Alternative Dispute Resolution
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Alternative Dispute Resolution



I. Introduction

In Hong Kong, a person, a company, or the Government can be a party in a civil litigation [Bringing & Defending a Civil Case]. They may be either complainants (the party bringing the litigation) or defendants. In a litigation, each party presents their case to the court in order for the court to determine whether or not the legal rights and obligations of one (or more) of the parties are being infringed, and if so, to obtain appropriate compensation and remedy for that party.

The judge will act as an umpire and make decisions concerning the case after considering the evidence and hearing the arguments from the parties involved. The judge will normally order the losing party to pay the costs of the court action to the winning party. These court costs are in addition to and separate from whatever amount the court may order the losing party to pay the winning party as a result of the judgment. These court costs are the expenses that the winning party has had to spend on the preparation and hearing of the case, including their expenses for the solicitors and barristers representing them. The amount of these costs can be substantial, depending on various factors including the complexity of the case, the work required for preparation of the hearing and the length of the hearing.

1. What is Alternative Dispute Resolution (ADR)?

Given that the cost of litigation is normally high, the Hong Kong judicial system has provided some other means of dispute resolution in the form of ADR that seek to minimize the costs of dispute resolution by avoiding expensive court costs.

Alternative Dispute Resolution is a dispute resolution process whereby the disagreeing parties can come to an agreement short of litigation. The idea is that using ADR can minimize the time and costs involved in litigation. The most common forms of ADR are arbitration and mediation.

Arbitration

Arbitration is a legal process which results in the arbitrator(s), instead of a court judge, issuing an award to the aggrieved party. Arbitration awards are final and binding on the parties involved and the parties can only challenge these awards in very exceptional circumstances. An arbitration award has a status similar to a court judgment and is enforceable in a similar manner. Arbitration awards made in Hong Kong are enforceable through the courts of most of the world's trading nations.

Arbitration is a binding form of dispute resolution, equivalent to litigation in the courts, and is entirely distinct from the various forms of non-binding dispute resolution such as negotiation, mediation, or non-binding determinations by experts.

For an arbitration to take place, the disputing parties must agree to take their dispute to arbitration. In practice, this agreement has often been made before any dispute arises as companies will often include arbitration clauses in their various business contracts. By signing a contract with an arbitration clause in it, the parties are agreeing that any dispute arising from the contract will not be heard by a court, but will instead be heard by a private individual or a panel of several private individuals. If the parties have agreed to arbitration, they will generally have to proceed with an arbitration rather than litigation since courts will normally force the parties to honour their agreement to arbitrate.

You may also refer to Hong Kong Legal System.

Mediation

Mediation involves the appointment of a third party to help disputing parties reach a settlement. The mediator is not given any power to impose (or force) a settlement. The mediator will encourage the parties to reach an agreement during mediation so that the parties will not have one imposed upon them by an arbitrator or a judge.

In contrast to an arbitrator, a mediator will attempt to bring the parties to a mutually accepted settlement. A party is not legally required to accept the terms of a settlement proposed in a mediation. A mediation settlement takes effect as an agreement, rather than as an immediately enforceable award.

You may also refer to Hong Kong Legal System.

2. What Form of ADR should be adopted?

The parties should first refer to the terms in their contracts (i.e. the contract(s) that are providing the subject matter of their disputes).

In most commercial contracts (e.g. construction, insurance), there will normally be an arbitration clause stating that when there are disputes arising from the contract, the parties should refer to arbitration before instituting legal proceedings. The parties are therefore bound by their contracts to go for arbitration before commencing any civil action in Court. [see: Introduction - Arbitration]

Although mediation is the ADR recommended by the Judiciary, the parties are free to choose either arbitration or mediation to resolve their dispute.

No party shall be compelled to go to mediation as it is purely voluntary.

If the parties chose to go for arbitration, the award made by the arbitrator(s) would be final and binding on the parties.

On the contrary, a mediator would not impose a settlement. It is entirely for the parties to decide whether to settle and if so on what terms. A settlement after mediation is an agreement rather than an enforceable award.

3. Where do I find Arbitrators or Mediators?

There are a number of organizations in Hong Kong which provide lists of arbitrators and mediators. The major providers are: the Hong Kong Bar Association, the Law Society of Hong Kong and the Hong Kong International Arbitration Centre (“HKIAC”).

The parties have to agree to appoint the same arbitrator or mediator before the arbitration or mediation can commence.

In ad hoc proceedings, the HKIAC is authorized to carry out two important functions in relation to an arbitration:

  • HKIAC may appoint arbitrators or umpires where the parties have failed to agree or have not designated an appointing authority or the designated appointing authority fails to carry out its function.

