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Insight from the Recent CFA decision in Commissioner of Inland Revenue v Poon Cho Ming, John – Whether Benefits Received on Termination of Employment are Taxable or Not

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Employee termination is not uncommon during economic downturn or group restructuring. The termination payments or the compensation packages, especially for top executives or senior employees, often consist of many components such as salaries, gratuities, discretionary bonuses, golden handshakes, settlement sum for the employment dispute. Given the diversified nature of the compensation components, it might not be easy to identify which part of entire package is taxable and which is not under the definition of section 8(1) of the Inland Revenue Ordinance, Cap. 112 (“IRO”).

As a starting point, the IRO provides that only income earned in the course of employment is chargeable to salaries tax. It is however not always easy to determine which compensation component has direct corelation to the employment and which is not. The precedent case, Fuchs v Commissioner of Inland Revenue [2011] 14 HKCFAR 74, offers some guidance on this issue. The Court ruled in Fuchs that what an employee received in satisfaction of his rights under his contract of service was taxable, while what he received in abrogation of his rights under the contract was not taxable.

The Court of Final Appeal has reaffirmed such position in its recent decision in Commissioner of Inland Revenue v Poon Cho Ming, John [2019] HKCFA 38 whereby it was held that rewards for past services and inducements to enter into employment and providing future services are chargeable under the said provision, whereas payment which were for something else were not chargeable. This article seeks to discuss the legal principles concerning the subject matter and how unnecessary dispute could be avoided.

A. Brief facts in Poon Cho-Ming case

The Respondent Taxpayer (‘Respondent’) was employed as a director of the Company pursuant to a written employment contract dated 20 October 1999 (‘Service Agreement’). In July 2008, his employment was abruptly terminated without cause. The Respondent and the Company entered into negotiations, with legal representatives on both sides, which resulted in a separation agreement dated 20 July 2008 (‘Separation Agreement’) to terminate the employment on the same day.

During the employment, the Respondent was eligible to be considered for a discretionary bonus and for the grant of unvested share options under an employee’s shares option scheme. Under the scheme, Options granted in one year would vest, provided the Respondent was still employed by the company, in annual tranches over the following 5 years.

After the termination of his employment, the Respondent received payments and benefits from the Company and were taxed by the Commissioner of Inland Revenue. The items that were in disputes are as follows.

  1. EUR500,000 provided for under the Separation Agreement, labelled as a ‘payment in lieu of a discretionary bonus’ (‘Sum D’); and
  2. the amount derived from the exercise of the Respondent’s share options which the Company agreed under the Separation Agreement to vest on an accelerated basis (‘Share Option Gain’).

The Commissioner of Inland Revenue, the Board of Review and the Court of First Instance considered and ruled that the above sums constituted income ‘from’ the Respondent’s employment and were therefore chargeable to Salaries Tax under section 8(1) of the IRO.

The Respondent appealed to the Court of Appeal which overturned the CFI’s decision. The Court of Final Appeal upheld the decision of the Court of Appeal and unanimously decided that the above sums were ‘for something else’ and were not therefore taxable under section 8(1) of the IRO.

B. The relevant legal principles

The ‘operative test’ is succinctly summarized by Ribeiro PJ in Fuchs (at para 22).

In short, the question that needs to be asked is: ‘in the light of the terms on which the taxpayer was employed and the circumstance of the termination, what, in substance not form, the sum and benefits is for?’

If the purpose or nature of the payment constitutes income from employment, the payment is taxable under s.8(1) IRO, as illustrated in the table below.

 Purpose or nature of the paymentIncome from employment
(s. 8(1) IRO)		Taxability
1‘acting as or being an employee’YesYes
2 ‘as a reward for past service’ Yes Yes
3 ‘as an inducement to enter employment or for future services’ Yes Yes
4‘for something else’NoNo
C. Application of the test to the facts of Poon Cho-Ming Case

In Poon Cho-Ming case, the IRD was of the view that both Sum D (i.e. the payment in lieu of discretionary bonus) and Share Option Gain were employment income because “discretionary bonus” was employment performance-linked and Share Option Gain was derived from employee benefit scheme. 

