HKIS Resolving Disputes between Contractors
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1 HKIS Resolving Disputes between Contractors 12 December 2012 (Wednesday) 7:00pm 7:45pm Gilbert Kwok FHKIS, FRICS Partner, Hong Kong and China Construction Group Clyde & Co For further information:
2 Contents 1. Brief Introduction of Clyde & Co 2. Civil Justice Reform 3. New Arbitration Ordinance 4. NEC 5. Walter Lilly Case 6 5Pre-Completion Dispute Resolution 6. 5 Pre Completion Dispute Resolution Mechanisms
3 Resolving Disputes between Contractors Part 1 BRIEF INTRODUCTION OF CLYDE & CO Hong Kong and China Construction Group
4 Our Offices
5 Resolving Disputes between Contractors Part 2 CIVIL JUSTICE REFORM Hong Kong and China Construction Group
6 CJR Effective Date : 2 April 2009 Applied to civil proceedings Various new Practice Directions Procedural changes in various stages of proceedings Greater case management power of the Court
7 Underlying Objectives of CJR 1. Increase costs effectiveness of practice & procedure 2. Expedite procedures 3. Promote a sense of proportion (legal costs vs. claimed amount) 4. Ensure fairness between parties 5. Encourage and facilitate settlement 6. Ensure fair distribution of Court resources
8 Highlights of CJR 1. Case Management by the Court 2. Statement of Truth 3. Sanctioned offers/payments 4. Alternative Dispute Resolution 5. Pre-action discovery 6. Costs-only proceedings
9 Resolving Disputes between Contractors Part 3 THE NEW ARBITRATION ORDINANCE Hong Kong and China Construction Group
10 Overview Old Arbitration Ordinance: Cap 341 New Arbitration ti Ordinance: Cap 609 Applies to arbitrations commencing on or after 1 June 2011
11 In 1990, added UNCITRAL Model Law: Started 2 arbitration regimes: 1. Domestic Arbitrations 2. International Arbitrations 1996 HKIAC recommendation Model Law should also apply to domestic arbitrations Nov 2010 New Arbitration Ordinance was passed
12 Purposes of the Change 1. to simplify the Arbitration Ordinance so that the law is unified under one regime Result: same provisions apply to both domestic and international arbitrations (if we ignore the opt-in provisions) 2 to make Hong Kong arbitration law more 2. to make Hong Kong arbitration law more user-friendly and attractive for international arbitrations
13 Some Changes 1. Scope of Application Article 1 of the Model Law provides that the Model Law only applies to international commercial arbitration Replaced by s5 of the new Ordinance: applies to an arbitration if the place of arbitration is Hong Kong arbitration involving parties from different jurisdictions
14 Some Changes 2. Number of Arbitrators Parties to decide failing which HKIAC will decide (s23). Exception: section 1 of schedule 2 (for opt in cases): 1 arbitrator Possible problem: for appointment by non- HKIAC body such as HKIA/HKIS, if the arbitration ti agreement does not specify the number of arbitrators, the number will be decided by another body, namely HKIAC. This may lead to delay and complications.
15 Some Changes 3. Opt-in Provisions ss99, 100, 101 Complicated, may lead to problems 4. Payment into Court Mechanism cancelled Order 73, rr Rules of High Court Calderbank letter
16 When will Old Ordinance Apply? Section 111 & Schedule 3 Section 1 of the Arbitration Ordinance (Cap 609) (the New Ordinance ) Arbitration Ordinance (Cap 341) (the Old Ordinance ) will continue to apply to all arbitrations commenced prior to 1 June 2011
17 When has an Arbitration been commenced? In general terms an arbitration will have been commenced when a notice of arbitration has been served by one party on the other - Section 31(1) of the Old Ordinance Continue to have dual regimes for domestic and international arbitrations commenced prior to 1 June 2011 S DON T th i f th So DON T throw away your copies of the Old Ordinance quite yet.
