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Legal Update

The Rapid Rise of Mediation - Ignore it at your Peril!

19 August 2008
Mayer Brown JSM Legal Update
A recent decision of the Court of Appeal has fired a warning shot across the bows of litigants with regard to the use of mediation.
Full Update
The Court of Appeal has recently upheld [Note 1] a decision handed down by Deputy High Court Judge Gill. In the judgment of the court below, the Judge ordered the appellant, iRiver Hong Kong Limited to pay damages of slightly over $1million plus interest to the respondent Thakral Corporation (HK) Limited regarding Thakral's claim that iRiver wrongfully terminated a distribution agreement under which iRiver supplied MP3 players to Thakral for onward sale to retailers at a profit. The Court of Appeal dismissed both iRiver's appeal against the Judge's decision on liability and quantum and Thakral's cross-appeal seeking to increase damages to about $2.8 million.
Alternative Dispute Resolution
The interesting part of the Court of Appeal's decision lies less so in its findings in the appeal than its comments on the use of alternative dispute resolution (or ADR). The trial hearing lasted 8 days, legal expenses of the parties far exceeded the claim amount and, in the appeal, the parties were both represented by Senior Counsel. Unsurprisingly, Yeung JA said that it was "regrettable that the parties in the present case have not had the good sense of trying to resolve their commercial dispute by a much more costs effective means".
The Court of Appeal's Observations

Yeung JA further commented at end of his judgment that this, "was a typical case where parties should have explored resolution of their disputes by mediation. The total damages are just over $1 million. However, we are told that the total legal costs incurred by the parties, including costs of this appeal, run up to about $4.7 million."

The Judge referred to several leading English cases which have commented on the benefits of mediation. The cases are summarised as follows:

(a)    A mediator may achieve results and solutions beyond the power of lawyers and courts (Dunnett v Railtrack [2002]).

(b)    Mediation has "established importance as a track to a just result running parallel with that of the court system" (Burchell v Bullard [2005], per Ward LJ).
(c)    Hong Kong has a large number of skilled mediators whose cost is reasonable.
(d)    Mediation is a constructive process in which parties may narrow down their differences and achieve a full settlement at a later stage if not earlier (e.g. the Hong Kong case of Chun Wo Const. v China Win Engineering [2006]).
(e)    Lawyers should routinely consider with clients whether their disputes are suitable for ADR (Halsey v Milton Keynes General NHS Trust [2004]).
Civil Justice Reform

Yeung JA also referred to the Civil Justice Reforms which will come into force in 2009. Briefly, the following proposed court rules are relevant to ADR and are self-explanatory.

(a)    One of the underlying objectives of the rules is to "promote a sense of reasonable proportion and procedural economy in the conduct of proceedings" and "to facilitate settlement of disputes" (respectively rules (c) and (e) of new Order 1A rule 1).
(b)    Proposed Order 1B sets out the power of the court in case management. Active case management is defined as including, "encouraging the parties to use an alternative dispute resolution procedure if the Court considers that appropriate, and facilitating the use of such a procedure". 
(c)    Moreover, there is a duty on the parties and their lawyers to assist the court to further the underlying objectives (proposed Order 1A rule 3).

In summary, the Judge said clients and solicitors should bear in mind the above comments on ADR in making attempts to resolve disputes effectively.
Although earlier cases in Hong Kong have recognised mediation as a means to settle disputes, this appears to be the first time that the Court of Appeal has expressly acknowledged that "both [mediation and the court system] have a proper part to play in the administration of justice". Administration of justice is traditionally taken as referring to litigation only [Note 2] .

Yeung JA's comments are a sign of things to come: the comments are an advance warning to litigants and solicitors that the Courts will actively promote mediation, and will most likely take a critical view of any litigant (or advisor) who does not take due account of mediation options in their case management.
It is noticeable that the Civil Justice Reforms do not prescribe a mandatory mediation scheme (similar to the pilot scheme in the Construction and Arbitration List) but parties and their advisors should nonetheless expect the courts to take a much more interventionist approach than hitherto. Under the proposed costs rules under Order 62, when exercising the discretion as to costs, the court will take into account any breach of the underlying objectives and conduct of the parties before and during the proceedings. This broadly means that the court may deprive a successful party of its costs where it has unreasonably refused to mediate in breach of the relevant underlying objective. Whilst it remains to be seen how the courts will exercise this costs sanction, parties and their advisors clearly cannot afford to ignore mediation!
JSM has a policy and history of encouraging the use of mediation to assist clients to resolve their disputes, in appropriate cases, in an economical and timely manner.
[Note 1]   iRiver Hong Kong Limited v Thakral Corporation (HK) Limited, CACV 252 of 2007 (Judgment dated 08/08/2008)
[Note 2]   See also comments of Lam J in Paul Y. Management Ltd v. Eternal Unity Development Ltd and Others (CACV 16 of 2008, Judgment dated 12/08/2008)
For further information, please contact:
David Boyle ( )
John Lee ( )
David McKellar (  )

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