Mediation and "Adverse Costs Orders"

At the time of writing, Re Chow [2020] HKCFI 2020 is the latest reported case dealing with the court's power to make adverse costs orders against parties on the basis that they have unreasonably refused to mediate. The case is a salutary reminder that it is one thing to give reasons to refuse to mediate and quite another simply to refuse to engage in mediation.

The underlying dispute appears to have arisen in connection with an alleged loan between the parties who had cohabited for some ten years. At the end of a three-day trial, the plaintiff's claim for repayment of the alleged loan was dismissed and, as the "unsuccessful" party, she was ordered to pay the defendant's costs. The plaintiff applied to vary the costs order on the sole ground of the defendant's refusal to mediate. 

It appears that the defendant's refusal to mediate was based on his belief (correct as it transpired) that he did not owe any money to the plaintiff and, based on his perception of the plaintiff, that there was no room to make any concession. In short, the defendant did not wish to make any concession on liability, whether as part of a mediation process or at all. In dismissing the plaintiff's claim outright at trial, the court found her evidence to be "unsatisfactory" and "not consistent". Indeed, the court refers to the defendant as having been (among other things) "dragged into a litigation, which was found to be unmeritorious, but spanned over four years and he had incurred substantial legal fees …".

In all the circumstances, the court exercised its discretion to order that the plaintiff pay 80 percent of the defendant's costs (to be taxed, if not agreed). The court's decision to deprive the defendant of 20 percent of his costs exudes much common sense; the judge happens to be experienced in dealing with financial disputes arising out of relationships that apparently turn sour. 

The limited costs sanction against the defendant as the "successful" party reflects the fact that his case was strong and that he was not liable, together with the weaknesses in the plaintiff's evidence and her misjudgment in going to trial. That stated, the defendant's refusal to mediate was not (of itself) based on sound reasons because he could have attempted to mediate on the basis that there be no liability and no order as to costs. A simple refusal to mediate is unlikely to be reasonable, whether based on a perception that there is no room to concede anything or for any other reason. However, should there be good reason not to mediate, it is important that the reason be clearly explained and expressed in correspondence.

The court's decision on costs is a useful reminder of the general principles governing Practice Direction 31 (Mediation) and the relevance of the parties' conduct to the exercise of the court's discretion as to costs (Rules of the High Court, Order 62, rule 5(1)(e) and (2) and Hong Kong Civil Procedure 2020, 62/5/6 commentary). Besides considering mediation, whether parties make "open offers" of settlement, "without prejudice offers, save as to costs" or "sanctioned offers" is a matter that requires careful deliberation. 

The implementation of Practice Direction 31 was delayed until after the commencement of the civil procedure reforms in April 2009 and was the result of the wider consultation on civil justice reform. At its heart are the cardinal principles that mediation is a consensual process and the role of the parties' lawyers (where they are legally represented) is crucial to the process. Solicitors are duty bound, as a matter of professional conduct, to consider alternative dispute resolution processes for their clients (Guide to Professional Conduct, Principle 10.17). It is important that clients can rely on their legal representatives in taking decisions on alternative dispute resolution throughout the process. 

– Warren Ganesh, Senior Consultant, RPC 

Jurisdictions: 

Senior Consultant, RPC