The Court, however, was of the view that both Sum D and Share Option Gain were not Respondent’s entitlement under the terms of the Service Agreement, nor had he any accrued rights on his termination which he could enforce at law in relation to them.

Although Sum D was described as a substitution of the discretionary bonus, the Court preferred substance over form. The Court analysed the facts and found that Sum D is, in substance, materially different from the discretionary bonus, in term of their purpose and nature. The amount of Sum D was arrived arbitrarily by way of negotiation between the Respondent and the CEO of the company, without reference to the performance of the Respondent and other considerations or procedure which would have been relevant in determining discretionary bonus in the Company.

The Court also found that the accelerated vesting of the share options under the Separation Agreement constituted a new right. With regard to the terms of the Grant Letters, the Court found that the original right was plainly not exercisable on the separation date and would have lapsed if the Respondent was no longer an employee of the Company. The new right under the Separation Agreement replaced the original right under the Service Agreement, allowing the Respondent to exercise the share options within 3 months from the separation date when he was no longer an employee of the Company.

The Court of Appeal concluded (and the CFA agreed) that the purpose of Sum D and Share Option Gain were for something else. The aforesaid benefits were found to be the consideration for the Respondent Taxpayer agreeing to:-

  1. ‘go quietly’ with a joint announcement that he had ‘resigned’ to mitigate adverse market reaction;
  2. additional post-employment covenants in the Separation Agreement which created new obligations on him; and
  3. settle or abrogate any and all claims which he might have against the Company arising from the termination of his employment.
D. Insight from Poon Cho-Ming case

The CFA’s decision in Poon Cho-Ming has reaffirmed the orthodox position as set down in precedents. However, the application of the legal principles is not a straightforward exercise. Detailed analysis of the facts in each case is required. How the termination letter or the separation agreement is crafted and the wordings therein could lead to unnecessary confusion and debate.

To avoid the hassle of litigation, the employers and/or taxpayers should involve legal representatives in the early stage of termination process. A well-structured termination package, careful drafting of agreements as well as appropriate responses to the Authorities will help reflect the true intent and nature of the termination payment and save taxpayers from unnecessary tax exposure.

Our firm has extensive experience in advising on employment-related matters and on tax advisory matters. If you have any question regarding the topic discussed above, please contact our partner Anna Chan at anna.chan@oln-law.com for further assistance.

Disclaimer: This article is for reference only. Nothing herein shall be construed as Hong Kong legal advice or any legal advice for that matter to any person. Oldham, Li & Nie shall not be held liable for any loss and/or damage incurred by any person acting as a result of the materials contained in this article.

CEDB Released a Public Consultation Paper on Updating Hong Kong’s Copyright Regime on 24 November

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The Commerce and Economic Development Bureau of the Government of Hong Kong just released on 24 November 2021 a public consultation paper on updating Hong Kong’s copyright regime. 

This is brilliant news to copyright owners and fingers crossed with the passage of the new legislation! If you may wonder the meaning behind, the current Copyright Ordinance enacted in 1997 is considered badly obsolete and can barely cope with the rapid advancements and innovations in technology. Despite the Government’s deliberation to update the legislation initiated since 2006 with public consultations conducted,  two serious attempts to amend the Ordinance (The Copyright (Amendment) Bill 2011 and The Copyright (Amendment) Bill 2014) did not succeed due to filibustering by some members asserting the view that freedom of creativity or expression could possibly be compromised under the proposed legislative provisions.

The consultation paper described the legislative proposals in the 2014 Bill to be the result of years of deliberations of the Government, Legislative Council, copyright owners, online service providers and copyright users, representing the consensus and balance of interests of different stakeholders to enhance protection for copyright in the digital environment and combat large scale online piracy – which should be materialized without further delay.  

