Dispute Resolution in Hong Kong - 22nd September 2015

On the 22nd September 2015 a presentation by Deacons Solicitors entitled “Dispute Resolution in Hong Kong” was given at Royal Hong Kong Yacht Club. It was delivered jointly by KK Cheung and Joseph Chung, partners of the Construction and Arbitration Department at Deacons. Over thirty members and guests attended the event.

The talk focused on the various dispute resolution methods in Hong Kong, which include mediation, litigation and arbitration, and looked into the pros and cons of each. The talk also covered adjudication, another form of dispute resolution under the proposed Security of Payment Legislation (SOPL) for the construction industry in Hong Kong.

Both KK and Joseph are specialists in dispute resolution.  KK is a fellow member both of the Hong Kong Institute of Surveyors (HKIS) and the Royal Institution of Chartered Surveyors (RICS).  He is also a member of the panel for the arbitrators in the HKIS, Hong Kong International Arbitration Centre (HKIAC) and China International Economic and Trade Commission.  He has been appointed as arbitrator and mediator in resolving construction and commercial disputes.  KK has extensive experience in handling disputes between Hong Kong and Mainland China.

Joseph had practiced as a barrister for years before he became a solicitor in 2001.  He is listed on the HKIAC’s List of Arbitrators and is on the Panel of Arbitrators of the Kuala Lumpur Regional Centre for Arbitration.  Joseph is recommended in the area of Construction in the Asia Pacific Legal 500 (2014 & 2015 Editions) and acknowledged as one of the leading lawyers in the area of construction in Chambers Asia Pacific (2014 Edition).  Joseph advises developers, contractors, sub-contractors and project consultants in many high profile construction projects, including the Hong Kong airport core project.

To begin, Joseph introduced the multi-tier dispute resolution clause in the standard form of building contract in Hong Kong.  This 3-teir process is generally started in such a way that if the dispute arises and cannot be resolved at the negotiation stage, it shall be referred to mediation; and if it fails again, referred to arbitration, subject always to condition precedent to commencement of arbitration/litigation.

KK highlighted the first form of Alternative Dispute Resolutions (ADR).  Mediation is a method in which the mediator provides communication between the parties of the dispute.  The mediator only contents with asking questions for better communication between the parties.  He does not guide or direct the parties, or gives an advice or makes a binding decision.  There is no need for lawyers to be involved.  It is therefore quicker and cheap to achieve the parties’ objectives.  However, it is not suitable for disputes whish have “no middle of road” solution.   But the success rate is high in the construction industry.  The mediators are accredited by the HKIAC.  It is promoted by the Hong Kong SAR Government (HKSARG).  The Mediation Ordinance requires confidentiality and leave for disclosure or admission in evidence.

Joseph detailed the court structures in Hong Kong, down from the Small Claims Tribunal (claims below HK$50,000), District Court (below HK$1 m), Court of Final Instance (above HK$1 m) to Appellate Courts.  Following that, he set out the general overview of the litigation procedures by going through the issue of the Writ of Summon and pleadings.  Court documents including the claim form, particulars of claim, defence and any counterclaim, reply and any defence to counterclaim.  Quantum of damages should be included in the Statement of Claim.  A party must disclose frankly to the other party the “relevant” documents in his possession, custody or power, including e-documents, tape recordings, as well as those documents adversely affecting or supporting its own or another party's case.  This discovery process is often lengthy and expensive.  A Witness Statement sets out the facts to which the witness will testify at the trial.  The court rules and procedures require that it must be certified to be true by the witness in a Statement of Truth.  An expert witness may be involved in court proceedings if a party needs to rely on the opinion of an expert on a particular issue.  To ensure the early identification of the issues to be addressed, experts should be engaged early.  An expert witness must be independent.  The court can order the parties to share the evidence of an expert on a particular issue.  Finally, the trials require each party's counsel to make oral submissions and draw the judge's attention to the relevant evidence and law.   The judge will make his decision based on the evidence and arguments put before him.

Joseph went on to discuss the arbitration.  It is a dispute resolution method that the disputes are resolved by the neutral arbitrators appointed by them instead of the legal bodies.  We need an arbitration agreement, according to Section 19 of Arbitration Ordinance, to arbitrate.  It may be an arbitration clause, but must be in writing recorded in any form, including an e-form.  It could also be incorporated by reference, such as on a back-to-back basis.  It is permissible to agree on a shorter time limit than that prescribed by the law.  The process can be flexible such that arbitrations can be done in a time- and cost-conscious manner.  Arbitration is less than a trial.  But on occasion, the parties run the arbitration like the court litigation.   Arbitration may be binding or non-binding.  Binding arbitration means the parties waive their right to a trial and agree to accept the arbitrator’s decision as final.  And the non-binding one means the parties request a trial if they do not accept the arbitrator’s decision.  So if parties wish to control over how the dispute is resolved, arbitration, particularly, binding arbitration may not be appropriate.  Finally, Joseph introduced the Emergency Arbitrator procedures under the HKIAC Administered Arbitration Rules (2013 Edition) whereby an emergency arbitrator is required to be made within 15 days of appointment.

The last topic is adjudication under the proposed Security of Payment Legislation (SOPL) presented by KK.  The industry wide survey on payment practice in the construction industry conducted by The HKSARG and the Construction Industry Council in 2011 revealed significant payment problems of main contractors, sub-contractors, consultants and suppliers.  Under the proposed SOPL, ‘pay when paid’ clauses will not be enforceable.  The time limit for adjudications will be 55 working days from appointment of an adjudicator to issue of the decision.  If the limit exceeds, that event, e.g., an Interim Payment, cannot be adjudicated.  The adjudication decision is enforceable unless there is fraud or bribery, failure of the adjudicator to act impartially or he breaches the principle of natural justice.  If either party is unhappy with the decision, one still has the right to refer the dispute to Court or arbitration.  Again, training of adjudicators is provided by HKIAC.

The presentation was concluded by a comparison among various methods.  The pros and cons were summarized by KK, tabulated as follows: