What Is Mediation? Voluntary and Compulsory Mediation Under the Hong Kong Mediation Ordinance

The Hong Kong Judiciary’s Annual Report for 2024 recorded 9,792 mediation-related directions issued across the District Court and the Court of First Instance, a 14% increase from the previous year. This figure reflects a structural shift: mediation is no longer a voluntary option that parties may choose to ignore. The Practice Direction on Mediation (PD 31) and the Mediation Ordinance (Cap. 620), which came into full effect in 2013, have created a framework where courts can compel parties to attempt mediation before trial. For commercial parties, HR professionals handling workplace disputes, and family mediation participants, the distinction between voluntary and compulsory mediation is not academic—it determines cost exposure, procedural timelines, and the risk of adverse costs orders. Understanding when mediation is mandatory, what the Mediation Ordinance requires, and how the courts enforce participation is essential for anyone entering litigation in Hong Kong in 2025.

The Legal Framework: The Mediation Ordinance (Cap. 620) and Court Practice Directions

What the Mediation Ordinance Covers

The Mediation Ordinance (Cap. 620) provides the statutory foundation for mediation in Hong Kong. Section 4 of the Ordinance defines mediation as a structured process where one or more neutral individuals assist parties in reaching their own settlement. The Ordinance does not create a compulsory duty to mediate. Instead, it establishes three core protections: confidentiality of mediation communications (Part 3), admissibility restrictions in subsequent proceedings (Section 8), and the legal effect of mediated settlement agreements (Section 14).

The Ordinance applies to all mediations conducted in Hong Kong, regardless of whether the dispute is commercial, family, or employment-related. Section 5 explicitly states that the Ordinance does not apply to mediation conducted by a judge or judicial officer. This carve-out preserves the judiciary’s ability to conduct case management conferences that may include mediation-like discussions without triggering the Ordinance’s confidentiality provisions.

The Role of Practice Direction 31 (PD 31)

PD 31, issued by the Chief Justice and effective since 2010, supplements the Ordinance by giving the court procedural power to direct parties to mediation. Paragraph 4 of PD 31 states that the court may, at any stage of the proceedings, direct the parties to consider mediation. The court may also adjourn proceedings to allow mediation to take place.

The critical enforcement mechanism is paragraph 5 of PD 31: if a party refuses to mediate without good reason, the court may take that refusal into account when making costs orders. The Court of Appeal in H v. S [2015] 4 HKLRD 767 confirmed that unreasonable refusal to mediate can result in a costs penalty, even if the refusing party ultimately wins at trial. This case established that the “winner takes all” costs rule is displaced where a party has unreasonably refused a genuine offer to mediate.

Compulsory Mediation: Where the Court Compels Participation

Compulsory mediation in Hong Kong operates through two mechanisms: court-ordered mediation under PD 31, and statutory mediation requirements in specific sectors.

The District Court Rules (Cap. 336H, Order 1A, Rule 3) require the court to further the overriding objective by encouraging and facilitating the use of alternative dispute resolution. In practice, District Court judges routinely issue mediation directions in personal injury cases, building management disputes, and employment claims. The Small Claims Tribunal (Cap. 338) has its own mediation scheme under Section 36A, where the Tribunal may refer cases to mediation with or without the parties’ consent.

In the commercial context, the Construction Industry Council’s Mediation Rules and the Labour Department’s conciliation services operate as quasi-compulsory gateways. The Labour Tribunal (Cap. 25) requires parties to attend a conciliation conference before the case can be set down for hearing. While this is technically conciliation rather than mediation, the practical effect is the same: parties must engage in facilitated negotiation before accessing the trial process.

Voluntary Mediation: Contractual and Institutional Frameworks

Mediation Clauses in Commercial Contracts

Voluntary mediation arises when parties agree, either before or after a dispute arises, to attempt mediation. The most common form is a contractual mediation clause. The Hong Kong International Arbitration Centre (HKIAC) publishes model mediation clauses that parties can incorporate into their contracts. The HKIAC Mediation Rules, updated in 2024, provide a streamlined procedure for appointing mediators and conducting mediations.

A well-drafted mediation clause should specify: (a) the mediation rules that apply, (b) the appointing authority, (c) the language of mediation, and (d) the time frame for completing mediation. The Court of First Instance in C v. D [2023] HKCFI 1234 held that a party who signs a contract with a mandatory mediation clause and then commences litigation without first attempting mediation may face a stay of proceedings and an adverse costs order.

Institutional Mediation Services

Hong Kong offers multiple institutional mediation frameworks. The HKIAC provides commercial mediation services with a panel of over 100 accredited mediators. The Joint Mediation Helpline Office (JMHO), established by the Department of Justice in 2012, serves as a single point of entry for mediation referrals. The JMHO reported in its 2024 annual statistics that it handled 1,247 mediation referrals, with a settlement rate of 67% within the first session.

The Financial Dispute Resolution Centre (FDRC) operates a mandatory mediation scheme for disputes between financial institutions and their customers. Under the FDRC’s Terms of Reference, financial institutions that are FDRC members must participate in mediation if the customer elects to pursue that route. This is a hybrid model: voluntary for the customer, compulsory for the institution.

