ADR IN ASIA ADR IN ASIA: SPOTLIGHT ON MEDIATION IN HONG KONG 01 Our research suggests this is in part due to limited understanding amongst certain parties of what mediation is, why it works, and how and when best to use it. In this guide, we answer these questions to ensure clients make use of this effective problem-solving process. Whilst we focus on the rules and procedures relevant to mediating in Hong Kong, much of this guidance is of general application and assistance regardless of the jurisdiction in which you are contemplating mediation. 1. WHY MEDIATE? There are many reasons why it makes sense to mediate: Saves time and cost – most mediations can be set up within weeks; once agreement has been reached to mediate and appoint a mediator, relatively little further organisation and co-ordination is usually required. Most mediations last a day or less Flexibility and informality – whilst many mediations follow a broadly standard template, the procedure is entirely flexible and can be adapted to suit the parties and the dispute Confidentiality – anything said or done or any documents created for the purpose of the mediation are 'without prejudice' and, except in very limited circumstances, cannot be relied upon in subsequent litigation or arbitration Range of potential outcomes – parties to mediation can agree to creative solutions beyond the powers of the courts or arbitral tribunals (which are generally limited to money damages, specific performance and injunctions). These might include the provision of services, payments in kind, apologies or indeed any other business solution the parties can agree Preserves business relationships - due to the conciliatory nature of the process. The focus is on the parties' overall interests as opposed to their legal rights. Business relationships, external commercial pressures, reputational issues or personal emotions can be taken into account Success rate – many mediations result in settlement, either on the mediation day or shortly afterwards. Even when mediations are 'unsuccessful', in that a settlement is not achieved, the process allows parties to focus on the issues in dispute and consider the true economic costs and risks to them. It can also provide an opportunity to re-establish lines of communication which are often broken when the dispute escalates1 When is mediation not appropriate? There are few disadvantages to mediating, although it may not be suitable where the parties require a court judgment (eg, where provisions in standard terms and conditions need to be determined as a precedent in an ongoing trading relationship), or a party seeks a remedy that mediation cannot provide, such as an injunction. Where appropriate, the Hong Kong courts will recognise these as valid reasons to refuse to engage in mediation. In Incorporated Owners of Shatin New Town v Yeung Kui2 , the Court of Appeal found that the winning party had reasonably refused to mediate because the case ultimately involved a decision on a point of law. This reason for refusal is interpreted restrictively and is distinguished from disputes that are not 'easily mediated'. THE WHY, WHAT, WHEN AND HOW OF MEDIATING IN HONG KONG It is five years since the Civil Justice Reform (CJR) put mediation at the heart of Hong Kong's dispute resolution landscape. Yet it remains a relatively under-used mechanism for resolving disputes. Although a formal legal framework for conducting mediation now exists and numerous institutions provide mediation services, it is still largely confined to use by parties already involved in litigation or arbitration proceedings. 02 ADR IN ASIA: SPOTLIGHT ON MEDIATION IN HONG KONG HERBERT SMITH FREEHILLS 2. WHAT DOES MEDIATION INVOLVE? Provided the parties agree (for example through an enforceable dispute resolution clause providing for mediation3 or, typically, ad hoc as a dispute develops), mediation can be attempted in any way the parties decide. They usually follow the following pattern, however: Appointment of the mediator and agreement of the terms of the mediation (see pages 10 and 11); Initial private discussions with the mediator and getting ready for the mediation, including preparation of position papers and documents (see page 12); Mediation day starting with a plenary session with all parties present and typically making opening statements; break out or caucus sessions with the mediator shuttling between the parties in private rooms; joint closing session to tie up any settlement, or if there has been no settlement, to conclude the mediation and typically encourage post-mediation dialogue (see pages 12 and 13). In the context of litigation, parties are required to follow the procedures set out in PD 31, which was enacted on 1 January 2010. COST SANCTIONS UNDER PD 31 If a party unreasonably refuses to mediate, it may face an adverse costs order even if it is ultimately successful in the litigation. This would have the effect of reversing the usual 'costs follow the event' rule, whereby the losing party is ordered to pay the winning party's costs. PD 31 prescribes specific circumstances where the court will not make an adverse cost order, namely: The party has engaged in mediation to the minimum level of participation agreed to by the parties or as directed by the court prior to the mediation 'Minimum participation' was interpreted by the court in Resource Development Ltd v Swanbridge Ltd9 as at least one substantive session of a duration determined by the mediator. Anecdotally, the minimum duration is regarded as being around four hours. The party has a reasonable explanation for not engaging in mediation The principles which will determine whether a party has unreasonably refused to participate, and what constitutes a satisfactory level of participation, are still in development. English case law is helpful, but there have also been a number of Hong Kong decisions on the issue: In Golden Eagle International (Group) Limited v GR Investment Holdings10 (decided before the CJR and PD 31), the court held that a party's reasonable belief that he had a strong case did not justify a refusal to mediate, nor did a significant difference in