Alternative Dispute Resolution a presentation to the Hong Kong ...

Alternative Dispute Resolution 

a presentation to the 

Hong Kong Institute of Surveyors 

25 June 2003 

The Hong Kong Mediation Council 

Andrzej Cierpicki 

Chris Morgan 

Louise Popplewell

Agenda 

• Session One – Chris Morgan 

• Government Guidelines on Dispute Resolution 

• Why Choose Alternative Dispute Resolution (ADR)? 

• Mediation 

• Video Presentation 

• Session Two – Andrzej Cierpicki 

• Emerging Trends in ADR 

• Adjudication 

• Session Three – Louise Popplewell 

• Dispute Resolution Advisor (DRA) 

• Expert Determination 

• Partnering 

• Q & A 

12/4/2005 Hong Kong Mediation Council 2

Session One 

• Introduction 

• Government Guidelines on 

Dispute Resolution 

• Why Choose ADR? 

• Mediation 


Introduction 

• Disputes are an inevitable part of the construction 

process 

• Disputes need to be dealt with pro-actively and cost 

effectively 

• Dispute Management is an important aspect of 

effective project management 

• There is general dissatisfaction with arbitration as a 

means of resolving disputes on construction projects 

• This has led to the development of Alternative 

Dispute Resolution (ADR) processes 


Government Guidelines On 

Dispute Resolution 


Government Guidelines 

On Dispute Resolution 

• Government Guidelines for Claims Management and 

Conduct of Negotiations in Works Contracts under 

the Public Works Programme 

– Issued by Works Bureau in December 1997 and 

based on the NAPCO/ACP Claims Settlement 

Procedure 

– Establishes Government policy that 

• protracted delays in resolving claims are not 

desirable 

• alternatives to arbitration should be considered 


Government Guidelines 

On Dispute Resolution 

• Administrative Guidelines for Construction 

Mediations (WBTC 4/99) 

– Issued with Government’s revised Construction 

Mediation Rules in February 1999 

– Establishes Government policy to implement 

mediation in appropriate cases 

• Dispute Resolution Adviser Scheme 


Report of the Construction Industry Review 

Committee Construct for Excellence 

Resolution of claims and disputes 

Consistent with our overall objective of facilitating project delivery, 

We recommend that – 

• Employers, consultants and contractors should be encouraged to 

adopt a proactive approach, with sufficient high level support and 

involvement, to resolving claims and disputes as they arise. Training 

for the project team and other resources should be made available to 

ensure the effective implementation of this approach; and 

• Proactive and collaborative ways of dispute resolution should be 

encouraged through the adoption in contracts of provisions which 

facilitate the resolution of disputes by means of alternative dispute 

resolution techniques (such as the use of a dispute resolution adviser 

and/or dispute review board, in addition to formal and binding 

adjudication means which will remain a necessary, but last resort, 

solution. 


Why Choose 

Alternative Dispute Resolution 

(ADR)? 


Why Choose ADR? 

• Control 

– Arbitration is controlled by formalised, time 

consuming and costly procedures 

– In ADR, the parties are in a better position to 

control the scope and progress of the dispute 

• Speed 

– Arbitration is a lengthy, time consuming process 

– ADR processes are much quicker 


Why Choose ADR? 

• Creativity and Flexibility 

– In arbitration, the dispute is restricted to the 

matters contained in the pleadings 

– ADR provides opportunities for the parties to be 

more flexible and creative 

• Cost 

– Arbitration invariably involves substantial costs 

– Substantial costs savings can be made by using 

the ADR processes 


Mediation 


Mediation 

• Why Use Mediation 

• Definition 

• Neutral ~ Mediator 

• Rules / Guidelines / Mediation Agreement 

• You’re in Good Company! 


Why use Mediation? 

• Flexible - can use to settle 

–Before Completion 

– During Arbitration or Litigation 

• Flexible - solution not restricted by contract 

• Quicker & cheaper than Arbitration & Litigation 

– Weeks vs Years 

– $ ~ approx 2 – 20% of Arbitration / Litigation 

• Can’t lose - if don’t like result, walk away 

• Win / win situation 

• Maintain business relationship 


Definition 

• Neutral person (Mediator) helps Parties 

• Negotiate settlement 

• Unconstrained by their contract 

• Private, voluntary & (until signed) nonbinding 

• Confidential 


Neutral ~ Mediator 

• Adds structure / process 

• Assists communication 

• Focuses on needs and interests of the parties 

• Identifies obstacles to settlement 

• Closes information gaps 

• Narrows differences 

• Agent of reality 

• Encourages alternative views and options 


Neutral ~ Mediator (cont’d) 

