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Contract Practice
Lecture 10 – Dispute Resolution
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Note:
This set of notes is largely based on the information
from the books as listed in the Reference section
herein, and the author hereby acknowledges that
ownership of copyright of these materials, where
referred to or cited therefrom belongs those authors
and they are adopted for educational purpose only.
While every care has been taken in the assembly of
this set of notes, no responsibility for loss occasioned
to any person acting or refraining from action
occasioned by or as a result of any material included
herein can be accepted by the author.
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Learning Outcomes
The students should be able to understand:
1. The origin of and usual problems in construction
disputes
2. The contract procedures for settlement of
disputes in SFBC 2005
3. The process of civil litigation
4. The common alternative dispute resolution (ADR)
methods employed in construction industry.
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Dispute Resolution
Origins of Construction Disputes
i. Contract Document Errors
ii. Poor Cost Estimation by Contractor
iii. Changed Working Conditions
iv. Consumer Reaction to Defects
v. Communication Problems amongst Project
Team Members
- Hohns H. Murray (1979)
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Dispute Resolution
Usual Problems and Consequence
identified by Construction Industry
Council (“CIC”):
i. Interim Payment Disputes
ii. Overdue Final Account and Delayed Release of
Retention
iii. Payment to Suppliers
iv. Challenge to Impartiality of Consultants
v. Abandonment of Works
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Dispute Resolution
Important Principles suggested by CIC:
i. Resolving disputes as they arise
ii. Justice delayed is justice denied
iii. Cash flow is the lifeblood of a contractor
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Contract procedures for settlement
of disputes in SFBC 2005
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SFBC 2005 Clause 41 -
Settlement of Dispute
Clause 41.1: Procedures & Designated Representatives
Each party designate one senior executive as
Designated Representative (DR) within 14 days of
acceptance of Contractor’s tender.
Clause 41.2: Reference to Designated Representatives
Architect shall refer any dispute to DRs who shall
meet within 7 days of Architect’s notice.
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SFBC 2005 Clause 41 -
Settlement of Dispute
Clause 41.3: Reference to mediation
Failing resolution by DRs within 28 days from
Architect’s notice, either may refer dispute to
mediation.
Failing agreement of mediator between parties
within 21 days, appointment to be made by
HKIA/HKIS.
Mediation shall be conducted according to HKIAC
Mediation Rules unless otherwise agreed by
parties. Contract Practice 9
SFBC 2005 Clause 41 -
Settlement of Dispute
Clause 41.4: Reference to arbitration
If dispute not settled by mediation within 28 days,
parties may give notice of arbitration.
Failing agreement of arbitrator by parties within 21
days, appointment to be made by HKIA/HKIS.
http://www.jdrc.com.hk/JointPanelArbitrator.htm
Either party may write to HKIAC for appointment of
arbitrator if HKIA/HKIS fails to appoint within 60
days. http://www.hkiac.org/
Arbitration to be conducted according to HKIAC
Domestic Arbitration Rules unless otherwise
agreed by parties. Contract Practice 10
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SFBC 2005 Clause 41 -
Settlement of Dispute
Clause 41.5: Timing of arbitration – no arbitration
before substantial completion except:-
Objection to appointment of replacement QS or Architect
Architect’s authority to issue an instruction
Certificate was improperly withheld or issued
Assessment of Employer’s loss under Clause 7(2)
Contractor’s objection to Variation under Clause 13.1(1)(a)
Contractor’s withholding consent to Employer’s partial
possession of site
Dispute relating to determination under Clause 35 & 36, or
fluctuations under Clause 37
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SFBC 2005 Clause 41 -
Settlement of Dispute
Clause 41.6: Arbitrator’s powers
Rectifying the Contract
Directing measurement or valuation
Assessing and awarding sum for a certificate
Opening up, reviewing and revising, without limitation,
the giving, submitting or issuing of any agreement,
approval, assessment, authorization, certificate,
confirmation, consent, decision, delegation, direction,
dissent, determination, endorsement, instruction,
notice, notification, opinion, request, requirement,
statement, termination or Valuation
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SFBC 2005 Clause 41 -
Settlement of Dispute
Clause 41.7: The place of arbitration
Hong Kong
Clause 41.8: Contractor to continue to proceed
diligently
Contractor shall continue to give effect to all
instruction of Architect unless and until revised by
agreement between DRs, by mediation or in
arbitration.
