On 2 April 2009, Hong Kong’s Civil Justice Reform (CJR) came into effect. One of the key aims of the CJR is to encourage litigating parties to use alternative dispute resolution procedures, such as mediation, in an attempt to resolve their disputes out of court. In support of the CJR’s desire to encourage the use of mediation as a means to resolving disputes, the Chief Justice has issued a new practice direction on mediation (Practice Direction 31). Practice Direction 31 is scheduled to come into effect on 1 January 2010 and will apply to most civil proceedings commenced in Hong Kong’s Court of First Instance and the District Court.
Mediation is an alternative dispute resolution procedure and is suitable for all civil cases where the parties are committed to reaching settlement. It involves the parties meeting in the presence of an independent and neutral third party, the mediator, whose role is to facilitate an agreement by the parties to settle the dispute. Unlike a judge, the mediator has no determinative powers and is not able to make a binding ruling in relation to the dispute. Accordingly, whether the matter settles at mediation and, if so, on what terms is entirely within the parties’ control.
Mediation takes place in a confidential and private setting. All negotiations and discussions at the mediation are carried out on a without prejudice basis and are non-binding on the parties. This helps to encourage the parties to engage in a frank exchange of their positions and expectations. The mediation process is designed to help the parties identify and understand the key areas of dispute, to develop options, to consider the consequences of those options and to reach an agreement which will satisfy the parties’ respective interests.
Mediation provides the parties with an opportunity to reach commercial outcomes that cannot be achieved by the courts. For example, while a court can interpret the meaning of a contract, it cannot help the parties to renegotiate the terms of that contract. Mediation, on the other hand, allows the parties to agree to such a course of action. Mediation is particularly effective where the parties have an ongoing relationship which they would like to preserve as it allows them to formulate their own mutually acceptable solution. Terms of any settlement reached at mediation should be recorded in writing and signed by the parties, at which stage the settlement terms will become binding. Even where the parties do not settle their dispute at mediation, they may find that the process has helped them to narrow the issues which may, in turn, reduce time and costs at any trial or arbitration hearing.
Parties are able to agree to mediate at an early stage in the dispute or litigation process before significant legal costs are incurred and before the parties have become entrenched in their respective positions.
Mediation under the CJR
An underlying objective of the CJR is to facilitate the settlement of disputes. Under the CJR, the Hong Kong courts have a duty to encourage litigating parties to settle their disputes through the use of alternative dispute resolution procedures, such as mediation. Practice Direction 31 aims to assist the courts in discharging this duty. The parties and their legal representatives also have a duty to assist the court in its role.
Practice Direction 31 sets out the process that must be followed by litigating parties with respect to mediation. Amongst other things, early on in the proceedings, each party must state whether it is willing to attempt mediation and, if not, explain the reasons why. Where a party wishes to engage in mediation, it should file a mediation notice in court and serve a copy of the notice on the other parties. The mediation notice should propose the mediator, venue, period in which the mediation should be commenced and a minimum level of participation.
Mediators and the court’s involvement
In Hong Kong, any mediation sessions which litigating parties agree to attend will be run by independent mediators appointed by the parties and the Hong Kong courts will not be involved in the mediation process. As recognised in Practice Direction 31, what happens during the mediation is carried out on a without prejudice basis. If the matter fails to settle at mediation, the parties will be free to continue with the existing litigation process without reference to what happened at the mediation.
In Hong Kong, the terms of any costs award are in the discretion of the court. Where a party has unreasonably failed to engage in mediation, Practice Direction 31 provides that this will constitute a relevant circumstance to be taken into account by the courts when exercising their discretion as to costs. Accordingly, the courts may make costs orders against those parties who unreasonably refuse to engage in the mediation (or to participate in some other form of alternative dispute resolution). This power exists notwithstanding that a costs order may be made against a party who is ultimately successful at trial.
Advantages of mediation include that it is affordable, efficient, effective, informal and flexible, empowering and confidential. The Hong Kong courts have long been supportive of mediation and other alternative forms of dispute resolution. The CJR and Practice Direction 31 build on the Hong Kong judiciary’s support and look to add structure to the system.