Key legislative proposals based on the 2014 Bill

A. Communication right – introduction of technology-neutral exclusive communication right for copyright owners to communicate their works to the public through any mode of electronic transmission in line with the international practice

B. Criminal liability – criminal sanctions introduced against infringers making unauthorised communication of copyright works to the public for profit or reward and with prejudice caused to the copyright owners

C. New copyright exceptions – for the education sector, libraries, museums, archives, temporary reproduction of copyright works by OSPs, and media shifting; and new fair dealing exceptions for the purposes of parody, satire, caricature and pastiche, commenting on current events, and use of quotation to facilitate expression of opinions or discussions in the online and traditional environment

D. Safe harbour provisions – limiting OSP’s liability for copyright infringements on their service platforms caused by subscribers as an incentive for OSPs to cooperate with copyright owners to combat online piracy

E. Additional damages in civil cases – empowering the court to award additional damages according to the circumstances with additional factors to assess including the unreasonable conduct of an infringer and likelihood of widespread circulation of infringing copies

Issues inviting public views

1. Should Hong Kong continue to maintain the current exhaustive approach by setting out all copyright exceptions based on specific purposes or circumstances?

2. Should Hong Kong introduce provisions to restrict the use of contracts to exclude or limit the application of statutory copyright exceptions? (currently is non-interference approach to contractual arrangements between owners and users)

3. Should Hong Kong introduce specific provisions to govern illicit streaming devices used for accessing unauthorized contents on the Internet, including set-top boxes and Apps? (Government’s current position is not to)

4. Should Hong Kong introduce a copyright-specific judicial site blocking mechanism? (Government’s current position is not to)

Issues to be considered for future legislative amendments
  • Extension of copyright term of protection
  • Introduction of specific copyright exceptions for text and data mining
  • AI and copyright

The consultation period is 3 months from 24 November 2021. We are more than happy to convey your thoughts to the Bureau or share our thoughts on issues you may have on copyright protection or circumstances that may put you at the risk of infringing someone else’s copyright.

Asialaw 2025 Rankings: Oldham, Li & Nie Recognised Again Across Multiple Practice Areas and Sectors

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Oldham, Li & Nie has again been recognised by asialaw in the recently released asialaw profiles 2025.

The firm is ranked in the following practice areas:

  • Dispute Resolution – Highly Recommended
  • Intellectual Property – Highly Recommended
  • Corporate and M&A – Recommended
  • Labour & Employment – Recommended
  • Private Client – Recommended
  • Restructuring and Insolvency – Notable

In addition, Oldham, Li & Nie is recommended in the following sectors:

  • Insurance – Recommended
  • Technology and Telecommunications – Recommended
Asialaw Highly Recommended Law Firm 2025

Oldham, Li & Nie’s partners received five individual recognitions across their respective practice areas:

  • Gordon Oldham – Senior Statesman in Dispute Resolution
  • Richard Healy – Notable Practitioner in Dispute Resolution
  • Tracy Yip – Distinguished Practitioner in Corporate and M&A
  • Vera Sung – Distinguished Practitioner in Intellectual Property
  • Anna Chan – Distinguished Practitioner in Tax and Private Client

In its analysis, asialaw noted “Full-service law firm Oldham Li & Nie is particularly known for its dispute resolution practice. Gordon Oldham, Richard Healy and Anna Chan are main partners for dispute resolution, while Tracy Yip is a key partner for corporate and M&A. Oldham’s practice covers corporate finance, joint ventures and real-estate structuring as well as commercial litigation. It often deals with high-net-worth clients and financial aspects of matrimonial disputes.”

For more details, please visit Oldham, Li & Nie’s profile on asialaw: https://www.asialaw.com/Firm/oldham-li-nie-hong-kong-sar/Profile/1112#profile

The firm has also been shortlisted for the eighth annual asialaw Awards in two categories:

  • Oldham, Li & Nie – Hong Kong Law Firm of the Year
  • Anna Chan – Hong Kong Female Lawyer of the Year

About asialaw

asialaw  is the only directory with in-depth analysis of Asia’s regional and domestic firms and leading lawyers – useful for practitioners, BD teams, and corporate decision-makers. Beyond its rankings, asialaw also publishes awards shortlists and winners recognising top firms and client service excellence across the region.

For more information, please visit https://www.asialaw.com/

Oldham, Li & Nie Recognised by 2026 ITR World Tax

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We are proud to announce that Oldham, Li & Nie has once again been recognised among the leading tax law firms in Hong Kong in the newly published ITR World Tax 2026 edition.

