An A to Z Guide to Claims Management in Hong Kong

An A to Z Guide to Claims Management in Hong Kong
By James B Longbottom BSc(Hons) LLB(Hons) PgD(Law) FRICS FHKIS FCIArb RPS(QS)
Managing Director, ADR Partnership Limited

Adjudication in the UK is provided for under statute in the Housing Grants Construction and Regeneration Act 1996.  In Hong Kong, the Government has recently introduced a contractual pilot adjudication scheme on some of its projects.  We are aware of only one such adjudication under the new scheme.

Burden of proof in a civil case in Hong Kong will normally lie with the party making the claim or defence to adduce sufficient evidence for the court or tribunal to find in their favour.  The standard of proof is on a balance of probabilities.  Therefore, if the evidence is such that the court or tribunal can say ‘we think it more probable than not’, the burden is discharged, but if the probabilities are equal it is not.

Concurrent delays are a hot topic at the moment.  In the recent Hong Kong case of W Hing Construction Co Ltd v Boost Investment Ltd [HCCT01/2006] Justice Westbrook in obiter comments agreed with Lord Drummond Young in the Scottish case of City Inn Limited v. Shepherd Construction Limited [2007] Scottish Court of Sessions CSOH 190 (30 November 2007) that “where there is true concurrency in delaying events it may, in some cases, be appropriate to apportion responsibility for the delays between the two parties so as to arrive at a fair and reasonable assessment”.

Dispute Resolution Advisor (DRA) is a non-binding dispute resolution process unique to Government contracts in Hong Kong in which a neutral third party known as the DRA is appointed from contract commencement to contract completion to assist the parties to identify potential disputes, advise on a means of resolving disputes, and assist in the resolution of disputes, which unless resolved, may turn into formal disputes.

Emden formula is commonly used in commonwealth jurisdictions for determining the additional cost of head office overheads where a delay to the completion of the Works ties up critical resources that would otherwise have been free to earn the contribution to head office overheads.  There is judicial acceptance for the use of the Emden Formula in Hong Kong in the case of Hsin Chong Construction (Asia) Limited and Henble Limited [HCCT23/2005].

Forensic delay analysis can include a myriad of different delay analysis techniques, for example, ‘as-planned-impacted’, ‘time impacted’, ‘as-built-but-for’ and ‘windows analysis.’  Generally, these fall into two basic types a ‘prospective’ delay analysis technique or a ‘retrospective’ delay analysis technique.  The prospective approach to delay analysis is most commonly used in Hong Kong by contract administrators as it is easy to understand and demonstrates the likely impact of the effects of a delaying event upon the completion of the Works – rather than showing what, in fact, actually happened.  It has the advantage of showing the effects of events before re-sequencing or reprogramming and, crucially does not show the contractor’s mitigation of delay. 

Geotechnical Baseline Reports (GBRs) provide a contractual statement or baseline of the ground conditions anticipated (or to be assumed) to be encountered during underground and subsurface construction.  GBRs have recently been widely adopted by the Mass Transit Railway Corporation (MTRC) on their rail projects and on some Government pilot projects (see www.adrpartnership.com/media/pdfs/ADR_Digest_Spring_11.pdf for further information).

Hot tubbing may conjure up all sorts of exciting images, the reality is far less so.  The concept is derived from the Australian courts but has slowly appeared in Hong Kong arbitration proceedings and involves experts giving evidence concurrently and asking one another questions, aided by Counsel and the tribunal.   Feedback on its use has been mixed.

Inclement weather is not a compensable event under the commonly used standard forms of contract in Hong Kong.  However, a contractor may be entitled to recover additional costs incurred due to delays caused by inclement weather, which were incurred due to the consequential or knock-on effects of a primary excusable / compensable event (e.g. a dry season job delayed into the wet season).

Justice Au is the new High Court judge of the Construction and Arbitration Proceedings.  He replaced Justice Saunders in December 2011.

Keeping contemporary records is just as important in Hong Kong as it is anywhere else in the World and includes original or primary documents at or about the time giving rise to the claim.   Max Abrahamson in Engineering Law and the ICE Contract observes that “A party to a dispute, particularly if there is an arbitration will learn three lessons (often two late), the importance of records, the importance of records and the importance of records.”

Lighthouse Club (LHC) is a construction charity which organizes monthly gatherings supplemented by other regular social gatherings – see www.lighthouseclub.com.hk for further information. 