  • HKIAC may determine whether a tribunal of one or three arbitrators should consider a dispute under the international (UNCITRAL Model Law) regime. (Where an arbitration falls within the domestic regime, unless the parties have agreed otherwise there shall be only one arbitrator).

Mediation, however, is a voluntary process and no party can be forced to go to mediation and no party can be forced to appoint a particular mediator.

4. Do I need legal representations in Arbitration or Mediation?

Just like any Civil Proceedings in Hong Kong, a party can represent himself or herself in Arbitration or Mediation if they cannot afford, or do not wish to have, legal representation.

However, a party may have professional legal representation if they want to and can afford it. Generally speaking, legal representation is recommended and is likely to be helpful if the case involves points of law that the party does not fully understand, or is complicated.

The Judiciary’s Mediation Information Office provides useful information on mediation. For details, please go to http://mediation.judiciary.gov.hk.

The Joint Mediation Helpline Office Ltd. (“the JMHO”), a non-profit-making organization jointly founded by the Hong Kong Mediation Council, the Hong Kong Bar Association, the Law Society of Hong Kong, the Chartered Institute of Arbitrators (East Asia Branch), the Hong Kong Institute of Arbitrators, the Hong Kong Institute of Architects, the Hong Kong Institute of Surveyors and the Hong Kong Mediation Centre, also provides useful information to the general public. (http://www.jointmediationhelpline.org.hk)



II. Arbitration

A. Overview

Arbitration is a dispute resolution process which involves the resolution of the dispute by one or more independent third parties rather than by a court. These independent third parties, called arbitrators, are appointed by (or on behalf of) the parties in dispute.

The arbitration is conducted in accordance with the terms of the parties’ arbitration agreement which are usually found within the provisions of a commercial contract between the parties. Arbitration agreements are commonly included with in the terms and provisions of many commercial contracts. Basically, these arbitration agreements simply say that in the event of a dispute over the performance of the contact, the parties to the contact agree to resolve the dispute through arbitration rather than litigation.

In addition, arbitration is often used where the parties require a confidential process or where an arbitration award may be more easily enforced in a particular jurisdiction than a judgment from another jurisdiction's court.

As arbitration is a consensual process, an arbitrator has no power to determine a dispute unless the parties involved have agreed to this and the requirements of the arbitration agreement have been complied with. The disputing parties may agree to arbitrate before a dispute arises (most commonly by means of an arbitration clause included in a contract), or after a dispute has already arisen.

B. Arbitration Agreement

To start with, the parties need an arbitration agreement.

An arbitration agreement provides the basis for an arbitrator's jurisdiction. An arbitrator will not entertain a request for arbitration in the absence of an arbitration agreement. The parties may also modify or supplement the applicable arbitration rules by express provision in the arbitration agreement.

An arbitration agreement is usually drafted to include claims arising "out of or in connection with" a particular contract. This wording is broad enough to cover tort claims (such as misrepresentation) that relate to the parties’ transaction, and generally enables related tort and contract claims to be determined together by the arbitral tribunal.

Stay of court proceedings when an arbitration agreement exists

If a party tries to commence court proceedings in a dispute which is covered by an arbitration agreement, the court should normally stay (i.e. stop) its proceedings and decline to hear the dispute.

C. The Arbitration Tribunal

An arbitration tribunal has the power to grant any remedy that may be granted by the Hong Kong courts, except to make any order that is binding on those who are not parties to the arbitration.

Where a sum of money is involved, the tribunal has power to award simple or compound interest on the principal sum at such rate as it considers appropriate up to the date of the award. Once the award is made, simple interest accrues on the award at the same rates as are payable on awards made by Hong Kong court judgments.

The tribunal has power to decide which party is liable to pay the costs of the arbitration and on what basis. The usual order is that the losing party is required to pay the winning party's costs in addition to their own.

The costs of the arbitration include the costs incurred by the parties in the course of the arbitration (e.g. professional fees such as fees for expert witnesses giving technical opinion), the arbitrators’ fees, and fees paid to the arbitration institution.

Once an award of the costs has been made, the parties may agree upon the sum to be paid to the party in whose favour the award was made. If no agreement is reached, the party whose costs are to be paid may submit its bill of costs to a court for "taxation". In the taxation process, the party's costs are assessed by a court official, and any costs that were not properly or reasonably incurred will be disallowed.

An arbitration award made in Hong Kong may be enforced in the same manner as a court judgment, once the court has given leave to enforce the award. The application for leave to enforce an award is made on paper (and submitted to a court) without having to give notice to the party against whom the enforcement is sought.