In this year’s rankings, Oldham, Li & Nie achieved Tier 1 position in Private Client and Tier 3 in General Corporate Tax.

Our Partner and Head of Tax and Private Client practice, Anna Chan, has been recognised as a Highly Regarded Practitioner for outstanding work in Private Client and Tax Controversy, and was also honoured as a Women in Tax Leader.

Partner Victor Ng has been recognised as a Highly Regarded Practitioner for his significant contributions in General Corporate Tax and Private Client matters.

These recognitions highlight the depth of our Tax and Private Client team’s expertise and our commitment to client service.

OLN’s rankings in 2026 ITR World Tax

OLN’s practitioners profiles in 2026 ITR World Tax

ITR World Tax 2026 Highly Regarded Practitioner - Oldham, Li & Nie
ITR World Tax 2026 Women in Tax Leader - Oldham, Li & Nie
About ITR World Tax

ITR World Tax is the most comprehensive global directory of the world’s leading tax advisory firms and practitioners. Covering over 150 jurisdictions globally, it recognises firms and individuals who demonstrate technical excellence, commercial acumen, and outstanding client service.

The Impact of Marriage and Divorce on Wills and Inheritance in Hong Kong

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Both marriage and divorce are important events in a person’s life and often, in the excitement of making wedding arrangements or the chaos of going through a divorce, people often forget that the law views any Wills previously made or not made differently as a result of such events.

Dying without a Will

If you die in Hong Kong without a Will, your estate will be distributed in accordance with intestacy laws.   In other words, your assets will be distributed to your relatives by the order of husband/wife and children, parents, whole blood siblings, half-blood siblings, grandparents, uncles and aunts and finally the government.  The manner and ratio of distribution varies by personal circumstances.

If you have a spouse and children, the first HK$500,000 of your residuary estate plus all of your personal belongings would be given to your spouse.  The remaining residuary estate would be distributed 50% to your spouse and 25% to each of your surviving children.

Marriage and Impact on Estate Distribution

Marriage automatically revokes all previous Wills made, unless the Will is made in contemplation of your marriage.  If you do not make a Will in comtemplation of your marriage or after you sign the marriage papers, estate distribution would follow the intestate regime above.

Divorce and Impact on Estate Distribution

Divorces especially those involving children or one or both of the spouses having a significant amount of assets can last for years before the final divorce decree is granted. 

In the unfortunate event that you die before divorce proceedings conclude and you do not have a Will, your intestate estate will be distributed in accordance with the intestacy laws which gives a substantial portion of your estate to your spouse. 

If you die before the final divorce decree is granted and you made a Will before commencing divorce proceedings, your estate would be distributed in accordance with your Will which probably means that your spouse will share in your estate.

The importance of making a Will or remaking one at the time of marriage or prior to the commencement of divorce proceedings cannot be ignored. 

Third Parties and Impact on Estate Distribution

Partners outside of marriage and children born out of wedlock are normally not entitled to take from the estate in the case where a spouse dies with or without a Will.  However, they have a right to apply to the court under the Inheritance (Provision for Family and Dependents) Ordinance (Cap 481) to share in the estate especially if they have been financially provided for in the lifetime of the deceased spouse.  Such persons can also challenge the Will directly if one has been made.  There are ways to prevent this as long as the spouse is still alive.

If you would like to have a confidential discussion about how you can apply your hard-earned money in accordance with your wishes, or if your parents are in the midst of a divorce, are contemplating divorce or there is a third party in the marriage, please contact our Disputes Partner and Head of Elder Law, Eunice Chiu at eunice.chiu@oln-law.com or +852 2182 1885 (WhatsApp and Wechat +852 9169 4356).

Court of First Instance ruled employer failed to justify summary dismissal and awarded damages of more than HKD5.4 million to employee

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In Hu Yangyong v Alba Asia Limited [2025] HKCFI 2484 (OLN acted for the Plaintiff), the Court of First Instance found that the Defendant employer company failed to discharge its burden of justifying summary dismissal, and the Plaintiff employee was wrongfully dismissed by the Defendant employer company. The Court awarded damages to the Plaintiff as a result of the wrongful dismissal.

