Setting up a one-stop shop to mediate financial disputes
David Smyth and Warren Ganeshof Smyth & Co consider Hong Kong's new financial dispute resolution scheme
Anyone (particularly insomniacs) watching a local television channel in Hong Kong recently may have seen the public broadcast advertisement for Hong Kong's new Financial Dispute Resolution Centre (FDRC).
The FDRC is a "one-stop shop" for the settlement of disputes between certain individual investors and regulated financial institutions in Hong Kong.
The dispute resolution process is mediation and arbitration (a form of "med-arb"). The financial institution should be regulated by the Securities and Futures Commission or the Hong Kong Monetary Authority. Institutions providing credit rating services are excluded.
An individual investor who believes he or she has an eligible claim against a financial institution can lodge a written claim with the FDRC.
The FDRC can offer "briefing sessions" in Cantonese or English to prospective claimants.
In short, an eligible claim is one that: (i) arises out of, among other things, a financial service provided by a financial institution regulated by the SFC or the HKMA; (ii) is by an individual or a sole proprietor who has (or had) a "customer relationship" with, or has been provided with a financial service by, a financial institution; and (iii) is for not more than HK$500,000 (or the foreign currency equivalent) including interest.
The power to determine whether a claim is an eligible claim lies with the dispute resolution centre. The centre's terms of reference are required reading for prospective claimants and financial institutions' in-house lawyers and compliance officers.
An individual has to give written notice of his or her claim to the financial institution and give it at least 60 days to reply or receive a final written reply, before filing a claim with the FDRC.
Assuming there is no satisfactory resolution, the claimant should complete a FDRC application form and deliver it in person (together with supporting documents) to the FDRC. There is a non-refundable fee of HK$200.
The mediation and arbitration fees are set out in Annex 1 of the FDRC's terms of reference, with the financial institution paying the lion's share.
The fees are less expensive than most ordinary commercial mediations or arbitrations.
If a claimant lodges a complaint with the Insurance Claims Complaints Bureau or begins legal proceedings (including proceedings in the Small Claims Tribunal) against the financial institution, while his or her claim is being processed by the FDRC, the claim before the resolution centre will be discontinued.
Mediation is a confidential dispute resolution process facilitated by a neutral third party.
The mediator will be chosen from the FDRC list of approved mediators. In lower value claims, the choice is limited to a few names offered by the FDRC.
The mediator should begin the mediation as soon as possible after his or her appointment.
The mediation will normally be limited to four hours but can be extended with the agreement of the parties.
The mediator has no power to make a monetary award. The mediation will be facilitative only.
The outcome of the mediation does not establish liability or fault on the part of any of the parties beyond the enforcement value set out in the settlement agreement.
If the dispute cannot be resolved by mediation, the claimant can make a written request to proceed to arbitration before a suitably qualified arbitrator from the FDRC list of approved arbitrators.
The claimant does not have to proceed to arbitration. Arbitration is also confidential but more formal than mediation.
The arbitration will usually be "documents-only".
An "in-person" arbitration hearing will only be allowed if the arbitrator decides that is necessary and the parties are willing to pay the extra fees.
An arbitrator may permit legal representation at an "in-person" arbitration; in that event, recoverable legal costs are capped at HK$25,000.
An arbitration award cannot exceed HK$500,000 (inclusive of interest).
Parties are, of course, entitled to take legal or expert advice with respect to their rights. However, legal fees will not be recoverable in the mediation and lawyers (including in-house lawyers) will not be allowed to attend the mediation.
A party may be accompanied, however, by one or more persons who are not their legal representative to assist and advise them during an FDRC mediation.
Let's hope so. The FDRC has only been up and running since June 19 so it is too early to say. As we note in the opening remarks, it was set up after the fallout from, among other things, the mini-bonds saga.
Certain financial institutions are alleged to have been over-aggressive in their sales techniques and, in a sense, the dispute resolution scheme is one solution.
An aggrieved investor is not bound to go to the FDRC and can seek to settle his grievance directly with the financial institution or litigate or walk away and move on with his life.
Interestingly, while the individual claimant has the choice of whether or not to refer his or her claim to the FDRC, once that claim is accepted the scheme is triggered and the financial institution is obliged to accept the FDRC's jurisdiction, unless the claim is satisfactorily resolved by other means.
The FDRC can issue a letter or notice to a financial institution and/or inform the relevant regulator if the institution fails to comply with its obligations under the FDRC's terms of reference.