SHAH WAQAS v. TAT LEE SCAFFOLDING LTD AND ANOTHER

HCPI 935/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

PERSONAL INJURIES ACTION NO 935 OF 2013

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R U L I N G

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1.  The plaintiff took out a summons on 30 January 2015 seeking direction regarding costs of the mediation agreed to be conducted by the parties.  The application is taken out under paragraph 41(2) of PD 18.1 and Order 25 Rule 8(3).

2.  By paragraph 41(2), it is provided that:

“41. Where the parties are unable to reach agreement on certain proposals in the Mediation Notice and Mediation Response in relation to the mediation:

(1) if the parties are willing to have their differences resolved by direction of the Court, they may make a joint application to the Court for directions resolving the points of difference between them; and

(2) in the absence of such willingness, any party may apply to the Court for directions and the Court may give such directions as are appropriate to resolve differences between the parties regarding the proposals that they have each made in the Mediation Notice and the Mediation Response respectively, but only in respect of the matter of time referred to in paragraph 39 hereof and the matters referred to in paragraphs 4, 5, 6 and 7 of the said Notice and Response.”

3.  There is also an important note to paragraph 41(2)–

“Paragraph 41(2) is directed at facilitating the mediation by having the Court resolve differences concerning the details or mechanics of the mediation process where the parties have agreed to attempt mediation. The Court may not, for instance, be asked to direct a party to engage in mediation or to appoint a particular mediator over the opposition of the other party, unless both parties are willing to have their differences resolved by the Court. See paragraph 41(1).”

4.  If both parties agree to refer their difference on certain terms of the mediation for determination by PI Master, they may make such application.  My jurisdiction to settle the dispute derives from the consent of the parties.  Failing agreement to refer the matter to PI Master, my jurisdiction is limited to resolve differences on matters referred to in paragraph 4 to 7 of the Mediation Notice and Response, AND only on the details and mechanics for mediation.  And paragraph 5 of the Mediation Notice and the Response deal with payment of fees and whether it could be recovered as costs in the proceedings.

5.  The dispute here is on the agreement for costs of mediation.  Both parties agree that the costs would be paid by them initially equally.  The difference is whether the same is recoverable as costs in the cause.  The difference is within paragraph 41(2) of the PD18.1.

6.  Further, costs of the action may in appropriate cases include costs of mediation (per Lam J (as he then was), Chun Wo Construction & Engineering Co Ltd and others v China Win Engineering Limited HCCT 37/2006).  Cost of the action is within the discretion of this Court. I accept that the difference in details, to the limited extent whether it may be recovered as costs in the cause could be determined by this Court.

7.  Mr Burke also relies on Order 25 Rule 8(3), which must be read with Rule 8(1).  Rule 8(1) covers automatic directions in personal injury actions, or more specifically, automatic directions on discovery.  Rule 8(3) is a reservation that parties may apply to the Court for directions.  This must be referring to similar directions, or directions under the Rules of the High Court.  I fail to see how application for determination of a term in the mediation could come under Rule 8(3).

8.  I have made preliminary enquiry with the parties at the first call-over hearing of this summons.  As I understand from the solicitors for the defendants, the agreement on costs is recorded in the Minutes (as hereinafter defined) filed for the mediation.  If I agree with him that there is an agreement, I need not and should not give any direction and the matter would be for the taxing master to interpret the agreement.  And if there is no agreement, the defendants agree that I could determine the issue in accordance with PD 18.1.

9.  3 affirmations have been filed for the plaintiff and the defendants respectively.  Both have put in their written submission.  To save costs, I direct the ruling be made on paper.  And this is my ruling.

10.  To resolve the dispute, one has to look at the key documents.  I would start with the Mediation Notice filed by the plaintiff on 20 February 2014 (and which has been served on the defendants on the same day).  By this notice, the plaintiff suggested mediation and named 4 candidates as mediator.  He proposes to adopt the rules of either the Law Society or HKIAC.

11.  Paragraph 5 of the notice suggests costs of the mediator and venue be shared equally initially, and they be costs in the cause of the action if no settlement reached, including the parties own legal costs. 

12.  There are other terms proposed relating to the suggested mediation.  I note with concern that the Notice is exceptionally long.  Paragraph 7 sets out what terms the plaintiff’s settlement are to include, if there were one.  I thought these should be matter in the able hands of mediator who is to assist the parties to come to terms.  Such statement of required terms would jeopardize the harmonic atmosphere for negotiation.

13.  Paragraph 8 of the Notice also sets out some so called terms of mediation (which run 4 pages long).  I do not think they are necessary or serve any useful purpose other than increasing the costs of the mediation.  Such drafting should not be encouraged.  They are matters for the mediators.  If the solicitors would be involved to such extent, the costs of mediation would be highly inflated.

