Mar 3, 2004 - American Bar Association. WINTER/SPRING 2011. 11. Mediation and Civil Justice Reform in Hong Kong. By Kun Fan. Kun Fan is an assistant ...
Mediation and Civil Justice Reform in Hong Kong By Kun Fan
I
n response to social change and technological advances in Hong Kong that resulted in a sharp increase in civil litigation, the Civil Justice Reform (CJR) was implemented in April 2009. It was closely modeled on the Woolf Reforms in England, and according to Seagroatt J., a court of appeal judge, “the problems which gave the impetus to the Woolf proposals also exist [in Hong Kong]: delay, unwieldy procedure, excessive use of resources to advance or rebut a claim, and an unacceptable level of cost.” Hong Kong Special Administrative Region Government, Civil Justice Reform: Interim Report and Consultative Paper, Nov. 21, 2001, at 15. In addition, Hong Kong’s legal system had suffered pressures caused by complexity and unrepresented litigants (Interim Report, at 15–16). The final report of the Chief Justice’s Working Party on CJR was published on March 3, 2004, after a seven-month consultation period; it contains 150 recommendations. In particular, the Working Party identifies the underlying objectives of the civil justice system, one of which is facilitating settlement. Mediation is recognized in particular as giving effect to this underlying objective. In response to the final report, the judiciary promulgated a Practice Direction on Mediation (PD 31), which became effective on January 1, 2010. It seeks to provide a framework within which the court can discharge its duty to facilitate the use of mediation when exercising its case-management powers and for the parties to make use of mediation in appropriate cases for the Kun Fan is an assistant professor at the Chinese University of Hong Kong and a member of the Chartered Institute of Arbitrators. She can be reached at kunfan@ cuhk.eduk.hk and thanks Cynthia Lee for her help in conducting research. American Bar Association
settlement of their disputes. To what extent may the CJR and PD 31 change the practice of the courts in the administration of civil justice, and eventually affect the overall litigation culture in Hong Kong? Can the Court Order Unwilling Parties to Mediate? It’s generally accepted that the court, in the absence of a specific statutory provision, does not have jurisdiction to order a reluctant party to submit its dispute to mediation. In other words, there is no power to order mediation under common law or as part of the court’s inherent jurisdiction. Gary Meggitt and Farzana Aslam, “Civil Justice Reform in Hong Kong: A Critical Appraisal,” 28 C.J.Q 1 (2009), at 112. In the United Kingdom, while the courts have a duty under the overriding objective to encourage alternative dispute resolution (ADR) where appropriate, it is not, as yet, compulsory. The court of appeal has held that the court has no power to order the parties to mediate, but simply to encourage it. In Halsey v. Milton Keynes General NHS Trust, Dyson J. stated that “it is one thing to encourage the parties to agree to mediation, even to encourage them in the strongest terms. It is another to order them to do so. It seems to us that to oblige truly unwilling parties to refer their disputes to mediation would be to impose an unacceptable obstruction on their right of access to the court,” and would, therefore, be in violation of Article 6 of the European Convention on Human Rights (ECHR). [2004] EWCA Civ 576. The court of appeal’s reasoning was challenged by Lightman J. and later by Sir Anthony Clarke on the following grounds: First, a number of other jurisdictions (i.e., Belgium, Greece, and a number of U.S. jurisdictions) have a 11
compulsory mediation process, which does not in and of itself give rise to a violation of Article 6 of the ECHR or of the equivalent U.S. constitutional right of due process; second, mediation does not require parties to waive their right to a fair trial. It does not preclude parties from entering into court proceedings in the same way that an arbitration agreement does but simply imposes a short delay on the trial process. Speech of Justice Lightman on “Mediation: Approximation to Justice” on 28 June 2007; Speech of Sir Anthony Clarke at the Second Civil Mediation Council’s National Conference in Birmingham on 8 May 2008. In Hong Kong, during the consultation period of the interim report, there were objections raised against the imposition of any requirement to engage in mediation on grounds similar to those raised in Halsey, based on the right of access to the courts under Article 35 of the Basic Law. In the view of the Chief Justice’s Working Party on Civil Justice Reform, such a concern has no basis. The Working Party considers that “the constraints range from the imposition of a temporary incapacity to proceed with an action to a threat of an adverse costs order for rejecting mediation, these being means which are plainly proportionate to its aim and which cannot be said to impair the very essence of the access right.” Therefore, these are clearly valid constraints on the access right and would not be inconsistent with requirements of Article 35 of the Basic Law. Final Report, at 432–33. Nevertheless, the debate concerning compulsory or mandatory mediation remains far from settled. On the one hand, it is argued that mediation should remain voluntary, as it will just be a waste of time since unwilling participants are unlikely to offer genuine cooperation, and thus the chances of winter/spring 2011
