REUTERS | Anindito Mukherjee

Hong Kong dips its toe into statutory adjudication

Well, in the words of Bananarama, it’s been a cruel cruel summer: well, at least August has. The weather has been shocking in the UK and I’ve heard more than one person say that they’ve already put their central heating on. Not only that, Matt and I have only had one TCC case to write about. Consequently, this week I thought I would look further afield, and specifically to Hong Kong.

Earlier in the summer, the Government of Hong Kong published a consultation on the introduction of Security of Payment legislation (SOPL) in the region, including statutory adjudication. I’ve been lucky enough to be invited to Hong Kong later this year to talk to prospective adjudicators on decision writing, so I’ve looked at the consultation in some detail.

Proposed Security of Payment legislation

The proposed SOPL has certainly not been drafted by civil servants with no knowledge of construction disputes. Rather, it is quite clear that it’s been drafted by experienced practitioners in the know who have looked in some detail at the statutory schemes in other parts of the world and have tried to pick out the best parts.

Unsurprisingly, given the current issues arising with payment notices under the amended Construction Act 1996, Hong Kong has steered well clear of adopting similar payment terms to the UK. There is to be a payment claim, and if the employer wants to pay less than the sum claimed, it has to serve a payment response – refreshingly simple.

When it comes to adjudication, the drafters have cannily provided a lengthy procedure and tried to avoid ambush. 55 working days overall, including an express provision for 20 working days in which to submit the response, rather than the UK’s 28 calendar days with no mention of a response. Furthermore, any challenges to an adjudicator’s decision will have to be made promptly.

SOPL’s scope too limited

However, perhaps I’m just too comfortable with our UK legislation, but I do have a few concerns, principally to do with the SOPL’s scope, which will differ depending on whether the contract is a public or private sector contract:

  • At present, the SOPL excludes all private sector contracts below HK$5,000,000 (about £420,000), but this would exclude a contract let by a sophisticated employer such as a developer.
  • It is also proposed that the SOPL will only apply to a “new building” in the private sector, and so this would appear to exclude, for example, large scale refurbishment of office blocks. In my view, regardless of the size of a dispute, there is no justification for a developer being insulated from the obligations imposed by the SOPL and a contractor not being afforded suitable protection. I understand that the concern is that the public at large should not be caught by the SOPL but, if that is the case, why not just exclude residential occupiers as we do in the UK?
  • The current proposal is that adjudication will be limited to disputes about payment claims made under the contract and extensions of time. I appreciate that other areas of the world have adopted similar provisions, for example some of the Australian states, but I really struggle to see the advantages. Anecdotally, I’ve heard that the limitations in the Australian states are not altogether popular, and considerable costs can be expended arguing about what is and what is not part of a payment claim. Why not just let the adjudicator deal with all disputes arising under construction contracts?
  • A party will have 28 days to refer a dispute about a payment claim or extension of time to adjudication.  I can see the sense in this, but I can foresee arguments arising as to when a dispute about an extension of time has actually arisen.

Short and sweet

I’ve tried to keep this blog short and sweet, but further details of the Hong Kong consultation can be found on the Development Bureau’s website.

It will be interesting to see the results of the consultation, so watch this space.

MCMS Ltd Jonathan Cope

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