Contractor’s compliance with Clause 41.8(1) is
without prejudice to any other rights and remedies
that he may possess.
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Civil Litigation
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Civil Litigation
Court System in Hong Kong
Small Claims Tribunal – Less than HK$50,000
District Court – Between HK$50,000 to $1M
High Court (Court of First Instance & Court of
Appeal) – Unlimited jurisdiction
Court of Final Appeal
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Civil Litigation Process:
Pre-Trial
1. P issue a writ of summons and serve to D
2. D file an acknowledgment of service
3. D file a defence (and counterclaim, if applicable)
4. P file a reply, if necessary (and defence to counterclaim)
[pleadings stage is closed]
5. Discovery and inspection of documents
6. Exchange of witness statement and expert report (if
required)
7. P file application to set down the action for trial
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Civil Litigation Process:
Trial
1. P's opening speech
2. P's witnesses will in turn be:
(i) examined in chief by P;
(ii) cross-examined by D; and
(iii) re-examined by P
(P closes his case)
3. D's opening speech (if any)
4. D's witnesses will in turn be:
(i) examined in chief by D;
(ii) cross-examined by P; and
(iii) re-examined by D
(D closes his case)
5. The D's closing speech
6. The P's closing speech
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Alternative Dispute Resolution
(ADR) Methods
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Alternative Dispute Resolution
(“ADR”)
What is ADR?
A process for settling disputes by means
other than litigation.
Such process generally but not necessarily
involves the assistance of a third party
neutral.
No fixed definition and is constantly
expanding to include new techniques.
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Alternative Dispute Resolution
(“ADR”)
Some ADR Techniques/Systems
1. Mediation
2. Adjudication
3. Expert Determination
4. Arbitration
5. Dispute Resolution Advisor (“DRA”) System
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Alternative Dispute Resolution
(“ADR”)
MEDIATION
1. What is Mediation?
a consensual process where an
independent third party attempts to assist
the disputing parties in working towards a
negotiated settlement of a dispute.
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MEDIATION
Mediation Ordinance Cap 620, section 4 states that:
Mediation is a structured process comprising one or
more sessions in which one or more impartial
individuals, without adjudicating a dispute or any aspect
of it, assist the parties to the dispute to do any or all of
the following: -
(a) identify the issues in dispute;
(b) explore and generate options;
(c) communicate with one another;
(d) reach an agreement regarding the resolution of the
whole, or part, of the dispute.
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MEDIATION
2. Features & Characteristics
a. Decision made by the parties not mediator
b. Parties control the mediation process and termination
c. Flexible & Speedy procedure
d. Rules of natural justice do not apply
e. Inexpensive
f. Win – win situation
g. Private process and without prejudice basis
h. Less tension
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MEDIATION
3. Role of Mediator
a. does not impose a decision on the parties
b. does not provide legal advice and would not take sides
c. will not determine who is right and who is wrong in the
disputes
d. will help the parties explore the strengths and
weaknesses of their cases
e. identify possible solutions
f. observe confidentiality in respect of all matters
disclosed
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MEDIATION
4. Why mediation?
a. On 2 April 2009, the Judiciary implemented the Civil
Justice Reform (“CJR”) with a view to encourage and
facilitate the settlement of disputes by ADR if the Court
considers appropriate.
b. Practice Direction 6.1 (“PD 6.1”) came into effect on 2
April 2009. Parties in construction cases are
encouraged to attempt mediation as a possible cost-
effective means of resolving disputes.
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MEDIATION
4. Why mediation?
c. Practice Direction 31 ("PD 31") came into effect on 1
January 2010 (a new PD31 effective from 1 Nov 2014).
It states that the underlying objective of the Rules of the
High Court and the District Court is to facilitate the
settlement of disputes. The Court has a duty to further
that objective by encouraging disputing parties to use
ADR.
d. If a party has not engaged in mediation to the minimum
level of participation, or has no reasonable explanation
for not engaging in mediation, this party may face an
adverse costs order.