Published in International Litigation Quarterly, Volume 27, Number 2, Winter/Spring 2011. © 2011 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof Electronic copy available at: http://ssrn.com/abstract=1934578 may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
successfully reaching a mediated settlement are slim. On the other hand, it is argued that compulsory mediation only enforces participation in a process during which cooperation and consent might be forthcoming, provided the mediation is properly conducted. In light of the above, the Working Group on Mediation considers it desirable to wait for a while so that studies can be made to see how the CJR affects the use of mediation in Hong Kong and does not recommend the introduction of compulsory mediation at this stage.
In exercising its discretion on costs sanctions, the court takes into account all relevant circumstances, including any “unreasonable failure” of a party to engage in mediation.
It is recommended that the question of compulsory mediation should be revisited at an appropriate time in the future, when the development of mediation in Hong Kong has become more mature and when the general public and the stakeholders have more experience in its use. Report of the Working Group on Mediation, at 126. Accordingly, as the case stands today, PD 31 only gives the court the duty to “encourage” the parties to use ADR but not to order compulsory mediation. Costs Sanctions Against Successful Litigants Pursuant to PD 31, in exercising its discretion on costs sanctions, the court International Litigation Quarterly
takes into account all relevant circumstances, including any “unreasonable failure” of a party to engage in mediation where this can be established by admissible materials. However, the difficult question is this: In what circumstances is a refusal to mediate “unreasonable?” Due to the close affinity of rules and practices with that of England and Wales, the decisions by English courts on this issue can be of great relevance. The English courts seem to have generally applied a rather strict standard in interpreting what constitutes “unreasonable refusal” to mediate. In Société Internationale de Télécommunications Aéronautiques SC v. Wyatt Co. (UK) Ltd, the defendant Batley turned down mediation three times but still recovered costs when the claim against it failed. It was held that there was limited time in which to mediate and that the other party tried to browbeat and bully Batley into mediation. Batley had a reasonable ground to believe, as advised by counsels and solicitors, that it had a strong case. [2002] EWHC 2401 (Ch.). Similarly, in Hurst v. Leeming, the court held that the defendant should not be penalized or deprived of his full entitlement to costs due to his refusal to mediate, because by reason of the character and attitude of the claimant, it was clear that “mediation had no real prospect of getting anywhere.” [2003] 1 Lloyd’s Rep. 379. In Valentine v. Allen, it was held that the respondents were not unreasonable in refusing mediation because the parties had tried to negotiate and had made an effort to settle the case. [2003] EWCA Civ 915. Subsequently, in the famous case Halsey v. Milton Keynes General NHS Trust, Dyson L.J. has summarized various circumstances that may be relevant in assessing whether a party has unreasonably refused ADR: • the nature of the dispute; • the merits of the case; • the extent to which other 12
settlement methods have been attempted; • whether the cost of the ADR would be disproportionately high; • whether any delay in setting up and attending the ADR would have been prejudicial; and • whether the ADR has a reasonable prospect of success. Applying the above test, the court held that the respondent should not be deprived of any of its costs on the grounds that it had refused to accept the claimant’s invitation to agree to mediation. The court held that the subject matter of the dispute was not by its nature unsuitable for ADR, but the respondent believed that it had a strong defense, and had reasonable grounds for that belief. Further, the respondent reasonably took the view that the costs of mediation would be disproportionately high when compared with the value of the claim if liability were to be established and the respondent’s costs of trial. Lastly, the claimant did not discharge the burden of proving that mediation had a reasonable prospect of success. [2004] EWCA Civ 576. Following Halsey, the English court looks at all the above-listed circumstances surrounding the refusal to mediate before making its costs order. It was held in Wethered Estate Ltd v. Davis that the claimant’s objections to mediation were bona fide objections considering the facts of the case and that it is not unreasonable for mediation not to have taken place at a time when the claimant had difficulty in defining the true nature of the dispute between the parties. [2005] EWHC 1903. In Hickman v. Blake Lapthorn, a refusal to mediate was held to be reasonable in the case, as the defendant should not always be willing to pay more than what its claim was worth. [2006] EWHC 12 (QB). In 2008, the English court applied the principles in Halsey further in Nigel Witham v. Smith, where the defendants failed to mediate until at a late stage, when the majority of the costs had been Section of Litigation
