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Dispute Resolutions Technique in Construction

Info: 5312 words (21 pages) Essay
Published: 6th Aug 2019

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Jurisdiction / Tag(s): Hong Kong Law

Many construction projects failure are not only caused by some common recognition i.e., limited construction time, lack of operation fund, unpredictable disaster, poor site management, unforeseeable shortage of material supply, design change, underestimate of tender price, currency fluctuation, incorrect application of construction method or any suspension order to the project resulted by serious accident. In past decade, researches and studies has been undertaken and already indicated that construction dispute is one of the fundamental causes of project failure. As previous chapter mentioned, the increasingly complex nature of modern construction projects and the competition among the contractor results the propagation of construction dispute. No proper management of construction dispute will rise up the frustration levels to the parties among the construction project (Cheeks 2003; Harmon 2003). The dispute will then become a barrier and obstruct the construction progress while the settlement method is absent or present in wrong timing. And this ‘barrier’ will proliferate uncomfortable emotion among the project and ultimately results the project failure. Thus, in early beginning, litigation is used as a mean to settle dispute in the construction industry. However, the increasing dissatisfaction with litigation as a result of rapidly escalating legal costs and the inordinate delay in getting cases to court. The construction industry is gradually tends to used other alternatives to litigation for the means of dispute settlement. Traditionally, arbitration is the popular alternative to litigation and the industry recognize it initially to be an inexpensive, efficient, prompt, private and informal process with the decisions made by experienced industry professionals (Stipanowich 1997), and arbitration appears to emulate conventional litigation in recent years. Nevertheless, arbitration may not be satisfied all construction dispute as it still a time consume and costly method. Thus, neither litigation nor arbitration has shortcomings as a means of dispute resolution to the construction industry, as a result it encourage the rapid growth of alternative dispute resolution processes: mediation, adjudication and etc. (Battelle 1995; Cronin Harris 1996; Keil 1999). Nevertheless, although the construction dispute resolutions have been developed for many years, the construction industry still dissatisfies the effectiveness of any of resolution. Some are comments the dispute resolutions has no legal binding, the others are complain about the higher cost and longer time. Therefore, in this chapter is aimed to research and details the current dispute resolutions and subsequence compare the effectiveness among these resolution methods.


These varies kind of dispute resolution methods have been used extensively around the world and are found to function well of many types of disputes which is not limited to construction industry which also apply for i.e., banking, insurance, shipping business as normal. In the mean time, the processes, application and procedures of these dispute resolution methods has been operated smoothly by construction industry for many years as its widely development to the built environment. Some of methods are a nominated dispute resolution that restricted in a contract by the employer or government, however the commonality level is varies among the resolutions. Litigation, arbitration, adjudication and mediation are relatively common use methods in the construction industry. Nevertheless, the recognition degree of the construction dispute resolutions is also has varies comment whatever the feedback is come from the research studies or the industry professionals. And, the selection of dispute resolution methods is based on the relevance parties, i.e. government, employer, contractor, architect and consultant regarding with their preference. Sometimes, the parties will chose to use the dispute method by the time trend. For instance, Hong Kong government is promoting the adjudication as dispute resolution method to their disputed construction project recently which intents to examine the effectiveness of this resolution method. As a result, none of the dispute resolution is recognize as the best dispute settlement method among construction industry (Soo 2001; Molloy 2003). The use of dispute resolution methods by the methods other than litigation is a trend and gradually become a common practice to the industry. The main reason for this is, that where the substantial questions of the dispute are matters of fact rather than of law, a final and conclusive decision can be obtained in a means which is quicker an cheaper than the formal legal process. The alternatives such as arbitration, mediation and adjudication are then rapidly gaining recognition; they are collectively referred to as Alternative Dispute Resolution (Chau 2007). Alternatives to litigation as a means of disputes settlement is originated in the United States in the mid-seventies and become known as alternative dispute resolution (Hills 1999). While arbitration, the traditional alternative to litigation, was progressively become protracted, costly, and perceived by many as replacing one legally binding decision-making process with another. In addition, the parties are intends to have a simple and cost effective solution for a commercial disputes rather than fall into the court system. A settlement method progressively introduced to the parties which a voluntary, without prejudice process, whereby the parties in dispute are assisted in settling their differences by the intervention of a neutral third party, without the need for a judge or an arbitrator. As the application convenience, the system of alternative dispute resolution is developed and applied to the construction. The alternative dispute resolution provisions, in the form of mediation or adjudication clauses were introduced into a number of standard form, main and sub-contracts in the private sector of construction industry. However, in Hong Kong, as a most widely used private standard form of building contract, has yet to introduce an alternative dispute resolution provision, although having been given the lead by government. The government of Hong Kong special administration region was already introduced a provision for mediation in the settlement of Disputes clause of the 1990 edition of their Conditions of Contract; and the 1992 edition of the General Conditions of Contract used for the several construction project includes provision for both mediation and adjudication, in addition to arbitration (Hills 1999).