The Plaintiff was the Chief Operating Officer (Asia) of the Defendant since 1 June 2017. The Plaintiff’s employment contract provided for various allowances and benefits, such as out-of-pocket family expense reimbursement and business expense reimbursement. On 7 September 2018, the Plaintiff was summarily dismissed by the Defendant on the grounds of alleged misconduct and dishonesty arising from reimbursement of expenses.

The Court of First Instance reiterated and reaffirmed the principle on summary dismissal:
Summary dismissal is regarded as a strong and extreme measure and is justified only in exceptional cases. The onus of proof is on the employer to establish that summary dismissal is justified. The standard of proof is generally the balance of probabilities, but the more serious the allegation, the stronger the evidence must be before the court concludes that the allegation is proven. While summary dismissal may be justified by an act of gross misconduct by the employee, what amounts to gross misconduct requires a fact-finding exercise. An act of dishonesty will not automatically justify summary dismissal since there are degrees of dishonesty. Summary dismissal will only be justified if the dishonest act amounts to a repudiation of the contract of employment.

In the present case, the Court of First Instance found, amongst others, that summary dismissal was not justified, as the Defendant had failed to meet the thresholds required for summary dismissal. In particular, the Court found that the Plaintiff had genuinely incurred family expenses exceeding the threshold and had nothing to gain personally. The Defendant failed to show that the Plaintiff had acted with dishonesty or fraudulent intent.

Key takeaways:

Summary dismissal should be considered as a remedy of last resort. Employers should exercise caution before making a decision to summarily dismiss an employee.

The full judgment can be viewed here:

[https://legalref.judiciary.hk/lrs/common/search/search_result_detail_frame.jsp?DIS=169764&QS=%24%28alba%2Casia%29&TP=JU]

Partner Victor Ng, Senior Associate Barbara Kwong, and Associate Claudia Wong acted for the Plaintiff.

OLN has extensive experience in handling employment-related matters, including wrongful termination, and contractual disputes. With a strong track record of representing both employers and employees, OLN is well-equipped to provide practical, strategic, and effective legal advice to navigate complex employment issues.

Disclaimer: This article is for reference only. Nothing herein shall be construed as Hong Kong legal advice or any legal advice for that matter to any person. Oldham, Li & Nie shall not be held liable for any loss and/or damage incurred by any person acting as a result of the materials contained in this article.

How to settle civil disputes: Is the Case as strong as initially assessed?

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Something must have gone wrong before parties commence civil litigation, whether the problem arises from breach of contract, unpaid invoices, or differing interpretations of terms of the contract. As civil litigation is costly, time-consuming, unpredictable, and at times excruciating for the parties’ peace of mind, it is not uncommon for parties to compromise and settle the civil dispute midway in the litigation proceedings. 

After years of advising and settling civil disputes, this series hope to shed light on the dos and don’ts for parties when they enter into settlement negotiations, and when they eventually sign and execute the settlement agreement.

Halfway into the litigation, when more evidence has now been discovered and more financial resources have been put, it is not uncommon for parties to consider settling the case. However, what are the relevant factors in play in deciding whether settling is the right move?

One of the key factors is to re-assess the merits of the case: Is the case as strong as initially assessed? If not, an otherwise unattractive settlement amount may now become lucrative.


1. Limited information/material at the Pleading Stage

Before commencing a formal litigation, the information available to the party is rather limited, as the information and evidence available are usually confined to the ones in one’s own possession, custody or power.

Whilst it is possible to speculate the likely defence(s) or case theory to be advanced by the opponent(s)(s), such is meagre at best, as compared to what will eventually rely upon by the opponent(s) and what will surface in the later stages of the litigation. Without hearing the other side’s story and learning about the evidence in the opponent(s)’s possession, custody or power, it is possible for one to be overly optimistic about the merits of his case, and to neglect the possible risks.

2. Opponent(s)’s evidence made available at the Discovery Stage

Before the discovery stage, one cannot easily access to the documents or materials under your opponent(s)’ possession, custody or power, due to reasons of confidentiality and trade secrets.

