2 April, 2020
Hong Kong has been trying for over a decade to grow the commercial space’s appetite for mediation as an alternative dispute resolution (ADR) mechanism to resolving commercial disputes. Hong Kong first introduced mediation as a voluntary resolution process under the Civil Justice Reform (CJR) on April 2, 2009. 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 Practice Direction on Mediation (PD 31), meanwhile, came into effect on November 1, 2014 and created a framework for mediation. Under PD 31, parties are encouraged to attempt mediation and the Court may make an adverse costs order against a party who unreasonably fails to engage in mediation.
Benefits and pitfalls of mediation
Mediation is a faster, more efficient and confidential approach to remedying disputes and it is also conducted on a without prejudice basis allowing companies to explore settlement without litigation or arbitration. Mediation is particularly useful when a commercial dispute could potentially damage a company’s reputation. For example, in view of the size of the claim, general litigation risk and the potential reputational damage which can be caused by a published judgment, a client may be keen to explore settle on reasonable commercial terms at an early stage and maintain the business relationship with the opposing party. This would be seen as a “win-win” result.
The success of any mediation does lie in several key factors though. These include the mediator’s skill; the parties’ willingness to settle; the attitude of the parties’ legal representatives; the respective strengths of the parties’ case, and whether there are any other consequences that are not within the control of both parties.
The difficulty of cross-border mediation
Cross-border disputes can be even harder to resolve by way of mediation. Litigation is preferred as having a judgment in place may allow parties to insulate themselves from possible regulatory consequences. Difficulties may be brought about not only by the differences between the laws of the jurisdictions, but cultural differences and differences in legal practice too.
The case of Gao Haiyan & Anor v Keeneye Holdings Ltd 1, however, can give some reassurances to parties seeking cross-border mediation. In Gao Haiyan, the Court of Appeal dismissed the public policy objection to an award rendered as part of a PRC mediation which the first instance judge found to give rise to “apparent bias”. The higher court agreed that “one might share the learned Judge’s unease about the way in which the mediation was conducted because mediation is normally conducted differently in Hong Kong” but nonetheless determined that, because the procedures were common practice in China, there was no apparent bias and no public policy basis for refusal.
Gao Haiyan was later applied in N v W 2 – it appears that the standard of illegality to justify a refusal to enforce an arbitration award on public policy grounds (despite its high threshold) varies according to the customs and procedures in different jurisdictions. As the Court in N v W confirmed: “bearing in mind the objectives of the [Arbitration] Ordinance and the policy of the Court to uphold the validity of arbitration agreements and the finality of arbitral awards, the Court would only exercise its discretion to set aside an award for the arbitrator’s misconduct under section 25 of the Ordinance, if there was likewise serious, even egregious, conduct of the arbitrator which offends the Court’s most basic notions of justice, morality, and fairness, and which results in a denial of due process and serious prejudice to a party.”
Further developments in Hong Kong
Hong Kong launched the Mediate First campaign in May 2009, with more than 100 companies and trade organisations pledging to consider the use of mediation before resorting to other means of dispute resolution. Since then, however, the number has only grown to just over 480, suggesting that the commercial sector has been slow to embrace mediation as an ADR. The Hong Kong Government continues its commitment to encourage mediation.
The opening of the West Kowloon Mediation Centre in 2018 marked the first facility dedicated to mediation in Hong Kong and, also in 2018, the eBRAM Centre (Electronic Business-Related Arbitration and Mediation) was set up. This is funded by the Hong Kong Government and is an online platform for deal-making and dispute resolution including mediation within the Greater Bay Area and Belt & Road countries.
There is plenty of room for growth in ADR in Hong Kong and only time will tell if there is a strong, lasting appetite for mediation as a means of resolving disputes.
For further information, please contact:
Kenix Yuen, Senior Partner, Gall
kenixyuen@gallhk.com
1 [2012] 1 HKC 335
2 [2019] 3 HKC 161