The present commonly used of dispute resolution methods in Hong Kong will be inducting in the following paragraph and the details of Mediation will be present exclusively. The digest will illustrate the particulars of Adjudication, Arbitration and Litigation which aimed for further relatively comparison of the effectiveness of applicability of Mediation. 2.3.1 Adjudication Adjudication is when an impartial expert is appointed to decide on a dispute put before it at the time when the dispute arises. Adjudication is often sold as being simple, speed and more effective method of resolving disputes and one that can be carried out at any stage in the contract. In the UK the right to refer disputes to adjudication is provided for under statute in the Housing Grants Construction and Regeneration act 1996 (O’Neil 2009). In Hong Kong, the Government of the Hong Kong has recently introduced a contractual adjudication scheme into a number of its construction contracts. The provisions provide that the decision of the adjudicator is final and binding upon the parties and enforceable as such unless and until either the dispute has been settled or referred to arbitration and an arbitral award has been made or a settlement reached. Adjudication process is similar to mediation, except that it is binding and that all parties are given a statutory right, through legislation, to it without the consent of the other. The process is governed by The Government of the Hong Kong Special Administration Special Administration Regions’ Construction adjudication rules 2004. Initially the parties required to mutually agree the appointment of the adjudicator in accordance with the rules. Thereafter, the procedures agreed by the parties are to be adopted by the adjudicator where procedure have not been agreed by the parties, the adjudicator has the widest discretion permitted by the Rules, and law to determine the procedure of the adjudication and to ensure the just, expeditious and economical determination of the dispute. The adjudicator is required to focus on essential issues hear evidence and arrive at a prompt decision within 56 calendar days of the appointment, relying on his/her own specialist knowledge of the subject matter of the dispute (Chau 2007). Usually an adjudicator is an individual, although there is no reason why it could not be an organization or a panel of adjudicators. Adjudication in construction industry The most gain of adjudication is the adjudication decision is binding, unless and until the dispute is finally determined by legal proceedings, or by arbitration. In Herschei v Breen [2000], the judge expressly stated the right of a party to refer to adjudication at any times prior to the commencement of court or arbitration proceedings. The judge agreed that there could be inconsistent findings in adjudication, but he believed that this was inherent in the scheme. As the adjudicator’s finding may stand as a permanent binding decision if the parties so agree; or be used as the basis for further negotiations between the parties; or accepted as a temporary biding decision until a certain time has passed and after that at which time the parties will be free to seek a legal or arbitral award to revoke the earlier decision. Based on this particular of adjudication, the disputes may be resolved (or halted) during the construction period and enable the progress to continue. The weakness of adjudication is that the poor acknowledgment to the construction industry. Most likely the adjudication is not a popular dispute resolution as arbitration or mediation in the industry even the litigation is applied frequently than adjudication. There is very few studies are given description in respect of adjudication and lack of information is released by relevant organizations. Especially there is very few of adjudication decision coming to be scrutinized or there being any precedent case for an adjudication decision to be submitted to a court for enforcement (Brandt and Morton 2008). 2.3.2 Arbitration Arbitration is the most widely used method as a settlement of building contract disputes and a traditional alternative to litigation (Hills 1999). Arbitration clauses have been used in standard agreements and for many years were used as the only alternative to litigation. Likewise, the arbitration clauses have been incorporated into many Hong Kong standard construction contracts. They are widely used in the construction industry today for both private and public contracts. The arbitration process is similar to the mediation process mentioned in chapter 1. But the multiple parties are required to appoint a qualified Arbitrator from the panel before begins the hearing. At the arbitration hearing, presentations are made by attorneys for each side to either a panel of three or a single neutral expert, who then issues a decision. Procedurally, arbitration hearings are similar to court adjudication in that the parties present their respective cases through the presentation of evidence and testimony. Also, like judges and juries, the arbitration panel has complete authority cross examination is allowed and the parties have a chance to rebut each other’s positions. However arbitration is a private matter not generally open to the public and the difference from litigation in that the strict rules of evidence do not apply that is