Julian Copeman, May Tai and Gareth Thomas Herbert Smith Freehills
In a survey of around 100 clients and contacts on their use of mediation as a dispute resolution tool in Hong Kong, Herbert Smith Freehills has gained valuable insights on how international and local corporates resolve their disputes. The survey entailed direct interviews and voting via a bespoke iPad App.
The research comes five years exactly since mediation was put at the heart of Hong Kong’s litigation landscape by Practice Direction 31 (“PD 31”), which effectively introduced a ‘mediation step’ into civil litigation proceedings in Hong Kong.
Mediation remains under-utilised in practice in Hong Kong, despite being widely supported and recognised as having the potential to resolve disputes in a quick, cheap and confidential way. Nor has it grown faster in Asia than arbitration, despite earlier market predictions to this effect. In the context of litigation, there was strong sentiment in the client survey of concern that mediation in Hong Kong is often undertaken without real intention to settle, to ‘comply’ with PD 31.
Despite wide support (both in the public and private spheres) for mediation, the survey suggests that there is a knowledge gap among the user population. A range of government-backed services (including the Mediation Information Office and the Mediate First Pledge) supplement the legal foundations established by PD 31 and the Mediation Ordinance.1 In the private sphere, numerous mediation service providers offer support services including mediation accreditation and appointment, as well as procedural rules. Various sector-specific schemes also exist to assist consumers to mediate disputes, for example the Financial Dispute Resolution Centre for low value financial disputes, and the Building Management Mediation Co-ordinator’s Office for property disputes. The Hong Kong government and judiciary are supportive of mediation, but further endorsement (about the benefits of mediation, what it entails, and the services available in Hong Kong) is likely required to improve understanding among users.
Practice Direction 31: the ‘Mediation Step’
PD 31 was introduced in an attempt to front-end settlement, given 90–95 percent of the approximately 35,000 cases lodged in the Hong Kong courts each year settle before the court ever delivers judgment. Often, settlement occurs very late, ‘at the court room door’ when the majority of costs have been expended. Whilst not drafted in mandatory terms, PD 31 has been interpreted by the users surveyed as just that. No one had been bold enough to refuse to mediate, fearing the threat of a costs order against them for an unreasonable refusal. Although there have been a very limited number of cases on this topic, organisations prefer to mediate rather than test the court’s interpretation of what is or is not reasonable in this context.
What Clients want out of Mediation
Gareth Thomas, head of the Hong Kong commercial litigation practice at Herbert Smith Freehills, commented: “Disputes are an unavoidable cost of doing business and we know that our clients want a quick, cheap determination of their disputes, often in circumstances of confidentiality.”
Despite this, most of those surveyed had only mediated between 1 and 10 times in the past five years. A good number (22 percent of those who voted via the iPad app) had not mediated at all. Yet the vast majority considered it to be a mandatory requirement (in the context of litigation) which could save them time and cost.
Gareth added: “I hope that our research and guide help organisations to understand mediation better and to benchmark themselves against their peers when it comes to addressing their dispute resolution options.”
The Benefits of Mediation
Most voters said cost and time savings were the greatest benefits of mediation, followed by the range of outcomes – some not possible through the courts.
May Tai, a partner in the Hong Kong international arbitration practice at Herbert Smith Freehills and a CEDR accredited mediator, who has practised in the UK, the PRC and Hong Kong, commented: “In my experience, flexibility and the ability to find creative solutions is absolutely key to Chinese clients. It gives them the option to come up with a face saving solution. It can be a win-win solution for both sides. The confidentiality of mediation is attractive too, and contrasts with the often wide disclosure obligations applicable to litigation or arbitration in Hong Kong.”
The Role of External Lawyers
Julian Copeman, head of Herbert Smith Freehills’ Greater China and disputes practices and a CEDR accredited mediator, commented: “What we heard throughout our client interviews, as echoed by some delegates who voted via the App is that organisations defer in large part to their external lawyers when it comes to considering mediation, when and how to deploy it, and who to appoint as a mediator. This places considerable responsibility on the legal advisor as a stakeholder to mediation success.”
It is important for external lawyers to familiarise themselves with the benefits of mediation, and the requirements under PD 31 and the Mediation Ordinance. They must ensure that they discuss this with their clients, and that any mediation is attempted in a meaningful way, rather than as a procedural stage to be ‘ticked off’ before resuming the litigation. Mediation advocacy is a distinct skill which strongly enhances the scope for success at mediation. Clients should choose external lawyers that have that skill and can prepare them for successful participation at mediation.
The survey showed overwhelmingly that clients rely on external lawyers when choosing a mediator. May Tai commented: “From my experience in the PRC, this is also the case. The role of the mediator is key, yet Hong Kong corporates don’t really use third parties or their own lists when choosing a mediator. Some of those who voted said they relied on recommendations from contacts in the market and some deferred to the advice of their external lawyers. This again places a significant burden on lawyers to be well versed in mediation and be able to match the right mediator to a dispute.”
A number of those surveyed noted that evaluative mediators often added more value as they would robustly test the counterparty’s case. Several found that a purely facilitative mediator was too passive and did not gain the respect of the parties.
Law firms with a track record of successful mediations are in a position to match the right mediator to the right dispute. Keeping a record of past experiences, seeking the views of colleagues and peers, and using the resources maintained by various service providers will assist in mediator selection. There is also no issue in principle in speaking with mediators privately about a potential mediation appointment to gain understanding about their approach. It is usually important to ensure that the mediator in question has sufficient experience as a mediator and of the background subject matter. Language skills were also identified as important in some cases.
What is the Most Important Factor in a Successful Mediation?
The view here was clear: most of the clients interviewed and the majority of those who voted via the App said it was the mindset of the parties. Timing of the mediation was the second most important issue identified.
Organisations are clearly in control of their own destiny when it comes to mediation. Gaining a better understanding of the process and, critically, engaging the right people (usually senior management) is essential. Julian Copeman commented: “When done properly, mediation brings forward that moment when management focuses on settlement, and brings the decision makers into the room.” When undertaken meaningfully, and at the optimum time, mediation forces everyone into an earlier appraisal of their case. Those surveyed generally said that around 50 percent of their mediations settled (which accords broadly with market trends for commercial disputes). Those which failed were nevertheless very often helpful – in gaining intelligence, promoting engagement with the case, narrowing the issues or assessing the approach of the counterparty and their external lawyers.
While more remains to be done to highlight the benefits of mediation in Hong Kong, the ground work is in place. It is right that the legislature has fallen short of mandating mediation under PD31. Mediation is only likely to succeed where all parties are willing to attempt it. Making it mandatory appears to be unnecessary in any event: the survey indicates that it has been interpreted in Hong Kong as a mandatory requirement. What is required is further communication about mediation, its benefits and the role of PD 31, partnered with greater enthusiasm among all ranks of the legal community to recommend mediation to their clients and prepare them fully for the process. This is likely to weed out ‘hollow’ attempts to mediate and enhance the chances of success.
If you would like to know more, or would like a copy of Herbert Smith Freehills’ guide to mediation in Hong Kong (which includes a practical user guide, as well as the outputs from their client research), please email the authors or firstname.lastname@example.org.
1The Mediation Ordinance was enacted in January 2013 in an effort to provide a more formal legal framework for conducting mediation in Hong Kong. In particular, it addresses the important issues of confidentiality and legal privilege in mediation.