failure to engage in mediation when:

  1. the party has engaged in mediation to the minimum level of participation agreed to by the parties or as directed by the Tribunal prior to the mediation; or
  2. a party has a reasonable explanation for not engaging in mediation.

Special notes

Applicants who intend to make an application for an order for compulsory sale under the Ordinance are advised to take the initiative to attempt mediation.

Under the new procedures set out in the Direction, the Tribunal may stay the proceedings for the purpose of mediation for such period and on such terms as it thinks fit. In this connection, the applicant should also arrange mediation readily and efficiently so as to avoid disruptions and delays to the progress of the application.

Copyright 2011. JSM, Mayer Brown International LLP and/or Mayer Brown LLP. All rights reserved. Mayer Brown is a global legal services organization comprising legal practices that are separate entities ("Mayer Brown Practices"). The Mayer Brown Practices are: JSM, a Hong Kong partnership, and its associated entities in Asia; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; and Mayer Brown LLP, a limited liability partnership established in the United States. The Mayer Brown Practices are known as Mayer Brown JSM in Asia.

This article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein. Please also read the JSM legal publications Disclaimer.

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