• Controls Emotions 

• Can meet Parties privately 

• Doesn’t decide outcome 


Rules / Guidelines / Mediation 

Agreement 

• Works Branch Technical Circular 4/99: 

– Construction mediation rules (1999 Edition) 

– Administrative Guidelines 

•Rules 

– Short, simple - 15 clauses 

Rule 1. Definition of Mediation 

Rule 2. Application of Rules 

Rule 3. Initiation of the mediation process 



Agreement (cont’d) 

• Rules (cont’d) 

Rule 4. Response to request for mediation 

Rule 5. Appointment of the mediator 

Rule 6. Disqualification of the mediator 

Rule 7. The mediation process 

Rule 8. Role of the mediator 

Rule 9. Role of the parties 

Rule 10. Representation 

Rule 11. Termination of mediation 




• Rules (cont’d) 

Rule 12. Confidentiality 

Rule 13. Costs 

Rule 14. Mediator’s role in subsequent proceedings 

Rule 15. Exclusion of liability 




• Administrative Guidelines 

2. Policy - “The policy is to implement mediation 

wherever it is possible that a dispute may be resolved 

speedily and at least cost to government should the 

dispute escalate to formal arbitration or litigation. In 

an ongoing contract this should also avoid 

unnecessary escalation of the dispute or festering of 

the relationship. In a contract where a dispute has 

already been referred to arbitration or litigation, 

mediation may still provide a cheaper, speedier and 

more acceptable solution”. 




• Administrative Guidelines 

Paragraphs 11-15 - set out mediation process 

• Preliminary Meeting 

•Mediation : 

– Opening Statement by mediator; 

– Each party presents its case; 

– Discussions with mediators either jointly or 

separately. 

• Facilitates settlement agreement 


You’re in Good Company! 

Government 

• All General Conditions 

(GC) 

• Airport Core Programme 

GC 

• Design & Build 

• Consultants’ Conditions 

of Employment 

• Not yet in Sub- 

Contracts (coming) 

Private / Quasi-Govt 

• Kowloon Canton 

Railway Corporation GC 

• MTR Corporation GC 

• Airport Authority GC 

• Hong Kong Construction 

Association Domestic 

Sub-Contract 

• Not yet in Hong Kong 

Institute of Architects 

Building contract 

(coming) 