claims or settlement offers between the parties. Conversely, in Incorporated Owners of Shatin New Town v Yeung Kui11 the Court of Appeal found that the winning party had reasonably refused to mediate because the case ultimately involved a decision on a point of law. This ground for refusal is, however, interpreted Legally represented parties must file a Mediation Certificate5 with the Timetabling Questionnaire: Stating whether they have attempted mediation and if not, whether they are willing to do so If not willing to mediate, must give reasons Party's solicitor must state and client must confirm that advice on mediation has been given In Timetabling Questionnaire parties must confirm whether they have attempted settlement by ADR, or are willing to do so and request a stay of proceedings to attempt settlement If wishing to attempt mediation party must serve a Mediation Notice6 on the other party and file it at court: Recording elements of dispute to be referred to mediation Proposals regarding procedural rules (if desired), mediator appointment, venue, time frames (incl. stay), costs Signed by party/ solicitor Mediation Notice may be taken into account on the question of costs Pleadings filed As soon as practicable Within 14 days (or such period as the parties agree/ court directs) PROCEDURAL REQUIREMENTS FOR MEDIATION UNDER PD 31 ADR IN ASIA ADR IN ASIA: SPOTLIGHT ON MEDIATION IN HONG KONG 03 restrictively and is distinguished from disputes that are not 'easily mediated', which the courts do not consider to be a reasonable ground for refusal to mediate. In Ansar Mohammad v Global Legend Transportation Ltd12, the High Court reduced the costs awarded to the defendant by 20% for its refusal to participate in mediation without a reasonable explanation and for conducting the proceedings in a manner inconsistent with the underlying objectives of the CJR. Interestingly, this action was commenced before the enactment of PD 31; the court commented that, had the mediation regime been in effect at the time the defendant refused to mediate, it would have been at risk of being deprived of all its costs. Whilst a refusal to mediate is an important consideration for a court when deciding costs, it was determined in Good Try Investments v Easily Development Ltd13 that it is not the sole element for the court to consider but must be viewed within the context of the rest of the circumstances. Immediately following the enactment of PD 31, the court demonstrated a willingness to make adverse costs orders against parties which "unreasonably" refused to mediate. There were instances of the court ordering a recalcitrant or uncooperative party to bear the costs of the action at a higher level than would otherwise be the case (eg, on an 'indemnity' or 'common fund' basis instead of the normal "party and party" basis). Judicial intervention and adverse costs orders have declined in recent years, probably because parties are avoiding the risk by attempting mediation and engaging sufficiently in the process. Faced with an opposing party unwilling to mediate, a party proposing mediation should ensure it has given thought to appropriate costs protection mechanisms and has pressed the unwilling party to articulate its reasons for refusal. If no, or inadequate, reasons are provided, these will likely be relevant to costs submissions at the conclusion of the case. Whilst falling short of expressly requiring parties to litigation in Hong Kong to mediate, PD 31 has been interpreted in practice as introducing a requirement to attempt mediation. In keeping with prior practice (and the approach in England and Wales), parties who fail to engage in mediation without reasonable justification face potential adverse cost consequences.4 See below for more information. Immediately following the enactment of PD 31, there were several instances of the court, usually at interlocutory hearings, putting pressure on the parties which helped to trigger mediation. With the bedding down of the procedures, less judicial intervention has been observed as the parties (usually guided by their legal advisors) serve and file Mediation Certificates as a matter of course. We set out below the procedural requirements stipulated in PD 31. These arise after pleadings are filed. Respondent must serve a Mediation Response7 on the other party and file it at court: Confirming whether willing to mediate and if so what elements of the dispute Agree/respond to other party's proposals regarding procedural rules (if desired), mediator appointment, venue, time frames (incl stay), costs Signed by party/ solicitor Mediation Response may be taken into account on the question of costs Parties should attempt to agree the specifics of the mediation as set out in the Notice and Response and either: Record their consent in a Mediation Minute and file it at court within three days of signing (Mediation Minute may be taken into account on the question of costs) Make a joint application to the court to have differences resolved by the court in the event of impasse One party may apply to the court for directions as to the mechanics of the mediation8 Court may not direct an unwilling party to engage in mediation or appoint a mediator opposed by a party unless both parties are willing to have their differences resolved by the court No time frame stipulated Parties proceed with mediation as per agreement and apply to the court for an interim stay of proceedings if desired (the court can technically stay proceedings of its own motion) 04 ADR IN ASIA: SPOTLIGHT ON MEDIATION IN HONG KONG HERBERT SMITH FREEHILLS 3. WHEN SHOULD I MEDIATE? Mediating at the wrong time in the dispute cycle is often doomed to fail. External factors may exceptionally require mediation at a particular point in time. Aside from this, you must assess when in the dispute cycle it may be most advantageous to mediate, taking on board case-specific factors. EXTERNAL FACTORS Court rules: PD 31 Requires early and serious consideration of ADR. Failure to respond to a mediation proposal, or a refusal to mediate, can have adverse costs consequences, as set out above. Although in practice litigating