Construction boom in the Asia-Pacific Region.
With construction booming in the Asia-Pacific region, and to avoid delays in major infrastructure projects which may place at risk economic growth in Asian nations, alternative dispute resolution is gaining prominence as a cheaper and faster way to settle claims.
This was the theme of a one-day conference on dispute avoidance and resolution in the construction industry – an Asian Pacific perspective, organised by the Inter-Pacific Bar Association (IPBA) and the Construction Industry Council on 24 January 2014 at the Hong Kong International Arbitration Centre (HKIAC) which attracted more than 130 delegates from both the public and private sector.
This is the first such conference co-organised by the IPBA and the CIC in Hong Kong which provided a forum for the timely discussion of the latest trends and measures of dispute avoidance and resolution within the construction industry in the region.
In the opening speech, Secretary for Justice, Mr. Rimsky YUEN, SC, outlined the role the Government has to play in the context of dispute avoidance and resolution, highlighting two particular areas: the first concerning the Dispute Resolution Advisor (DRA) system and the use of the New Engineering Contract for public works projects; and the second regarding the proposed Security of Payment (SoP) legislation.
The role of the DRA is to foster co-operation amongst the employer, the contractor, their consultants as well as sub-contractors, so as to minimise the number of claims, to avoid conflicts in the first instance and to settle differences or disagreements as they emerge and before they become disputes which will need to be dealt with under the dispute resolution provisions in the contract.
The DRA system was first adopted for building contracts by the Architectural Services Department in the early 1990s, and its use was extended by the Housing Department in 2004 to capital works building and piling contracts. In February 2011 the Government agreed that the DRA system should be generally adopted in all capital engineering works contracts with a value in excess of HK$200 million except for contracts of a routine nature, and contracts with a value below HK$200 million if this is justified by the complexity of the works. There are currently a total of 54 ongoing civil engineering contracts and 17 ongoing building contracts in which the DRA system has been adopted.
Apart from the DRA system, the Government has taken steps to introduce into public works projects the beneficial dispute avoidance mechanisms and partnering approach that are found in the New Engineering Contract (NEC). The first pilot NEC contract was let by the Government in 2009. As at 1 January this year, there are more than 40 selected pilot contracts including capital works civil engineering contracts, maintenance contracts and consultancy agreements.
The Government has also set up a Steering Committee to monitor the delivery of the pilot projects and a monitoring mechanism to collect statistics on the key performance indicators including claims management and dispute avoidance. In view of the general positive results in the on-going pilot construction contracts, the Government proposed in August last year to extend the scope of the trial including adopting the NEC form as far as possible in all public works contracts for tenders to be first gazetted in 2015 and 2016, and selecting more consultancy agreements using the NEC.
The Working Group on Security of Payment has considered a number of issues including the scope of the proposed legislation, the prohibitions on pay-when-paid and conditional payment clauses and the right to suspend work for non-payment. Of particular importance is the introduction of mandatory adjudication as an expedited method of dispute resolution. It is proposed that the award of the adjudicator will be binding unless the dispute is referred to arbitration or litigation, and subject to limited rights of challenge the sum awarded by the adjudicator will be payable pending the outcome of the arbitration or litigation.
“The Government fully appreciates the importance of dispute avoidance and dispute resolution in shaping the future of the construction industry in Hong Kong. We will spare no effort in taking measures to meet the needs of the local and the international business communities and to ensure that Hong Kong continues to be a leading centre for international legal and dispute resolution services in the Asia-Pacific region,” Mr. YUEN said.
A member of the working group, Partner at Pinsent Masons, Mr. Peter CLAYTON, indicated for the first time the government’s thinking in the proposal it is likely to put forward in its consultation document on SoP, to be released in the “next month or two.” He said that it is likely to be proposed for the legislation to have wide coverage including professional services. Mr. CLAYTON said existing contracts would need to be amended and that ahead of the introduction of SoP, education and training would be very important.
One of the veteran proponents of ADR since being involved with the Tang report reviewing the Hong Kong construction industry in 2001, Chairperson of the HKIAC, Ms. Teresa CHENG, SC, outlined the developments over the past decade in Hong Kong and the merits of various options available including mediation, adjudication, short form arbitration, expert determination, and the use of an independent expert certifier.
Partner at Hogan Lovells Mr. Damon SO provided a lawyer’s perspective on mediating construction disputes in Hong Kong. He said it was the role of the lawyer in mediation to choose an expert, impartial mediator with a good reputation and make the appropriate preparations ahead of mediation. During the process he reminded lawyers to use lay language. “This is a chance to speak directly to the client on the other side of the table.”
The keynote speaker Legislative Councillor, Hon. Dennis KWOK, provided an overview of the recent legislative amendments to the Arbitration Ordinance, and the development of mediation to enhance Hong Kong’s reputation as an ADR hub.
MTRC’s Principal Contract Consultant, Mr. Martin DUNN, explained their practice to keep the number of disputes low and quickly resolved. He said both the corporation and the contractor had to be realistic, and he urged contractors to keep good records. He also said the MTR encouraged contractors to raise issues early that may lead to a claim.
Meanwhile, MTRC’s Legal Director and Secretary, Ms. Gillian MELLER, said it was important for all parties to have a practical and pragmatic mindset and that the MTRC approach was one of early case assessment, and to involve in-house legal counsel followed by possible external legal advice. Her advice to external lawyers was to “understand the industry and the transactions” and take a flexible approach with billings and fees. Since 1975, there have been two claims against the MTR that went to arbitration in Hong Kong and one case of mediation with a contractor.
The regional perspective on dispute resolution was provided by Mr. Kevin PRAKASH, Partner at Mohanadass Partnership, who outlined the statutory adjudication system in Malaysia. The key features of construction contracts in Japan were explained by Vice-chair of International Construction Projects (IPBA), Mr. Naoki IGUCHI. The nuances of dispute resolution in the Indian construction industry were presented by fellow Vice-chair of International Construction projects (IPBA), Mr. Nusrat HASSAN. One common theme was that given the amount of investment in infrastructure projects, disputes are becoming an impediment to growth.
An entertaining panel session at the close of the conference, moderated by Partner and Practice Leader Hong Kong, DR/Infrastructure at King & Wood Mallesons, Mr. Paul STARR, focused on whether the costs of dispute avoidance can it be controlled. In some cases arbitration is now becoming as expensive as traditional litigation. What became clear with the interaction with audience members was that few of the participants have so far explored alternative dispute resolution mechanisms.
Executive Director of the CIC cum At-Large Council Member of the IPBA, Mr. Christopher TO, wrapped up the conference by encouraging all delegates to get involved with the upcoming Security of Payment consultation and to provide feedback on other measures that could enhance the avoidance of disputes in the construction industry thus creating a harmonise environment going forward.