the arbitrators may accept all types of evidence. Finally, the award is the full and final settlement of all disputes and must be neutered as judgment by a court. In simple terms, Arbitration is a process wherein opposing parties submit their dispute or conflict for a binding determination by one or more third parties. Advantage of Arbitration The common agreed recognition of Arbitration is this, that benefits the parties by increasing the likelihood that their business relationship will be preserved and it is less disruptive and time consuming and can sometime be more cost-efficient than litigation. It is partly because often there are no legal fees involved. Also, costs may be apportioned between the parties at the discretion of the arbitrator (Harmon 2003). And, in construction industry, the disputes may involves lots of technical issue that can be settled by a person with such knowledge, the technical procedure rules of a court of law are not rigidly applied, which is greatly simplifies and consequently expedites matters. Moreover, the time and place of the reference can be chosen to suit the convenience of the parties. If litigation is used to resolve the dispute, the parties will be instructed when and where to appear; the parties are have no say in this matter. An arbitration reference is held in private and the decision is not published. This means that neither party is at risk of suffering as a result of possible adverse publicity (Trantina 2001). Disadvantage of Arbitration The arbitrator may be required to seek the decision of the courts on points of law which may lead to delay. If there are a number of points of law referred to in a case which require a court ruling, it may prove cheaper and quicker to refer the whole matter to the courts in the first instance. And only the parties to the arbitration agreement can be bound by the decision of an arbitrator. Interests of third parties, i.e., sub-contractors, supplier are not be affected. There is no precedent in arbitration as there is in court cases. This means that no previous case decisions are taken as the rule; the award will be entirely at the arbitrator’s discretion. This is often classified as a disadvantage because there is no basis on which to judge the likely outcome of a dispute. Digest of Arbitration Somehow, Arbitration is neither faster nor cheaper than litigation but possibly can be an expensive and unending as the limited discovery. In recent studies are given that the disagreement about whether Arbitration is speedy, economical process. “Arbitration is neither faster nor cheaper than litigation but can be ‘an expensive, unending kangaroo court" (Braun 1998) In general, arbitration was initially thought to be an inexpensive, efficient, prompt, private and informal process with decisions made by experienced industry professional. However, the arbitration is not required to follow the law and hence there is no way to predict the results. 2.3.3 Litigation Litigation is classified in construction industry as expensive, time consuming and debilitating process that ends with winner sometimes will being the loser as the litigation is no timeline that it is not unusual for the final resolution of a construction case to be 10 or more years after project completion (xxxxxxx). And the cost of litigation will increases in proportion to the amount of time that project personnel spend to educated attorneys, consultants, judges, and juries or arbitrators. The outcome of construction litigation depends on a number of variables, a few of which are under control of the parties to the dispute. Once the dispute is handed over to a third party, such as a judge or jury, who may have little knowledge of construction or of the practices and procedures of the construction industry, control is lost. Litigation cannot satisfy all the needs of the parties, formulate agreement, or propose solutions, and its solution is made in the form of a cash award. The dispute may be resolved by this win-lose method, but there is a chance it will not be resolved to the satisfaction of the parties involved. Litigation may be preferable if the dispute involves a legal issue or an issue that requires the “expansion of exiting law bucking old precedent". Moreover, litigation may be preferable if the dispute covers and area of the law wherein the “results so certain and rapid in application by the courts that attorneys and their clients are unwilling to give up the benefits (Trantina 2001). Hence going to court may allow a party to achieve its goal, whereas resolving the dispute via another process may not. Nevertheless, the resolution of disputes in a no adversarial process is preferable if relationships are to be maintained and unrecoverable expenses avoided (Currie and Robey 1998). Litigation in construction industry The litigation is especially inappropriate for resolving conflicts in construction. One reason is that future work may depend on present and former business relationships, particularly with a private, nongovernmental organization. Another is the complexity of technical and financial matters associated with construction disputes. Contractors generally seek to avoid litigation because it can reduce or eliminate job profits and damage good working relationships with the owner, architects, engineers, and other participants (Stipanowich 1998).


