26 April 2023
It is often assumed among Hong Kong practitioners that Hong Kong and English construction laws are the same. English cases and textbooks are regularly cited in Hong Kong courts and arbitrations without distinctions. While the assumption is broadly correct, the legal landscape gets fuzzier when one dips into the details. The author will discuss the material differences between the two regimes in two articles.
In this first article of the series, the author will focus on the procedural differences between the two systems. More specifically, this article will highlight the following:
B. Procedural differences in court proceedings
The first matter worth emphasising is the front-loading nature of a construction claim in Hong Kong’s litigation system. According to the Hong Kong Practice Direction for construction disputes (see footnote 1), a plaintiff must take out a summons for a 1st Case Management Conference within 28 days after pleadings are closed. The standard directions cover everything from factual witness statements, expert reports, and the estimate of the trial length.
In other words, the courts expect that the parties have thoroughly considered all matters, whether in terms of formulating their cases or collecting evidence in supporting them, right from the beginning. If a party has not investigated its claims thoroughly, it will often find itself in difficulties when it prepares for the 1st Case Management Conference, which is required to take place shortly after the close of pleadings.
In contrast, no such stringent requirements are under the English Civil Procedure Rules(see footnote 2). This does not mean that a party does not have to investigate thoroughly under the English rules, but rather that the parties will have more time to get their cases ready as their cases progress.
Another comparison that can be made is between a construction claim and a regular high court action commenced in Hong Kong courts. In the latter case, a different set of Practice Direction(see footnote 3) applies and the parties will have more time to decide, for example, the questions in relation to witness statements, expert issues (if any) and the estimate of the trial length.
From a practitioner’s point of view, this front-loading nature of a construction claim in Hong Kong courts has an important bearing in practice on advising clients. It is suggested that a practitioner in this field should let their clients know about this feature from the outset and advise them accordingly so that their clients will not be caught in any later surprises, particularly regarding the potential time and costs involved.
The second significant difference between the Hong Kong and English systems is that where a party commences an action in the Construction and Arbitration List of the Hong Kong system, the court usually expects the parties to appoint a joint expert rather than separate experts. This approach was laid down in Chun Wo Building Construction Limited v Metta Resources Ltd (HCCT 29/2013, 19 August 2016) by the Honourable A. Chan J and has since been adopted in Hong Kong.
More specifically, his Lordship held, at -, that:
“407. The second lesson to be learned from this case concerns the expert evidence. There was an unusually large number of expert witnesses in this case. Their evidence took up a significant portion of the trial. The number of such witnesses would have halved if single joint expert were instructed on every discipline. This would result in shorter trial, which normally means earlier hearing date and swifter resolution, and considerable costs reduction. See also the observations made by the Court of Appeal in Good Faith Properties Ltd v Cibean Development Co Ltd  5 HKLRD 534, §51.
408. There were challenges made in this case on the impartiality of some of the expert witnesses. It has been shown that, despite the enhancement of the rules on impartiality of expert witnesses introduced under CJR, a determined litigant would not shy away from attempting to influence the evidence of such a witness. The instruction of single joint experts would render such challenge redundant. Impartial expert evidence is essential for arriving at a just decision.
409. Experience in this case shows that, with a single joint expert, the parties were able to focus on the handful of real issues, and the cross-examinations were conducted efficiently and expeditiously.
410. With respect, I suggest that instructing single joint expert should become the norm. Parties will have to justify why such an expert should not be preferred over separately instructed experts.” [emphasis added]
The above approach is obviously limited to Hong Kong and does not extend to the English system.
While the rationale behind such an approach is well-intentioned, the practice of appointing a joint expert can sometimes lead to difficulties. These difficulties, for example, include:
It is submitted that the above considerations can become weighty and influential when a practitioner conducts and advises a construction dispute in Hong Kong.