18 When does New Ordinance Apply? Apply? June 2011 New Arbitration Ordinance (Cap 609) therefore applies to arbitrations commenced on or after 1 J 2011 Unitary regime so no distinction between international and domestic arbitrations BUT. Schedule 2 - Transitional Opt-in provisions brought in largely to deal with concerns of construction industry Broadly similar to old domestic regime - Section 99 - Section Section 101
19 When will Optin Provisions in Schedule apply 2? Section 99 (Express Opt-in) when there e is a valid agreement e to arbitrate; ate; and the parties expressly provide in that agreement for all or some of them to apply Section 100 ( Automatic Opt-in) Automatically with respect to arbitration agreements - entered into before 1 June 2011; or - at any time before 31 May 2017; But only if bit ti t id f bit ti - arbitration agreement provides for arbitration to be a domestic arbitration
20 Domestic? When will arbitration agreement have provided for domestic arbitration for purposes of Section 100? Satisfying test for domestic arbitration under Old Ordinance NOT enough (i.e. not international) Arbitration agreement must expressly provide that arbitration is domestic - so some form of clear agreement/wording is needed
21 Opt-in and Subcontracts Section 101- specific to construction subcontracts Section 101(1) - Opt-in provisions in Schedule 2 will apply to sub-contracts if: there is a valid agreement to arbitrate in the sub-contract; and the main contract satisfies test in Section 100 (i.e. main contract provides that arbitration will be domestic arbitration). So sub contract does NOT need to specify So, sub-contract does NOT need to specify domestic
22 Opt-in and Subcontracts Exception Section 101(2) - Opt-in under Section 101(1) will not apply where: the sub-contractor is based overseas or a substantial part of the operation that is subcontracted is to be performed outside of Hong Kong BUT Remember if the sub-contract itself satisfies the test in Section 100 (i.e. provides that arbitration under the sub-contract is a domestic arbitration) then the provisions of Schedule 2 will apply regardless of whether or not the subject matter of the sub-contract or sub-contractor has any connection with Hong Kong
23 Will Opt-in Provisions apply to Standard Form Contracts? (Private) HKIA Standard Form of Building Contract and Form of Subcontract (1986) Clause 35 (MC) - (i) in case any dispute or difference shall arise between the Employer.... and the Main Contractor,....then such dispute shall be.... referred to arbitration.... No express provision in either the Building Contract or Sub-Contract for domestic arbitration and therefore Opt-in provisions will not apply to arbitrations commenced under these contracts.
24 Will Opt-in Provisions apply to Standard Form Contracts? (Private) HKIA Standard Form of Building Contract and Form of Subcontract (2005) Clause 41 (MC) & Clause 42.4(5) (SC) - The arbitration shall be a domestic arbitration conducted in accordance with the Arbitration Ordinance (Cap 341). Despite reference to Old Ordinance Opt- in provisions i will apply Key words shall be a domestic arbitration Illustration of Section 101 Opt-in and Subcontract 1986 Sub-contract with 2005 Main Contract Schedule 2 Opt-in provisions would apply to sub-contract (subject to Section 101(2))
25 Will Opt-in Provisions apply to Standard Form Contracts? (Public) Government of Hong Kong General Conditions of Contract for Building Works (1993) Clause 86 (Building Works) - (2) If the matter cannot be resolved by mediation, then either the Employer or the Contractor may require that the matter shall be referred to arbitration - (5) The Hong Kong International Centre Domestic Arbitration Rules shall apply unless the parties agree to the contrary Will reference to HKIAC Domestic rules be enough for purposes of Section 100? Probably not SOL International Ltd v Guangzhou Don-jun Real Estate Interest est Co Ltd [1998] HKCU 2724
26 Will Opt-in Provisions apply to Standard Form Contracts? (Public) Government of Hong Kong General Conditions of Contracts for Building Works (1999) Clause 86 (6) (Building Works) - The reference to arbitration under sub-clause (2) shall be a domestic arbitration for the purposes of Part II of the Arbitration Ordinance (Cap 341). Opt-in provisions will apply
27 Going Forward. Contract reviews to see whether current contracts provide for domestic arbitration Consider agreeing variations to opt-in now The next 6 years (up until 31 May 2017): expressly opt-in under Section 99; or ensure arbitration clauses in contracts are drafted carefully so as to comply with the requirements of Sections 100 & 101 After six years (from 1 June 2017) expressly opt-in under Section 99 No valid arbitration agreement = no arbitration ti
28 Opt-in provisions (Schedule 2) deal with: A sole arbitrator by default (s.1) Consolidation of arbitrations (s.2) Court s power to decide a question of law (s.3) Challenge of an arbitral award for serious irregularities (s.4) Appeal against an arbitral award on a question of law (s.5)
29 Opt-in provisions Sole Arbitrator (s.1) Under the old Ordinance, without express agreement between the parties: Domestic arbitrations shall be referred to a single arbitrator s.8 of the old Ordinance Under the new Ordinance, s.1 of the opt-in provisions provides that without express agreement between the parties: Any dispute is to be submitted to a sole arbitrator How would the sole arbitrator be appointed? Unless the parties agree on who to be appointed as arbitrator, t sole arbitrator t shall be appointed by the HKIAC (s.24 of the new Ordinance)
30 Opt-in provisions Consolidation of Arbitrations (s.2) Why you may prefer to have multiple arbitrations consolidated? Various arbitrations usually arise out of the same construction project and involve similar facts e.g. Arbitration ti between the Employer and the main contractor / arbitration between the main contractor and its various subcontractors Advantages of consolidating two or more arbitrations: To save time and costs No inconsistent decisions
31 Opt-in provisions Consolidation of Arbitrations (s.2) There are provisions with similar features in the old Ordinance - s.6b of the old Ordinance In deciding whether to make an order for consolidation of arbitrations, the Court will consider : Do any of the 3 factors below apply to those arbitrations? - A common question of law or fact arises in those arbitration proceedings; - the dispute arising from the same transaction or series of transaction; OR - for any other reason it is desirable to make a court order for consolidation If so, does any factor exist that prevent a court order from being made?