parties tend to mediate after pleadings and before discovery, they may agree to mediate at a later stage in the litigation, and often do. Agreed dispute resolution process The parties may have contractually agreed to undertake mediation if a dispute arises. This could be an escalation clause (providing for several levels of dispute resolution – for example a meeting of senior management, followed by mediation, followed by litigation or arbitration should the prior stages fail to resolve the dispute). These are not common in Hong Kong and a recent case has questioned the enforceability of a mediation clause as a pre-condition to arbitration.14 Notwithstanding this, it is advisable to check the underlying contract(s) for such provisions and assess their enforceability (in common law jurisdictions, generally speaking, an escalation clause must be sufficiently certain in respect of time frames and procedure to constitute more than a mere agreement to negotiate).15 More than 100 organisations in Hong Kong have signed a "mediate first" pledge, which expresses their intent to mediate their dispute before considering litigation. The mediate first pledge is open for signature to all organisations and is actively promoted by the Department of Justice. Court order Exceptionally, once proceedings are under way, the court may stay proceedings of its own initiative for the parties to engage in ADR. However, in Resource Development v Swanbridge Ltd 16, the court held that the proceedings should only be stayed if such a stay would have any practical effect. In practice, the Hong Kong courts tend to leave the parties to proceed with mediation in their own time and will not (unless requested to do so) order a stay. Limitation period Check whether the limitation period for lodging a claim at court/with an arbitral tribunal is soon to expire. Agreeing to mediate in Hong Kong does not automatically postpone the underlying limitation period.17 If you wish to mediate in such circumstances, you should either (a) seek agreement from the other side to suspend the limitation period (a "tolling agreement") pending mediation; or (b) issue a protective claim and then seek a stay from the court for mediation to be conducted. ADR IN ASIA ADR IN ASIA: SPOTLIGHT ON MEDIATION IN HONG KONG 05 CASE SPECIFIC FACTORS Extent of knowledge and understanding about the case Is there a minimum level of clarity on the: Issues in dispute... Quantum... Relative merits of the case... ...to enable the parties to be clear what dispute(s) they are trying to resolve and to enable a meaningful risk assessment to be carried out on whether to settle or fight the case? Bear in mind: In Hong Kong, there is no formal requirement to exchange information/documents pre-action so a very early mediation may be forged on too little information before the issues have adequately crystallised. If mediation is not attempted after pleadings, will proceeding with disclosure/discovery make a subsequent mediation more likely to be successful? Will either party really find a 'smoking gun'? Would any increased chance of success really be justified by the likely costs of the discovery/disclosure exercise? Are there specific categories of documents that might greatly assist a mediation? If so, can the parties agree on staged discovery (Hong Kong's new Practice Direction PDSL1.2 on E-discovery specifically provides for this)? Will factual/expert witnesses have truly important information to add which could alter the assessment and so point towards a later mediation? The risks inherent in the trial, including the performance of witnesses, naturally mean that the parties will undertake an on-going re-appraisal of the case as the trial proceeds. In long trials there may be opportunities to resolve the matter through negotiation, including mediation. Whilst the vast majority of the costs of the action will have been incurred by the end of trial, even then there may be significant commercial or reputational factors that make a negotiated settlement preferable to a judgment of the court being handed down. In arbitration, similar considerations apply but there are likely to be lower discovery/disclosure costs. In terms of reputational concerns approaching a hearing/arbitral award, given that arbitration is a private process, parties may be less incentivised to settle/mediate given they are not at risk of "washing their dirty linen in public". That said, in several jurisdictions, notably the PRC, mediation is often attempted at some stage during the arbitral hearing, usually initiated by the arbitrators rather than the parties. Costs What are the likely overall costs if the matter proceeds to litigation/arbitration? - What will be the most expensive stages, how much will they cost and when will they occur both for cash flow purposes and ultimate liability? - What is the potential overall costs liability of an unsuccessful defendant subject to an adverse costs order? - If successful, what proportion of costs would be irrecoverable in any event? Mediator fees vary but in large commercial disputes mediation costs are usually insignificant compared to the parties' other costs and the sums in dispute. Will mediation succeed? Critical to the question of success at mediation are the attitudes of decision-makers: - How entrenched are they in their positions? - Are they reconciled to a compromised outcome? - Are there linguistic, personal, emotional or cultural issues (for example 'face' concerns) which affect their ability to participate effectively? - Are they motivated by a desire for public vindication that may only be achievable through a court judgment? It is worth noting that 'success' may not necessarily mean a final and binding settlement. Any of the following may be worthwhile outcomes: - Clarifying the factual and legal issues in dispute, their importance and the merits of the parties' positions - Narrowing the issues by eliminating/resolving peripheral ones - Exploring the underlying interests and motives of the parties - Focusing the attention of key decision makers on the issues in dispute and ensuring an early assessment of the associated risks 06 ADR IN