Commercial mediation in Hong Kong SAR

Unless contractually agreed between the parties, there is no obligation on parties to mediate. However, the court can encourage mediation and has previously done so by ordering parties to consider mediation or requiring parties to state whether they were willing to mediate and provide reasons if not. The court may also impose adverse costs orders for an unreasonable failure to mediate. Mediations are confidential. Settlement agreements are enforced as contracts and, if court proceedings have already been commenced, it may be a term of the settlement agreement that the action is withdrawn or discontinued. Hong Kong is also the first jurisdiction in Asia to pass apology legislation.

What is the status of mediation in this jurisdiction?

Mediation is a recognised form of ADR in Hong Kong. The Mediation Ordinance (the “MO”) came into effect on 1 January 2013. The principal objects of the MO are to promote, encourage and facilitate the resolution of disputes by mediation, as well as to protect the confidential nature of mediation communications taking place before and after the MO came into effect.

How is a mediation conducted?

In Hong Kong, a commercial mediation is typically conducted in accordance with the parties’ agreement, which can be set out in a contractual dispute resolution clause or, more commonly, a standalone agreement signed by the parties after the dispute arises. The mediation may be administered by a professional body (e.g. the Hong Kong International Arbitration Centre (“HKIAC”)), in which case a set of pre-determined mediation rules would apply, or the procedures may be set out in the mediation agreement. Mediation is a confidential process. The mediator is independent from the parties. He/she may be chosen and agreed upon by the parties, or he/she may be appointed by an administering body. If parties are unable to agree on the mediator or other procedural matters for a mediation which relates to an on-going court action, they may apply to the court for directions. The parties need not be legally represented although, they often are in a commercial dispute. Before the mediation, the parties may prepare document bundles and briefs to the mediator, depending on the complexity of the case. Some mediators prefer to meet with the parties before the mediation, either jointly or separately.

In a typical case, the mediation will open with a plenary session, at which the parties will have an opportunity to present their cases. After the plenary session, the parties will move to separate rooms with the mediator shuttling between them for private sessions, with a view to achieving a compromise between the parties.

Communications between the mediator and the parties in private sessions are confidential, except if the party gives express consent for disclosure or instructs the mediator to deliver a message or offer. Mediations are usually scheduled to last one day, although the parties and the mediator may agree to shorten or lengthen the time. Even if the parties are unable to reach an agreement at the mediation, they may continue to negotiate on a “without prejudice” basis until a compromise is reached. The cost of mediation (including the mediator’s costs and hire of a venue, if required) is usually shared equally between the parties.

Is there any obligation on litigants to mediate?

Subject to any pre-existing contractual agreement between parties to mediate a dispute, there is no obligation on litigants to mediate commercial disputes. However, it is clear from the Hong Kong High Court Practice Direction 31 that parties to proceedings commenced in the Hong Kong courts are expected to explore mediation as a means of resolving their dispute. The Timetabling Questionnaire that parties must complete before a case proceeds to trial stage requires legal representatives to confirm that they have explained to their clients the availability of mediation and the respective costs implications of mediation and litigation. Practice Direction 31 empowers a court to impose costs sanctions if it considers that parties have unreasonably refused to attempt to mediate a dispute.

The Financial Dispute Resolution Centre (“FDRC”) was officially opened on 19 June 2012. If a customer has a complaint against a Hong Kong financial institution which they wish to resolve outside the courts, the FDRC can impose mediation (and, if that fails, arbitration) on the financial institution for claims up to the value of HK$1 million and/or within the 24 months limitation period from the date on which the customer first had knowledge of the loss.

Does the court have powers to support a mediation?

Yes; the implementation of the Hong Kong Civil Justice Reforms in April 2009 has given the court a general power to make orders of its own motion, consistent with the court’s duty to manage cases according to the underlying objectives of the Rules of the High Court, in particular, facilitating the efficient and cost-effective resolution of disputes. In the context of supporting mediation, there have been cases where the court has used this general power to order the parties to consider mediation. The court may also direct the lawyers of the parties to advise on mediation, as was the case in Poon Fow Hing v Poon Kwai Ping Corinna (unrep.) [2017] HKCU 565.

Further, we are aware of one instance, in Leung Ping Yeung & Ors v Jetour Holiday Limited & Ors (unrep.) [2010] HKCU 316, where the court ordered parties to file mediation certificates stating whether they were willing to attempt mediation and, if not, why not. The court also ordered the lay clients to attend a Mediation Information Office briefing within 21 days. The court may also facilitate mediation by making other appropriate orders. In New Haven Investments Ltd v Yu Guolin (unrep.) [2017] HKEC 18, the court granted an order for security for costs from the setting down of the matter for trial until the end of the trial, taking into account the possibility of the dispute being settled through mediation.

Are mediations confidential?

Agreements to mediate will usually include express provisions regarding confidentiality. As noted above, even in the absence of a confidentiality provision, the MO (which will apply retrospectively) imposes a statutory obligation of confidentiality on mediation communications (as defined in the MO).

Further, Practice Direction 31 provides that communications during the mediation process are without prejudice communications and are therefore confidential. Consequently, statements made during the mediation will not usually be admissible in later court proceedings relating to the same subject matter.

Does failure to mediate attract adverse cost consequences?