Video Presentation 

• A Mock Mediation 


Session Two 

• Emerging Trends in ADR 

• Adjudication 


Emerging Trends in ADR 



• Early Resolution 

• Concurrent with project works 

• Solve the dispute and move on 

• Preserve the commercial relationship 


Anatomy of Construction Disputes - Anticipation 


Anatomy of Construction Disputes - Actuality 


Anatomy of Construction Disputes - Adversity 


Anatomy of Construction Disputes – Agony 



• Quicker Settlement 

• Shorter timescales – weeks v years 

• Less reliance on formal hearings 

• Less Documentation – no discovery 

• Save time and money 



• Cost savings 

• Streamlined processes 

• Reduced pre hearing procedures 

• Limited hearings or documents only 

• Reduced representation 

• Costs proportionate to dispute 


Emerging Trends in ADR - Costs 

Small Arbitration/Litigation Costs 

• Below $25million in dispute 

• Preparation costs per party from $5 million to $12 

million 

• Hearing costs of $1/2 million per week 

• Total costs in excess of around $15 million 

• Worst case scenario of around $25 million 

• Timescale 18 –24 months following project 

completion 


Emerging Trends in ADR - Costs 

Major Arbitration/Litigation Costs 

• $100+ million in dispute 

• Preparation costs from $30 million to $80 million 

• Hearing costs in excess of $1 million per week 

• Total costs in excess of $100 million 

• Worst case scenario of around $170 million 

• Timescale 18 –36 months following project 

completion 


Adjudication - Costs 

• UK CIC Report 

• c.5000 adjudications 

• Average value $ 2.5m 

• Average time 35 hours 

• Average cost/hr $1.3k 

• Adjudicator cost >$50k 

• Party costs say $75k 

• Total >200k/dispute 

• Dispute settlement - 5 

weeks 


Mediation - Costs 

Simple Dispute 

• Parties only 

• No representation 

• $4 -5,000 per party 

per minimum half 

day 

• Plus management 

time 

Complex Dispute 

• Parties plus legal and 

expert representation 

• 2 week process 

• Cost per party 

Preparation min $500,000 

Hearing $750,000 

• Plus management time 


Expert Determination - Costs 

• Costs similar to documents-only adjudication 

• Expert $15-20k per day 

• Plus document preparation time 

• Approximate cost $50 – 250k for simple 

(>one week) disputes including preparation 



• New Contract Solutions 

• Change of Risk Allocation 

• Increased options for settlement 

• Compulsory ADR prior to Arbitration 

• SCL Protocol on EOT and Delay/Disruption 

entitlements 

• Industry specialisation and fragmentation 



• New Technology 

• Better and Faster Information Flow and 

Communications - Web Based Project 

Management 

• Document Management 

• Better Programme/Progress management – 

Software advances 

• Open Book Contracting 



• Emphasis on Long Term Considerations 

• Evergreen Relationships 

• Selective Tendering 



Summary of ADR trends 

• Early Resolution 

• Quicker Settlement 

• Cheaper and Proportionate 

• New Contract Solutions 

• New Technology 

• Long Term Relationships 


Adjudication

Adjudication 

• A semi formal procedure utilizing a third party 

neutral who makes a ruling on the parties 

rights and obligations based upon evidence 

submitted 

• Can be final and binding or interim pending 

formal proceedings 

• Incorporated into ACP contracts and NEC but 

rarely used in Hong Kong to date 

• Likely to be introduced into selected 

Government contracts in the near future 


Adjudication in UK 

• Latham report and subsequent legislation 

required compulsory adjudication provisions 

in all construction contracts 

• Speed up payment flows, reduce the 

incidence of formal disputes 

• Resounding success 

• Nearly 5000 adjudications in the first 40 

months 


Adjudication – UKCIC Report 1 












Adjudication – A Summary 

• A quick and cheap alternative to formal 

proceedings 

• Useful as industry moves away from 

traditional employer/contractor relationship 

and becomes more fragmented 

• Seen as a success in UK where its inclusion in 

construction contracts is mandatory 

• Perhaps due for a return in Hong Kong? 


Session Three 

• Dispute Resolution Advisor 

• Expert Determination 



Dispute Resolution Advisor 

(DRA)

Dispute Resolution Advisor 

- Implemented by ASD – 1992. 

- Basic Concept – early resolution of 

disputes using a third party. 

- The system is only as good as the 

DRA who is appointed. 


ASD Conditions of Contract 

- Architect’s decision final and binding 

unless a notice of dispute served 

within 28 days. 

- If a party is not satisfied with a 

decision the site representatives must 

try and resolve their differences by 

negotiation. 



- If still no resolution the dissatisfied 

party must serve a notice of dispute. 

- DRA and site representatives then have 

14 days to resolve the disputes. 

- If still no resolution DRA must produce a 

report on the dispute. 



- DRA’s report is sent to the parties senior 

managers. 

- The parties senior managers must meet 

to try and reach a settlement. 

- If a resolution is not reached within 14 

days of the DRA’s report the dispute is 

referred to arbitration. 


Expert Determination 



• The expert and his role: - 

• Someone possessed of special skills 

who is asked to make findings and 

to give a decision in respect of a 

dispute after both parties have been 

given an opportunity to make 

representations. 



Expert determination is a contract 

based ADR technique. 

The contract must provide the framework. 

Subject to specific provision being agreed 

within the contract the parties have 

nothing to fall back on if matters start to 

go wrong (e.g. Ss 25 and 26 of the 

Arbitration Ordinance). 



-Binding or not binding? 

-Problems of 

enforceability 


Recent Case Law 

- Fletcher Construction Australia Ltd v 

MPH Group Pty Ltd (Unreported 

1997). 

- Baulderstone v Kayah Holdings Pty 

Ltd (1998) 14 & CL 277. 


Partnering 

• “A set of strategic actions which 

embody the mutual objectives of a 

number of firms achieved by cooperative 

decision making aimed at 

using feedback to continuously 

improve their joint performance” 

[The Seven Pillars of Partnering – 1998] 


• For further information on Mediation or other 

methods of Dispute Resolution contact: 

The Hong Hong Mediation Council 

Hong Kong International Arbitration Centre 

38 Floor, Two Exchange Square 

Central, Hong Kong 

adr@hkiac.org

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