Mediation Gains Traction In Hong Kong’s Legal Landscape

Updated: Mar 19, 2020

By Andrew Kemp

The city is encouraging businesses to pursue alternative dispute resolutions (ADRs) prior to launching litigation

Hong Kong has long attracted business to its shores thanks to its robust, independent and highly respected legal system. Investors enjoy a high degree of confidence that they will be able to resolve their disputes through litigation and arbitration. Hong Kong, however, has been trying for more than a decade to grow the commercial space’s appetite for mediation as an alternative dispute resolution (ADR) mechanism.

Mediation has several clear advantages when it comes to resolving commercial disputes. Not only is it faster, more efficient and confidential it is also non-binding and allows companies to engage in without prejudice discussions prior to launching litigation.

While the main purpose of mediation is to help parties resolve their dispute amicably, the process can also be used as an initial step in the road to litigation. This can help both sides gain a greater understanding of the facts of the case as well as the opposing side’s arguments, without being bound by any ruling.

Road to mediation

Hong Kong introduced mediation as a voluntary resolution process under the Civil Justice Reform (CJR) on April 2, 2009. The CJR stipulated that mediation would be the courts’ recommended ADR and required judges to encourage parties to use the process whenever appropriate.

“Mediation can save time and costs, and avoid the stress involved in litigation, but it should only be attempted at the right time and when the parties are both genuinely willing to mediate.”

Kenix Yuen, Consultant, Gall

On January 1, 2013, the Hong Kong Mediation Ordinance came into force, providing both a regulatory framework for mediation’s promotion as well as its confidentiality. The ordinance prohibits the disclosure of related communications, unless there are exceptional circumstances or the court has directed their disclosure.

The Practice Direction on Mediation (PD 31), meanwhile, came into effect on November 1, 2014 and created a framework for mediation. Under PD 31, parties to a civil dispute must explore the possibility of mediation before pursuing litigation.

Kenix Yuen, a consultant at Gall, Hong Kong’s leading dispute resolution law firm, said mediation was more or less compulsory once a civil action had been commenced by way of a Writ of Summons, as PD 31 meant that avoiding mediation would likely lead to the court imposing adverse costs.

She added: “In such an event, bypassing mediation would not be ideal. If it is clear that the parties are unwilling to settle – mostly in cases involving allegations of fraud – we would still recommend making a minimal attempt to mediation as the court will not easily accept any reason to avoid a mediated outcome.”

A softer approach

Commercial disputes often head to court because the two parties do not trust one another or have a fundamental difference of opinion over the facts of the case. In these instances, mediation allows for greater bipartisan communication and an increased focus on the underlying objectives.

While mediation involves an impartial intermediary helping all sides reach a negotiated settlement, the mediator has no power to enforce the final agreement.

Yuen said mediation was particularly useful when a commercial dispute could potentially damage a company’s reputation. She pointed to a case where one of her clients was defending a civil action involving email fraud where it had been an innocent third party.

Yuen said: “The plaintiff’s email account was hacked by a fraudster, who purported to be the plaintiff and sent instructions to our client to transfer around HK$1mn (US$128,000) to a bank account which was said to be held in the name of the plaintiff. It was later found out that the bank account was not held by the plaintiff but the transfer was successful.”

Yuen said in view of the claim’s small amount and the potential reputational damage caused by a published judgment the client had been keen to settle on reasonable commercial terms and at an early stage and maintain the business relationship with the plaintiff. It was, she said, a “win-win” result.

With cyber-attacks on the rise, mediation offers companies the chance not only to mitigate the reputational fallout from cyberattacks, with proceedings remain confidential, it also allows both sides to find a middle ground and preserve their working relationship.

The success of any mediation does lie in several key factors, however. These include the mediator’s skill; the