32 Opt-in provisions Consolidation of Arbitrations (s.2) How will the arbitration proceedings be ordered to be consolidated by the Court? The arbitration proceedings may be fully consolidated; OR --> all arbitrations will be combined into one The arbitration at proceedings may be heard at the same time; OR --> all arbitrations will be heard by the same arbitrator(s) at the same time The arbitration proceedings may be heard one immediately after another; OR One arbitration may be stayed until after the determination of others. Appointment of arbitrator(s) after consolidation If parties cannot agree on the choice of arbitrator, the court is empowered to step in and appoint a suitable arbitrator
33 Opt-in provisions Court s power to decide a question of law (s.3) Under the new Ordinance, party to arbitration may apply to the Court for a decision on preliminary i question of law during arbitration ti In the old Ordinance, there are provisions with similar features - s.23a of the old Ordinance Question of law e.g. interpretation of a provision of a contract The application can only be made: With agreement of all the parties to arbitration; OR With permission of the arbitral tribunal The application will only be considered if it can be shown that the decision might produce substantial savings in costs for the parties
34 Opt-in provisions Challenge of an award on ground of serious irregularity (s.4) Under the old Ordinance, there are similar provisions where the Court has power to remit an award and to set aside an award on ground of "misconduct" Under the new Ordinance, there are various types of serious irregularities defined. The Court must be satisfied that the irregularity has caused or will cause substantial injustice to the party applying for challenge If the challenge succeeds, the Court may order to: Remit the award to the arbitral tribunal for reconsideration; OR Set aside the award; OR Declare the award of no effect
35 Opt-in provisions Appeal to the Court against an award on question of law (s.5) There are provisions in the old Ordinance with similar features - s.23 of the old Ordinance. Appeal can only be brought: With agreement of all the parties to arbitration; ti OR With permission (i.e. leave) of the Court
36 Opt-in provisions Appeal to the Court against an award on question of law (s.5) To grant a permission to appeal, the Court will consider: Whether the decision of the arbitrator on the question is obviously wrong; OR Whether the question is an important one and the decision of the arbitrator is at least open to serious doubt If the appeal succeeds, the Court may: Confirm the award; OR Vary the award; OR Remit the award to the arbitral tribunal for reconsideration; OR Set aside the award
37 What will happen if Opt-in provisions do not apply to your contract? The international arbitration regime under the new Ordinance applies Implication? Opt-in provisions apply Opt-in provisions do not apply Nos. of arbitrator 1 (by default) 1 or 3 (decided by HKIAC) Consolidation of arbitration X Can Court be asked to decide on question of law during arbitration? X Can Court be asked to challenge an award /X on ground of serious irregularities? Can party appeal to the Court on question X of law?
38 Resolving Disputes between Contractors Part 4 NEC Hong Kong and China Construction Group
39 NEC ECC Family Engineering and Construction Contract Engineering g and Construction Short Contract Engineering and Construction Subcontract Engineering and Construction Short Subcontract Framework Contract Professional Services Contract Adjudicator Contract Term Service Contract Supply Contract
40 Options, core clauses and secondary option clauses Departure from traditional approach System of options o and clauses Main Options Select one main option for a particular project Core Clauses Basis for a range of construction contracts Secondary Option Clauses
41 Project Manager and Supervisor No the Engineer or the Architect Roles divided into 3 parts Project Manager Supervisor Adjudicator Project Manager Instruction, payment and compensation events Supervisor standards and quality of work
42 Site Management Good site management is achieved by: Rapid communication cat o - Many notification and reply requirements Regular meetings - e.g. Risk reduction meeting Up-to-date programmes - Need to be regularly revised - Actual progress on each operation - Interval defined in contract data
43 Early Completion Clause 36.1 of core clauses The project manager age may request a quotation for accelerating the works Option X6 of secondary options Bonus for early completion
44 Proactive Project Management Partnering approach Communications and co-operation Up-to-date agreed Programme Managed Project Environment Improvement and job satisfaction
45 Early Warning Clause 16.1 The mechanism Purpose Cooperate and Discuss Partnering-based approach
46 Risk Register The mechanism Risk reduction meeting Purpose Proactive risk management Express purposep Discuss Co-operate Encourage proactive risk management 3 main objectives Identify risks Manage risks Identify time and cost The overall effect
47 Resolving Disputes between Contractors Part 5 Walter Lilly v Giles Patrick Mackay [2012] Hong Kong and China Construction Group
48 Main Issues Global claims in principle, no need to show - impossibility to plead and prove cause and effect Notification of claims contractor s offer to the Architect to - Inspect records at its office good enough Concurrent delay 2 or more effective delaying causes - one being a relevant event under contract - full EOT
49 Resolving Disputes between Contractors Part 6 5 PRE-COMPLETION DISPUTE RESOLUTION MECHANISMS Hong Kong and China Construction Group
50 5 Options Mediation Independent Expert Certifier Adjudication Default mechanism Expert Determination Short Form Arbitration
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