A tribunal has power to grant any remedy that may be granted by the Hong Kong courts, except to make any order that is binding on parties who were not parties to the arbitration.

An award may be set aside on grounds relating to lack of jurisdiction, improper constitution of the tribunal or arbitral procedure not in accordance with the agreement of the parties. The involved parties may also expressly opt to challenge the award on the grounds of irregularity and questions of law. Any application to set aside an award must be made within three months from the date of receipt of the award, after which it can not be set aside.

Rules and Procedures

Arbitration in Hong Kong is governed by the Arbitration Ordinance, Chapter 341 of the Laws of Hong Kong (the Current Ordinance). The Current Ordinance is based on a split regime - an international regime, which is based on the UNCITRAL Model Law, and a domestic regime.

The UNCITRAL Model Law was promulgated by the United Nations Commission on International Trade Law (UNCITRAL) in 1985, to provide states with a template for an effective and comprehensive arbitration regime with limited scope for local courts to intervene in the arbitral process. It has been adopted (or adapted) in numerous jurisdictions around the world.

The UNCITRAL Arbitration Rules were adopted by UNCITRAL in 1976, to provide a set of procedural rules generally appropriate for use in international commercial arbitrations. These Rules were subsequently amended in 2010.

In 1990, Hong Kong adopted the UNCITRAL Model Law to apply to international arbitrations.

The new Arbitration Ordinance ( Chapter 609 of the Laws of Hong Kong) that was enacted in November 2010 and came into effect on 1 June 2011 (“the New Ordinance”), replaced the former Ordinance (i.e. the Arbitration Ordinance, Chapter 341 of the Laws of Hong Kong).

The New Ordinance unifies a system that formally provided different procedures depending on whether the arbitration was considered "international" or "domestic." With the new Ordinance, there is no longer any such distinction and the UNCITRAL Model Law in effect applies to all arbitrations in Hong Kong.

Under section 1 of Schedule 3 of the new Ordinance (transitional provisions), the former Ordinance will apply to all arbitrations commenced prior to 1 June 2011 and any related proceedings. The New Ordinance will apply to all arbitrations commenced on or after 1 June 2011 and any related proceedings.

"Institutional" Arbitration v. "Ad Hoc" Arbitration

Institutional arbitration proceedings are administered by an arbitration institute, such as the Hong Kong International Arbitration Centre (“HKIAC”), the International Chamber of Commerce (“ICC”), the China International Economic and Trade Arbitration Commission (“CIETAC”) or the London Court of International Arbitration (“LCIA”). These arbitrations are conducted under the arbitration rules devised by each institution.

Ad hoc arbitrations are arranged solely between the arbitrators and the parties. They may adopt a readymade set of arbitration rules (such as the UNCITRAL Rules of Arbitration) or the arbitration may be conducted under rules drawn up by the parties involved.

The Law applied by the Arbitral Tribunal

The tribunal will apply the governing law of the contract to determine the substantive issues in a contract claim. (For Procedural issues, see: Rules and Procedures above)

If the contract is governed by a foreign law and the tribunal has no expertise in that legal system, the parties will be required to call in expert evidence to establish the applicable principles of the foreign law.

If the contract is silent as to its governing law, that is, if the contract itself does not state that it must be governed by a specific law (Hong Kong law, Chinese Law, British Law etc.), the tribunal will be required to determine what law governs that contract. This will be the law of the jurisdiction with which the contract has the closest connection. If the contract provides for arbitration in Hong Kong, this may be a factor in favour of the tribunal applying Hong Kong law as the governing law of the contract.

The tribunal will determine the governing law of a tort claim by applying Hong Kong choice of law rules. This may lead to tort claims being determined under a different law to the governing law of the contract.

Thus it is wise to insure that any contract includes a statement specifying what law it is to be governed by and where any arbitration, if needed, should take place.

The Hong Kong Institute of Arbitrators provides detailed information on matters relating to arbitration in Hong Kong.



Mediation

A. Overview

Mediation is a flexible process conducted confidentially in which a neutral person actively assists the parties concerned in working towards a negotiated agreement of a dispute or difference, with the parties themselves remaining in ultimate control of the decision to settle and the terms of resolution.

On 2 April 2009, the Judiciary implemented the Civil Justice Reform (“CJR”) with a view to encourage and facilitate the settlement of disputes by a means other than litigation in court.

Mediation is the recommended ADR process. The CJR introduced changes to the Rules of the High Court and the Rules of the District Court. Various new Practice Directions have been introduced to reflect these changes.