Missing item claims are unique to the Hong Kong Government’s Standard Method of Measurement.  This adopts an item coverage system which provides a full list of the items which a contractor is required to allow for when pricing work items described in the Bills of Quantities.  If something is omitted from that list or the item of work is not separately itemized in the Bills of Quantities, then it becomes a missing or omitted item from the Bills of Quantities which should then be corrected and valued by the Engineer.   Corrigendum No. 1/2007 which can be found in Government Contracts awarded after 2007 now seeks to limit such claims.

New Engineering Contract (NEC) is a contractual partnering form created by the Institution of Civil Engineers (ICE) and designed for facilitating mutual trust and cooperation between clients and contractors.  Two pilot projects have been introduced by the Hong Kong Government; however, there is concern that the projects are too small to provide any meaningful data and whether Hong Kong is really ready for this form of procurement.

Occupation Permit (OP) has to be obtained in Hong Kong by the Authorized Person before a building can be occupied.   It shows that the Building Authority is satisfied that the building has been constructed in accordance with the Buildings Ordinance (Cap 123).   OP can be obtained at a date earlier than the date on which practical completion is achieved under the Contract as finishes (for example) do not have to be completed to obtain an OP.

Payments into Court during arbitration proceedings by respondents to support settlement offers are a thing of the past in Hong Kong.   The new Arbitration Ordinance (Cap 609) which came into force on 1 June 2011 abolishes such payments; however, the arbitral tribunal may take a written offer of settlement into account when determining costs.

Quantity Surveyors in Hong Kong are represented locally by the Hong Kong Institute of Surveyors.  The institute has a reciprocal membership arrangement with the Royal Institution of Chartered Surveyors (which is also represented in Hong Kong), however, to be considered candidates must have first been employed in Hong Kong a minimum of 1 year – see www.hkis.org.hk for further information.

Risk allocation in the private sector has seen a recent overhaul with the introduction of The Agreement & Schedule of Conditions of Building for use in the Hong Kong Special Administrative Region (Standard Form of Building Contract Private Edition – With Quantities 2005 Edition and Without Quantities 2006 Edition) published by the Hong Kong Institute of Architects (HKIA), the Hong Kong Institute of Construction Managers (HKICM) and the Hong Kong Institute of Surveyors (HKIS).   The form is drafted from scratch and remains largely untested by the Hong Kong courts.

Society of Construction Law (Hong Kong) was founded in 2001 to promote education, study and research in the field of construction law.   It holds regular meetings and seminars on topical issues – see www.scl.hk for further information.

Target cost contracts have been introduced in Hong Kong by MTRC on some of their more complex projects.  MTRC opine this form of procurement results in fairer risk allocation between MTRC and the contractor by gain share (increased profit for the contractor, saving for the MTRC) and pain share (loss of profit for the contractor, cost for the MRTC).

Unit rates and prices in the bills of quantities are generally understood to be “sacrosanct” and form the basis for valuing the Works, whether varied or not.  Nevertheless, GCC Clause 59(4)(b) of the Government’s General Conditions of Contract for Civil Engineering Works (1999 Edition) allows a re-rate where there has been a substantial change in quantities.   Two criteria must be met: (1) the quantities must be substantially greater or less than stated in the Bills of Quantities; and (2) such increase or decrease of itself should result in the rate being unreasonable or inapplicable (see The Hong  Housing Authority v Leighton Contractors Asia Ltd [HCCT101/2003]  for some useful commentary).

Various professional bodies provide a platform for socializing and networking in Hong Kong.  The Chartered Institute of Arbitrators (CIArb), Royal Institution of Chartered Surveyors (RICS) and other professional institutions all have a large and active presence organizing various seminars and regular talks. 

Without prejudice negotiations are not admissible in evidence.    The Government of the Hong Kong SAR Construction Mediation Rules (1999 Edition) provide that “Mediation is a private and confidential process and every aspect of communication for the purpose of or related to the mediation process shall be without prejudice.”

Xpenditure under the Government’s General Conditions of Contract for Civil Engineering Works (1999 Edition) is limited to that “reasonably incurred”.  It is considered expenditure reasonably incurred would follow the principle of assessing damages, particularly the duty to mitigate losses, where the innocent party is not permitted to payment for “wasted” performance.   Hence, just because expenditure has been incurred by the contractor it does not necessarily follow that additional payment is automatically recoverable by the contractor under the Contract.

Young members groups can be found in the LHC, HKIS and CIArb and require members to be under 35, 41 and 45, respectively to join.

Zulu is a 1964 war film depicting the historic Battle of Rorke's Drift between the British Army and the Zulus in January 1879, during the Anglo-Zulu War.  150 British and colonial troops successfully defended the garrison against an intense assault by 3,000 to 4,000 Zulu warriors.  No relevance to claims management but a cracking good film. 

For further information contact:
james.longbottom@adrpartnership.com