Leading the way in the civil justice reforms in Hong Kong is the Construction and Arbitration List High Court with the recent implementation of a pilot scheme for voluntary mediation for cases in the Construction and Arbitration List (the scheme). The scheme is scheduled to run from 1 September 2006 until 31 August 2008. Specific details of the scheme are set out in Practice Direction 6.3 of the Construction and Arbitration List.
Under the scheme, any party can initiate mediation by issuing a Mediation Notice to the other party at any stage of the proceedings. The Mediation Notice must set out specific information such as the proposed mediation rules, timetable, method of appointing the mediator. The other party must then respond within 14 days to indicate if it is agreeable to mediation and if so, it must respond to the specific proposals regarding mediation rules, timetable etc.
The court will also no doubt be actively encouraging parties to consider mediation at the Summons for Directions where the judge may ask the parties whether they have attempted mediation and if not, the reasons for not doing so.
Adverse Costs Order
Mediation under the scheme is expressly stated to be voluntary. The practice direction states that ‘no party to an action shall be compelled to go to mediation under this pilot scheme’.
However, the practice direction goes on to say that an unreasonable refusal to mediate or failure to attempt mediation may expose a party to an adverse costs order. Parties therefore need to be aware that once a Mediation Notice is served, the decision whether or not to mediate is not strictly voluntary in the sense that if the receiving party has no good reason not to mediate, he risks an adverse costs order at the end of the court proceedings. The court has complete discretion over what adverse costs order to make. The adverse costs order could come in various forms. For example, the successful party could end up losing its entitlement to costs or get a reduced portion of its costs if the court finds that it had unreasonably refused to participate in mediation. If the unreasonable refusal to mediate came from the unsuccessful party, the court could order the unsuccessful party to pay costs on an indemnity basis.
What amounts to an unreasonable refusal to mediate?
When will an adverse costs order be made? That is a question that every party will have to consider when faced with a Mediation Notice. The practice direction attempts to give some guidance by stating that a party will not suffer an adverse costs order if it
- has engaged in mediation up to the minimum level of expected participation agreed by the parties beforehand or as determined by the Court; or,
- has a reasonable explanation for non-participation.
What suffices for a ‘minimum level of expected participation’?
The Mediation Notice and the response to it must state what the parties view as a minimum level of participation. This will provide the judge in the case with some objective criteria against which to assess the parties' level of cooperation when considering whether to apply cost sanctions for non-participation. As a general guide, the Judiciary's booklet on the scheme suggests that parties may consider a reasonable minimum to be participation in at least one joint session with the mediator, and may wish to specify a minimum time for attendance e.g. half a day, depending on the complexity of the case and amount in dispute.
What is a ‘reasonable explanation for non-participation’?
Here, guidance may be sought from other jurisdictions. Some guidelines gleaned from UK cases for determining when there are reasonable grounds for refusing to mediate are as follows:
- Nature of the dispute
Some cases are not suitable for mediation. One example of this is where a party wants a court to resolve a point of law which arises from time to time and it is considered that a binding precedent would be useful. Having said that the UK court's view is that most cases are not unsuitable for mediation.
- The merits of the case
The fact that a party unreasonably believes his case is watertight is no justification for refusing mediation, but the fact that a party reasonably believes he has a watertight case may well be sufficient justification for a refusal to mediate. The court has to guard against a plaintiff using the threat of costs sanctions to extract a settlement from the defendant even where the claim is without merit.
- Other settlement attempts have been made
The fact that a settlement offer has been made and refused may show that one party is making efforts to settle and the other party has unrealistic views of the merits of the case.
- The costs of mediation would be disproportionately high
This is particularly relevant where the sums at stake are relatively small. Mediation can sometimes be as expensive as a day in court.
If mediation is proposed late in the day, it may have the effect of delaying the action of the trial.
- Whether the mediation has a reasonable prospect of success
Where one party adopts a position of intransigence, the other party may reasonably take the view that mediation has no prospect of success and this would be a proper ground for that other party to refuse mediation. However, this is a high risk course to take as the court may not agree with the party's assessment of the prospect of success.
The above guidelines are by no means exhaustive or conclusive. Nor is it certain that the Hong Kong judges will adopt the same approach as the UK courts. Each case will be decided on its own facts and it remains to be seen how the Hong Kong judges will deal with refusals to mediate.
The key thing for parties to remember is that it will not do to ignore a Mediation Notice or to reject it out of hand. A respondent party must give serious thought and consideration in its response to a Mediation Notice. If it chooses not to mediate or disagrees with the applicant's opinion of the minimum amount of participation which it considers reasonable, it is recommended that reasons be set out clearly in its response in order to reduce the risk of facing adverse cost sanctions.