The Judiciary has set up a Mediation Information Office [Address: LG104, High Court Building, 38 Queensway, Hong Kong] to help the public understand the nature of mediation and to help them seek mediation from professional bodies.

There are special information offices at the Lands Tribunal and Family Court to cater for parties in Lands Tribunal Cases and Family Cases.

B. Role of Mediators

The mediator brings the parties together face-to-face in a private and confidential setting. Each party will have the opportunity of putting forward his point of view and listening to what the other party has to say.

Unlike an arbitrator, the mediator does not impose a decision on the parties. He does not provide legal advice and would not take sides. He will not determine who is right and who is wrong in the disputes, but merely helps to facilitate settlements. The mediator will help the parties explore the strengths and weaknesses of their cases and identify possible solutions, and help them resolve the matter between themselves. The parties concerned may terminate the mediation sessions anytime during the process. If an agreement is reached, the parties will then sign the agreement which will then be binding on the parties.

Generally speaking, mediators are required by their Ethical and Professional Code of Practice to observe confidentiality in respect of all matters disclosed in the mediation sessions. When the parties agree to take part in mediation, they will usually be required by the mediator to sign a Mediation Agreement (i.e. an agreement to mediate) which states that all negotiations undertaken pursuant to the mediation are to be privileged and conducted on a without prejudice basis. Without prejudice means that nothing discussed can be used as evidence in any future legal proceedings.

Mediation is considered to be a private and confidential process on two levels. Firstly, the mediation process must be kept confidential at all times in that no third party is allowed to be privy to the proceedings. Secondly, under no circumstance should any matters discussed by one party in private sessions with the mediator be disclosed to the other party by the mediator without permission.

C. Relevant Practice Directions

For details, please go to the Judiciary’s website.

1. Practice Direction 31

Practice Direction 31 ("PD 31") came into effect on 1 January 2010. It applies to all civil proceedings in the Court of First Instance and the District Court which have been begun by writ, except for the proceedings set out in Appendix A of the PD 31:

(1) Court of First Instance:

    (a) Proceedings in the Construction and Arbitration List
    (b) Proceedings in the Personal Injuries List

(2) District Court:

    (a) Proceedings in the Personal Injuries List

PD 31 states that the underlying objective of the Rules of the High Court and the District Court (as amended under the CJR) is to facilitate the settlement of disputes. The Court has a duty as part of active case management to further that objective by encouraging disputing parties to use ADR if the Court considers that it is appropriate and that the court should facilitate its use. The Court also has a duty to help the parties to settle their case. The parties and their legal representatives have the duty of assisting the Court to discharge the duty in question.

The other Practice Directions listed below echo the same theme.

The Practice Directions state that that the Court will not make any adverse costs order against a party on the grounds of unreasonable failure to engage in mediation where:

(1) The party has engaged in mediation to the minimum level of participation agreed to by the parties or as directed by the Court prior to the mediation.

(2) A party has a reasonable explanation for not engaging in mediation. The fact that active without prejudice settlement negotiations between the parties are progressing is likely to provide such a reasonable explanation. However, where such negotiations have broken down, the basis for such explanation will have gone and the parties should then consider the appropriateness of mediation. The fact that the parties are actively engaged in some other form of ADR to settle the dispute may also provide a reasonable explanation for not engaging in mediation in the meantime.

In other words, if a party has not engaged in mediation to the minimum level of participation, or has no reasonable explanation for not engaging in mediation, this party may face an adverse costs order.

For details, please go to the Judiciary’s website.

2. Practice Direction 18.1 & 18.2: Personal Injuries List & Employees Compensation Cases

Personal Injury and Employees Compensation cases are not covered by PD 31. Practice Direction 18.1 and Practice Direction 18.2 covers these types of cases and lays down far more detailed provisions. The idea is to encourage early settlement by way of mediation.

Before the commencement of proceedings, parties should explore settlement by making genuine attempts to engage in settlement negotiations by without prejudice correspondence, by structured without prejudice face-to-face meetings, or by any other manner agreed to by the parties.

If such negotiations do not result in any settlement after a reasonable time, the parties should proceed to explore ADR by mediation or some other form of ADR.

It is expressly stated that settlement negotiations that take place only between the parties themselves, without an arbitrator or mediator present, do not amount to ADR.

In exercising its discretion on costs, the Court takes into account all relevant circumstances. These circumstances would include any unreasonable failure of a party to engage in mediation where this failure can be proven by materials that are admissible to the court. Legal representatives should advise their clients of the possibility of the Court making an adverse costs order where a party unreasonably fails to engage in mediation.

