Since its inception in the UK in 1998, Security of Payment Legislation has spread across many common law countries, including Singapore, Malaysia, and Australia.
SOPL aims at improving payment practice in the construction industry by establishing:
- Statutory protection for payment claims made for work done on construction contracts;
- A system of Adjudication – a quick dispute resolution mechanism to resolve disputes, on an interim basis, over contractual payment claims; and
- The statutory right to suspend works where contractual payment is not satisfied
It seems as though such legislation is shortly to be enacted in Hong Kong, and last August Hong Kong’s construction industry players made their responses to the Development Bureau’s consultation document. The consultation process is not over yet, so the jury is still out, but the proposals as they stood included the following elements:
- The right to suspend works comes only after a sum admitted as due remains unpaid, or following an adjudicator’s decision;
- Payment Claims can be made under the contract, or under statute - only the latter activates the SOPL mechanism;
- Supply only contracts for plant and material would be included;
- Adjudication would last up to 55 days. However, should the parties agree, time can be further extended;
- After crystallisation of a dispute, the Claimant must issue a notice of adjudication within 28 days;
- The adjudicator can disregard any evidence or submission that was unknown to the responding party when the adjudication was issued;
- The adjudicator can resign if they decide it is not possible to determine the matter fairly in the time available.
If as expected, this legislation is introduced to Hong Kong by 2017, the legal dynamic of the construction industry will be altered with the introduction of statutory adjudication, and we may expect to see the number of arbitrations fall as payment disputes are dealt with by adjudication
It will be important for all parties to construction contracts to be familiar with the processes of adjudication, and to have developed internal systems to ensure that they can operate within the tight time-frames that have been proposed.