Apparently the above mentioned dispute resolution has different approach, process and outcome that there seems difficult to carry out a direct comparison to the resolutions. The selection of the resolution can be varied upon what the results or process the parties tend to have or the contract required. For instance, if the parties are not intends to disclose confidential information or trade secret to third party (e.g. public), arbitration is the better choice to them even the cost and time may be higher than other resolution like adjudication or mediation. Somehow, the initial contract may already restrict the selection of dispute resolution method. In Hong Kong, many standard form of contract is nominated arbitration as the dispute resolution that the party has no right to select other alternative. In the event, adjudication was seen as a successful alternative to arbitration and the contractors commented that adjudication seemed to be more time and cost effective. The adjudication can be held any time during the construction period that basically will not affect the actual progress and collect project information in parallel. And the timeline of adjudicator decision is limited by the rule which means the time cost is foreseeable and controllable. Moreover adjudication is binding resolution that the adjudication decision can be submitted to a court for enforcement. However there is very few professional is familiar adjudication procedure and it is still a very low-key resolution. The applicability is not common as arbitration, mediation even litigation in Hong Kong. While the party is extremely intends to have an ultimate result and willing to spend huge money for fall into the court process, litigation is the choice. Although, as a well known, litigation has become more and more expensive and time consuming, it still has an uniqueness outcome to some users.


