What is Mediation?

Mediation is designed to help parties in dispute to resolve their differences amicably as an alternative means to conventional litigation in court, and is therefore known as an ADR process (i.e. alternative dispute resolution). A trained and impartial third person, the mediator, would help the parties reach a settlement that is responsive to their needs and acceptable to them. It is believed that the expertize, experience and impartiality of the mediator may provide a communication channel and cool down the heat between the parties so as to enhance the chance of success of reaching settlement.

Duty to Participate in Mediation

The Lands Tribunal implemented a pilot scheme in January 2008 to streamline processing of building management cases. The scheme applied to cases with legal representation on both sides and encouraged parties to proceed with mediation or other means of alternative dispute resolutions.

With the Civil Justice Reform came into operation on 2^nd April 2009, a new “Practice Direction 31 – Mediation” was introduced by the Judiciary. It applies to all building management cases (whether or not the parties are represented by lawyers as in the previous scheme) and the parties are required to comply with the said Practice Direction to attempt settling their disputes through mediation.

Although it is said that mediation is a “voluntary process”, in reality, the “voluntary process” is more or less compulsory. The Judiciary states, “in exercising its discretion on costs, the Court takes into account all relevant circumstances”, including any unreasonably failure of a party to engage in mediation. In other words, a winning party who has unreasonably refused to participate in mediation by attending at least one mediation session will likely be unable to recover some or all of his cost against the losing party.

On the question of what constitutes unreasonable refusal to conduct mediation, in the English case Halsey v Milton Keynes General NHS Trust [2004], the Court of Appeal said that the court might not order costs sanction against a party who refused to participate in mediation under the following scenarios:-

When the defendant’s defence is overwhelming and the claimant’s unmeritorious claims might invite mediation as a tactical ploy to exert pressure on the defendants to settle;

The costs relating to the mediation was disproportionate to the costs for a trial;

The proposal to mediation was made too late; and

The case itself is not suitable for mediation, i.e. where the case involved arguments purely on points of law, or the party considered that a binding precedent would be useful.

However, in the subsequent Hong Kong case of Golden Eagle International (Group) Ltd. v GR Investment Holdings Ltd.[2010], the court opined that the English decision was not binding in Hong Kong. It highlighted the following matters:-

There will be no adverse costs order if the parties have participated in mediation up to the “minimum level of participation”, i.e. agree on the identity of the mediator and details of the mediation and attend one session of mediation. It should not be difficult for a party to comply with it.

In case of a nuisance claim, the defendant should not refuse to participate in mediation only for saving costs. Indeed, the costs involved in such participation would usually not be high when compared with the costs of the whole action up to trial.

The costs of mediation can be included as part of the legal costs and recoverable by the successful party. Hence, even if the mediation is unsuccessful, the winning party may seek against the losing party his costs incurred for participating in the mediation.

In light of the observations of the High Court mentioned above, it may perhaps be unwise for a party to litigation to refuse to participate into mediation at all even if his case falls into one of the scenarios mentioned in the said English decision.

It should be noted, however, that as analysed below, the incorporated owners (“IO”) or managers may in some cases stand in a different position, and there are cases where a successful IO is not deprived of its cost although it refuses to mediate.

Practical Benefits of Mediation

Chance of Face-to-face Communication

It is sometimes more effective to have face-to-face discussion rather than attempting to convince the opposite side by correspondence or telephone conversations between solicitors. Messages may not be directly or accurately conveyed to the opposite party, as different people may hold different legal opinion, and such opinion may be twisted or

undermined when it is conveyed by a third party using different wordings and tone. Mediation would provide a forum for in-depth face-to-face discussions between the parties personally. In building management cases, the dispute is often not for pecuniary interest, but rather matters like whether a resolution is validly passed in a meeting of the owners or the management committee. Some litigants choose to go to the court for emotional reasons. If they have a chance to have a sensible face-to-face dialogue with the other party, they may have their emotion vented or calmed down and differences resolved.

Lobbying by the Mediator

Being a middle man, the mediator may use his skill to explore the parties’ respective position and bottom line. While mediator is not supposed give legal opinion to either side during the mediation, he may analyse the advantages and disadvantages of continuing with the litigation, and sometimes the strength and weakness of the parties’ case. As he is supposed to be a disinterested third party, his opinion and analysis may be more readily received by the litigants.

Points to Note for Managers and IO

Decision on Law/Interpretation of DMC

There are decided cases in which the Hong Kong courts held that IO had justifiably refused to mediate. In The Incorporated Owners of Shatin New Town v Yeung Kui [2010], the owner of a flat disputed the amount he was required to contribute to the renovation costs of the residential premises of the estate. He succeeded before the Lands Tribunal but lost the appeal. He then applied for review of the costs order made against him on the ground that the IO had refused to resolve the dispute through mediation. He argued that the unreasonably failure by the IO to make a good faith attempt to mediate should be taken into account when deciding on costs.

