Hong Kong
In your jurisdiction, are there any formal ADR procedures available for resolving commercial disputes other than litigating (or arbitrating) to a final hearing?
Parties invariably informally negotiate to some degree at the outset of a dispute either as an alternative to, or at the same time as, litigation or arbitration. However, there are also a number of more formal types of ADR which are common-place in Hong Kong across all types of commercial disputes. The main types of ADR in Hong Kong are mediation, adjudication, expert determination, early neutral evaluation and determination by a board.
Mediation is a voluntary, non-binding, private process in which a trained independent person helps the parties to try to reach their own negotiated settlement. This is the most frequently used ADR procedure in Hong Kong.
Adjudication is where a neutral third party makes a decision that is binding, pending any subsequent court or arbitral award. This is more common in construction or building related disputes in Hong Kong.
Expert determination involves the appointment of a neutral expert in the subject matter of the dispute to make a decision which the parties agree beforehand to accept as binding. It is usually adopted for specific technical issues. Although generally classified as a form of ADR, this is significantly different from the other methods, most importantly in that the outcome of the process is generally contractually binding on the parties and non-appealable;
Early neutral evaluation is a non-binding preliminary assessment of fact, evidence or legal merits by one or more independent professionals, often experienced legal professionals or subject matter experts.
Dispute review board (DRB)/Dispute adjudication board (DAB): a project specific dispute process often used in large international construction and engineering contracts. An impartial board is appointed at the commencement of a project to resolve relevant disputes. The decision of DRB is not binding, whereas the decision of the DAB is binding. These processes are not as widely used in Hong Kong compared to other jurisdictions.
Does engaging in ADR have any effect on potential or existing litigation or arbitration?
Engaging in ADR does not itself stop time running for the purpose of limitation of actions nor does it impose an automatic stay on any proceedings or arbitration that have already commenced, although this can simultaneously be achieved by other means. The right to litigate or arbitrate is also not directly affected by engaging in ADR. Unless the parties have agreed they will try an ADR process before issuing proceedings, litigation or arbitration can be commenced or continued whilst ADR is pursued and will be available if no settlement is secured.
Is ADR compulsory and if so are there any consequences if a party fails to engage in ADR? If it is not compulsory are there any plans for this to change?
The Department of Justice launched the “Mediate First” Pledge campaign in 2009. Under this campaign, pledgees make a non-binding commitment to explore the use of mediation as a means to resolve disputes before resorting to arbitration or court litigation. As of March 2024, over 850 entities and individuals had made the pledge.
ADR is not compulsory in Hong Kong and there have been no announcements regarding any plans to make mediation compulsory. However, civil proceedings are required to be conducted in line with the underlying objectives of the Civil Justice Reform (CJR), one of which is to facilitate the settlement of disputes. Where appropriate, the court is entitled to encourage the parties to use and facilitate their use of ADR procedures. The Practice Direction 31, which applies to all civil proceedings in the Court of First Instance and the District Court, requires parties to file mediation certificates explaining whether they are willing to try mediation, and if not, the reason for such refusal. Furthermore, the court has power to make an adverse costs order against a party which unreasonably refuses to attempt mediation.
Can the parties agree, in advance of any potential dispute, to engage in ADR?
Yes. The parties can agree in advance that they will or may try one or more ADR methods to resolve any dispute that may arise, and many commercial contracts will include dispute resolution clauses, involving one or more of these methods. This has the advantage of putting ADR automatically “on the agenda” in the event of a dispute and providing a mechanism for reaching a quick solution.
When does ADR generally take place?
ADR can take place any time from pre-issue to appeal but the optimum timing in any dispute will depend on the particular circumstances, including whether the issues in dispute are sufficiently clear.
Is ADR subject to without prejudice privilege and/or confidential? If not, is there any other means to protect confidential information?
Yes. ADR in Hong Kong is generally confidential and will be protected by without prejudice privilege. Specifically, the confidentiality of mediation communications is protected under the Mediation Ordinance (Cap. 620 of the Laws of Hong Kong). However, parties may choose to sign a separate confidentiality agreement to provide additional clarity and reinforce the confidentiality obligations during mediation or other ADR processes.
Does the output from ADR create precedents?
As ADR is private, it does not create a precedent and helps avoid adverse publicity associated with a court judgment. For this reason, it is unsuitable if a party needs a court decision allocating blame or require an injunction. A settlement achieved through ADR is usually recorded in a written agreement which will be enforceable between the parties. It is generally not binding on third parties.
Who bears the costs of ADR?
Typically the parties share the costs of ADR, albeit it is open to the parties to agree something different as part of the settlement terms.
Is your jurisdiction subject to any specific rules for cross border ADR?
In August 2019, the PRC signed the United Nations Convention on International Settlement Agreements Resulting from Mediation (Singapore Convention), which is not yet in effect in the PRC. When the Singapore Convention on Mediation takes effect in the PRC, Hong Kong will also become subject to its provisions. For more details on the impact of the Singapore Convention, please refer to the “England and Wales” section.
The Hong Kong Government and the PRC Ministry of Commerce entered into an Investment Agreement under the framework of the Mainland and Hong Kong Closer Economic Partnership Arrangement in 2017. The Investment Agreement provides a mediation mechanism for the settlement of cross-border investment disputes.
Following the signing of the Joint Statement on the Future Establishment of The International Organization for Mediation (IOM) by China and other countries, including Indonesia, Pakistan, and Cambodia etc in 2022, the negotiations on the Convention on the Establishment of the IOM (IOM Convention) have been concluded, and the signing ceremony for the IOM Convention will be held in Hong Kong in 2025. The IOM will be headquartered in Hong Kong and will be the first intergovernmental organization dedicated to resolving international disputes through mediation.
Are there any particularly unusual features of ADR in your jurisdiction that you are aware are different to other jurisdictions?
In Hong Kong, no specific disputes are prohibited from using ADR. There is no obligation for mediators in Hong Kong to be legally qualified.
Contacts
© Eversheds Sutherland. All rights reserved. Eversheds Sutherland is a global provider of legal and other services operating through various separate and distinct legal entities. Eversheds Sutherland is the name and brand under which the members of Eversheds Sutherland Limited (Eversheds Sutherland (International) LLP and Eversheds Sutherland (US) LLP) and their respective controlled, managed and affiliated firms and the members of Eversheds Sutherland (Europe) Limited (each an "Eversheds Sutherland Entity" and together the "Eversheds Sutherland Entities") provide legal or other services to clients around the world. Eversheds Sutherland Entities are constituted and regulated in accordance with relevant local regulatory and legal requirements and operate in accordance with their locally registered names. The use of the name Eversheds Sutherland, is for description purposes only and does not imply that the Eversheds Sutherland Entities are in a partnership or are part of a global LLP. The responsibility for the provision of services to the client is defined in the terms of engagement between the instructed firm and the client.