14.  The defendants filed their Mediation Response on 16 May 2014 (and served on the plaintiff on 19 May 2014).  They agree to attempt mediation and wish to adopt the Law Society’s Mediation Rules for the mediation.  On the mediator, the defendants counter-proposed Mr Brian Wong as the mediator.

15.  And on costs of mediation, by paragraph 5 of the Response, the defendants also propose to bear the costs equally initially, which would be recoverable as costs in the cause of the proceedings.

16.  From the document disclosed, while the parties could not agree the terms of mediation, but negotiation continued.  Some agreement was reached subsequently.

17.  On 8 October 2014, the parties filed a Mediation Minutes (“the Minutes”).  It is stated that: -

(1) The parties agree to attempt mediation to resolve all of their disputes in this action.

(2) The parties agree to adopt the Mediation Rules of the Law Society of Hong Kong.

(3) The parties do not agree on appointment of mediator – they will make application to Court for ruling under PD 18.1 paragraph 41.

(4) The parties do not agree on period for mediation…. [that] should qualify as a sufficient attempt at mediation.

(5) …

(6) …

18.  It is not disputed that the Minutes was initially drafted by Messrs Burke & Company, solicitors for the plaintiff.  Paragraph 2 of the original draft reads “The parties agree to adopt the Mediation Rules of the Law Society of Hong Kong save and except on the question of mediation costs.”  The underlined phase has been deleted by Messrs Tang & Lee, solicitors for the defendants, who returned the amended draft with their letter dated 3 October 2014.

19.  Further, in the original draft, there is a paragraph 4 which provides that the costs of mediation shall be paid equally initially and may be recovered as costs in the cause. Paragraph 4 has also been deleted by Messrs Tang & Lee.  (And also paragraph 7 has been deleted, which is not on the question of costs).  The amendments or revisions have been reduced into the Minutes that have been signed.

20.  It is the case of the defendants that by the Minutes, the parties have agreed to adopt the Law Society’s Rules.  Paragraph 13(a) of the Rules provides that unless otherwise agreed, each party shall bear its own costs regardless of the outcome of the mediation or of any subsequent arbitral or judicial proceedings.  And there is no other agreement on the issue of costs, as all suggestions by the plaintiff that costs of unsuccessful mediation shall be costs in the cause in the initial draft have been deleted, and adopted by the plaintiff in the final draft.

21.  Subsequent to the Minutes, a mediation agreement has been prepared for the parties by Mr Brian Wong. In a letter dated 22 December 2014 from Messrs Burke & Company to Mr Brian Wong, Messrs. Burke & Company repeated that it had been agreed that costs be in the cause if no settlement.

22.  Messrs Tang & Lee responded by letter dated 21 January 2015.  They returned a draft mediation agreement with their revisions.  It is noted that paragraph 10 of the mediation agreement cover costs issue.  Originally, clause 10.2 provides –

“Unless otherwise agreed by the Parties in writing, each Party agrees to share the Mediation Fees equally and be severally liable in equal share of the Mediation Fees due to the Mediator, and also to bear its own legal and other costs and expenses of preparing for and attending the Mediation (“each Party’s Legal Costs”).  However, each Party further agrees that any court or tribunal may treat both the Mediation Fees and each Party’s Legal Costs as costs in the cause in relation to any litigation or arbitration where that court or tribunal has power to assess or make orders as to costs, whether or not the mediation results in settlement of the dispute.”

23.  The underlined sentence in clause 10.2 has been crossed out by Messrs Tang & Lee in the draft returned with their said letter dated 21 January 2015 with additions. The amended clause 10.2 reads –

“Unless otherwise agreed by the Parties in writing, each Party agrees to share the Mediation Fees equally and be severally liable in equal share of the Mediation Fees due to the Mediator, and also to bear its own legal and other costs and expenses of preparing for and attending the Mediation (“each Party’s Legal Costs”) regardless of the outcome of the mediation or of any subsequent arbitral or judicial proceedings.”

24.  Messrs Burke & Company in their letter dated 22 January 2015 objected to the amendment and reiterate that costs should be in the cause.  Messrs Tang & Lee responded by saying that the final version of the Minutes is the agreement of the parties on the issue of costs.  And hence the plaintiff applies for my ruling on the issue of costs.  This is my determination.

25.  The first issue is to decide whether there is any agreement on costs and if so, what the terms are.

26.  It is the submission of Messrs. Burke & Company that by these documents, the parties have reached an agreement on how to settle the costs of mediation, which override the usual provision on cost under paragraph 13(a) of the Mediation Rules of Law Society.

27.  Mr Burke seems to rely on the Mediation Notice and Response to argue that there is an agreement of the costs of mediation. I doubt if the Mediation Notice is an offer.  These are given by Forms provided in PD18.1 and are to initiate discussion for mediation. The parties are making “proposals”.  This is the wording used in both the Notice and the Response and should be given the ordinary meaning.  If I am to interpret these documents, they would be at the highest, invitation to treat.