Published in International Litigation Quarterly, Volume 27, Number 2, Winter/Spring 2011. © 2011 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof Electronic copy available at: http://ssrn.com/abstract=1934578 may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
incurred. The court held that the refusal was not unreasonable, as often the responding party would want to wait for more information in relation to the claim to be able to assess the commercial risk. A premature mediation simply wastes time and can sometimes lead to a hardening of the positions on both sides, potentially dooming to failure any subsequent attempt at settlement. [2008] EWHC 12 (TCC). Moreover, the courts also recognize that there are cases in which parties might reasonably require a determination by the court, rather than mediation, especially from the perspective of a public body. In Daniels v. Commissioner of Police of the Metropolis, the case was brought to the court of appeal in England because the claim was worth a very small amount of money compared with the costs outlay, and the successful defendant had repeatedly made it clear that it was fighting the case on principle and would not engage in any negotiation. Dyson L.J. referred to the relevant factors as set out in Halsey and held that it was entirely reasonable for a public body such as the police to take the view that it will contest what it reasonably considers to be an unfounded claim in order to deter other similar claims. It went on to say that “if defendants, who routinely face what they consider to be unfounded claims, wish to take a stand and contest them rather than make payments to buy them off, then the court should be slow to characterize such conduct as unreasonable so as to deprive defendants of their costs if they are ultimately successful.” [2005] EWCA Civ 1312. On a few occasions, the courts have held that refusal to mediate is unreasonable and ordered costs sanctions on the successful party. In Leicester Circuits v. Coates Brothers, the defendant first agreed to mediation and later refused, without any explanation, to proceed. As a result, the defendant was not awarded costs even though it was the prevailing party. [2003] EWCA Civ 333. American Bar Association
Similarly, in Burchell v. Bullard, Ward L.J. considered the various elements as set out in Halsey to determine whether refusal to mediation was “unreasonable.” First, a small construction dispute is exactly the type of case that lends itself to ADR. Second, the merits of the case favored mediation, and the defendants behaved unreasonably in believing, if they did, that their case was so watertight that they need not engage in attempts to settle. Third, in relation to costs, the court was in the view that the costs of ADR would have been a drop in the ocean compared with what was spent on the litigation. Finally, the claimant had modestly presented his claim and readily admitted wrongs committed; the court was satisfied that mediation would have had a reasonable prospect of success. [2005] EWCA Civ 358. The combined effect of the above cases is that a successful party’s refusal to engage in mediation should not give rise to any costs sanctions unless that refusal was “unreasonable.” In determining what constitutes “unreasonable refusal,” however, much uncertainty remains as to how far the parties must go to show that they had genuinely made an attempt to resolve their dispute. Hong Kong Courts and the Issue of Costs Sanctions How will the courts in Hong Kong deal with the issue of costs sanctions? Article 5 of PD 31 provides that the court will not make any adverse costs order against a party on the ground of unreasonable failure to engage in mediation where 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 in accordance with paragraph 13 of the PD, or a party has a reasonable explanation for not engaging in mediation. The Hong Kong court has dealt with the question of “minimum level of participation” in Hak Tung Alfred Tang v. Bloomberg LP. It directed that the 13
minimum level of participation should not be construed as the number of hours of mediation and instead focused on the quality. As such, the parties shall participate in the mediation up to and including at least one substantive mediation session with the mediator, as set out in Appendix C of PD 31. [2010] HKEC 1227. With respect to reasonableness, in Golden Eagle International (Group) Ltd v. GR Investment Holdings Ltd, the Hong Kong Court of First Instance ruled that the defendant’s refusal to
The courts recognize that there are cases in which parties might reasonably require a determination by the court, rather than mediation, especially from the perspective of a public body.