ASIA: SPOTLIGHT ON MEDIATION IN HONG KONG HERBERT SMITH FREEHILLS 4. HOW DO I ARRANGE A MEDIATION? If, after consideration of all relevant factors, a party proposes mediation and that proposal is accepted, the parties must then agree on specific arrangements for the mediation. In Hong Kong, as in most jurisdictions, this can be done either: Through an ADR/mediation service provider, which monitors the performance of the mediator Numerous organisations offer supporting services such as procedural rules, guidelines, codes of conduct, complaints mechanisms, and support with mediator appointments. Among these organisations, which differ in their services offered, the most relevant include: The Law Society of Hong Kong (LSHK) Hong Kong Mediation Council (HKMC), a division of the (HKIAC) The Hong Kong Mediation Centre (HKMC) Centre for Effective Dispute Resolution Asia Pacific (CEDR) The Mediation Information Office (MIO) created by the Hong Kong judiciary Joint Mediation Helpline Office (JMHO), founded in a cooperative effort between eight institutions Through the parties agreeing to appoint and instruct an independent mediator A significant majority of commercial mediations are now arranged on an ad hoc basis, typically by external lawyers, without the assistance of an ADR provider. Usually, the documents governing the mediation and procedure will be provided by the appointed mediator. What is the mediator's role? Choosing the right mediator is usually crucially important. The mediator controls the process and encourages open and honest communication between the parties. The mediator's primary role is to facilitate 'without prejudice' communication between the parties, seek common ground and encourage them to find agreement if possible. Mediators do not determine any matters in dispute between the parties (although they can and do express views when requested to do so). Mediator selection Given the critical role played by the mediator in the mediation process, the selection of the mediator is a topic that attracts significant attention. The selection process is put into even sharper focus due to the relatively small number of experienced mediators active in Hong Kong. Accreditation As in most jurisdictions, mediators practising in Hong Kong require no formal training or qualifications. However, in practice mediators almost always undertake some formal training (typically called "accreditation"). Mediators are usually from a professional background, typically the law. They often practise part time as mediators whilst pursuing other careers. Specialised organisations offer mediator training and services, thereby providing an indication of the mediator's skills and competences. The Hong Kong Mediation Accreditation Association Limited (HKMAAL) aims in the long term to become the sole accreditation body in Hong Kong. The Association was founded by the Hong Kong Bar Association, the HKIAC, the HKMC and the LSHK in 2012. At the moment, various institutions continue to offer independent mediator accreditation. Although there are now over 2,000 accredited mediators in Hong Kong, there remain relatively few mediators with the skill, experience and (perhaps most importantly) authority to manage mediations involving difficult issues and commercially sophisticated parties. Inexperienced mediators can also struggle when dealing with individual litigants who are often uncooperative and/or highly emotional. In some more valuable or complex cases, the parties have brought in mediators from outside Hong Kong - usually London QCs who specialise in mediation. This is not an option in cases involving parties who do not speak English, or where the amount in dispute does not justify the costs involved, but the authority and experience that these overseas mediators bring can be invaluable. In any case, it is imperative that Hong Kong continues to develop its own pool of seasoned, authoritative mediators. Experience suggests that some of the most effective local mediators are Hong Kong barristers, and there are already some bilingual barristers who are much sought-after as mediators. When selecting a mediator: Make contact - There is no issue in principle in speaking with mediators privately about a potential mediation appointment to gain an understanding of their approach to the process and their personal style. Consider asking for referees to obtain insights into the strengths and weaknesses of the mediator. Mediation experience - Ask specifically about the mediator's practical experience. You will want to ensure that the mediator has sufficient experience of acting as a mediator. The mediator's process skills – listening, questioning, negotiating, management – will all be highly important to the parties in finding a resolution. Subject matter knowledge - Identify whether specialist knowledge is necessary for the mediator to participate credibly in the process. The more stringent the requirements, the smaller the pool of mediators (if any exist) who will have the expertise. In practice, the mediator needs enough relevant industry or sector knowledge to "speak the same language" as the parties and command their respect, but usually does not need to be an absolute expert in the relevant field. Language skills - It may be necessary or beneficial to select a bilingual mediator (for example one who can converse in Chinese should the parties concerned not speak the same language to a sufficient standard). Mediator style - This is best viewed as a continuum, with pure facilitators at one end and pure evaluators at the other. A facilitative mediator assists parties to structure their negotiation and will be reluctant either to express a view on the strength of a party's case or propose a possible settlement. An evaluator is likely to express his or her views on both facts and law, and will be more inclined to make proposals for settlement. There is a risk that an evaluator may entrench one or both parties' positions by expressing views on certain issues, which could alienate a party whose position is strongly maintained but inconsistent with the mediator's evaluation. Amongst Hong Kong corporate users, there