Everyday Application of ADR Terminology: How to Explain Alternative Dispute Resolution Concepts to Clients

Disclaimer: This article provides general information on court procedures and legislative provisions in Hong Kong. It does not constitute legal advice. Consult a qualified solicitor for advice on your specific case.

The Hong Kong Judiciary’s 2024 Annual Report recorded 50,849 cases filed in the District Court’s Personal Injuries and Employees’ Compensation lists. A further 9,842 new claims entered the Small Claims Tribunal. These figures, published in January 2025, represent the highest volume in five years. For commercial disputes, the Hong Kong International Arbitration Centre (HKIAC) reported a 25% increase in new arbitration filings in 2024 compared to the previous year. Against this backdrop, the ability to clearly explain Alternative Dispute Resolution (ADR) concepts to a client is no longer a specialist skill—it is a core competency for any legal professional or HR manager in Hong Kong. Clients who understand their options are more likely to engage meaningfully in the process, saving time, costs, and preserving business relationships. This article provides a practical framework for explaining the three primary ADR methods—mediation, arbitration, and adjudication—using terminology and examples relevant to the Hong Kong legal landscape.

Mediation: The Facilitated Negotiation

Mediation is a voluntary, confidential process where a neutral third party, the mediator, assists the parties in reaching a mutually acceptable settlement. The mediator does not impose a decision. The legislation governing mediation in Hong Kong is primarily the Mediation Ordinance (Cap. 620), which came into full operation in 2013. The key point to explain to a client is that the mediator controls the process, but the parties control the outcome.

Explaining the Role of the Mediator

Many clients, particularly those familiar with litigation, expect the mediator to act like a judge. You must correct this expectation from the outset. The mediator’s role is to facilitate communication, identify underlying interests, and explore options for settlement. The mediator does not decide who is right or wrong. Under Cap. 620, s. 4, mediation communications are generally inadmissible in court proceedings. This confidentiality is a critical selling point. A client can discuss settlement positions openly without fear that those statements will be used against them later in court.

The Mediation Process in Practice

Step 1: The parties sign a Mediation Agreement. This document, governed by common law contract principles and the Mediation Ordinance, sets out the ground rules, fees, and confidentiality obligations.

Step 2: The mediator holds a joint session. Each party makes an opening statement. The mediator then typically moves to private caucuses—separate meetings with each party. This is where the real work happens.

Step 3: The mediator shuttles offers and counter-offers between the parties. The client should understand that the mediator cannot disclose information from one caucus to the other without permission.

Step 4: If settlement is reached, the parties sign a Settlement Agreement. This is a legally binding contract. If a party breaches it, the other party can sue on the contract, not on the original dispute.

A common question from clients is: “What happens if we don’t settle?” The answer is straightforward: the case proceeds to arbitration or litigation. The mediation was a “without prejudice” negotiation. The court procedure is not affected by the failed mediation, except in costs. Under the Practice Direction on Mediation (PD 31), the court may impose adverse costs consequences on a party that unreasonably refused to mediate.

Arbitration: The Private Trial

Arbitration is a private, binding process where the parties submit their dispute to one or more arbitrators. The arbitrator’s decision, called an award, is final and enforceable in court. The primary legislation is the Arbitration Ordinance (Cap. 609), which is based on the UNCITRAL Model Law. The critical distinction for a client is that arbitration produces a binding result, unlike mediation.

The Arbitration Agreement is the Foundation

The entire arbitration process rests on the parties’ agreement to arbitrate. This agreement is usually found in a clause within a commercial contract. The Hong Kong courts have a strong pro-arbitration stance. Under Cap. 609, s. 20, a court must stay legal proceedings if the dispute is subject to a valid arbitration agreement, unless the agreement is null and void, inoperative, or incapable of being performed. You must advise the client to check their contract immediately. If the contract contains a clause referring disputes to the HKIAC, the client cannot sue in court.

The Arbitral Process Compared to Court

A client familiar with litigation will ask about discovery, hearings, and appeals. The explanation is as follows:

• Discovery: Discovery in arbitration is generally more limited than in court. The HKIAC Rules (2018) provide for document production based on the IBA Rules on the Taking of Evidence. The client should expect to produce only documents that are directly relevant and material to the outcome.
• Hearings: Arbitration hearings are private. The public cannot attend. This is a major advantage for commercial parties who wish to keep disputes confidential.
• Appeals: The right to appeal an arbitral award is extremely limited. Under Cap. 609, s. 73, an appeal lies to the Court of First Instance only on a question of law, and only with the consent of all parties or the leave of the court. This finality is a feature, not a bug. The client must understand that they are buying a final, binding result.

