Summary and implications of Practice Direction 3.3

Pilot scheme for voluntary mediation in petitions presented under s168A and s177(f) under the Companies Ordinance

Here is a link to the new Practice Direction 3.3 approved by the Chief Judge on 4 September 2008:http://legalref.judiciary.gov.hk/doc/whats_new/prac_dir/html/PD3.3.htm

The Practice Direction provides for a pilot scheme for voluntary mediation by parties to certain winding-up petitions.

The following are the key points that you need to know.

When is the pilot scheme effective?

• From 1 October 2008 to 30 September 2009

Conditions for application of the scheme

1. Petitions presented under

• s168A – unfair prejudice to (minority) shareholders; or
• s177(1)(f) – winding up on just and equitable ground

2. There is no allegation of insolvency of the subject company and hence the interest of the general creditors is not involved; and
3. There is no allegation that affairs of the company would require full investigation and hence the interest of the public is not involved

What is the purpose of the scheme?

• To encourage parties to the petitions to use mediation to resolve their disputes to save time and costs.

Implication for legal representatives

• Legal representatives have a duty to advise clients at an early stage of resolving their dispute through mediation.

Implication for clients

• A party who has acted unreasonably in refusing or failing to proceed with mediation may be exposed to an adverse costs order in the winding-up proceedings.

Who may initiate mediation and when can it be done?

• Any party to a s168A or s177(1)(f) petition may initiate mediation at any stage of the petition.

What are the procedures for attempting mediation?

1. Service of a Mediation Notice1 by the Applicant to the Respondent(s).
2. The Respondent is to reply to the Notice within 14 days.
3. If the Respondent makes any counter proposals, the Applicant is to reply within 7 days thereafter.
4. If there is an agreement to mediate, it should be reduced into a written minute signed by the parties.
5. The parties should then make an application to the court for stay of the petition with a supporting affidavit2 and proceed with mediation.
6. If the mediation is not successful within the period of stay of petition, the parties are to:

• apply to restore the petition within 7 days;
• report to the court what progresses have been made by mediation; and
• seek further directions of the court.

How can Tanner De Witt help you?

Our insolvency team is experienced in handling shareholders’ disputes. We have acted for majority and minority shareholders in such disputes.

Our aim is to assist clients to achieve their objectives in a cost-effective and an expeditious manner, whether by way of litigation or via alternative dispute resolution such as mediation.

If you have any questions about resolving a dispute with your fellow shareholders or business partners, we will be pleased to offer help.

Contacts

Insolvency team: Ian De Witt and Robin Darton

Litigation and dispute resolution team: Mark Side

18 September 2008

A Mediation Notice should specify (1) what is proposed to be resolve; (2) the proposed rules and procedures on mediation; (3) the estimated costs of mediaton; (4) a timetable for mediation; and (5) what minimum amount of participation would qualify as sufficient attempt at the proposed mediation.
The supporting affidavit should exhibit (1) the Respondent’s response; (2) the Applicant’s reply; (3) the minute of agreement; (3) evidence of solvency of the company; and it should specify the expected duration of the proposed mediation.