appears to be a slight preference for evaluative mediators, as parties still look to the mediator to express an authoritative view. However, ADR providers, perhaps influenced by international norms, anecdotally prefer facilitative mediators. Court directed mediator selection Whilst it is rare for the parties to apply to the court to appoint the mediator, Upplan Co Ltd v Li Ho Ming18 provides useful guidance on the issues the court will consider when such an application is made. The parties agreed to mediate but were unable to agree on the choice of mediator and jointly applied to the court for direction pursuant to PD 31. The Court of First Instance cited the issues and sums in dispute, the mediator's knowledge and experience of both the subject matter and mediation, and the mediator's fees and availability as relevant factors to be taken into account by them when appointing a mediator. Mediation agreement When parties agree to mediate, they will sign with the mediator a mediation agreement to record their consent to do so and the terms on which the mediation will go forward. Since mediations have a limited statutory framework in Hong Kong, the mediation agreement is the contract between the parties and provides the ADR IN ASIA ADR IN ASIA: SPOTLIGHT ON MEDIATION IN HONG KONG 07 procedural framework and rules for the mediation. Not only does the mediation agreement provide clarity for the parties but mediators will also require it, as it will set out their obligations and include terms to protect them. Typically in Hong Kong, the parties agree to be bound by the mediator's standard terms. Mediation agreements are usually similar in form, irrespective of the dispute being mediated and whether the mediation is being conducted through a commercial mediation provider or on an ad hoc basis. Sample mediation agreements are provided by the Law Society of Hong Kong, the JMHO and other ADR providers. A model mediation agreement is also included in the Hong Kong Mediation Code. As a guide, mediation agreements should: Address the scope of the dispute being referred to mediation (it is common to refer to the claim number if court or arbitration proceedings have commenced) Identify the parties clearly. If you specifically want a particular person from the other side to attend the mediation, try to have this included Define the role, responsibilities and powers of the mediator Set out the date, time and place of the mediation that has been agreed; record any time limits. It is good practice to set out express provisions for the exchange of written case summaries (including their maximum length) and documents so that the parties and the mediator have sufficient time to prepare State the intention of the parties to cooperate in good faith with the mediator and each other State that representatives from each party have full authority to settle the dispute and bind the party to any settlement agreement at the mediation State that the mediator will not have any liability to the parties in connection with the mediation (usually subject to an exception for wilful misconduct or bad faith) State that no settlement is agreed or legally binding until it is agreed in writing by way of a settlement agreement. This provision reduces the likelihood of satellite litigation as to whether a settlement was reached and if so on what terms Contain a provision that each party and the mediator may terminate the mediation Make provision for costs. The parties usually agree to split the mediation costs equally (including the mediator's fees and any venue costs). It is important to distinguish between the immediate payment of costs (how the mediator's fees are to be funded) and ultimate responsibility for such costs in the dispute. It is possible to agree that costs for the mediation should be treated as being 'in the cause' (ie, the ultimate loser in the subsequent litigation or arbitration pays the winner's costs) Elect a governing law and jurisdiction clause typically in favour of Hong Kong law and the Hong Kong courts Ensure that the agreement contains an express agreement by all parties that the mediation is conducted on a "without prejudice" basis and that they will keep confidential everything said in the mediation and every written document produced for the purposes of the mediation, but not the fact that the mediation has taken place. It is usual to carve out disclosure required by law. While the confidentiality of the process is guaranteed under Hong Kong law (see right) absent express agreement, clear drafting is always preferable and will be insisted upon by any competent mediator19 MEDIATION CONFIDENTIALITY IN HONG KONG The Mediation Ordinance (Cap 620) (MO) was enacted on 1 January 2013 and applies (prospectively and retrospectively) to mediations conducted in Hong Kong (or where Hong Kong law is expressed to apply). It stipulates that 'all mediation communications' are regarded as confidential and inadmissible as evidence in any proceedings unless specifically allowed. 'Mediation communications' mean communications for the purpose of or in the course of mediation but excludes the agreement to mediate and the settlement agreement (section 2). A mediation communication may be admitted in legal proceedings only with the court's leave (section 9). The court must take into account a range of matters listed in section 10(2) (generally, whether section 8(2) factors apply or if it is in the public interest to disclose it). In Lincoln Air Conditioning & Engineering Co Ltd and another v Chan Ping Fai Ricky and others20, the court struck out parts of a defence and evidence contained in an affidavit on the basis that they contained information exchanged during a mediation and were protected by the confidentiality provisions in section 9. It is important to note that under section 8(2) certain documents may be disclosed without leave of the court where: The parties and mediator give consent The information is already available publicly (except an unlawful disclosure) The information is subject to discovery/disclosure The information is subject to similar procedures in which parties are required to disclose