However, at the discovery stage, parties are required to mutually disclose all the evidence at its possession, custody or power, which are relevant to the case. As such, many of the documents which are otherwise confidential would now become accessible and discoverable.

These newly available documents/materials disclosed by the opponent(s), e.g. internal business documents and internal protocol, may drastically affect the merits of one’s case and prospect of recovery, as many factual and legal assumptions may no longer hold true. For instance, whilst one may allege that the opponent(s) has failed to exercise due care in discharging its contractual or tortious duties, yet the internal protocol and internal correspondence disclosed by the opponent(s) may reveal that the opponent(s) had already duly complied with its internal protocol and exhausted all means that could have done in preventing the incident.

The litigant and its legal advisor(s) must therefore carefully re-assess the merits of one’s case in the light of the evidence newly disclosed.

3. Merits/views of expert evidence

At the later stage of the proceedings, it may be the case that it is necessary for the parties to seek expert evidence to resolve certain issues. For instance, expert evidence may be required to assess whether the litigant’s conduct amounts to breach of industry standard, or to opine on the value of the asset in dispute.

Expert evidence can significantly influence the outcome of a case by providing specialized knowledge that clarifies complex issues, bolsters credibility, or challenges opposing claims.

Its weight depends on the expert’s qualifications, the reliability of their methodology, and the relevance of their expert evidence to the issues in dispute. When compelling expert evidence is introduced, it may strengthen or undermine a litigant’s position.

The quality of expert evidence therefore mandates litigants to re-assess the merits of their respective cases.

4. Availability/unavailability of key witness at the Trial Stage

It is not uncommon to encounter scenarios where due to various circumstances (e.g. incapacity or death), much to the litigant’s surprise, the key witness(es) unexpectedly becomes unavailable to attend trial to give evidence in support and be cross-examined by the opponent(s).

If a pivotal witness is available, their account could strengthen a litigant’s position, while their absence may weaken the case by leaving gaps in the narrative or proof.

This shift in the evidentiary foundation can compel a litigant to re-assess the case’s merits, potentially prompting adjustments in strategy, such as pursuing settlement, or adjusting expectations for trial outcomes.

Litigation tools to remedy the position

In order to better assess the merits of the case, whether pre-action or during the litigation, it is vital to consider using various litigation tools to obtain more relevant information in order to assess one’s merits of the case. These tools serve to uncover critical evidence, clarify opposing claims, and streamline decision-making, reducing risks and costs. Litigation tools available to litigants include:-

  • Pre-Action Discovery (O.24, R.7A of the Rules of High Court (Cap. 4A) (“RHC”); O. 24, R.7A of the Rules of the District Court (Cap. 336H) (“RDC”)): Enables one to obtain documents from potential parties before filing a claim, revealing key information to evaluate whether a case is worth pursuing, saving time and resources.
  • Further and Better Particulars (F&BP) (O.18, R.12 of RHC; O.18, R.12 of RDC): Compels opponent(s)s to clarify vague assertions and claims during litigation.
  • Requests for Supporting Documents (O.24, R.10 and O.24, R.11A of RHC; O.24, R.10 and O.24, R.11A of RDC): Compels opponent(s)s to produce documents referred to in its pleadings, affidavits or witness statements.
Conclusion

Deciding whether to settle, and if so, at what amount, is a complicated judgment, which requires sophisticated legal advice derived from years in Courtroom, comprehensive legal research, and client-handling experience. One key exercise that litigants and their legal advisors must undergo is the continuous re-assessment of the merits of the case as the litigation progresses through the various litigation stages.

In particular, the factors of the newly available opponent(s)’s evidence, merits/views of expert evidence, and availability/unavailability of key witness all come into play in deciding whether to proceed with the litigation or to pursue settlement.

Further, by using litigation tools to uncover evidence or clarify claims, litigants are equipped with more information to assess the merits of one’s claims in order make an informed decision.

Should you have any enquiries regarding civil litigation and commercial agreements, please contact our firm.