28.  I believe there is good reason for asking parties to make proposal instead of offer.  They have greater freedom to make suggestion, without finding themselves bound once the suggestion is accepted. 

29.  In any event, for the purpose of this ruling, assuming the Notice is an offer, it is clear that the terms of the Mediation Notice have not been accepted by the defendants.  A new mediator has been nominated by the defendants.  And a lot of additional terms as set out in the Notice have not been responded to in the Response.  The Response would at best be a counter-offer and not acceptance of the terms in the Notice.  I therefore conclude that there is no agreement when the defendants filed their Response.

30.  Further, I do not believe the terms as set out in paragraph 5 can be severed as a contract itself.  This is part and parcel of the whole arrangement.  When there is no agreement on mediation, the proposed terms on how the costs is to be settled cannot stand on itself. 

31.  The next document to be considered is the Minutes signed by the parties.  I refer to paragraph 40 of PD18.1 which reads –

“40. Where the parties put forward differing proposals in the Mediation Notice and Mediation Response, the parties should attempt to reach agreement on the proposals on which they differ as soon as practicable. Any agreement consequent upon such discussion should be reduced into writing in a minute called the Mediation Minute signed by the Applicant and the Respondent or their Solicitors.”

32.  This is exactly what happened in this case.  The parties have put forward differing proposals and they negotiated for an agreement.  The Practice Direction has specified the purpose of a mediation minutes.  It is to record the agreed terms.  There could be rounds of discussion to resolve the dispute and the Minutes is to record the agreement.  Parties have not suggested otherwise.

33.  If we now take a closer look at the Minutes, it has set out all the terms for mediation. Parties agree to attempt mediation.  The rules for the mediation have been agreed.  The appointment of mediator has not been agreed, but it has been agreed that it would be referred to this Court for determination.  Hence there is provision on how to appoint a mediator.  The parties agree that the mediation may commence as soon as mediator is appointed.  All the essential elements of a mediation agreement are set out.

34.  It has not been agreed on what duration of mediation qualifies as the minimum attempt at mediation.  This would be a matter that affects application on costs in future.  Such lack of agreement on this element would not make the mediation agreement incomplete.

35.  From the above, it clear that the Minutes is an agreement or the written record of the agreement on mediation.  It is provided that parties are to adopt the Mediation Rules of Law Society for the mediation. The costs of mediation would be governed by the Mediation Rules of the Law Society.  It is not disputed that Rule 13(a) provides that

“Unless otherwise agreed, each party shall bear its own costs regardless of the outcome of the mediation …”

36.  If there is agreement, I should not interfere with the agreement of the parties.

37.  Mr Burke argues that Rule 13(a) allows parties to agree otherwise.  And they have agreed by the above documents that costs be in the cause.  I agree that parties may agree otherwise.  But the problem is where the agreement is?

38.  With my analysis above, there is no agreement by reading the Notice with the Response.  And the Minutes signed has no reference to the provision for costs suggested in the Notice or Response.

39.  Messrs Tang and Lee rely on the amendment to the original draft Minutes which I have set out above in paragraphs 18 and 19 that any terms for costs of mediation be costs in the cause of the action had been rejected by the defendant and the rejection was accepted by the plaintiff when the Minutes was duly amended and signed.

40.  And Mr Burke in his affirmation in reply tried to explain why he agreed with the revisions and deletion made by Messrs Tang & Lee to his draft Minutes.  He said he believed that they had an agreement on costs.  So he had not insisted on the matter.

41.  I would be surprised that he had not objected to the deletion on provision of “costs be in the cause”.  Mr Burke had not clarified the matter with the defendants before he signed on the Minutes, knowing that the express provisions for costs had been deleted.  I do not accept his submission and I could only interpret the Minutes on the wordings thereon. I accept the submission of Messrs Tang & Lee.

42.  In conclusion, I found that the parties have reached agreement on the terms of their mediation, including the costs are to be settled in accordance with the Mediation Rules of the Law Society.  And there is no other agreement on payment of costs.  I need make no further direction as there is an agreement. 

43.  Further, whether costs should be in the cause would be a matter to be determined by all the background factors of each case. As for example, a party is to incur substantial costs in legal advice or other preparation for mediation such as preparing mediation bundle, lists of issues by solicitors, the other party has the choice of refusing mediation, or to attempt mediation on the provision for each party to bear its own costs in any event. I believe this is the reason why the Law Society has adopted Rule 13(a).  I do not have to go into such details as I have made the determination and I believe I have to wait for another opportunity to refer the matter to the PI Judge to set the principle as to how the discretion on costs should be exercised.

44.  In conclusion, the summons is dismissed with an order nisi that the defendants do have costs of this application and the plaintiff’s own costs be taxed according to Legal Aid Regulations.