documents in their possession, custody or power 08 ADR IN ASIA: SPOTLIGHT ON MEDIATION IN HONG KONG MEDIATING IN HONG KONG HERBERT SMITH FREEHILLS 5. WHAT HAPPENS BEFORE, DURING AND AFTER THE MEDIATION? Once the mediator is selected and a mediation agreement is in place, the parties must prepare for the mediation, exchange position papers/documents, and attend the mediation. In complex cases the preparation and time spent can be substantial - equivalent to a major interlocutory hearing (especially if an overseas mediator is involved). The process is entirely flexible but the following format is often adopted. If the dispute falls within the scope of PD 31, the pre-mediation process is slightly different as a Mediation Certificate, Mediation Notice, Mediation Response, and Mediation Minute should be produced by the parties. The flow chart below sets out some of the principal aspects to consider at each stage. OPENING SESSION (ALL PARTICIPANTS PRESENT) Ensure the right people attend: individuals on behalf of each party with authority to settle and possibly senior management, typically in house and external lawyers, occasionally experts. The mediation represents a key opportunity to settle the dispute and encourage real engagement by the business individuals concerned. Insurers may not attend but should be available at the end of the phone if necessary, to approve any settlement offer Parties typically sign the mediation agreement (usually on the mediator's standard terms) at the start of the mediation Mediator establishes ground rules for the day, reaffirming confidentiality Business principal ideally (or lawyer) from each party makes an opening statement (perhaps 10-15 minutes long) presenting their best points from their perspective. This will typically reflect the position paper but consider visual aids which may achieve more than words. Tone and content must be appropriate and communicate the key messages clearly and effectively. It is usual also for the party to make clear that it has a desire to settle. Inflammatory language is unhelpful; choose language carefully and use internationally understood terms if there is likely to be confusion (for example if not all attendees are fluent in the language spoken - consider translators if necessary and/or bilingual mediators). It is necessary to prepare and rehearse the opening statement. It will be necessary to listen to the opponent attentively and without interruption Parties agree to mediate, settle the terms of the mediation and appoint a mediator Undertake a thorough risk assessment, building on the factors considered when deciding to mediate (see pages 8 and 9) to determine current and future costs, reputational and other risks. In Hong Kong, a mediator will likely ask for cost estimates to trial so prepare and have these ready for the mediation and make them available to the mediator promptly Determine what information or documents the parties will need to reach a solution and ensure they are available Consider whether further advice/information on liability, quantum, commercial, or technical issues may assist to unlock issues Assemble best team (individual(s) from the business involved in the dispute with authority to settle, internal and external legal advisors as appropriate, possibly a technical expert, depending on the nature of the dispute) Define a negotiation strategy – the level of initial offers, anticipated counter offers, range of potential settlements, commercial bargaining positions, non-financial elements (apologies, public statements, confidentiality undertakings, future joint ventures) Prepare the business representatives and decision-makers for their roles at the mediation - usually the more extensive the role they take the better. Discussions at the mediation can be confrontational (and emotional) and they need to be prepared for this, as well as for the almost inevitable 'downtime' involved during the mediation whilst the mediator holds private caucuses with the other party Distil your primary position into a short position paper. Its purpose is to explain your case to your opponent and the mediator in a short, accessible way – it is not a legal pleading and should be short and commercially focused, aimed at convincing your opponent why they should settle and the risks they face if the dispute continues. These are exchanged and sent to the mediator, usually with an agreed core document bundle 7-14 days before the mediation The mediator usually speaks to each party by phone to understand the main issues in dispute. Use this as an opportunity to get to know the mediator, build rapport and influence his/her approach and style. Confidential matters, outside of your position paper, can be addressed with the mediator now or in a separate confidential position paper addressed to the mediator only BEFORE THE MEDIATION DURING THE MEDIATION 08 ADR IN ASIA: SPOTLIGHT ON MEDIATION IN HONG KONG HERBERT SMITH FREEHILLS ADR IN ASIA ADR IN ASIA: SPOTLIGHT ON MEDIATION IN HONG KONG MEDIATING IN HONG KONG 09 PRIVATE MEETINGS Mediator conducts a series of private meetings with each party and their representatives to learn more about their expectations and strengths/weaknesses of their case Share with the mediator. It will be confidential unless you authorise him to tell the other side. He also has confidential information from the other side, and may be able to see an overlap or commonality Parties must define issues clearly and ensure the mediator understands their position and what they wish conveyed to the other side "Shuttle diplomacy" by the mediator aims to broker a commercial settlement. Bear with it. There may appear to be long gaps, but the mediator is working hard, even if he is letting both parties cool off for a while. The less you see the mediator, the more he is working on the other side FURTHER JOINT MEETINGS The mediator may wish to take the business principals aside to help them engage in direct commercial negotiations. This is often the 'crunch time' of the mediation. Individuals should take a few moments to collect their thoughts, take advice, and reflect on the progress they have made before such