Civil Justice Reform - Mediation (January 2009)

Alternative Dispute Resolution ("ADR")
One of the underlying objectives of the new High Court and District Court rules, to come into effect on 2 April 2009, is to facilitate settlement of disputes (see our October 2008 Civil Justice Reform Legal Update). The new court rules place a duty on the court to further the underlying objectives by actively managing cases. Such case management includes, where appropriate, encouraging the parties to use ADR procedures to resolve their dispute i.e. procedures alternative to litigation.

ADR is a procedure by which the parties agree to appoint a neutral third party to assist them resolve their dispute. The most common ADR procedure is mediation.

What is mediation?
Mediation is a voluntary procedure in which a trained and impartial third party (called a mediator) helps the parties settle their dispute. The mediator assists the parties to discuss the issues in dispute, identify their real needs and interests, explore possible settlement options and reach a settlement agreement. If the mediation results in a settlement, an agreement will be drawn up containing the agreed terms and, once signed by the parties, will be legally binding.

Mediation can be a less expensive and quicker method of resolving a dispute than litigation and allow for more flexible outcomes because the parties can agree terms which the court has no power to order. Mediation is particularly attractive where the parties wish to preserve their relationship because it is less adversarial than litigation and aims to achieve an outcome that is satisfactory for both parties.

Mediation takes place in a much less formal setting than court proceedings, although each party can have their legal representative present during the mediation.

Who are the mediators?
Mediators are usually professionals who have undergone mediation training so that they possess the necessary skills and techniques for facilitating a settlement, for example, the ability to break deadlocks in negotiations. Mediators do not provide legal advice or make decisions for the parties, but instead use their skills to help the parties reach a mutually satisfactory agreement.

Various organisations in Hong Kong, such as The Law Society, maintain a list of mediators and the parties can choose a mediator with a background suitable to the nature of the dispute in question.

Confidentiality
If the mediation does not result in a settlement, the parties can still litigate their dispute. Any information exchanged during the mediation process is "without prejudice" and protected by privilege and the court cannot therefore compel its disclosure or admission into evidence in the litigation.

New Practice Direction on Mediation
A new Practice Direction on Mediation will require parties to legal proceedings to consider using mediation to resolve their dispute. It will apply to all High Court (Court of First Instance) and District court civil proceedings begun by writ, except for those in the Personal Injuries and Construction and Arbitration Lists and a small number of District Court cases, for example, proceedings to recover tax under the Inland Revenue Ordinance.

Cases in the Personal Injuries and Construction and Arbitration Lists will be subject to their own Practice Directions requiring parties to consider mediation. The procedure to be followed under those Practice Directions is similar to that under the Practice Direction on Mediation outlined below.

Some other types of cases (i.e. other than writ actions), for example, Employees' Compensation cases, will have their own Practice Direction containing provisions in respect of mediation. Under the new Employees' Compensation Practice Direction, such provisions are again similar to those under the Practice Direction on Mediation outlined below.

The Chief Justice has recently announced that the Practice Direction on Mediation will not come into effect on 2 April 2009 (like other practice directions) but instead, its implementation will be postponed to 1 January 2010. At present, it is not clear whether the implementation of mediation procedures under Practice Directions for specialist lists (such as the Personal Injuries and Construction & Arbitration Lists) and for Employees' Compensation cases will also be postponed.

The Practice Direction on Mediation will require each party's solicitor to file a Mediation Certificate with the court stating whether the party is willing to attempt mediation and, if not, why not. The party himself will have to sign the Mediation Certificate confirming that he understands the Practice Direction and the availability of mediation. The party's solicitor will also have to sign the Mediation Certificate confirming that he has explained to his client (i) the availability of mediation; (ii) the Practice Direction; and (iii) the respective costs positions of mediation as compared to litigation.

If a party wishes to attempt mediation, he will serve a Mediation Notice on the other party. In the Mediation Notice he will state that he wishes to attempt mediation and propose, amongst other things, who should be appointed as mediator, the venue for the mediation and what rules should apply. The party on whom a Mediation Notice is served must serve a Mediation Response, stating whether he is agreeable to engaging in mediation and, if not, why not. If he is agreeable, he must also state whether he is agreeable to the proposed mediator and venue etc and, if not, propose alternatives.

In cases where one or both parties are not legally represented, the above procedure will not apply. Instead, on the application of a party or of its own motion, the court may consider at a suitable stage whether mediation is appropriate. If the court considers that mediation is appropriate, it will give directions that the parties follow the procedure set out above.

Mediation may not be suitable in every case, for example, where an injunction is sought or where negotiations are proceeding satisfactorily. Solicitors will have to advise their clients whether they consider mediation to be appropriate in their particular case.

Costs consequences of refusing to mediate
If the court considers that a party has unreasonably refused to engage in mediation, it may make an adverse costs order against that party. If, for example, a party refuses to engage in mediation and insists on litigating a matter to trial, even if that party wins at trial, the court may decline to award him his legal costs if it considers that his refusal to mediate was unreasonable.

Stay of legal proceedings
If the parties agree to engage in mediation, the court may stay (i.e. suspend) the legal proceedings for a short period of time to allow the parties time to mediate. If no agreement is reached through mediation, the legal proceedings will continue after the period of stay.

Practical Implications
(1) A case will have to be analysed and issues identified at a very early stage in order to determine whether it is suitable for mediation.

(2) Where a case is suitable for mediation, a party must engage in mediation, failing which he risks having adverse cost orders made against him in any legal proceedings, even if he succeeds in those legal proceedings.

(3) The use of mediation will no doubt increase and this should lead to more cases being settled at an early stage.

Karen Dicks, Professional Support Lawyer
Litigation Department, Deacons