The Court of Appeal said that in determining whether a party has acted unreasonably in refusing to proceed with mediation, it would take into account all the relevant circumstances. Since the dispute between the parties ultimately involved a decision on law concerning the correct interpretation of the terms of the DMC, the IO had a responsibility in applying the DMC correctly whether in the case before them or in future. IO cannot be blamed if they would like to have a court decision on the effect of the DMC under such circumstances. Hence an adverse costs order should not be made against the IO in that particular case on the ground of its refusal to participate in mediation.

Similarly, in The Incorporated Owners of Greenwood Terrace v U-Teck Limited [2012], the IO disagreed with one of the shop owners as to how the expenses for the repair of the

waterproofing membrane beneath the roof floor of the non-domestic premises of the development should be shared amongst various owners.

The Tribunal decided the case in the IO’s favour, and the shop owner contended that the Land Tribunal should take into account IO’s refusal to mediate in deciding the appropriate cost order to be made. The Tribunal said that the IO was asking for a declaration to determine the rights and obligations amongst the owners. With such a relief being sought, a determination by the court was a must and mediation was not suitable.

Considering the argument of the DMC clause in dispute may arise from time to time by other shop owners, the court considered that the IO’s intention to have a precedent on the interpretation of the DMC is “well justified since this will be essential for the future discharge of its duty.”

In the circumstances, when it comes to cases that involve interpretation on arguable DMC clauses, IO or Managers may be excused for failing to mediate. The court may consider that it is not unreasonable for them to obtain a precedent for future guidance of their work, and as a message to all the owners of the building from time to time how the DMC provisions should be interpreted, and hence what the owners’ rights and obligations are in law. This may save time and cost for similar disputes which, but for the decision, may arise from time to time in future. However, bearing in mind that the time and cost to be consumed for a mediation session is not relatively large compared to the time and cost for litigation, it may not be prudent for the IO and Manager not to attempt mediation merely on the strength of the said decisions.

Concession

Property managers and the IO are often acting as the representative of all the owners and not in their personal capacities in building management litigation. They also have the duty in law to enforce the provisions of the DMC instead of waiving their compliance. Hence, they should not make substantial concession in a meritorious enforcement action purely with a view to reaching settlement. For example, while they may allow an owner more time to demolish an unauthorized structure posing no danger, they should think twice if they intend to permit its continued existence when breach of DMC has been clearly established. Otherwise, they may set a bad example and may be blamed for failing to fulfill their duty to enforce the DMC. Also, they should not waive any claim for money of substantial amount without good reason simply because they are not recovering their own money, but money belonging to all the owners.

Confidentiality

Mediation is supposedly a confidential process. This means that all communications conducted in the course of mediation should generally be kept confidential. The

confidentiality requirement would enable the parties to talk freely so as to facilitate settlement. However, as stated above, since the property manager or the IO are acting as representatives of the owners and not in their personal capacity, they may need to report to other owners the progress of the mediation and the terms of settlement reached. Some managers and members of the management committee may even prefer putting forward the proposed terms of settlement for decision by the owners in the general meeting. Therefore, managers and IO should seek proper legal advice on the confidentiality provision often contained in the mediation agreement to ensure that they are in a position to comply with its requirements, while fulfilling their duty to report and account to the owners.

Finding the Mediator

There are Joint Mediation Helpline Office and Mediation information Office (for litigants in person) in High Court. Whereas the Lands Tribunal has a Building Management Mediation Coordinator’s Office which holds information sessions providing parties to building management disputes with information about mediation and a list of mediators may be obtained from them.

One may also find a mediator through professional bodies like the Law Society, The Hong Kong Mediation Council of the Hong Kong International Arbitration Centre and The Hong Kong Mediation Centre. Lists of accredited mediators and their charges may be obtained. If a party is represented by solicitors, the solicitors will usually recommend mediators whom they have worked with to their clients.

Conclusion

Speaking from our experience, more than half of the court cases going to mediation end with success (during the mediation session or in the follow-up negotiation conducted soon afterwards). We believe that mediation is effective means to resolve disputes in civil litigation, especially building management cases which often do not involve any or any substantial sum of money. Litigation is a relatively slow and expensive process and a lose-lose game, when even the winning party will usually be deprived of some of his cost, not to mention the time and energy incurred. In the said Shatin New Town’s case, the owner disputed the extent of his liability in contributing to the cost for the major renovation of the estate, but the difference was only some

$5,000. At the end, he had to pay legal fees of huge sums and might even need to sell his flat for such purpose. The Court of Appeal commented that “the quintessential reasonable man on the Shau Kei Wan tram is bound to wonder whether a system which permits such a nonsensical situation to develop should remain in place in its present form, and that consideration should be given to devising an alternative method of resolving disputes between individual owners and Incorporated Owners in any residential development which does not contain therein the seeds of commercial disaster.” A lot of building management litigation falls into that category. A

professional building manager should advise the IO and the owners concerned to consider seriously resorting to ADR like mediation to resolve the dispute instead of going to court.

[END]

Li, Kwok & Law Solicitors & Notaries November 2019

“This article is for general reference only and should not be acted upon in any actual case. Further, the information contained in the article may not be updated. The readers should consult their solicitors for legal opinion.”

Mediation in Building Management Disputes