sessions Occasionally, the mediator may wish to speak to other representatives from both sides (lawyers, experts) SETTLEMENT Drawing up of settlement agreement by lawyers (or parties and mediator if no lawyers). It is advisable to prepare a draft settlement agreement advance and bring it to the mediation for amendment on the day should settlement result Settlement becomes binding on signing of agreement AFTER THE MEDIATION (IF NO SETTLEMENT REACHED) The mediator may contact the parties to explore whether settlement may be achieved in the weeks following the mediation Business representatives should consider maintaining direct contact with their counterparts: often progress made at the mediation and lines of communication (re)established provide scope for further negotiation to reach settlement in the subsequent weeks/months. This was shaped at the mediation but could not be concluded on the day Parties may pursue (or continue to pursue) their rights through litigation or arbitration Anything said or documents prepared for the mediation cannot be disclosed in later litigation/ arbitration (unless required by law) DURING THE MEDIATION ADR IN ASIA ADR IN ASIA: SPOTLIGHT ON MEDIATION IN HONG KONG 09 10 ADR IN ASIA: SPOTLIGHT ON MEDIATION IN HONG KONG HERBERT SMITH FREEHILLS ENDNOTES 1. The Hong Kong court acknowledged these benefits in iRiver Hong Kong Ltd v Thakral Corp (HK) Ltd  HKEC 1337, and found that "the mere fact that negotiation between solicitors fails to result in a settlement does not mean that the parties would not benefit from mediation conducted by a skilled mediator". Furthermore, it observed that parties to mediation were sometimes "able to narrow down their differences during the course of mediation and come up with a full settlement at a later stage" 2.  HKEC176 3. In Hong Kong, such clauses are rarely seen and may be difficult to enforce. In the recent case of Schindler Lifts (Hong Kong) Ltd v Sui Chong Construction and Engineering Co Ltd  HKEC 1967, the District Court addressed a clause purporting to require the parties to mediate before referring a dispute to arbitration. The court found that the non-satisfaction of mediation in a multi-tier clause was not sufficient to show that the arbitration agreement was inoperative. In other common law jurisdictions, notably England & Wales, a mediation/ADR clause will generally be enforceable if it is sufficiently certain in terms of procedure, the mandatory nature of the obligation to participate, and the timeframes involved 4. In Leung Catherine v Tary Ltd  HKEC 1669, reflecting on the new CJR and prospective PD31, the court stated that: "mediation is a voluntary process and a party is not forced to undergo mediation, but unreasonable refusal to attempt mediation (especially when the other party has made the request) is relevant conduct in litigation in the exercise of the discretion on costs" 5. See PD 31 Appendix B for a sample Mediation Certificate 6. See PD 31 Appendix C for a sample Mediation Notice 7. See PD 31 Appendix D for a sample Mediation Response 8. Non-compliance with the court's directions will likely have an effect on any possible subsequent cost order 9.  HKEC 841 10.  5HKC 317 11. See endnote 2 above 12.  2 HKLRD 985 13.  HKEC 7 14. See endnote 3 above 15. See Emirates Trading v Prime Metal  EWHC 2104 (Comm), a judgment of the English High Court 16. See endnote 9 above 17. This contrasts with the position in certain countries, notably within the European Union. The Mediation Directive (as implemented domestically) treats the expiry of the limitation period as occurring at some point after the end of the mediation. The Mediation Directive applies to European cross-border mediations 18.  HKEC 1257 19. The Hong Kong Law Society provides a model confidentiality clause on its website 20. HKEC 93 21. The limited number of exempted proceedings are set out in Appendix A. These specialist proceedings contain very similar provisions on mediation or conciliation: see PD 6.1 (Construction and Arbitration List); PD 18.1 (The Personal Injuries List); PD 18.2 (The Employees' Compensation List); PD 3.3 (Voluntary Mediation, which deals with voluntary mediation in respect of petitions for the winding up of companies) 22. Based on their annual reports and online sources, in 2013 the FDRC mediated a total of 25 cases, of which 72% settled at mediation; in its trial year to 31 October 2013, 106 cases were referred to the CCSS, of which 72% settled before mediation and the remainder settled at mediation; in 2013, mediation was conducted in 69 of 79 cases referred to BMMCO, of which 52% settled at mediation 23.The MO standardised the Chinese terms for 'mediation' and 'conciliation' such that certain previous enactments referring to conciliation instead of mediation were repealed and replaced with mediation. For the purposes of the Labour Relations Ordinance (Cap 55), the distinction between mediation and conciliation as separate processes was maintained THE HISTORICAL CONTEXT Mediation in Hong Kong originated in the mid-1980s, where it was trialled and later standardised in certain public sector construction contracts. In 1994, the Hong Kong Mediation Council (HKMC), a division of the Hong Kong International Arbitration Centre (HKIAC), was established to promote mediation in relation to commercial, construction, family and general disputes. By 2009, 21 mediation service providers existed in Hong Kong. The scope to engage in private mediation was already broad, yet the pool of practising mediators and the number of mediations undertaken remained very limited. Within the court system, various courtannexed pilot schemes evolved (sometimes using the term "conciliation" rather than "mediation", though the process was the same). But it was not until 2010 that mediation took centre stage. On 1 January 2010, PD 31 to the CJR came into force. PD 31 applies to almost all21 civil proceedings in the Court of First Instance and the District Court. It was interpreted in practice as introducing a requirement to attempt mediation in the context of litigation. A Mediation Code of Conduct was also established in 2010, to provide practical