mediate was “unreasonable” and made an order of costs for the plaintiff on a common-fund basis. In Golden Eagle International, the defendant refused to mediate without giving any reason. When the court inquired in a pretrial review about the reason for defendant’s refusal to mediate, the defendant’s counsel asserted that the defendant’s position was based upon commercial reasons. The court did not accept this argument as a good reason for refusing to mediate and asked the defendant to reconsider. Nevertheless, the defendant persisted in its refusal to mediate. In determining whether costs sanctions should be imposed against the defendant, the court winter/spring 2011
Published in International Litigation Quarterly, Volume 27, Number 2, Winter/Spring 2011. © 2011 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
considered a number of the elements listed in Halsey. First, with respect to the nature of the dispute, the court rejected defendant’s argument that the dispute could not be “easily mediated.” The court also did not consider the dispute to be one in which parties might reasonably require a determination by the court. To the contrary, the case involved a simple one-off contract dispute that did not raise any point of law on which the determination will provide guidance in the future or in which injunctive or other protective relief was sought. Second, the court did not find the merits of the case to support the defendant’s refusal to mediate. While leaving the question open as to whether a party may rely upon having a strong case as a reason for refusing mediation in Hong Kong, the Golden Eagle International court ruled that in any event, the defendant’s case did not fall within that category. Instead, Lam J. referred to the point made in Halsey that “a party cannot rely on his own unreasonable obdurate attitude to justify a refusal of mediation on the ground that it has no prospect of success.” Finally, as for whether the mediation had a reasonable prospect of success,
the Golden Eagle International court in Hong Kong rejected the Halsey approach of placing the burden on the willing party to show that there was a reasonable prospect that mediation would have been successful. Instead, the Hong Kong court held that the burden should be placed on the part of the refusing party to provide a reasonable explanation and that the willing party had no burden to show that mediation would have a reasonable prospect of success. [2010] 3 HKLRD 273. By shifting to the party refusing mediation the burden of providing a reasonable explanation for its conduct, the Hong Kong court has removed the hurdle imposed by Halsey, which was criticized by Lightman J. and Lord Phillips as unduly weakening the effect of costs sanctions for unreasonable refusal to mediate.
the Lehman disputes. As Sir Anthony Clarke once pointed out:
Conclusion It remains to be seen how the Hong Kong judiciary will apply PD 31 in the coming years to guide the parties toward mediation. We have already seen an appreciable increase in mediation proceedings following the implementation of the CJR and with the mediation scheme introduced to assist in resolving
Sir Anthony Clarke, “The Future of Civil Mediation,” 74 Arbitration 4 (2008), at 423. With the judiciary’s changing attitude under the CJR and the implementation of PD31, it can be anticipated that with time, mediation will become an integral part of the litigation culture in Hong Kong.
It is of course a cliché that you can take a horse to water but whether it drinks is another thing entirely. That it is a cliché does not render it the less true. But what can perhaps be said is that a horse (even a very obstinate horse) is more likely to drink if taken to water. We should be doing more to encourage (and perhaps direct) the horse to go to the trough. The more horses approach the trough the more will drink from it. Litigants being like horses we should give them every assistance to settle their disputes in this way. We do them, and the justice system, a disservice if we do not.
Find Us on Twitter and Facebook. “Like” The ABA Section of Litigation on Facebook
Follow @ABALitigation on Twitter Find timely articles and news updates, CLE program information, and recent podcasts for litigators.
International Litigation Quarterly
14
Section of Litigation
Published in International Litigation Quarterly, Volume 27, Number 2, Winter/Spring 2011. © 2011 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
