In Hong Kong, dispute resolution has evolved significantly over the past few decades, and mediation and arbitration are now often seen as preferred alternatives to traditional litigation. These methods, collectively referred to as Alternative Dispute Resolution (ADR), can be advantageous in terms of cost, time efficiency, flexibility, and privacy, and Hong Kong’s dynamic status as an international business hub with its robust legal infrastructure, has made it a centre for ADR in Asia.
What is Mediation?
Mediation is a private dispute resolution process where parties to a dispute participate voluntarily. It is facilitated by a trained and neutral mediator who helps parties communicate and ideally reach an agreement. The Mediation Ordinance provides a formal structure for the mediation process, ensuring transparency and fairness. However, the mediator typically guides the process according to the rules agreed upon by the parties, if any. The mediator does not decide the dispute but instead facilitates its resolution between the parties.
What is Arbitration?
Arbitration, on the other hand is also private but is a more formal process whereby parties submit their dispute to one or more independent arbitrators who are independent and typically possess expertise in the relevant subject matter of the dispute. The arbitration agreements are generally in writing and is typically included as a dispute resolution clause within the contract between the parties. The ‘arbitration award’ or ‘decision of the arbitrator’ is final and binding on the parties, similar to a judgment rendered by the Courts.
Historically, the old Arbitration Ordinance (Cap. 341) was based on a split regime, one for domestic arbitrations and the other for international arbitration which was governed by the UNCITRAL Model Law. Under the new Hong Kong Arbitration Ordinance (Cap. 609) effective from 1 June 2011, the distinction has been abolished and the Ordinance is now largely governed by the UNCITRAL Model Law, ensuring international compatibility, to enhance the law’s accessibility for arbitration users both within and outside Hong Kong, while reinforcing Hong Kong’s position as a regional hub for dispute resolution.
The benefits of mediation and arbitration are:
- Cost and Time – Effectiveness
Mediation and arbitration are both generally more cost and time-effective than litigation. In litigation, legal fees can climb quickly, especially in lengthy disputes involving multiple court hearings. In contrast, mediation and arbitration are designed to resolve issues more efficiently, with fewer procedural steps and shorter timelines. This usually means lower legal fees and associated costs.
In Mediation, fewer hours of legal work are typically involved thereby reducing the cost. However, unlike Arbitration, the outcome is non-binding, which may lead parties to remain non-committal until they reach a binding settlement agreement.
Arbitration is also usually a quicker process than traditional litigation and parties can choose arbitrators with expertise in specific fields, reducing the need for lengthy legal explanations and technical briefings, thereby translating into cost savings. Moreover, Arbitral awards cannot be appealed and can only be annulled under specific circumstances as defined by local laws.
Another big advantage of both mediation and arbitration is the speed of the resolution. Hong Kong’s court system, while efficient, does still experience delays due to the volume of cases. This makes litigation a lengthy process, especially in complex commercial disputes.
In mediation, the process can be completed in a matter of weeks or even days, depending on the complexity of the case and the willingness of the parties to negotiate and settle the dispute.
Arbitration typicallyresolves disputes much faster than court trials too. Parties can agree on a timetable and conduct proceedings on mutually convenient schedules, bypassing the court calendar. - Flexibility and Control
Mediation and arbitration are both significantly more flexible than litigation. In traditional court settings, parties must adhere to strict procedural rules, and often have limited control over the timeline and outcome. However, with mediation, a collaborative environment is provided where parties have control over the negotiation process. The mediator does not make a binding decision but facilitates discussion to help parties reach a mutually agreeable settlement.
Arbitration offers flexibility in choosing the location, timing, and even the language of the arbitration. This level of control is particularly beneficial for international businesses in Hong Kong, as they can select arbitrators with specialised knowledge in their industry, offering a level of expertise that generalist judges may not have. This can be especially useful in technical or industry-specific disputes. - Confidentiality and Privacy
One of the most appealing aspects of mediation and arbitration is the level of confidentiality they both provide. Unlike court proceedings, which are typically public, ADR methods allow parties to keep the details of their disputes confidential. This is especially important in Hong Kong, where businesses value discretion in sensitive commercial matters.
The entire mediation process is private and any information disclosed during mediation cannot be used in future litigation, fostering open communication and encouraging settlement amongst parties.
Arbitration offers similar levels of confidentiality, and arbitration proceedings, evidence, and the final award are not disclosed to the public, providing businesses with the privacy they need to protect their reputation or disclosures to corporate strategy and trade secrets. - Enforceability of Awards
Hong Kong is a global leader in arbitration, thanks in large part to its recognition of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. This convention ensures that arbitration awards issued in Hong Kong can be enforced in over 160 countries worldwide. For businesses involved in cross-border disputes, this is a huge benefit.
While mediation agreements are not automatically enforceable, they can be incorporated into a consent order, which is enforceable in the courts. This means that mediation, despite its informal nature, can still lead to legally binding outcomes. - Preservation of Relationships
Both mediation and arbitration encourage collaboration over confrontation. In many instances, parties involved in disputes wish to preserve their business relationships and this is particularly true in employment, partnership and other disputes where maintaining an ongoing relationship is critical.
Litigation can be adversarial and often results in damaged relationships, making it difficult for parties to work together in the future.
Conclusion
By choosing mediation or arbitration, businesses can potentially avoid the high costs, lengthy timelines, emotional distress and public exposure that come with traditional litigation, making these ADR methods an attractive part of Hong Kong’s legal landscape. Hong Kong’s courts fully support ADR, and the judiciary actively encourages parties to use mediation and arbitration to resolve disputes before resorting to litigation.
