Disputed value

Mediation is a well-intentioned judicial tool that is often a waste of money. In light of recent news coverage, the Hong Kong courts may want to reconsider the policy of effectively forcing litigants to engage in the process.

On its face, mediation is an appealing idea. Before the parties to a lawsuit spend time challenging each others' evidence, filing applications and motions, and conducting an expensive trial, they sit down and try to resolve the dispute. The negotiations are led by a mediator, who is, at least in theory, a skilled third party who will not take sides.

When the conditions are right, mediation works. When the mediator is versed in the law and in human psychology, when the parties know the strengths and weaknesses of their respective positions, when everyone has voluntarily decided to invest face and faith in the process - under those conditions, cases settle.

The problem is that mediation in the principal Hong Kong trial courts is not truly voluntary. Since January last year, the Court of First Instance and the District Court have implemented a practice direction which creates a powerful incentive for litigants in certain cases to conduct mediation whether or not the circumstances warrant it.

Hong Kong is a 'loser pays' jurisdiction, one where the losing party has to pay the winner's legal fees. Under the practice direction, a winner can have the costs award reduced if he or she unreasonably refused to mediate.

The result, as revealed recently in this paper, should have been predictable. Parties who have no intention of settling their disputes now pantomime their way through mediation so that, in the event of ultimate victory, they can protect themselves from any cost reduction.

Recent rulings have exacerbated the problem. The Court of First Instance has ruled that there will be no costs reduction if the parties make a 'reasonable effort' in mediation - motivating parties to feign a reasonable effort. The trial court has also placed the burden of proof on the party refusing to mediate - granting tactical advantage to a party who agrees to do so in bad faith. While a High Court master has emphasised that the parties must act with sincerity, that determination can be difficult to make months later following a tumultuous trial.

Court-imposed mediation has a spotty record. A programme by the Los Angeles Superior Court resulted in litigants politely listening for the required three hours and then leaving. The appointed mediator in the United States vs Microsoft antitrust case was one of America's most distinguished jurists, but the parties were too entrenched to settle at that time. In any event, published success rates are meaningless, since any dispute that settles before final judgment can arguably be chalked up to the winnowing effect of the mediation.

The intent of the current practice direction is noble. The desire for reform is understandable when, as occurred in one case, parties can incur HK$4.7 million in legal costs litigating a HK$1 million dispute. But the best way to mete out justice is usually to try disputes expeditiously, not to impose potentially costly barriers over which litigants must half-heartedly jump.

Paul Karl Lukacs writes about law and media. pkl@nomadlaw.com