Disclaimer: This article is for reference only. Nothing herein shall be construed as Hong Kong legal advice or any legal advice for that matter to any person. Oldham, Li & Nie shall not be held liable for any loss and/or damage incurred by any person acting as a result of the materials contained in this article.

How to Settle Civil Disputes: Use of Mediation

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Something must have gone wrong before parties commence civil litigation, whether the problem arises from breach of contract, unpaid invoices, or differing interpretations of terms of the contract. As civil litigation is costly, time-consuming, unpredictable, and at times excruciating for the parties’ peace of mind, it is not uncommon for parties to compromise and settle the civil dispute midway in the litigation proceedings. 

After years of advising and settling civil disputes, this series hope to shed light on the dos and don’ts for parties when they enter into settlement negotiations, and when they eventually sign and execute the settlement agreement.

When parties are in a dispute actively considering for settlement, mediation stands out as a viable and pragmatic process to resolve conflicts while reducing the burdens of prolonged litigation.

Mediation

Mediation is a structured process in which one or more impartial individuals, without adjudicating a dispute or any aspect of it, assist the parties in identifying the issues in dispute, exploring and generating options, communicating with one another and reaching an agreement regarding the resolution of the dispute[1].

Benefits of Mediation

  1. Without prejudice privilege

As codified under section 9 of the Mediation Ordinance (Cap. 620), a mediation communication may be admitted in evidence in any proceedings (including judicial, arbitral, administrative or disciplinary proceedings) only with leave of the Court or tribunal.

The without prejudice privilege allows parties to negotiate freely without fear that their discussions can be used against them in court, encouraging open and honest dialogue. 

  1. Confidentiality

The process of mediation is strictly confidential.

As provided under section 8 of the Mediation Ordinance (Cap. 620), a person must not disclose a mediation communication, except for limited exceptions (e.g. consent of all relevant parties, content of mediation communication is already in the public domain, or disclosure is required by law).

The confidential nature of the mediation ensures that sensitive details remain private, protects the emotional well-being and prevent the public exposure often seen in trials. Confidentiality also affords parties a safety net to frankly disclose their concerns and objectives of the settlement proposal.

  1. Impartiality of the mediator 

The mediator must be impartial and conflict-free. The impartiality of the mediator ensures that all parties would be treated fairly, thereby encouraging honest and open dialogue in the process. The mediator will also actively manage the process, such that the more vulnerable party would not be undermined by the stronger party.

  1. Expertise of the mediator

As parties have the flexibility to decide who to appoint as mediator, mediation offers a distinct advantage by allowing parties to select an industry expert as the mediator, ensuring the facilitator has specialized knowledge relevant to the dispute. 

This expertise enables the mediator to better understand the technical or sector-specific issues at play, fostering more informed discussions and credible solutions that resonate with both sides. For instance, in a construction dispute, a mediator with engineering experience can grasp the nuances of project delays or defects, helping parties navigate complex claims more effectively. By choosing a mediator with the required industry insight, parties can achieve a more tailored and efficient resolution, making mediation a highly beneficial option for settlement.

  1. Costs and time involved 

Costs involved in the mediation process are significantly lower than litigation, addressing financial strain and opportunity costs of scarce resources, making mediation a practical choice halfway through a costly legal battle. Uncertainties and risks of litigation could also be managed.

Conclusion

Mediation should be seriously considered for dispute resolution due to its compelling advantages, including the without prejudice privilege that encourages open negotiation without legal repercussions, confidentiality that safeguards sensitive information from public exposure, the impartiality of the mediator that ensures a fair process, the expertise of the mediator that brings specialized insight to complex issues, and the reduced costs that alleviate financial strain. These benefits collectively provide a practical and humane alternative to litigation, making mediation an effective pathway to settlement that preserves relationships, optimizes resources, and promotes fair outcomes.

Should you have any enquiries regarding civil litigation and commercial agreements, please contact our firm. 

Disclaimer: This article is for reference only. Nothing herein shall be construed as Hong Kong legal advice or any legal advice for that matter to any person. Oldham, Li & Nie shall not be held liable for any loss and/or damage incurred by any person acting as a result of the materials contained in this article.

[1] Department of Justice. “Mediate First for a Win-Win Solution”