24 September 2007
Practice Direction 6.3 of the High Court of Hong Kong took effect on 1 September 2006. It provides for a pilot scheme for the mediation of cases in the Construction and Arbitration List. Its aim is to encourage parties to proceedings in the Construction and Arbitration List to consider the use of mediation as a possible cost-effective means of resolving disputes. The scheme has been in effect for a year and will come to an end on 31 August 2008.
What Is Mediation?
Mediation is a dispute resolution mechanism. It is an informal, voluntary and facilitative process. Parties who agree to mediate attempt to resolve their disputes in a structured negotiation facilitated by an independent and impartial mediator.
At the mediation session, each party is given the opportunity to put forward its case and to hear the opposing party's arguments. The mediator will assist the parties to explore the strengths and weaknesses of their respective cases. The mediator has no authority to make any determination or findings that are binding on the parties. His or her role is to facilitate settlement discussions between the parties with the ultimate aim of enabling the parties to achieve an amicable settlement.
If the parties are successful in achieving a settlement of their disputes, it is preferable for them to enter into a settlement agreement at the end of the mediation session which is binding on both parties. If a settlement cannot be reached at the end of the mediation, the parties may proceed to resolve their disputes by arbitration, litigation or another means of dispute resolution.
What Are The Advantages Of Mediation?
The advantages of mediation include the following:
- Parties in a mediation do not have to comply with the usual arbitration/court rules regarding the preparation of pleadings, discovery of documents, witness statements, expert reports, etc. Mediation can, therefore, resolve disputes in a quicker and less costly manner than arbitration or litigation proceedings.
- Mediation is a private and confidential process, unless the parties agree otherwise. This can avoid adverse publicity. In addition, the parties cannot disclose anything that transpires at the mediation in subsequent arbitration or litigation proceedings. This can encourage the parties to explore the merits and weaknesses of their respective cases in an open environment and may increase the possibility of achieving a settlement.
- The purpose of a mediation is to assist the parties to resolve their disputes in an amicable manner. The tension and conflicts which often arise in arbitration or court proceedings may be avoided in mediation. The parties may, therefore, be successful in maintaining their business relationship.
- The parties have the control of the outcome of the mediation. They are able to make their own decisions and reach agreements with which they are willing and able to comply. They may even agree on conditions of settlement or remedies that an arbitrator or a court would not be able to grant under the law.
Mediation, however, may not be appropriate for a case involves complex factual, legal and technical issues, or where there is no real chance of a successful settlement.
Mediation Of Cases In The Construction And Arbitration List
Under Practice Direction 6.3, any party to an action in the Construction and Arbitration List of the High Court may serve a Mediation Notice upon any other party in the action stating that it wishes to attempt mediation and resolve all or a specified part of the dispute. The Mediation Notice is required to contain details of the rules under which the proposed mediation is to take place, the timetable for the mediation, the manner in which a mediator is to be appointed etc. Upon receiving a Mediation Notice, the other party is required to state within 14 days whether it agrees to mediation and, if so, whether it would like to change the mediation procedures proposed. If it does not wish to mediate the relevant dispute or part of the dispute, it is required to state why it does not believe that mediation is appropriate.
Adverse Costs Orders For Refusal Or Failure To Mediate
The pilot scheme under Practice Direction 6.3 is entirely voluntary and no party in an action can be compelled to participate in a mediation. The Court, does however, have a power to make adverse costs order against a party which unreasonably refuses or fails to attempt a mediation of disputes.
In considering whether an adverse costs order should be made, the Court will consider whether a party has acted unreasonably in refusing to mediate. The Court will take into account all relevant circumstances, such as the nature of the disputes, the merits of the parties' case, other settlement methods that the parties have attempted, the cost of mediation, the time when mediation is proposed and the prospects of success of mediation.
There has not yet been any case in which the High Court has made an adverse costs order against a party who fails or refuses to mediate pursuant to the pilot scheme under Practice Direction 6.3. However, before the operation of the pilot scheme, in Hyundai Engineering v Vigour Ltd  3 HKLRD 1, the Defendant refused to mediate despite having previously agreed in a contract to mediate in good faith. Reyes J noted with approval the recommendations of the Final Report of the Chief Justice's Working Party on Civil Justice Reform (March 2004), which proposed that the Court should have the power to make adverse cost orders (subject to the adoption of appropriate rules) where a party refuses to mediate. Reyes J then went on to say, obiter, that the Court reserves to itself 'a power to penalize a party in costs for failing to mediate when reasonable to do so'.
In a recent English case, P4 Ltd v Unite Integrated Solutions PLC  EWHC 2924, the Defendant refused to mediate, claiming that it would be too expensive and had no reasonable prospect of success. Although judgment was granted in favour of the Plaintiff in the sum of GBP387, it fell far short of the GBP6000 payment into court made by the Defendant. The Court ordered that the Plaintiff was entitled to its costs until the date the Defendant made the payment into court based on the Defendant's unreasonable refusal to mediate where there was a 'good prospect of success' in resolving the matter by mediation.
Mediation is becoming a more popular means of resolving construction disputes. The pilot scheme may continue to operate in construction cases after August 2008 and there is a possibility that it may extend to other non-construction related cases. Parties to an action should always bear in mind the option of resolving disputes by way of mediation to save costs in pursuing the case to judgment. In light of the Court's inherent power to award adverse costs orders against a party which refuses to mediate, mediation may also be used as a procedural tactic to force the other party to resolve the dispute at an earlier stage.For further information, please contact:
Name: David J.A. Boyle
Phone: +852 2843 2215
Name: Venna Y.W. Cheng
Phone: +852 2843 2252