The mediation has been use in construction as disputes resolution method in Hong Kong since early 1980’s (Hills 1999), mediation was adopted for many major public works contracts such as the Airport Core Projects contracts in 1990’s. It was proved the effectiveness in reducing the number of claims which would otherwise proceed to arbitration. In Airport Core Project, mediation was a mandatory requirement of the dispute resolution process that 80% of such construction disputes were settled by mediation or through negotiation at the mediation stage. Although the successful was already gained at early 1990’s, the actual development of mediation is just beginning in recent year. The key initiator of mediation is Hong Kong Special Administration Region government (HKSAR), the government playing the role to make mediation becoming a prime method for resolving construction disputes. Accordingly, a joint panel of the course of mediator and mediation is start operating by The Hong Kong Institute of Surveyors and the Hong Kong Institute of Architects in 2004. (O’Neil xxxx) In recent year, a better promotion and encouragement of mediation was introduced by the government for incorporate with the revolution of legislation system. An independent legislation working party was established in 2006 in Hong Kong, the chairmanship of Mr Justice Lam facilitated consensual mediation of civil disputes in the Court of First Instance, the District Court and the Lands Tribunal (xxxxx). Consequently, the Chief Executive of Hong Kong Donald Tsang was expressed the commitment of the government to promote the development of mediation services in the Policy Address in October 2007 (xxxxx) and referred to the benefits of mediation and its development around the world. He stated that the cross-sector group headed by the Secretary for Justice 'will map out plans to employ mediation more extensively and effectively in handling higher-end commercial disputes and relatively small scale local disputes.'(xxxxx) As a result, the legislation working party starting a pilot scheme to promote mediation case in the Lands Tribunal in 2008. However, as the speech by Chief Justice of Hong Kong Li Kwok Nang on 2008 (xxxx) “..Whilst the governing bodies of both branches of the profession support the promotion of mediation, the extent of understanding of the mediation process among lawyers is rather limited and is very far from satisfactory. Much work needs to be done to enhance their knowledge of mediation through training courses and the like..". The effectiveness of mediation is still not satisfied when compared with other jurisdictions countries such as Australia, New Zealand, Canada, the United States and the United Kingdom.


