Covid-19 Hong Kong: Online Scheme - Way Forward For Small And Medium-sized Construction Disputes?

Legal News & Analysis - Asia Pacific - Hong Kong - Dispute Resolution

28 May 2020

 

Introduction

 

On 13th April 2020, the Department of Justice (DOJ) blogged that a Covid-19 Online Dispute Resolution (ODR) Scheme (an approved measure under the second round of the Anti-epidemic Fund) would be launched in June 2020. Whilst intended to be of general application to micro, small and medium-sized enterprises (MSMEs) that may be adversely affected or hard hit by the virus, it is going to be of distinct benefit to smaller contractors or suppliers and appeal to those further down in the construction chain, where the cost of pursuing smaller amounts is often abandoned as the costs of court or arbitration proceedings are disproportionately high compared to the amount claimed.

 

In essence, and in anticipation of a surge in disputes arising out of Covid-19, the ODR Scheme aims to speed up the resolution of disputes and reduce the cost by encouraging the parties to negotiate a settlement, but with escalating levels of engagement to mediate, and then arbitrate if agreement can't be reached at the level below. The DOJ hopes the scheme will reduce the time for resolving such disputes by providing distinct time-frames (to be announced) for each of the steps to be undertaken.

 

There are a number of criteria that contractors, sub-contractors and suppliers need to meet under the ODR Scheme:

 

  1. The dispute must be Covid-19 related and the amount of the claim is limited to HK$500,000 per case;

  2. Either the claimant or the respondent must be a Hong Kong resident or Hong Kong company;

  3. The parties will each be required to pay a registration fee of HK$200; and

  4. The parties are required to enter into a dispute resolution agreement to record their consent.

The scheme is entirely voluntary and the parties undertake to participate on an opt-in basis, but is likely to be in demand as contractors/suppliers seek to speedily boost  their cashflow at low cost during challenging times.

 

The ODR Scheme itself is multi-tiered, with the parties:

 

  1. initially negotiating their dispute; and if unsuccessful attempting

  2. mediation (during which the parties are free to appoint their own third party neutrals); and if still unsuccessful proceeding to

  3. arbitration (during which the parties are free to appoint their own arbitrator).

In summary, the parties if they agree to opt into the online scheme (irrespective of their contractual provisions), will engage with a system that encourages negotiation, but provides the certainty of a binding arbitral award should the case go that far. Each of the tiers is an increasing level of seriousness of dispute resolution which the DOJ hopes will focus the parties' minds on settlement at an early stage.

 

The DOJ states its intention of the scheme as being "… devised with a view to avoiding disputes and differences from being entrenched. If the disputes can be resolved successfully and amicably through negotiation or medication, we hope it will help build and reinforce a harmonious society and enable the parties to preserve their long term business relationship"

 

This is a welcome initiative, which  is in line with the DOJ's objectives "to enhance and promote Hong Kong’s status as an international legal hub for deal-making and dispute resolution" and "help consolidate Hong Kong's position as an international business and financial centre", but there are still further details that remain to be published such as the time frames and mechanisms for the appointment of third party neutrals or arbitrators in the absence of parties' agreement. It is anticipated that the DOJ will provide further details prior to the proposed June 2020 launch.

 

Clyde & Co

 

For further information, please contact

 

Christopher Short​, Partner, Clyde & Co

Christopher.Short@clydeco.com