8 September, 2015
The District Court’s judgment in Wu Yim Kwong Kingwind v Manhood Development Limited(24/07/2015, DCCJ 3839/2012) offers a salutary reminder of the importance of considering and attempting Alternative Dispute Resolution (ADR) in the context of ongoing litigation proceedings. Pursuant to procedural rules, a party who unreasonably refuses to attempt mediation could face an adverse costs order even if he is successful at trial. In this case, the court held that the non-monetary nature of the claim (adverse possession) and the other party’s uncooperative attitude towards settlement negotiations were not reasonable excuses not to mediate. There have been very few cases on unreasonable refusals to mediate in recent years and so this case offers helpful guidance on what a court may (or may not) deem reasonable in this context.
Background
Since the implementation of the Civil Justice Reform (CJR), civil proceedings are required to be conducted in line with the underlying objectives, one of which is to facilitate the settlement of disputes. This objective was supplemented in January 2010 by Practice Direction 31 (PD 31), which requires parties to file mediation certificates with their timetabling questionnaires. The documents must explain whether a party has attempted mediation or is willing to try it, and if not why not. This typically triggers a ‘mediation step’ whereby the parties consider and attempt mediation (see our recent research here, which highlights Hong Kong litigants’ attitudes to mediation since the enactment of PD 31).
Facts
In this case, the defendant was the substantial winner in the litigation, and the court made an order that the plaintiff should bear 80% of the defendant’s costs of the action. The plaintiff sought to vary the order on the ground that the defendant unreasonably refused to mediate. It was common ground that the defendant had refused to mediate throughout the litigation but the defendant argued that this was reasonable. The plaintiff had repeatedly indicated that he was willing to settle the case by ADR and had proposed to appoint a mediator. The defendant had stated throughout that it was not willing to settle the case by ADR, and refused mediation, explaining that there was “really no room for settlement“.
The defendant provided the following explanations for its refusal to mediate:
- the nature of the plaintiff’s claim, namely adverse possession of land as opposed to a monetary claim, was such that it was not possible to come to a compromise;
- the plaintiff was uncooperative in agreeing on costs in relation to previous interlocutory proceedings; and
- the plaintiff had not made any offer of settlement during the course of the litigation.
Judgment
The court disagreed with the defendant’s argument and held that the fact that land was the subject matter of the dispute was no bar to a compromise. The court pointed out various possible settlement options, such as splitting the ownership of the land or paying a sum of money in return for discontinuance of the action.
As to the attitude of the plaintiff, whilst the court agreed that the plaintiff’s attitude was counter-productive, this did not justify the defendant adopting a similar attitude in response. Although the plaintiff was not responsive to the defendant’s requests to agree costs, the defendant could have proceeded with taxation to resolve the issue instead of adopting a “tit for a tat stance” in refusing the plaintiff’s proposal to mediate.
Regarding the plaintiff’s failure to offer settlement throughout the proceedings, the court held that putting the blame on the plaintiff alone was unjustified as the process of negotiation was mutual. The defendant did not make offers to settle either. In any case, the judge observed that settlement negotiations were not the same as ADR and could not be taken as a replacement for mediation. Therefore, the fact that the plaintiff did not take the initiative in commencing settlement negotiations could not be taken as an indication that it was not willing to settle or that any attempt to mediate would be a waste of time.
The court held that none of the explanations put forward by the defendant were reasonable and accordingly made an adverse costs order to reflect the inappropriate conduct of the defendant, depriving its entitlement to costs.
Take away points
This case reminds parties and their lawyers of the importance of participating, or at least attempting to participate, in mediation. A party who refuses bears the burden of providing a reasonable explanation for this stance, failing which an adverse costs order may be made. Whilst each case will turn on its own facts, this judgment suggests that:
The fact that the action is not a monetary claim will not, by itself, constitute a reasonable explanation not to mediate.
Uncooperative attitudes of the other party in the proceedings do not justify the adoption of a similar attitude in response.
Settlement negotiations do not amount to ADR and cannot be taken as a replacement for mediation.
The lack of initiative in commencing settlement negotiations by the other party does not, by itself, amount to a reasonable explanation not to mediate.
For further information, please contact:
Gareth Thomas, Partner, Herbert Smith Freehills
gareth.thomas@hsf.com
