An underlying objective of Hong Kong’s new Civil Justice Reforms (“CJR”), which took effect on 2 April 2009, is to facilitate the settlement of disputes. The new rules incorporate a variety of methods to encourage parties to settle. This alert follows from our recent overview of the key changes under the CJR and focuses on the new rules and procedures relating to alternative dispute resolution (“ADR”) and mediation.
ADR and mediation
ADR takes a variety of forms, and generally involves the appointment of a third party to assist the parties in resolving their dispute. As part of its active case management powers, the court will further the objective of facilitating settlement by encouraging the parties to use ADR if appropriate. The rules also require the parties and their legal representatives to assist the court to discharge that duty.
Mediation is the process of negotiation between parties facilitated by an independent third party. The mediator seeks to do that by assisting in an objective appraisal of the dispute and each parties’ interests and by eliminating communication barriers. The process, which includes joint and separate meetings between the parties, is very flexible; control remains with the parties. Participation is voluntary and if the parties do not reach an agreement, they may end the process. If the parties agree
on a settlement, this will take the form of a binding and enforceable agreement.
Mediation offers many advantages including:
- The process is flexible, and the parties can structure it in any way that best facilitates their objectives;
- The process provides an opportunity to explore each side’s perspective and to hear each other in a non-confrontational setting;
- The parties can select a mediator who is skilled in the subject matter of the dispute;
- It can be quick and relatively inexpensive;
- It is confidential, both as a process and in its outcome. All communications during the mediation process are “without prejudice”. This means that if a settlement cannot be reached, the parties cannot disclose to the court any of the matters discussed during mediation. Parties can also be assured that during the mediation process and in exercising its discretion on costs, the court cannot compel the disclosure of or admit materials which are protected by the usual principles of legal professional privilege;
- The process can be effective in preserving or even improving ties between the disputing parties; and
- The parties may structure outcomes in ways which may not otherwise be available in terms of strict legal rights and remedies. It can avoid the “zero sum” nature of litigation or arbitration; as is sometimes said: “no-one ever lost a settlement”.
The mediation process may be initiated voluntarily, or it may arise from an obligation (eg under a contract) or even a court order. But the process itself requires the voluntary participation of all parties. The process will not be successful if any of the parties are unwilling to cooperate, compromise or reach a resolution. Since mediation is all about reaching a commercial and amicable settlement which is acceptable and economically viable to the parties, the mediator does not decide on the issues and will
not even comment on the merits and issues of the dispute unless asked to do so.
Procedures to encourage mediation
The new rules prescribe detailed case management procedures to facilitate settlement through ADR and mediation. These procedures apply to all actions begun by writ except for those in the specialist lists (such as the Commercial List), although the specialist judge may determine the extent to which the procedures should apply. Parties are required to file and serve timetabling questionnaires to enable the court to decide on appropriate directions and timetabling for the conduct of a case. The
timetabling questionnaire is to contain a variety of information including whether the parties will attempt settlement through the use of ADR, mediation or other means.
The CJR places particular emphasis on mediation and the specific machinery to undertake mediation is set out in a separate practice direction on mediation which takes effect on 1 January 2010 (“Mediation PD”). Parties will be required to stipulate their willingness to attempt mediation with a view to settling the proceedings and if not, the reasons for this which can be placed in a sealed envelope. Such a sealed statement will take effect as a statement “without prejudice save as to costs” and will be inspected by the court only if an issue arises in relation to costs.
If parties can agree that they should proceed to mediate their differences, they may apply to the court for an interim stay (freezing) of the proceedings. The court, on its own motion, may also stay the proceedings or any part of it for the purpose of mediation for any period and on such terms as it thinks fit. To the extent possible, the court will try to avoid disrupting the milestone dates (key dates such as the pre-trial review and trial date) in a case.
To further encourage parties to the mediation table, the new regime allows the court to impose tough sanctions such as an adverse costs order against a party who unreasonably fails to engage in mediation. An adverse costs order will not be made if the party has engaged in mediation to the minimum level of participation agreed by the parties or as directed by the court; or a party has a reasonable explanation for not engaging in mediation. The fact that the parties are actively engaged in some other form of ADR or in active settlement negotiations is likely to provide such a reasonable explanation.
Practical implications
There will be a transitional period as the procedures under the Mediation PD will take effect only on 1 January 2010. However, our experience to date shows that the courts are already vigorously supporting CJR changes including mediation and ADR.
A key objective of the CJR is to encourage the settlement of disputes, which is one of the underlying objectives underpinning the court’s active case management powers. We are now seeing positive encouragement by the courts for the parties to seriously consider mediation as a means of resolving their disputes and to partake in mediation voluntarily. Unless a good reason can be shown, the courts are now requiring the parties personally to attend case management conferences in order to explain to the parties the benefits of mediation.
An additional incentive for parties to participate in mediation will be the risk of adverse costs orders made against them if they unreasonably fail to engage in mediation. While it is still early days for CJR, we expect that even in the transition period before the Mediation PD takes effect, the court may exercise its discretion to impose sanctions on parties who refuse to attempt mediation or any form of ADR. Parties will therefore need to be across their cases and be open to the prospect of mediation. In practical terms, this means that there is a need for increased preparation and fact-finding in the early stages of litigation to ascertain whether a case is suitable for mediation. It is thus important to utilise know-how in managing both the dispute process and the mediation process.
To recap, the mediation process is entirely voluntary even if it does not commence as such and control remains at all times with the parties. Our experience with mediation is that the success rate is high. We have accredited mediators within our firm and have run mediations under the new CJR regime including what we understand was the first ever mediation under the new regime.