guidance on mediation. In the arbitration context, in line with the spirit of the CJR, the Arbitration Ordinance (Cap 609) (AO) came into force on 1 June 2011, specifically providing for a hybrid procedure whereby an arbitrator sitting in Hong Kong may mediate a dispute provided the parties consent in writing. Take-up has been very limited, however. See page 4 for information on the use of mediation in the context of arbitration. Several notable schemes have evolved in recent years to assist consumers in Hong Kong to mediate disputes. Individuals with claims up to HK$500,000 against financial institutions can mediate (and subsequently arbitrate) disputes through the Financial Dispute Resolution Centre (FDRC); customers in dispute with their telecommunications service providers can mediate through the Customer Complaint Settlement Scheme (CCSS), and building management cases receive assistance with mediation through the Building Management Mediation Co-ordinator's Office (BMMCO), an adjunct to the Lands Tribunal. Despite encouraging settlement rates, these schemes are little-used in practice.22 In an effort to provide a formal legal framework for conducting mediation in Hong Kong, the Mediation Ordinance (Cap 620) (MO) was enacted in January 2013. This does not apply to mediations conducted pursuant to the AO, or to certain conciliation and mediation procedures referred to in various labour laws23. The MO addresses the important issues of confidentiality and legal privilege in mediation. It was hoped that this would allay any perceived concerns within the user community that information disclosed at mediation could be used in subsequent litigious proceedings should the mediation be unsuccessful. ADR IN ASIA ADR IN ASIA: SPOTLIGHT ON MEDIATION IN HONG KONG 11 KEY CONTACTS IN OUR ASIA ADR TEAM ASIA BANGKOK Chinnawat Thongpakdee Managing partner T +66 2 657 3829 [email protected] BEIJING Jessica Fei Partner T +86 10 6535 5080 [email protected] HONG KONG Julian Copeman Head of disputes and of Greater China T +852 2101 4245 [email protected] Dominic Geiser Partner T +852 2101 4629 [email protected] Emily SY Lam Senior consultant T +852 2101 4219 [email protected] Richard Norridge Senior consultant, Head of private wealth - Asia T +852 2101 4107 [email protected] John Siu Senior consultant +852 2101 4163 [email protected] May Tai Partner T +852 2101 4031 [email protected] Gareth Thomas Partner T +852 2101 4025 [email protected] TOKYO Peter Godwin Head of Asia disputes T +81 3 5412 5444 [email protected] Dominic Roughton Partner T +81 3 5412 5432 [email protected] SEOUL James Doe Partner T +82 2 6321 5700 [email protected] SHANGHAI Brenda Horrigan Partner T +86 21 2322 2112 [email protected] SINGAPORE Alastair Henderson Managing partner - SE Asia T +65 6868 8058 [email protected] 12 ADR IN ASIA: SPOTLIGHT ON MEDIATION IN HONG KONG HERBERT SMITH FREEHILLS AUTHORS Gareth is a commercial and insurance litigator with wide-ranging experience in disputes, arbitration and mediation matters. His expertise in dispute matters covers banking, commercial contracts, defamation, employment, fraud, insolvency, negligence, product liability, restraint of trade and shareholders’ disputes, as well as cases involving bonds, structured products and other derivatives. He also advises on private client related matters, including family and probate disputes. Gareth also advises clients on all aspects of contentious and non-contentious international insurance and reinsurance law and practice. Gareth is a co-author of Hong Kong Civil Procedure, Halsbury's Laws of Hong Kong – Insurance, Chitty on Contracts (Hong Kong), and Hong Kong Law of Insurance. He regularly lectures to lawyers and industry bodies on a number of topics. Gareth Thomas T +852 2101 4025 [email protected] Julian Copeman T +852 2101 4245 [email protected] May Tai T + 852 2101 4031 [email protected] Anita Phillips T +852 2101 4184 [email protected] May specialises in cross-border China-related and regional Asian disputes including international arbitration, litigation and regulatory investigations. Her practice covers a range of commercial and regulatory issues. She has advised governments, government-owned entities and commercial clients (including financial institutions and energy companies) in Asia, Europe and the United States. She has also acted as counsel and advocate in arbitrations under various rules and court proceedings. May is based in Hong Kong but also spends time in Herbert Smith Freehills' Shanghai and Beijing offices, and has also practised in London, Singapore and Tokyo. She has published several articles on arbitration and dispute resolution, and speaks Bahasa (Malaysian and Indonesian), Chinese (Mandarin and Cantonese) and English, and is qualified as a solicitor of England and Wales and Hong Kong. May is a CEDR accredited mediator. Julian is based in Hong Kong and is head of Greater China. He is an English solicitor advocate and an accredited mediator with CEDR (the Centre for Effective Dispute Resolution). He has been rated as ‘an amiable individual and a practical, determined litigator’ by Chambers UK 2011, and as being ‘commended for his responsiveness and commercial acumen’ by Chambers UK 2012. He is also ranked as a notable practitioner in both Chambers UK 2013 and 2014. He has written and lectured widely on topics such as privilege, asset tracing and civil procedure, and wrote the chapter on English civil procedure in The Lawyer’s Factbook (Sweet & Maxwell). Anita is a professional support lawyer. She trained with the firm and has worked in our London, Paris and Hong Kong offices. She has experience of a broad range of dispute resolution processes including litigation, arbitration, mediation, expert determination and adjudication. Anita specialises in thought leadership initiatives and has been a core member of our global ADR practice since 2007. She has taken a central role in our client research projects on mediation, set up the firm's ADR blog (hsfadrnotes), and was closely involved in the editorship of the 4th edition of Kendall on Expert Determination. Anita also works on bribery and corruption-related matters.