C. The incorporation requirement of an arbitration clause
As held in Habas Sinai ve Tibbi Gazlar Isthisal Endustri AS v Sometal SAL  1 CLC 484, there are two different approaches under English law towards the incorporation of an arbitration clause depending on whether the dispute is a one-contract or two-contract case. In a one-contract case, namely where two parties intend to incorporate standard terms or other terms previously agreed between them, there is no requirement for a specific reference to the arbitration clause. In a two-contract case, namely where the two parties A and B intend to incorporate an arbitration clause contained in another contract between A (or B) and C (where C is a third party), or another contract between C and D (where both C and D are third parties), the court held, at , that:
“There is a particular need to be clear that the parties intended to incorporate the arbitration clause when the incorporation relied on is the incorporation of the terms of a contract made between different parties, even if one of them is a party to the contract in suit. In such a case it may not be evident that the parties intended not only to incorporate the substantive provisions of the other contract but also provisions as to the resolution of disputes between different parties, particularly if a degree of verbal manipulation is needed for the incorporated arbitration clause to work. These considerations do not, however, apply to a single contract case.”
The result is that in relation to a two-contract case, a more restrictive approach to incorporation, such as a specific reference to an arbitration clause, is required.
In the construction context, it is common that a subcontract may seek to incorporate the main contract terms, which may contain an arbitration clause. Applying Sometal, a specific reference will be generally required for the arbitration clause to be incorporated into the subcontract.
In contrast, there is no distinction between one-contract or two-contract cases drawn in Hong Kong. Whether a contract has incorporated an arbitration clause will be determined by examining the wording of the documents against the relevant background to identify what a reasonable person would have understood the parties to be using the language in the contract to mean. There is no requirement for a specific reference.
The relevant legal principles on the incorporation of arbitration clauses by referring to another contractual document were summarised by the Honourable Godfrey Lam J (as he then was) in Yun Kwan Construction Engineering Ltd v Shui Tai Construction Engineering Co Ltd  HKCFI 1841, at , as follows:
“5. The legal principles applicable seem to me to be as follows:
(1) By Art 8(1) of the UNCITRAL Model Law, given effect by s 20(1) of the Arbitration Ordinance (Cap 609), this court must refer any matter which is the subject of an arbitration agreement and, therefore, stay further proceedings in the action to that extent.
(2) Art 7 of the UNCITRAL Model Law (Option I), given effect by s 19(1) of the Arbitration Ordinance, makes provision as regards what constitutes an "arbitration agreement". In particular, Art 7(6) prescribes how an arbitration clause in a separate document may be incorporated as part of the contract:
"The reference in a contract to any document containing an arbitration clause constitutes an arbitration agreement in writing, provided that the reference is such as to make that clause part of the contract."
Section 19(3) of the Arbitration Ordinance likewise provides:
"A reference in an agreement to a written form of arbitration clause constitutes an arbitration agreement if the reference is such as to make that clause part of the agreement."
(3) For the purpose of Art 7(6), it is not essential for there to be an explicit reference to the arbitration clause itself. Reference to a document, which contains the arbitration clause relied upon, may be sufficient, provided "the reference is such as to make that clause part of the contract": Astel-Peiniger Joint Venture v Argos Engineering & Heavy Industries Co Ltd  1 HKLR 300, 305-307 ; Gay Construction Pty Ltd & Another v Caledonian Techmore (Building) Ltd (Hanison Construction Co Ltd, Third Party)  2 HKC 562, 566D .
2 (4) The document referred to need not be a contract between the same two parties. It is possible under Art 7(6) to incorporate into a contract between A and B an arbitration clause, by reference to an agreement between B and C or even between X and Y or to an unsigned standard form of contract, which contains the arbitration clause: Astel-Peiniger, p 307.
(5) Insofar as authorities in other jurisdictions suggest that for incorporation of an arbitration clause into a contract between A and B by reference to an agreement between B and C or X and Y, there must be a specific reference to the arbitration clause itself, they do not reflect the law of Hong Kong which is based on Art 7(6) and which has been established since Astel-Peiniger for 25 years.
(6) The question of incorporation, in particular whether the reference is such as to make the arbitration clause part of the contract, is one of construction. The task of the court is to ascertain, with no preconceived notions, the parties' intentions when they entered into the contract by reference to the words that they used: Astel-Peiniger, pp 311 & 313.