Enforcement of the Award

Hong Kong is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. An award made in Hong Kong can be enforced in over 170 jurisdictions. Within Hong Kong, enforcement is straightforward. Under Cap. 609, s. 84, an award may be enforced in the same manner as a judgment of the court, with the leave of the Court of First Instance. This is a powerful tool for a client who needs to collect money from a defaulting party.

Adjudication: The Fast-Track Decision

Adjudication is a statutory process primarily used in the construction industry. It provides a rapid, interim binding decision on payment disputes. The governing legislation is the Construction Industry Security of Payment Ordinance (Cap. 648), which came into full operation on 1 September 2021.

How Adjudication Differs from Arbitration

The key difference is speed and finality. An adjudicator must make a decision within 55 working days of the adjudication application. The decision is binding on an interim basis. This means the paying party must pay the amount determined, even if they intend to challenge the decision later in arbitration or litigation. The client must understand that adjudication is about cash flow, not final determination of rights.

The Statutory Framework Under Cap. 648

The Ordinance applies to construction contracts (including subcontracts) that relate to construction work carried out in Hong Kong. The process is triggered by a payment claim. If the respondent fails to serve a payment schedule or fails to pay the scheduled amount, the claimant can apply for adjudication. The adjudicator is appointed by the Hong Kong Mediation and Arbitration Centre (HKMAAC) or another nominating body.

A critical provision is s. 37 of Cap. 648. It provides that a party must not suspend or terminate a contract solely because the other party has applied for adjudication. This prevents tactical abuse. The client should also be aware of s. 52, which makes it a criminal offence to knowingly provide false or misleading information in an adjudication application or response. This is a serious matter with potential fines and imprisonment.

Practical Example: A Construction Payment Dispute

Consider a scenario: Main Contractor Ltd. hires Subcontractor Co. for foundation works. The contract value is HK$5,000,000. Subcontractor Co. issues a progress claim for HK$1,200,000. Main Contractor Ltd. does not serve a payment schedule within 30 days. Subcontractor Co. can apply for adjudication. The adjudicator orders Main Contractor Ltd. to pay the full HK$1,200,000 within 14 days. Main Contractor Ltd. must pay, even if it disputes the quality of the work. The dispute over quality can then proceed to arbitration or litigation. The client must understand that the payment obligation is immediate and enforceable.

Choosing the Right Path: A Decision Framework

The decision between mediation, arbitration, and adjudication depends on the specific circumstances. The following framework helps a client ask the right questions.

Question 1: Is there a pre-existing agreement?

Check the contract. If there is an arbitration clause, arbitration is mandatory. If there is a dispute resolution clause that mentions mediation but does not make it mandatory, the client can still choose to mediate. If the contract is a construction contract for work in Hong Kong, the client may have a statutory right to adjudication under Cap. 648, regardless of what the contract says.

Question 2: What is the client’s primary objective?

• Preserve the relationship: Mediation is the best option. It is collaborative and forward-looking.
• Obtain a binding result quickly: Arbitration offers finality but takes time. Adjudication is faster but interim.
• Get paid now: For construction disputes, adjudication is the only route that provides an interim binding payment order.
• Maintain confidentiality: Both mediation and arbitration are private. Litigation is public.

Question 3: What is the amount in dispute?

The Small Claims Tribunal has jurisdiction over claims up to HK$75,000. The District Court handles claims between HK$75,000 and HK$3,000,000. The Court of First Instance handles claims above HK$3,000,000. For arbitration, there is no monetary limit, but the costs must be proportionate. For adjudication, there is no minimum amount, but the process is designed for payment disputes in construction.

Actionable Takeaways

1. Identify the dispute resolution clause first. Before any other step, locate the clause in the contract that governs how disputes are resolved. This determines the forum and the process.
2. Explain mediation as a “without prejudice” negotiation. Emphasise that the mediator does not decide the case and that all communications are confidential under Cap. 620.
3. Clarify that arbitration is binding and final. The right to appeal is extremely limited under Cap. 609. The client is buying finality, not a second chance.
4. Use adjudication only for payment disputes in construction. It is a fast, interim remedy under Cap. 648. The decision is binding but subject to later review by a court or arbitral tribunal.
5. Document all settlement agreements in writing. Whether reached in mediation or adjudication, a signed settlement agreement is a contract. Ensure it is drafted clearly to avoid future disputes.