by Ir Dr Lam Siu Shu Eddie MSc PhD PgD(Law) PCLL CEng FIStructE MIMechE FHKIE RPE RSE Class-1 Registered Structural Engineer PRC RI Barrister Mediator
(Dated: September 2014)
Construction contract • Modern construction contracts have proviso for alternative ways out of conflict so as to prevent as far as possible a deadlock for litigation. • It usually commences with negotiation – to provide means of preserving a working relationship between the parties that were in dispute. – Unsuccessful: unequal negotiating power (large Co. v sub-contractor) • Should negotiation fail, the parties might meet again to try and negotiate a settlement with the assistance of a mediator. • Should mediation fail, the parties might appoint an arbitrator to hear the dispute, usually in a manner similar to court proceedings. Clause 86 of Government form • … any dispute or difference … between the Employer and the Contractor in connection with or arising out of the Contract or … • It shall be referred to and settled by the Architect. • Failing that or … then either the Employer or the Contractor may within 28 days after … request that the matter be referred to mediation … • If the matter cannot be resolved by mediation, or if either the Employer or the Contractor do not wish the matter to be referred to mediation … the matter shall be referred to arbitration … iRiver HK v Thakrai [2008] 4 HKLRD 1000 • The case is related to – an exclusive distribution agreement (mp3) between the parties – with Thakrai alleged of selling competing products. • Dispute began in 2004, … and the appeal was concluded in 2008. – Damages awarded was HK$1M – Dispute incurred HK$4.7M • Court of Appeal express regret that the parties did not attempt mediation. What is mediation? • When the parties are in good faith, mediation may offer a quicker and less costly proceeding. – Assists negotiation – Confidentiality (as different from open Court) • It is not mandatory but all government-related construction contracts contain a mediation clause. • Mediation can terminate at any time – when any of the parties withdraws from a mediation process. • Mediation may be appropriate – where the parties have a desire to preserve the working relationship they enjoy and – to ensure continued performance while the dispute is settled The mediators • The mediator’s task is – not to resolve the issue for the parties but – to help them to find their own solution • The mediator may offer creative recommendations in the mediation process – Enable a venue for the parties to meet and speak up – To express difficulties – How about an apology? – Discuss the matter parties privately with consent of the other parties • If successful, the mediator will prepare a mediated agreement which is enforceable under the rules of contract law. Drawbacks • As mediation process stops when any of the parties withdraws from a mediation process, the mediator is handicapped due to lack of power. • After the Civil Justice Reform in 2009, the Courts may penalize a party if it does not have a genuine intention to mediate – Cost sanction – Cost on punitive basis • Genuine intention = attended substantive sessions – To be decided by the mediator • Enforcement of mediation agreement – May need to apply to the Court to enforce the mediation agreement. What is arbitration? • Arbitration is a legal process which results in an award (and is not to be described as a judgment) being issued by the arbitrator or arbitrators. • Confidentiality (as different from open Court) • For an arbitration to take place, the disputing parties must agree to take their dispute to arbitration. – Build-in under the contract before the dispute – Or agreed to arbitrate after arising of the dispute • If parties have agreed to arbitrate, the courts will normally refuse to hear their case to force the reluctant party to honor their agreement to arbitrate. The award • Arbitration awards are final and binding on the parties – can only be challenged in very exceptional circumstances. • Arbitration awards made in the HKSAR can be enforced in more than 120 jurisdictions – which are signatories to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. • i.e. Foreign courts will honour the arbitration awards • In contrast to arbitral awards, judgments of the national courts are not easily enforceable internationally. • Enforceability – This is one of the reasons why international disputes would normally be resorted to arbitration. The arbitrators • Individuals with a wealth of experience in the relevant industry or somebody with a background relevant to the technical issues in dispute. • Another reason why arbitration is becoming the method of choice for resolving disputes for international disputes is neutrality. – For international projects, there are “foreign” regulatory to face. – There are worrying thoughts that those disputes will be governed by a foreign law and will be determined through litigation in a foreign court. – The presence of an international arbitration tribunal is often vital. • The arbitrators are selected and agreed by the parties. New developments • Arbitration Ordinance: Cap 609 to supersede the old Cap 341 – Primarily, there is only one regime under UNCITRAL Model Law. • As private venue, the arbitrators have limited power. – s53: Power to make preemptory order to compel compliance • Points not taken upon lapse of time to submit relevant documents • Cost order against a party – s37: Power to grant preliminary orders on ex parte basis – s35: Power to make order for preservation of assets • Government adopts a multi-tier dispute resolution mechanism – Government contract includes mediation (not in private contracts) – Use of dispute resolution advisor or dispute resolution board – Partnering with the contractors End