Mediation and arbitration in Hong Kong: checking the difference

The difference is not one of tone or cost. It is a difference in who decides. Under the Mediation Ordinance, mediation is a structured process in which one or more impartial individuals assist the parties without adjudicating the dispute or any aspect of it. Under the 2024 HKIAC Administered Arbitration Rules, the tribunal makes an award which, by Article 35.2, shall be made in writing and shall be final and binding on the parties.

That contrast is only the start. Whether the HKIAC Rules govern your arbitration at all depends on Article 1 of those Rules, and the seat of the arbitration is a separate question from where hearings physically take place.

	Mediation (Mediation Ordinance, s.4)	Arbitration (2024 HKIAC Rules)
Role of the third party	Impartial individual(s) assist; no adjudication	Tribunal decides by award
Possible outcome	Parties may reach agreement on the whole or part of the dispute	Award in writing, final and binding (Art. 35.2)
Form	Structured process of one or more sessions	Single or separate awards; interim, interlocutory, partial or final (Art. 35.1)
Where the rules come from	The Ordinance’s definition of mediation	The arbitration agreement; the Rules’ own scope clause in Article 1

What the Mediation Ordinance actually says

Section 4 describes mediation as a structured process comprising one or more sessions, in which one or more impartial individuals, without adjudicating a dispute or any aspect of it, assist the parties to do any or all of the following:

• identify the issues in dispute;
• explore and generate options;
• communicate with one another;
• reach an agreement regarding the resolution of the whole, or part, of the dispute.

Two things follow from the wording. A mediator does not produce a determination, and the definition does not promise that an agreement will be reached — reaching agreement is one of the things the process may assist the parties to do.

What an HKIAC arbitral award looks like

Article 35 sets out the mechanics, and it is worth reading before you compare the two processes:

• 35.1 — the tribunal may make a single award or separate awards on different issues at different times, in the form of interim, interlocutory, partial or final awards, and may also issue interim awards on costs and awards under Articles 41.5 or 45A.3.
• 35.2 — awards shall be made in writing and shall be final and binding on the parties and any person claiming through or under any of them. The parties and any such person waive their rights to any form of recourse or defence in respect of the setting-aside, enforcement and execution of any award, in so far as such waiver can validly be made.
• 35.3 — the parties undertake to comply without delay with any order or award of the tribunal or any emergency arbitrator.
• 35.4 — an award shall state the reasons on which it is based, unless the parties have agreed that no reasons are to be given.
• 35.5 — an award shall be signed by the tribunal, state the date it was made and the seat as determined under Article 14, and is deemed to have been made at the seat. Where there are three arbitrators and one fails to sign, the award must state the reason for the missing signature.
• 35.6 — the tribunal sends signed originals to HKIAC, which affixes its seal and, subject to any lien, communicates the award to the parties.

The qualifying words in 35.2 matter. The waiver of recourse operates only so far as it can validly be made, so “final and binding” under these Rules does not mean the award is beyond every form of legal challenge.

Which rules govern — start with Article 1

These are the HKIAC’s own rules for administered arbitration, not a code common to all Hong Kong arbitration. Article 1 defines their reach:

• 1.1 — the Rules govern arbitrations where the arbitration agreement (made before or after a dispute arises) provides for these Rules to apply, or, subject to Articles 1.3 and 1.4, provides for arbitration “administered by HKIAC” or words to similar effect.
• 1.2 — by agreeing to arbitration in accordance with Article 1.1, the parties accept that the arbitration shall be administered by HKIAC.
• 1.3 — naming HKIAC as appointing authority, or requesting certain administrative services from HKIAC, does not by itself subject the arbitration to these Rules. For the avoidance of doubt, the Rules do not govern arbitrations under other rules, including other rules adopted by HKIAC from time to time.
• 1.4 — the Rules came into force on 1 June 2024 and, unless the parties have agreed otherwise, apply to all arbitrations falling within Article 1.1 in which the Notice of Arbitration is submitted on or after that date.

So an arbitration can be connected to HKIAC — as appointing authority, or as a provider of administrative services — without being governed by this rulebook. The clause has to be read.

Seat and meeting place are not the same thing

Article 14 separates the two:

• 14.1 — the parties may agree on the seat of arbitration. Where there is no agreement, the seat shall be Hong Kong, unless the tribunal determines, having regard to the circumstances of the case, that another seat is more appropriate.
• 14.2 — unless the parties have agreed otherwise, the tribunal may meet at any location outside the seat for consultation among its members, hearing witnesses, experts or the parties, or inspecting goods, other property or documents. The arbitration shall nonetheless be treated for all purposes as an arbitration conducted at the seat.

A hearing held across the border does not move the seat. The award must state the seat determined under Article 14 and is deemed made there.

If the matter is already in court: Practice Direction 31

PD31 is a court direction with its own boundaries. It applies to all civil proceedings in the Court of First Instance and the District Court begun by writ, except the proceedings set out in Appendix A. It came into effect on 1 November 2014.

Points from Part A that bear on the mediation/arbitration choice:

• Meaning of ADR — a process whereby the parties agree to appoint a third party to assist them to settle or resolve their dispute. Settlement negotiations between the parties do not amount to ADR. Mediation is a common mode, and the PD applies to mediation.
• Arbitration is a different path — where the parties are engaged in arbitration proceedings, the court proceedings would be stayed and the PD would not apply to such proceedings.
• Costs — in exercising its discretion on costs, the Court takes into account all relevant circumstances, including any unreasonable failure of a party to engage in mediation where this can be established by admissible materials. Legal representatives should advise clients of the possibility of an adverse costs order.
• When no adverse order follows — where the party engaged in mediation to the minimum level of participation agreed or directed under paragraph 13; or where the party has a reasonable explanation. Active without prejudice settlement negotiations that are progressing are likely to provide such an explanation, though once they break down that basis is gone. Active engagement in some other form of ADR may also provide a reasonable explanation.
• Privilege — the Court cannot compel disclosure of, or admit, materials protected by privilege, including legal professional privilege and the privilege protecting without prejudice communications. What happens during the mediation process, being without prejudice communications, is protected by privilege.

A short checking order

Read the dispute resolution clause in your contract.

Write down the exact words used.

Note whether the clause names the HKIAC as administrator, as appointing authority only, or names a different set of rules.

Note the date the Notice of Arbitration was, or will be, submitted.

Check whether the clause fixes a seat.

Check whether any hearing location is described, and treat it as separate from the seat.

If court proceedings are already on foot, check whether PD31 applies and whether Appendix A excludes your case.

Take the clause to a lawyer qualified in Hong Kong before you sign, respond, or agree to a process.

Sources

• Department of Justice - Legal and Dispute Resolution Services
• 2024 HKIAC Administered Arbitration Rules (PDF)
• PD31 Mediation (Hong Kong Judiciary)
• PD31 Appendix A (Hong Kong Judiciary)