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The Impact of Civil Justice Reform in Hong Kong on Alternative Dispute Resolution

Following many years of concern about the cost, time and complexity associated with proceedings in Hong Kong's High Court, the Chief Justice in 2000 set up the Working Party on Civil Justice Reform. Its aim was to recommend changes to procedure to "improve access to justice at reasonable cost and speed."

The CMI Justice Reform Final Report ("the Report) was published earlier this year and made a total of 150 recommendations including those relating to the use of alternative dispute resolution (ADR). The Chief Justice has accepted the Reporfs recommendations and a Steering Committee was recently established to co-ordinate their implementation.

The Report's ADR Recommendations
There has, over the past few years, been a greater awareness of the benefits of ADR in dealing with construction disputes. However, the use of such procedures is based upon the parties entering into agreements to resolve their disputes in a particular manner. The Report focused on the extent to which ADR procedures, and in particular mediation, should be included as an integral part of the formal Civil Justice system.

The Working Party examined whether mediation should be compulsory for all disputes. In doing so, it considered whether mediation should be supported by statute and whether the court should be granted the power to order parties to mediate their disputes.

After detailed consideration, the Working Party recommended that:

  • the courts should take steps to encourage parties to undertake purely voluntary mediation by, for instance, providing them with better information on available facilities and requiring the parties to indicate whether they had considered ADR; and
  • subject to the adoption of appropriate rules, the court should have power, after taking into account all relevant circumstances, to make adverse costs orders in cases where mediation has been unreasonably refused. Therefore, a winning party might be deprived of its costs at trial because of an earlier unreasonable refusal to mediate.

The recommendation relating to the courts power to make adverse costs orders in cases where mediation has been unreasonably refused does present a number of potential difficulties. The Report suggests that there needs to be a framework of rules relating to (i) the request for mediation, (ii) the response to mediation and (iii) what amounts to unreasonable behaviour.

There is considerable case law from England and Wales on the question of the courfs approach to what is an unreasonable refusal to mediate. The Report said that such cases would be helpful to the court in Hong Kong when dealing with costs arguments concerning unreasonable refusals.

Voluntary Adjudication
The Report briefly comments on the question of statutory adjudication for construction disputes. It concludes that this is an issue for the construction industry itself to address.

The Provisional Construction Industry Co-ordination Board established to oversee the implementation of the recommendations made in the Tang Report, devolved responsibility for the extended use of ADR procedures to the Environment, Transport and Works Bureau (ETWB) of the Hong Kong Government.

Voluntary adjudication on a selected trial basis is to be introduced into the Government's General Conditions of Contract. ETWB has drafted special conditions of contract (these amend clause 86 of the General Conditions of Contract) together with a set of rules for voluntary adjudication.

The special conditions provide that once a dispute has arisen it is to be dealt with on the following tiered basis:

  • there is to be a decision by the Engineer which is to be final and binding unless either the Contractor or the Employer requires the dispute to be referred to mediation, adjudication or arbitration and the decision is revised;
  • if the Engineer fails to give a decision or if the Employer or the Contractor is dissatisfied with the decision then either of them may request that the dispute be referred to mediation or adjudication subject to the Government's Construction Mediation Rules or the Government's Construction Adjudication Rules; and
  • if the dispute cannot be resolved by mediation and/or adjudication, or because one/neither of the parties wants to mediate/adjudicate the dispute, then the dispute is to be referred to arbitration. No further steps in the reference to arbitration may be taken until completion of the Works.

The Adjudicator's award will be final and binding if no reference is made to arbitration. However, if a reference to arbitration is made, the Adjudicator's award will not be enforceable. This is a key difference between the pilot scheme and the statutory scheme in the UK introduced by the Housing Grants Construction and Regeneration Act. In the UK scheme, the Adjudicator's award is enforceable unless and until reversed in an arbitration. This interim enforceability ensures that cash flow is not held up pending an arbitration which may finish several years after a project has completed.

The introduction of the pilot adjudication scheme is a welcome, if cautious, first step. If, as may happen, the implementation of the scheme results in a dramatic reduction in the number of references to arbitration, it should quickly be extended to all Government contracts. Consideration should then be given to a statutory scheme requiring all construction contracts to provide for binding and enforceable adjudication.

There is an increasing acceptance in different branches of the Government that litigation and arbitration should be dispute resolution mechanisms of last resort. So far, there has been little appetite for compelling references to ADR. However, adverse cost awards where mediation has been unreasonably refused should help to encourage the greater use of ADR. Arbitrators too should be encouraged to make such adverse awards.

The adjudication pilot scheme is a tentative first step towards the more widespread introduction of a dispute resolution technique which has received statutory support in many jurisdictions including the UK.

Herbert Smith, Construction Update
November 2004

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