Although the Construction dispute have used mediation as a settlement method since 1985 (Phillips 1997) and start developed in Hong Kong since early 1980’s (Hills 1999), the application of mediation currently in Hong Kong is still relatively narrow. Therefore, the government of Hong Kong is aimed to make mediation become more effectively and extensively applied in both construction and commercial disputes that initialed the policy in 2007-08 Policy Address and planned on-going to the 2008-09 Policy Address. HKSAR recognize that mediation is an effectiveness dispute settlement method which can help to simplify the judicial procedures as the conventional processes of dispute resolutions are tends step into an overloaded stage. Based on the World-wide experience has shown that mediation enjoys a settlement rate of about 80% (High court of HKSAR) and which compared to litigation, mediation has proved to be a faster, less expensive, more confidential, and more satisfactory way to resolve disputes. The mediation was then is a good alternative to relief the court pressure. Whilst Mediation has drawn different evaluations in Hong Kong, some are convinced that voluntary take-up of invitations to engage in mediation is not effective and there must be certain degree of judicial compulsion to ensure mediation will accomplish. On the other hand, there are others believe that willingness to participate in mediation is critical to its success and thus the emphasis should be placed on facilitation, education and encouragement (xxxxxxx). Nevertheless, based on the actual usage of mediation and purposed to progress the jurisdictions in line with the major countries of the world, the framework of mediation is developed by the government and assisted by the associated panels / organizations. 2.6.1 Mediation Rules The Government of Hong Kong was produced a set of Mediation Rules, administered by the Hong Kong International Arbitration Centre (HKIAC). The Rules are intended to act as a guide during the mediation process. The Rules are published by the Hong Kong International Arbitration Centre (HKIAC) in consultation with the Hong Kong Mediation Council (HKMC) and are similar to the HKSAR’s Mediation Rules which are also administered by HKIAC. (HKIAC xxxxx / Brainrawling) As mediation is not a regulated process, the Rules do exist and are published by a few organizations. For example, the Construction industry Mediation Rules published by the National Arbitration Committee in the United States and in Hong Kong is published by HKIAC or HKMC or the government. For the use promotion in construction purpose, the government of Hong Kong introduced a provision for mediation in the settlement of Disputes clause of the Government of Hong Kong General Conditions of Contract of Building Works / Civil Engineering Works /Electrical and Mechanical Engineering Works, 1990 Editions, allowing parties the option of attempting to settle their disputes by referring them to mediation in the first instance. Provision for mediation is also included in the Government of Hong Kong General Condition of Contract Civil Engineering Works, 1992 Edition. The Government’s policy is to implement mediation where it is likely that a dispute can be resolved readily in accordance with the Rules. In an ongoing construction contract it can be avoid unnecessary escalation of the dispute. However, despite the government is strongly promoting the mediation as a dispute settlement method. The private sector is still adopting a wait-and-see attitude to the concept of mediation (xxxxx). At present, none of the private sector standard forms used in Hong Kong provide for mediation as a means of settling disputes. (HKIAC xxxx) 2.6.2 Mediation Procedure Whilst the dispute arisen, the implementation of mediation may be restrict by the terms of contract, or by mutual parties agreement. One party may approaches the mediation consultant (company) to commence mediation proceeding. If both parties agree to mediate, the identity of the mediator, an appropriate venue for mediation hearing (must have three rooms; one for hearing, two for each of the parties) and the fees (shared equally between the parties) are agreed at this stage. The aim will be to hold the mediation within about six weeks of first appointment with the mediator. Accordingly a statement is required to submit as a narrative to let the mediator understand the background of the dispute for proceeds the hearing meeting and finalize the mediation. A mediation hearing is conducted in an informal atmosphere but each party must be represented by a person with authority to settle, usually is the senior decision-makers. The mediator will begin the hearing by explaining the process to be used and each side is given the opportunity to describe the nature of the dispute and their respective positions. (O’neil xxxx) The representatives can make reference to what they are likely to say, although they are not being present to give evidence. The objective is to give both parties the opportunity to understand the nature of the dispute so that they are in better position to analyze their respective strengths and weakness. The mediator will then try to help the parties reach the agreement which discuss in private the possibility of settlement with each party. A joint meeting may appear depends on the wishes of the participants. The mediator will then meet each party to assist them to examine and highlight the respective strengths and weakness of their case and, if he is authorized, carry offers from one side to the other until the parties reach a common position. At this stage a settlement is generally agreed and, if the parties wish, a supplementary agreement will be drawn up to make the terms of the settlement legally binding. On the other hand, if the parties were dissatisfied with the process, either party or the mediator may terminate the mediation at any time. The claimants may then proceed to assert their legal rights through arbitration or litigation. To whole mediation hearing, from the time the mediator first introduces himself to the parties to the reaching of a settlement typically last for two to five days. 2.6.3 The mediator The role of the mediator, as a neutral and trained professional employed by the parties, to provide a framework for negotiation and make recommendation to how the dispute may be settled. There are more mediators in Hong Kong than disputes capable of being mediated and so the choice of available mediators is considerable. Indeed, the Hong Kong International Arbitration Centre maintains a general panel of accredited mediators and the list currently contains no fewer than 182 no. accredited mediators from which to choose. (O’neil xxxx) While the mediation is fail and proceed to arbitration or litigation, the mediator may not be appointed as arbitrator in the same contract, unless the parties agree in writing. Neither party is entitled to request the mediator as a witness in any subsequent arbitration or litigation arising out of the same contract. (Hills 1999) 2.6.4 Time constraints Under the Hong Kong Government Mediation Rules the mediator is required to enter upon the mediation as soon as possible after his/her appointment and should endeavor to conclude the mediation within forty-two days of his/her appointment. His/her appointment will not extend beyond a period of three months without the consent of both parties. 2.6.5 Costs Under the Hong Kong Government Mediation Rules the sum of $20000 is to be deposited by each of the parties with HKIAC before the mediator enters upon the mediation, as a contribution to the cost and proper expenses of the mediation, including the costs of the HKIAC. The mediator may at any time during the course of the mediation require the parties to make a further deposit of deposits with the HKIAC to cover anticipated additional fees and expenses. Subject to any order the mediator may make, after deducting the costs and expenses of the mediation, the HKIAC must return any surplus fund, in equal shares to the parties, at the conclusion of the mediation.

Figure - Sum designated in HKIAC Schedule of Initial Deposits

Quantum in Dispute

Deposit from each party

Up To HK$100,000 HK$10,000 Up To HK$500,000 HK$15,000 Up to HK$1,000,000 HK$30,000 Over HK$1,000,000 HK$50,000

Figure – HKIAC Fee Schedule for Administering Mediation

Mediation session

Appointment of a Mediator HK$2,000 Holding deposits of parties HK$3,000 per party

Documents-only fees

Appointment fees HK$2,000

Mediator Fees

Amount in dispute up to HK$4000,000 HK$15,000 Amount in dispute over HK$4000,000 HK$40,000


In previous chapter has been mentioned, a widely recognition among construction industry the dispute settlement method that compared to litigation or arbitration, mediation has proved to be a faster, less expensive, more confidential and more satisfactory way to resolve disputes. Indeed, the nature of non-regulatory process delivers the saving whether on time or cost to mediation. Mediation is a voluntary process in which a trained, impartial third person, the mediator can assist the parties to communicate and negotiate issues in a confidential setting. In med

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