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ADJUDICATION
What is Adjudication?
a. A dispute resolution process conducted by a sole
adjudicator in accordance with the adjudication rules
and the terms of the contract and its applicable law.
b. Specific issue to be resolved will be referred to the
decision of a third party neutral known as the
Adjudicator.
c. The adjudicator will produce a decision after the parties
has presented their evidence and submissions in written
or oral form.
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ADJUDICATION
What is Adjudication?
d. Adjudicator’s decision is binding and enforceable
during the currency of the works.
e. The decision is not final as it can be challenged and
revised by subsequent arbitration or litigation.
f. Strict time frame to produce decision by the Adjudicator.
(e.g. 56 days – HKIAC Adjudication Rules 2009, 55
days – SOPL consultation document).
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ADJUDICATION
Practice in Hong Kong
a. Unlike UK where adjudication was introduced by the
Housing Grants, Construction and Regeneration Act
1996. No statutory framework in Hong Kong yet.
b. Airport Core Programme Adjudication Rules 1992
c. Pilot scheme governed by HKSAR Construction
Adjudication Rules 2004
d. HKIAC Adjudication Rules 2009
e. Security of Payment Legislation (public - all, private –
new building only > HK$5M)
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EXPERT DETERMINATION
What is Expert Determination?
a. A dispute resolution process in which an independent
expert in the subject matter of the dispute, is appointed
by the parties to resolve the matter.
b. The expert’s decision is - by prior agreement of the
parties - legally binding on the parties.
c. Like all ADR processes it is entirely confidential.
---------- The Academy of Experts
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EXPERT DETERMINATION
Features of Expert Determination
a. The expert has a duty to investigate and discover the
fact in addition to evidence submitted by the parties.
b. May decide based on the expert’s own knowledge and
investigations even though no evidence and
submission are provided by the parties.
c. No legislation to back up the investigation process.
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EXPERT DETERMINATION
Features of Expert Determination
d. It can only be challenged in limited circumstances if the
determination, according to the prior agreement of the
parties, is final and binding.
e. The expert has no power to make order as to his/her
fees or the costs of the parties unless with prior
agreement otherwise.
f. Liable for his/her negligence.
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ARBITRATION
What is Arbitration?
Arbitration is a consensual dispute resolution process
where the parties agree to submit their disputes to be
resolved by an arbitral tribunal composed by arbitrator(s)
who is/are independent third party/parties appointed by
or on behalf of the parties in dispute.
Arbitration awards will be final and binding.
– Hong Kong International Arbitration Centre
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ARBITRATION
Features of Arbitration
a. Private and confidential process.
b. Party autonomy – choice of language, arbitrator, venue,
rules of arbitration.
c. Flexible procedures.
d. Exclusionary rules of evidence do not apply.
e. Rules of natural justice shall be observed.
f. Award is final and binding subject to very limited ground
for challenge.
g. Award is enforceable as if it is a court judgment.
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ARBITRATION
Practice in Hong Kong
a. Arbitration Ordinance (Cap 609) come into effect on 1
June 2011.
b. Domestic and international regime are now fused, and
largely adopted the UNCITRAL Model Law.
c. Schedule 2 retains some of the provisions under the
old domestic arbitration regime, which parties may opt
in. (section 99 of Cap 609)
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ARBTRATION
Practice in Hong Kong
d. If the arbitration agreement provides that it is a domestic arbitration
(e.g. HKSAR GCC clause 86(5)), Schedule 2 provisions will
automatically apply to an arbitration agreement entered into before
or within 6 years from commencement of the New Arbitration
Ordinance. (section 100 of Cap 609)
e. Schedule 2 provisions relate to arbitration by a sole arbitrator,
consolidation of arbitrations, decisions of preliminary questions of
law by the court, challenging an arbitral award on the ground of
serious irregularity and appeals against arbitral awards on a
question of law.
f. Awards made in Hong Kong are now enforceable in over 140
jurisdictions including Macau and Mainland China.
