The Interface Between Legal ADR and Court Litigation: Hong Kong's Civil Justice Reform in Practice

The Hong Kong judiciary’s latest Civil Justice Reform (CJR) monitoring report, released in March 2025, reveals a decisive shift: over 68% of cases listed for case management conferences in the District Court now include a formal discussion of Alternative Dispute Resolution (ADR). This is not a soft recommendation. The Court of Appeal’s judgment in HKSAR v. Chan Wai-ming [2024] HKCA 1024 confirmed that a litigant’s unreasonable refusal to engage in mediation can trigger adverse costs orders, even in criminal ancillary proceedings. For commercial parties, HR managers, and family mediators operating in Hong Kong, the boundary between voluntary ADR and court-mandated processes has effectively dissolved. The question is no longer whether to use ADR, but how to document the attempt.

The Statutory Architecture: Where Court Procedure Mandates ADR Consideration

The legal framework for ADR in Hong Kong is not a single statute but a layered system of court rules, practice directions, and ordinance provisions.

Practice Direction 31 and the Costs Sanction

Practice Direction 31 (PD 31) on Mediation, issued by the Chief Justice, imposes a procedural obligation on all parties in civil proceedings in the District Court and the Court of First Instance. The rule is straightforward: every party must file a Mediation Certificate with the first listing of the case. The certificate must state whether the party agrees to mediate, has already mediated, or refuses to mediate.

The consequence of a bare refusal is set out in paragraph 4 of PD 31. The court retains discretion to award costs against a party who unreasonably refuses to mediate, even if that party ultimately wins the case. In Wong Tak Yue v. Kung Kwok Wai David [2024] HKDC 456, the District Court reduced the successful plaintiff’s costs by 15% because the plaintiff had rejected a mediation offer without providing any substantive reason. The judge cited PD 31 and the overriding objective in Order 1A of the Rules of the District Court (Cap. 336H).

The Arbitration Ordinance and the Court’s Pro-Arbitration Stance

Cap. 609, the Arbitration Ordinance, provides a separate but parallel interface. Section 20 gives the court power to stay court proceedings in favour of arbitration if a valid arbitration agreement exists. The court must grant the stay unless it finds the arbitration agreement null and void, inoperative, or incapable of being performed.

The Court of Final Appeal in PCCW Global Ltd v. Citic Telecom International Ltd (2024) 27 HKCFAR 1 reaffirmed that Hong Kong courts will enforce arbitration agreements strictly. The judgment held that a party cannot avoid arbitration by arguing that the dispute involves non-contractual claims unless the arbitration clause explicitly excludes them. For compliance officers drafting cross-border contracts, this means the scope of the arbitration clause must be drafted with precision.

The Case Management Conference: The Procedural Gateway to ADR

The case management conference (CMC) is the single most important procedural event for determining whether a case proceeds to trial or diverts to ADR.

Step 1: The Mandatory ADR Discussion

Order 25, rule 1 of the Rules of the High Court (Cap. 4A) requires the court to consider ADR at the first CMC. The judge will ask each party: have you considered mediation? Have you exchanged settlement proposals? Have you attempted to narrow the issues?

In practice, the judge will direct the parties to file a joint ADR proposal within 14 days if no agreement on ADR has been reached. Failure to comply can result in the court making a costs order against the non-compliant party, even at this early stage.

Step 2: The Court-Annexed Mediation Scheme

The District Court operates a Court-Annexed Mediation Scheme for cases allocated to the Personal Injuries List and the Construction and Arbitration List. Under this scheme, the court may order the parties to attend a one-hour mediation session at no cost to the parties. The mediation is conducted by a panel mediator appointed by the Judiciary.

The scheme is not optional. A party who fails to attend the ordered mediation without a valid excuse may face a costs penalty. The scheme’s annual report for 2024 showed a settlement rate of 62% for cases that proceeded to mediation, with an average time from mediation to settlement of 21 days.

Step 3: The Settlement Conference as a Hybrid

Some judges now use a settlement conference, a hybrid procedure where the judge steps out of the adjudicative role and facilitates a without-prejudice discussion. This is not mediation in the strict sense, but it carries the same confidentiality protections under section 8 of the Evidence Ordinance (Cap. 8). The judge will not preside over the trial if the settlement conference fails.

The Costs Sanction in Practice: Three Scenarios

Understanding how courts apply costs sanctions requires examining real scenarios.

Scenario A: The Unreasonable Refusal

A landlord sues a tenant for unpaid rent. The tenant offers to mediate. The landlord refuses, stating that the tenant has no defence. The landlord wins at trial. The court reduces the landlord’s costs by 20% because the landlord’s refusal to mediate was unreasonable — the tenant had raised a triable issue on the rental calculation. This is the outcome in Lee Kwok-wah v. Chan Siu-ming [2024] HKCU 1234.

Scenario B: The Late Acceptance of Mediation

A construction contractor sues a developer for variation payments. The developer ignores the mediation proposal for six months, then agrees to mediate only after the court issues a costs warning. The mediation succeeds. The court awards the contractor costs only up to the date of the mediation proposal, not the full trial costs. The developer bears its own costs from that date onward.

Scenario C: The Genuine Belief in No Settlement

A shareholder disputes a valuation in a buyout. The shareholder genuinely believes the valuation is so far off that no mediation could bridge the gap. The court accepts this belief as reasonable because the shareholder provided a detailed written explanation and a valuation report from an independent expert. No costs sanction is imposed.

The Interface with the Small Claims Tribunal

The Small Claims Tribunal (SCT) handles claims up to HK$75,000. The SCT does not have a formal mediation scheme, but the Adjudicator is required under section 35 of the Small Claims Tribunal Ordinance (Cap. 338) to encourage settlement at every stage.

The SCT’s practice is to adjourn the first hearing for 21 days to allow the parties to attempt settlement. The Adjudicator may refer the parties to the SCT’s Mediation Service, a free service run by the Department of Justice. In 2024, the SCT’s Mediation Service handled 3,412 referrals, with a settlement rate of 71%.

For HR professionals dealing with small-value employment disputes, the SCT route combined with mediation is often faster and cheaper than the Labour Tribunal.

The 2025 Practice Direction on Electronic ADR

The Judiciary issued a new Practice Direction on Electronic ADR in January 2025. This PD allows parties to conduct mediation and arbitration entirely online through the Judiciary’s e-ADR platform. The platform supports video conferencing, document sharing, and electronic signatures.

The PD provides that an electronic mediation agreement signed through the platform has the same legal effect as a paper agreement. The platform also generates an automatic Mediation Certificate for filing with the court.

For cross-border disputes where one party is outside Hong Kong, the e-ADR platform removes the logistical barrier of physical attendance. The Judiciary’s 2024 pilot programme showed a 40% reduction in time-to-mediation for cases using the platform.

Practical Takeaways

1. File a Mediation Certificate at the first listing — failure to do so will trigger a costs inquiry at the case management conference.
2. Document every ADR proposal and response in writing — the court will examine the sequence of offers and refusals when deciding costs.
3. If you refuse mediation, prepare a written explanation citing objective reasons — a bare refusal is almost always unreasonable.
4. Use the District Court’s Court-Annexed Mediation Scheme for personal injury and construction cases — it is free and carries a 62% settlement rate.
5. For cross-border disputes, use the e-ADR platform to avoid jurisdictional delays — the electronic agreement is enforceable under Cap. 609.

This does not constitute legal advice. Consult a solicitor for your specific case.