Similar to PD 31, the Court will not make any adverse costs order against a party on the grounds of unreasonable failure to engage in mediation where:

(1) The party has engaged in mediation to the minimum level of participation agreed to by the parties or as directed by the Court prior to the mediation.

(2) A party has a reasonable explanation for not engaging in mediation. If active without prejudice settlement negotiations are currently going on between the parties, this would be likely to provide such a reasonable explanation. However, where such negotiations have broken down, the basis for such explanation will have gone and the parties should then consider the appropriateness of mediation. If the parties are actively engaged in some other form of ADR to settle the dispute, this may also provide a reasonable explanation for not engaging in mediation in the meantime.

The Court may, on the application of one or more of the parties or on its own motion, stay the proceedings or any part thereof for the purpose of mediation for such period and on such terms as it thinks fit.

Where the Court stays the proceedings, the Plaintiff must promptly inform the Court if a settlement is reached and the parties should take the necessary steps to conclude the legal proceedings formally.


For details, please go to the Judiciary’s website.

3. Practice Direction 3.3: Petitions under s.168A and s.177(1)(f) of the Companies Ordinance, Cap. 32

Practice Direction 3.3 sets out the provision for voluntary mediation in respect of petitions presented under section 168A and petitions for winding up a company on just and equitable grounds under section 177(1)(f) of the Companies Ordinance, Cap. 32, where there is no allegation of insolvency concerning the subject company and no allegation that the affairs of the company would require full investigation in the public interest.

Where the petitions are purely disputes between shareholders, not involving the interest of the general body of creditors of the subject company or affecting the public’s interest, the court wishes to encourage those shareholders to consider the use of mediation as a possible additional means of resolving their disputes in a cost-effective and more expeditious manner.

For details, please go to the Judiciary’s website.

4. The Lands Tribunal -Building Management Cases

Since 1 January 2008, the Lands Tribunal had introduced a pilot scheme to streamline the processing of building management cases. The aims of the Pilot Scheme are to streamline the processing of building management cases and to encourage parties involved in or considering civil legal action to attempt to resolve their differences by mediation, so that such cases can be disposed of in an efficient and expeditious manner.

A Building Management Mediation Co-ordinator's Office (BMMCO) has been set up in the Lands Tribunal [Address: Room 206-208, Lands Tribunal Building, 38 Gascoigne Road, Kowloon] since January 2008 to facilitate concerned parties seeking mediation on matters concerning building management. BMMCO mainly holds information sessions on mediation and help the litigants seek mediation to resolve their disputes in a more cost effective, timely and satisfactory manner.

The Tribunal has adopted the measures in the Pilot Scheme, with some modifications, as standard practice. A Practice Direction was issued by the Tribunal after the Pilot Scheme ended on 30 June 2009.


For details, please go to the Judiciary’s website.

5. Compulsory Sale Cases

A Practice Direction has also been issued to cover all Compulsory Sale Cases under the Lands (Compulsory Sale for Redevelopment) Ordinance, Cap. 545 ("the Compulsory Sale Ordinance"). This Practice Direction came into effect on 15 February 2011.

Parties to Compulsory Sales Cases can approach the BMMCO for information on mediation.

For details, please go to the Judiciary’s website.

6. Practice Direction 15.10: Family Mediation

In 2000, a pilot scheme for family mediation was launched by the Judiciary. A Mediation Co-ordinator's Office was set up within the Family Court building [Address: Room 113-116, Wan Chai Law Courts Building] to assist in implementing the pilot scheme. The Mediation Co-ordinator provides information sessions on family mediation and generally assists couples seeking mediation to help resolve their problems in a non-adversarial way.

The purpose of PD 15.10 is to prescribe (after the expiry of the pilot scheme for family mediation on 31st July 2003) the procedure to be followed by the petitioner, the respondent, the applicant or their legal representatives, when instituting matrimonial proceedings. It also prescribes the format of the report to be provided by the Mediation Co-ordinator on the outcome of any information sessions held during family mediation.

See also: Family, Matrimonial and Cohabitation: Resolution methods other than divorce - Q2 ;
Family, Matrimonial and Cohabitation: Resolution methods other than divorce - Q3

For details, please go to the Judiciary’s website.

7. Practice Direction 6.1: Construction and Arbitration List

Parties in construction cases are encouraged to attempt mediation as a possible cost-effective means of resolving disputes.

Like PD 31, when a party was engaged in mediation up to the minimum level of expected participation agreed by the parties or as determined by the court, and has reasonable explanation for non-participation, he should not suffer any adverse court order. (Practice Direction 6.1


For details, please go to the Judiciary’s website.



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