(7) Like other questions of contractual construction, this involves examining the wording of the documents against the relevant background to identify what a reasonable person would have understood the parties to be using the language in the contract to mean: see eg Building Authority v Appeal Tribunal (Buildings) (ENM Holdings Ltd) (2018) 21 HKCFAR 194 , §53.” [emphasis added]
Such an approach has also been adopted by the Honourable Madam Justice M. Chan (the construction Judge in Hong Kong) in cases such as Colmat Construction and Engineering Co Ltd v Minmetals Condo (Hong Kong) Engineering Co Ltd  HKCFI 2184 where her Ladyship held, at , that:
“Reference in a contract to another document, or terms contained in that document, may not by itself be sufficient to render the other document to form part of the contract. The reference must be such as to make the term/terms in the other document part of the contract. This is illustrated by the cases on incorporation of an arbitration clause by reference to a document which contains the arbitration clause relied upon (Astel-Peiniger Joint Venture v Argos Engineering & Heavy Industries Co Ltd  1 HKLRD 300 ). The question of incorporation is one of construction of the contract, and that turns on examining the language used in the contract against the relevant background in order to ascertain the intention and understanding of the parties, as reasonable and commercial persons, from the language they used.”
D. Stay in favour of arbitration
Under English law, where an issue as to the existence, validity or scope of an arbitration agreement arises in the context of a section 9 application under the 1996 Act, HHJ Humphrey Lloyd, QC in Birse Construction Ltd v St David’s Ltd  BLR 194 at 196 identified that a court has four options:
HHJ Humphrey Lloyd, QC’s guidance was referred to with approval by Waller LJ in Al-Naimi v Islamic Press Agency Inc.  1 Lloyd’s Rep. 522 at 524-5. At page 526, Waller LJ went on to say this:
“I of course accept that there may be situations where despite [an agreement between the parties that the matter could be resolved on affidavit evidence] the Court may simply feel that it cannot resolve the issue without hearing witnesses. But it also seems to me that the Court should be looking for the most economical way of deciding what is after all, a dispute about where the real disputes should be resolved. On an application under s. 9 a Court is bound to have to consider the affidavit evidence, and to spend time in so doing. There is bound to be argument about the strength or otherwise of the case as to whether the arbitration clause covers the subject matter of the action in considering what course to take. It thus also seems to me that in the interests of good litigation management and the saving of costs, the Court should see whether it can resolve that point on the affidavit evidence. Certainly, it should try and do so if both parties are agreed that they would like the matter resolved on the affidavits. I would add that in addition, if the parties do not come agreed, as in the instant case, depending on how important any factual disputes appear to be to the ultimate resolution of the disputes about jurisdiction, it may be worth exploring whether they would agree, or even in some circumstances where the disputes on fact seem immaterial, using the powers under CPR 32.1.” [emphasis added]
In summary, the English courts have displayed an inclination to decide the issue as to the existence, validity or scope of an arbitration agreement in court rather than stay the proceedings to let the arbitrator decide the same. In Albon v Naza Motor Trading SDN BHD (No 3)  EWHC 665 (Ch),  2 All ER 1075 at  and , Lightman J said the following:
“ I turn now to the first issue. The first question raised is what (if anything) Naza Motors needs to establish as conditions precedent to invoking the jurisdiction conferred by s 9(1) to grant a stay of court proceedings. In my judgment the language of s 9(1) plainly establishes two threshold requirements. The first is that there has been concluded an arbitration agreement and the second is that the issue in the proceedings is a matter which under the arbitration agreement is to be referred to arbitration. The first condition is as to the conclusion and the second is as to the scope of the arbitration agreement. Accordingly, unless and until the court is satisfied that both these conditions are satisfied the court cannot grant a stay under s 9.
 I must accordingly turn to the second issue whether it would be right in the present circumstances to exercise the inherent jurisdiction to grant a stay and (in effect) remit the issue whether the JVA was concluded to be decided in the arbitration proceedings. The absence of jurisdiction under s 9(1) to order a stay for this purpose does not preclude the existence and exercise by the court of its inherent jurisdiction to order a stay for this purpose. The court may in exercise of its inherent jurisdiction in its discretion order such a stay both where the issue is as to the conclusion or as to the scope of the arbitration agreement. But the court should only exercise its inherent jurisdiction to order such a stay and decline to decide the issue of the conclusion of the arbitration agreement or of the scope of the arbitration agreement in an exceptional case.” [emphasis added]
In contrast, the approach adopted by the Hong Kong courts is as follows:
See, for example, PCCW Global Ltd v Interactive Communications Service Ltd  1 HKLRD 309, at -, per Tang VP (as he then was); Magnus Leonard Roth v Vitaly Petrovich Orlov  HKCFI 525 [#3], at , per Anthony Chan J; and more recently A v C  HKCFI 804, at , per Mimmie Chan J.