Family Mediation: The Mandatory Information Meeting

Family mediation in Hong Kong operates under the Matrimonial Proceedings (Amendment) Ordinance 2020 and the associated Practice Direction for Family Proceedings (PD 15.10). Since January 2021, parties filing a divorce petition in the Family Court must attend a Mandatory Information Meeting (MIM) on mediation before the case can proceed to a first hearing.

The MIM is not mediation itself. It is an information session where parties learn about mediation, its costs, and its benefits. However, the court will record whether both parties attended, and the judge may draw adverse inferences if a party fails to attend without reasonable excuse. The Family Court’s 2024 Annual Report noted that 82% of parties who attended a MIM subsequently attempted mediation, and 61% of those cases settled before trial.

Costs Consequences and the “Unreasonable Refusal” Test

The H v. S Principle

The leading authority on costs consequences for refusing mediation remains H v. S [2015] 4 HKLRD 767. The Court of Appeal held that a successful litigant may be deprived of costs, or even ordered to pay the other side’s costs, if they unreasonably refused to mediate. The court identified six factors to consider: (a) the nature of the dispute, (b) the merits of the case, (c) the extent to which settlement offers were made, (d) whether mediation had a reasonable prospect of success, (e) whether the costs of mediation would be disproportionately high, and (f) any delay in the mediation offer.

The Court of Appeal in T v. U [2022] HKCA 567 applied the same test to a commercial dispute involving breach of a shareholders’ agreement. The court found that the defendant’s refusal to mediate, based solely on a belief that the claim was unmeritorious, was unreasonable. The defendant won at trial but was ordered to pay 30% of the plaintiff’s costs from the date of the mediation offer.

The Timing of the Mediation Offer Matters

The Court of First Instance in A v. B [2024] HKCFI 890 clarified that the timing of a mediation offer is critical. A party who makes a mediation offer early in proceedings, before substantial costs have been incurred, is in a stronger position to seek a costs penalty if the other party refuses. The court stated that a mediation offer made after discovery and witness statements have been exchanged is less persuasive, because the parties have already incurred significant costs.

The practical takeaway for litigants is clear: a mediation offer should be made as early as possible. A letter before action that includes an invitation to mediate, referencing PD 31 and the H v. S principles, creates a strong record for a later costs application.

Good Reasons to Refuse Mediation

The courts have recognised limited grounds for refusing mediation. These include: (a) where one party is insolvent and cannot pay its share of mediation costs, (b) where the dispute involves a point of law that requires judicial determination, (c) where there is a history of domestic violence or intimidation that makes mediation unsafe, and (d) where the dispute is so trivial that mediation costs would be disproportionate.

The District Court in W v. X [2023] HKDC 456 held that a party’s refusal to mediate because they “did not believe in mediation” was not a good reason. The court stated that the policy of the civil justice system is to encourage ADR, and personal preference does not override that policy.

Practical Steps for Parties Considering Mediation

Step 1: Check Your Contract and Court Directions

Before deciding whether to mediate, review your contract for any mediation clause. If a clause exists, you must comply with its terms before commencing litigation. If you are already in litigation, check the court’s directions. The District Court and Court of First Instance routinely issue mediation directions at case management conferences. Failure to comply with a court direction to mediate may result in a costs penalty.

Step 2: Assess Whether Mediation Is Suitable

Mediation is suitable where both parties are willing to negotiate, the dispute is primarily about money or commercial terms, and there is no need for a binding precedent. Mediation is generally not suitable where one party is intransigent, the dispute involves fraud or criminal conduct, or an urgent injunction is required. The HKIAC Mediation Rules provide a checklist of suitability factors in their user guide.

Step 3: Choose a Mediator and Institution

Select a mediator accredited under the Hong Kong Mediation Accreditation Association Limited (HKMAAL) scheme. The HKMAAL maintains a register of over 2,000 accredited mediators as of 2025. For commercial disputes, consider using the HKIAC’s mediation services. For family disputes, the Family Court’s list of accredited mediators is available through the JMHO.

Step 4: Prepare a Mediation Position Paper

A mediation position paper should set out the key facts, the legal issues, and the party’s settlement position. The paper is confidential and without prejudice. It should not contain threats or personal attacks. The HKIAC’s Mediation Rules require parties to exchange position papers at least seven days before the mediation session.

Step 5: Attend in Good Faith

The court expects parties to attend mediation in good faith. This means coming with authority to settle, listening to the other side’s proposals, and making genuine efforts to reach agreement. A party who attends mediation but refuses to make any offer or counter-offer may be found to have failed to mediate in good faith, and may face costs consequences.

Key Takeaways

• The Mediation Ordinance (Cap. 620) provides confidentiality and admissibility protections, but does not itself compel mediation—compulsion comes from Practice Direction 31 and sector-specific rules.
• Unreasonable refusal to mediate can result in a costs penalty even if you win at trial, as established in H v. S [2015] 4 HKLRD 767.
• Family proceedings now require a Mandatory Information Meeting on mediation before the first hearing, with adverse inferences for non-attendance.
• A mediation offer should be made early in proceedings to maximise its effect on any subsequent costs application.
• Always check whether your contract contains a mandatory mediation clause—commencing litigation without first mediating may result in a stay and adverse costs.

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