Yes; unreasonable failure to mediate a dispute may result in a court imposing adverse costs orders on one or more of the parties to litigation. Guidance on what does or does not constitute “unreasonable failure” is elaborated upon in Practice Direction 31. The court has a wide discretion in this regard. Some of the factors which may be relevant include:

(i) the nature of the dispute;

(ii) the merits of the case;

(iii) the extent to which other settlement methods have been attempted;

(iv) whether the costs of mediation would be disproportionately high;

(v) whether any delay in setting up the mediation would have been prejudicial; and

(vi) whether the mediation had a reasonable prospect of success.

There have been several cases where the court has imposed a sanction in this regard, either by ordering a successful party to pay part of the costs of an unsuccessful party or by reducing the costs payable to a successful party, as a penalty for an unreasonable refusal to mediate. The court will consider the relevant facts and background circumstances underlying the parties’ failure to mediate. For example, in Incorporated Owners of Flora Garden v Li Do Wai (unrep.) [2017] HKEC 159, the court held that an adverse costs order would not be appropriate in circumstances where a party withdrew unilaterally from a mediation session, subsequently proposed further mediation but no such session was arranged for reasons that had not been made clear.

A plaintiff or defendant to court proceedings may also invoke potential cost consequences for unreasonable rejection of a settlement offer at mediation. Either party may make the same offer of settlement in the court action through a sanctioned offer/payment under Order 22 of the Rules of the High Court. If the offeree fails at trial to obtain a better result than the offer, the court has a wide discretion to award costs on an indemnity basis against the offeree from the date of rejection of the sanctioned offer/payment along with penalty interest on such costs and penalty interest or denial of interest (as applicable) on the amount awarded in judgment.

Apart from the MO, are there any other legislations aimed at facilitating the settlement of disputes?

Yes; there are two further pieces of legislations introduced in 2017 which are designed to promote the use of ADR in resolving disputes.

The Apology Ordinance (the “AO”)

The AO came into effect on 1 December 2017, making Hong Kong the first jurisdiction in Asia to introduce an apology legislation. The object of the AO is to promote and encourage the making of apologies with a view to preventing the escalation of disputes and facilitating their amicable resolution.

Under the AO, an apology includes an expression of regret, sympathy or benevolence, as well as an expressed or implied admission of fault or a statement of fact in connection with the matter. An apology may be oral, written or by conduct. Save for criminal matters and specific proceedings identified in the schedule, the AO is applicable to all civil disputes that take place in Hong Kong, including litigation, arbitration, and other administrative, disciplinary and regulatory proceedings. However, the AO does not apply where the apology is contained in documents submitted in applicable proceedings.

Unlike apology legislations in other jurisdictions, the AO provides that statements of apology are not admissible as evidence for determining fault, liability or any other issue to the prejudice of the apology maker. In exceptional cases, a statement of fact contained in an apology may be admitted as evidence if it is just and equitable to do so, having regard to the public interest or the interests of the administration of justice. An apology also does not render void any insurance cover or protection against liability; nor does it constitute an acknowledgement under the Limitation Ordinance, which will trigger an accrual of action. To date, there are no reported cases on the AO.

The AO does not affect the operation of the MO. Therefore, the rules concerning confidentiality and admissibility under the MO continue exclusively to govern apologies made in mediations. While the AO may not have a direct impact on the mediation process, it encourages parties to adopt a more conciliatory approach to the settlement of disputes, which may in turn improve the acceptance of mediation as a form of ADR.

The Arbitration and Mediation Legislation (Third-Party Funding) (Amendment) Ordinance (the “Amendment Ordinance”)

The Amendment Ordinance came into operation on 23 June 2017, introducing new provisions to the Arbitration Ordinance and the MO. The relevant parts of the newly amended Arbitration Ordinance came into effect on 1 February 2019. In relation to mediation, the changes are not implemented by direct substantive amendment of the MO but by reference to two provisions in the Amendment Ordinance.

As it relates to the MO, the Amendment Ordinance confirms that the common law doctrines of maintenance and champerty – which prohibit a person from intermeddling in or maintaining a litigation in which he or she has no legitimate interest or concern – do not apply to third-party funding of mediation. Further, unlike Singapore, Hong Kong’s Amendment Ordinance provides for the funding of mediation by any person who is a party to a funding agreement and who does not have an interest in the proceedings, except for lawyers and firms who act for the relevant parties.

How are settlement agreements enforced?

A settlement agreement entered into at a mediation governs the contractual relationship between the parties and is therefore enforced as a contract. It is usual, if court proceedings have been commenced prior to the mediation, to include as a term of the settlement an obligation to withdraw or discontinue the action. The termination of the court proceedings may be achieved by consent order or consent judgment which may record the terms of the settlement. If such terms are recorded, they become enforceable as a judgment of the court.

Is there a system of accreditation and/or regulatory body for mediators?

While there is currently no statutory body that regulates the accreditation system for mediators in Hong Kong, the Hong Kong Mediation Accreditation Association Limited (“HKMAAL”) was established in August 2012. HKMAAL is which is responsible for setting standards for the training and accreditation of mediators, as well as discharging disciplinary functions. The founder members of the HKMAAL are the Hong Kong Bar Association, the Law Society of Hong Kong, the HKIAC and the Hong Kong Mediation Centre. Seven other organisations, including CEDR Asia Pacific and the Hong Kong Institute of Arbitrators, have subsequently joined the HKMAAL as corporate members. Although there is no statutory requirement for a person to be accredited by the HKMAAL before he/she can act as a mediator, a HKMAAL member would have to cease the operation of its own accreditation system once admitted. It is hoped that through this mechanism, a single centralised accreditation body for mediators could eventually be established in Hong Kong. The HKMAAL further approves and accredits mediation training courses conducted by third-party providers.