HK Alternative Dispute Resolution (ADR) – Practice Direction 31

Hong Kong is no stranger to Alternative Dispute Resolution (ADR). The Hong Kong International Arbitration Centre handled 280 cases in 2004 up to 602 cases in 2008. When foreign investors in Asia have disputes, they prefer to have a neutral “third place” for them to be settled. Hong Kong has been claimed as one of the preferred places for foreign dispute settlement, due to its developed law system and geographical location.

Practice Direction 31 (from here on referenced as PD31) for mediation, which is one method of ADR, came into effect on 12 February 2010. PD31 is a practice direction that only pertains to the ADR method of mediation and encourages people to mediate before or during litigation procedures.

A detailed look at PD31

PD31’s main task is to encourage people to settle their disputes by making it compulsorily to consider mediation before or during litigation. While it is not “mandatory”, PD31 instructs legal representatives to inform the parties the court could issue adverse costs if they “unreasonably fail” to mediate. Unless the party has a good reason not to mediate, then they will not take on these adverse costs. Outlined by Herbert Smith LLP, we will touch on the five essential points that are particularly important when considering the new PD31 on mediation in Hong Kong.

1. Active exploration of ADR

The court has a “duty as part of active case management” to encourage other methods, such as ADR, to settle disputes. In other words, the court’s duty is to help the parties to settle matters but it is also the party’s responsibility to help facilitate these methods when ever possible.

2. Costs of unreasonably failing to mediate

When a party unreasonably fails to mediate, the court may include “adverse” costs to them. There is a minimum requirement one can participate to avoid the adverse cost, as well as having an acceptable reason why one can not mediate. The term “unreasonable” is not clearly defined. The best method is to go through the motions and up one mediation session. IF it does not work out, you have made you attempt. You might also resolve some issues as well.

3. Mediation procedure

Mediation certificate

The Mediation Certificate is important because it states whether the parties agree to mediate, more importantly if they do not agree to mediate, what is the explanation. The second function of this certificate is to verify if the legal representatives have explained that mediation is an option available to them, the cost of mediation compared to litigation and explaining PD31 contents.

Mediation notice

In the event one party would like to mediate, they must draft a Mediation Notice after sending the Mediation certificate. The Mediation Notice should include the party’s willingness to mediate and how to suggest how to carry out the mediation.

Mediation Response

Once the notice is received, a mediation response must be sent to the court in 14 days. In the response, it should be noted whether they agree to mediate the dispute and if not, why not. The respondent also has the right to suggest ways of carrying out mediation.

Mediation Minute

Once an agreement is reached, it should be reduce into writing with the signatures from the parties or legal representatives. In the event the parties can not come to an agreement about mediation, for example choosing a mediator or location, they may look to the court for guidance to help solve those differences.

4. Stay of legal proceedings

At any time during litigation, the parties may opt for mediation in order to try to resolve their differences. Providing they do not conflict with any “milestone dates”, the court will allow a short break to start mediation. Milestone dates such as, case management conferences, pre trial review and trail date, stay of legal procedures will not be granted in attempt to reduce delays in court proceedings. If the parties come to agreement during the time of mediation, they will have to inform the court and formally close the proceedings. If an agreement is not reached with in that time, the previous proceedings will continue.

5. Without prejudice communication and confidentiality

One of the advantages of mediation is confidentiality. It can be a private forum between the parties, legal parties and mediator. PD31 claims the court can not compel one of these parties to divulge information to the court for evidence.

What now?

Even though mediation was available before, people might not have had the opportunity to learn about the other alternatives available to them. PD31 dictates legal counsels are to make sure their clients are aware of the advantages and cost benefits of mediation. Whether mediation is more enjoyable than litigation is not the point to be debated, but rather, PD31 requires a second option that may yield a better out come. PD31 brings awareness to this second option of mediation; an option that has always been available.