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Dispute Resolution Advisor （DRA）
）
System
1. What is DRA System?
A hybrid form of dispute management that is
peculiar to the Hong Kong Construction Industry.
First used by ArchSD in 1991.
HKHA implemented in building and foundation
projects since 2001. Called ‘DARA’ from 2013.
Trial scheme on civil engineering contracts in March
2005.
In 2009, Development Bureau decided to implement
on major civil engineering projects.
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Dispute Resolution Advisor （DRA）
）
System
2. The DRA System’s features
2.1 A neutral jointly appointed by the Contractor and
the Employer at the commencement of contract
and whose role is to: -
foster co-operation between the
Contractor and the Employer and their
consultants and sub-contractors;
minimize the number of claims;
avoid conflicts; and,
settle disagreements as they emerge.
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Dispute Resolution Advisor （DRA）
）
System
2.2 Amendment of GCC Clause 86 to permit the
introduction of voluntary adjudication.
2.3 Amendment of GCC Clause 48 (possession of
site), 50 (extension of time), 61 (variations) and
63 (disturbance to progress of work) to provide
for the introduction of time limits for the making
and determination of certain claims, evaluations,
ascertainments and determinations.
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Dispute Resolution Advisor （DRA）
）
System
3. How to achieve its role?
3.1 Familiar with the Contract Documents
DRA will study and understand the contract documents and
identify potential problems so that all parties would pay
particular attention to them. E.g.
(i) Constraint by existing utilities.
(ii) Procurement of E&M equipment and conflict with
dimensions of building works.
(iii) Utilities diversion programme.
(iv) Interfacing work with adjacent contractor.
(v) Abnormally priced BQ rates.
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Dispute Resolution Advisor （DRA）
）
System
3.2 Familiar with the Project
Convening risk analysis workshop to assist
the parties to identify the potential conflict
and to develop preventive measures.
Set up a simple and an efficient claim
management system.
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Dispute Resolution Advisor （DRA）
）
System
3.3 Familiar with the Key Personnel
Attend regular monthly progress meetings and
hold all necessary meetings to meet parties
representatives (including sub-contractors) and
discuss on particular difficulties and constraints
relating to the project.
To establish a mutual trust relationship.
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Dispute Resolution Advisor （DRA）
）
System
3.4 Advise appropriate dispute resolution
procedure
Should dispute cannot be settled at site level,
DRA will produce report stating his analysis of the
dispute for consideration by the senior staff
member of the parties.
May contain either a non-binding recommendation
and/or neutral evaluation of the disputes for the
parties consideration.
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Dispute Resolution Advisor （DRA）
）
System
4. Why use DRA?
4.1 Early start
4.2 Expeditious
4.3 Economical
4.4 Flexible
4.5 Parties’ control
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Others:
Med-Arb: a hybrid 2-stage process. (see s.33 of Cap 609
arbitration ordinance allows an arbitrator to act as mediator if all
parties consent in writing.)
DRB: Dispute Review Board is widely used in USA. An
independent board of 3 people established at start of project, that
evaluates disputes as they arise during the project and make non-
binding settlement recommendations to the parties.
DAB: Dispute Adjudication Board is a pre-arbitration step with
bind decisions. First introduced by FIDIC since 1995. Similarly
formed as DRB but member of DAB can only be terminated by
mutual agreement of both parties.
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Class Exercise
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References
Agreement & Schedule of Conditions of Building Contract for use in
the HKSAR, Private Edition – With Quantities 2005 Edition.
Hohns H. Murray (1979) Preventing and Solving Construction
Contract Disputes, Van Nostrand Reinhold Company
General Conditions of Contract for Civil Engineering Works 1999
Edition. HKSAR.
Guidelines on Dispute Resolution, Version 1, September 2010,
Construction Industry Council, Hong Kong
Reference Materials for Application of Dispute Resolution in
Construction Contracts, Version 1, January 2013, Construction
Industry Council, Hong Kong
Hong Kong Mediation Code, Department of Justice
HKIAC Adjudication Rules 2009
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CONTRACT PRACTICE
Lecture 10 – Dispute
Resolution
- The end -
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