In the recent case Haller AG v Vestey International Group Ltd  1 HKLRD 39, the 2nd defendant therein raised an issue as to the proper approach of the Hong Kong court when it is seized with a stay application. The Court of Appeal held, at  – , that it did not have jurisdiction to deal with the issue under the Arbitration Ordinance (Cap 609), and the question should be left to be deal with in a case in which it is properly raised.
As the law currently stands, the Hong Kong courts consider that the arbitrators, rather than the courts, have the primary role in deciding the issue regarding the existence of a valid arbitration agreement.
Further, according to section 20(8) of the Arbitration Ordinance (Cap 609), any grant of stay is not subject to appeal. The aggrieved plaintiff may only seek to persuade the eventual arbitral tribunal that it has no jurisdiction to deal with the matter. Should the arbitral tribunal rule against the plaintiff’s contention and seize jurisdiction over the matter, the plaintiff can then apply to the court to challenge the arbitral tribunal’s jurisdiction (see Wing Bo Building Construction Ltd v Discreet Ltd  2 HKLRD 779, at , per DHCJ Marlene Ng).
The approach of the Hong Kong courts, therefore, leans heavily towards arbitration.
E. Procedural differences in arbitration proceedings
While the 1996 Act applies under English law, Hong Kong’s governing arbitration regime is the Arbitration Ordinance (Cap 609), which adopts the UNICITRAL Model Law. In the construction law context, there are (at least) 2 areas worth mentioning.
Firstly, the recourse to an arbitral award under the Arbitration Ordinance (Cap 609) is much more restrictive than the 1996 Act. Under section 81 of the Arbitration Ordinance (Cap 609), save for some exceptional circumstances, such as the invalidity of the arbitration agreement or a party unable to present his case, a party to an arbitration is bound by the arbitral award. It cannot have recourse against it whether on questions of fact or law. In contrast, a party to an arbitration may appeal to the court on a question of law arising out of an award made in the proceedings pursuant to section 69 of the 1996 Act.
Secondly, when the Arbitration Ordinance (Cap 609) came into force on 1 June 2011, it contained a Schedule 2 which automatically applied to “domestic arbitration” agreements entered within 6 years of the commencement of the Arbitration Ordinance (Cap 609). This arrangement was intended to address the concern of the construction industry in Hong Kong that many users of standard form contracts would continue to use the term “domestic arbitration” in their contracts. Schedule 2, therefore, contained provisions retaining a similar level of court intervention as the old Arbitration Ordinance (Cap 341). The automatic incorporation of Schedule 2 into a domestic arbitration provided a transition period for the construction industry.
The transition period was specified to be 6 years and ended on 1 June 2017. The end of such a transition period, however, does not mean Schedule 2 is no longer relevant. In the case of main contracts, likely, there are still main contracts adopting domestic arbitration which were entered on or before 1 June 2017. The relevant projects may have only been completed and disputes may have only arisen recently. In these main contracts, Schedule 2 still automatically applies. In those circumstances, a party to two or more different sets of arbitral proceedings may apply to the court for consolidation pursuant to section 2 of Schedule 2(see footnote 4). Any party to such main contracts may also appeal on questions of law against arbitral award pursuant to section 5 of Schedule 2.
In addition to the aforesaid application to main contracts, Schedule 2 may continue to apply to subcontracts. According to section 101 of the Arbitration Ordinance (Cap 609), if the main contract was entered before 1 June 2017, although the sub-contract was entered into after 1 June 2017, Schedule 2 still applies to the subcontract. This means that the automatic application of Schedule 2 to subcontracts is likely longer than main contracts.
Lastly, as the parties may adopt Schedule 2 in their contracts, practitioners will need to pay heed to the impact of those provisions on the arbitral proceedings where they are so adopted.
The procedural differences between English and Hong Kong laws highlighted above are by no means exhaustive. It is hoped that they provide some guidance to the practitioners in the construction field. In the next article, the author will discuss the differences between the two regimes on substantive issues.
This Article was authored by Calvin Cheuk.