2020 Review & 2021 Outlook of Construction Arbitration & Dispute Resolution in Hong Kong

INTRODUCTION

With the ever-booming development of the construction industry both in Mainland China and in Hong Kong, the number of constructions disputes have also been observed to be on a steady rise. As a result, in order to ensure speedy dispute resolutions for all such matters (so as to avoid project interruptions where applicable), a sharp increase in services specifically catered for the construction industry is also on the rise.

CONSTRUCTION ARBITRATION & DISPUTE RESOLUTION REVIEW OF 2020

Whilst early 2020 saw massive interruptions to the Mainland economy as a result of COVID (which had led to increased numbers of dispute), the industry rebounded overall. That said, the situation of 2020 did result in the following major developments within the realm of Construction Dispute Resolution space:

1. First, On 21 April 2020, the Hong Kong Institute of Surveyors (“HKIS”) formulated “Buildings Information Modelling (“BIM”) Conditions of Contract”. It should be noted that prior to this development, the Government of HKSAR have promoted the use of BIM which is undisputedly the going global trend.

Whilst BIM will cover general provisions, priority of contract documents, obligations of the project participant, digital data and BIM management, BIM execution plan, risk allocation in respect of the model, intellectual property rights of the model, indemnity and insurance, and termination, recession or expiry of the agreement, it is crucial for contracting parties to understand the underlying rationale of each condition for proper implementation.

1. Second, major development on the list occurred on 29 June 2020 when the Government launched the Pilot Scheme on Facilitation for Persons Participating in Arbitral Proceedings in Hong Kong.

The scheme is significant in that it facilitates non-Hong Kong residents participation in Hong Kong arbitral proceedings on a short term basis to promote Hong Kong as the centre for arbitration in the region, which is of significance in fields of construction arbitration (as it enables access to relevant overseas expertise – access not facilitated in other contemporary centres).

1. Third, on 27 November 2020, the People’s Republic of China (“PRC”) and Hong Kong sign Supplemental Arrangement on mutual enforcement of arbitral awards. This again further enhance Hong Kong as the centre for dispute resolution for PRC related construction projects where overseas contracting party can have the benefit of speedy dispute resolution facilitated by a world-class arbitration dispute resolution centre.

2. 2020 was concluded with yet another major development on16 December 2020 when the Court of Final Appeal (“CFA”) delivered its judgment in 廈門新景地集團有限公司 v Eton Properties Limited & Ors. during which the Court examined the scope of reliefs available when enforcing a Mainland Arbitral Award at Common Law.

In this case, the CFA held that at the enforcement stage involving a common law action that is based on an implied promise to honour an award, the enforcing court may grant relief appropriate to such award. Where such award is a monetary award for payment within a specific jurisdiction, it may simply be a judgment enforcing such an award as a debt. On the other hand, where the award is a non-monetary award, the court may fashion a suitable remedy chosen from the full range of remedies that are available in an ordinary common law action.

This decision holds significant as it clarified the relationship between enforcing an arbitral award by common law and through the Arbitration Ordinance (Cap 341). The usefulness of Common Law remedies (not necessarily immediately available in other contemporary/competing jurisdiction) makes it a unique feature available in Hong Kong, making yet another advantage.

All in all, Hong Kong saw significant development in the Construction Dispute Resolution front which is a testament of the robustness of Hong Kong being the selected centre of dispute resolution not just for Construction Projects in and out of China, but as the centre of dispute resolution under the entire Belt and Road Initiative pushed forward by the PRC.

CONSTRUCTION ARBITRATION & DISPUTE RESOLUTION OUTLOOK FOR 2021

As we move into 2021, two (2) major and exciting trend and developments within the arbitration space is also expected. These includes:

1. Expansion of Outcome Related Fee Structure (“ORFS”) for arbitration (also known as contingency fees) a fee structure that Hong Kong has yet to embrace (it should be noted that lawyers in Hong Kong are prohibited by law to charge fees on a contingency basis. As such, lawyers in Hong Kong (unlike other jurisdictions) are forced by law to charge on a time-spent basis – which is not attractive for many clients (especially where such clients are from jurisdiction which contingency is the prevailing practice)); and

2. The PRC confirms that it is opening up its arbitration market to foreign institution. It is well established that prior to the announcement by the PRC towards the end of 2020, the idea of place of Arbitration in Mainland China and a Foreign Arbitration Institution Used to Be “No-Go” as PRC Arbitration Law (1994) specifically states that an arbitration institution will only be qualified if it is duly registered with the relevant administrative department of justice.

On 6 August 2020, a decision handed down by the Guangzhou Intermediate People’s Court (“GIPC”) provided a guideline as to how to enforce awards issued based on an arbitration clause providing for a place of arbitration in mainland China by a foreign institution. Many have since interpreted that this is an indication that registration is for the first time open to foreign institutions.

CONCLUSION

All in all, with the ever-increasing / resumption of mega construction projects in Hong Kong, China and the Belt and Road realm, the increase for demand of construction arbitration will continue to increase and Hong Kong provides one of the best and most robust dispute resolution centres in the region which remains unmatched. A further expansion of this market is therefore expected to continue.

This article is co-authored by Joshua Chu from ONC Lawyers