Construction mediation and its hybridization: the case of the Hong Kong construction industry

Mediation may be denoted as a consensual process in which a neutral third party, called the mediator, works with the disputing parties to help them explore, and if appropriate, reach a mutually acceptable resolution of some or all of the issues in dispute (Richbell 2008; Cheng and Soo 2013).

The key features of mediation are as follows:

Voluntary – The disputing parties enter into the mediation based on their own will. They enjoy party autonomy on selecting the mediator, mediation procedures, and mediation rules. They can make decisions in bargaining and negotiating during the mediation, and can even exit from the mediation voluntarily.

The development of construction mediation in Hong Kong dates back to 1982, when the draft mediation rules were prepared by the government (Kumaraswamy and Soo 2010). In 1984, a trial mediation scheme for selected civil engineering contracts was initiated, and the mediation rules were revised thereafter, leading to the incorporation of the mediation option in all public works contract in 1989 and issuance of Hong Kong Government Mediation Rules in 1991 (Hong Kong Government 1991). The Works Branch Technical Circulars 10/84, 8/89, and 11/91 (Hong Kong Government 1984, 1989, and 1991), respectively, set out administrative guidelines for trial mediation scheme, provided administrative guidelines for mediating construction disputes, and recommended mediation as an option to resolve construction disputes (Chau 2007). In the Hong Kong Government’s General Conditions of Contract 1985 Edition and its subsequent versions (Hong Kong Government 1985, 1993, and 1999), both mediation and arbitration were incorporated as the dispute settlement mechanisms. It is stated in the General Conditions of Contract that any dispute matter should first be brought to mediation; if the matter cannot be resolved by mediation or if either party does not wish to mediate, then the dispute matter should be brought to arbitration. To cater for the special needs of the megascale construction of the Hong Kong International Airport and its associated infrastructure under the Airport Core Program (ACP), the ACP dispute resolution rules with provision of compulsory mediation were formulated in 1992 accompanying the ACP contracts.

Professional bodies of ADR have emerged in the past decades. The Hong Kong International Arbitration Centre (HKIAC) was set up in 1985, and it issued its own mediation rules in 1991 (revised in 1999). The Hong Kong Mediation Council was started as a division of HKIAC in 1994 and later became a single entity. The Hong Kong Construction Arbitration Centre (HKCAC) was established in 2006. It launched the HKCAC Mediation Rules specialized in construction in 2009 (revised in 2015) and manages the HKCAC List of Construction Mediators. Other learned societies in the industry also acted in response to the growing need for mediation. The Hong Kong Institution of Engineers (HKIE) was authorized by the Hong Kong Government to administer the mediation for public works contracts since 1984 until the government transferred the administration to HKIAC in 1991. In 2003, the HKIE established the Alternative Dispute Resolution Committee and manages an Internal List of HKIE Arbitrators and Mediators. The Hong Kong Institute of Construction Managers (HKICM) recently set up the Mediation Working Group in 2010 and established the HKICM Accredited Mediator List. The Hong Kong Institute of Architects (HKIA) established the Contract and Dispute Resolution Committee in its organization and maintains the List of HKIA Mediators. In the Agreement and Schedule of Conditions of Building Contracts, 2005 Edition, jointly published by HKIA/HKICM/HKIS (HKIA, HKICM, HKIS 2005), the mediation clause has been incorporated as part of the dispute resolution clauses. The Hong Kong Institute of Surveyors (HKIS) has joint efforts with the HKIA in operating the Joint Dispute Resolution Committee responsible for managing the HKIA/HKIS Joint Panel of Mediators.

The Civil Justice Reform (CJR) in 2009 was a catalyst for the blossom of mediation in Hong Kong. Practice Direction 31 was promulgated in 2009, and it governed the use of mediation, with exception in specific areas, including construction; whereas Practice Direction 6.1, dated February 2009, specifically addressed construction arbitration and mediation. Under the Practice Directions, the Court may impose adverse cost orders on parties that refused to mediate without reasonable explanation, and legal representatives may also face cost orders for failure to advise a client properly on the use of mediation. At the policy level, the Hong Kong Government launched a public consultation on mediation in 2010. The Mediation Bill was gazetted in 2011, and upon the completion of legislation process, the Mediation Ordinance (Chapter 620) was enacted in 2013 (Hong Kong Government 2013). The Mediation Ordinance sets out the statutory framework for the conduct of mediation and further confirms the role and prominence of mediation in the realm of ADR.

The advantages of mediation in general are manifold and are attractive in the eyes of construction professionals in Hong Kong (Cheung 2014). Following is an elucidation of the advantages.

Time and cost savings – Mediation can take place quickly and often with relatively little expense, in contrast to resorting the dispute to court, tribunal, or arbitration. Such time and cost savings are particularly significant from the perspectives of small-to medium-sized market players, such as local consulting firms and subcontractors, as well as for disputes arising from small-to medium-scale construction contracts and subcontracts. Most commercial mediations are conducted over the course of 1 day, although some may extend over several days, weeks, or even months. There are enormous time and cost savings compared to a trial that may last for years.

On the other hand, mediation does come with a number of disadvantages that may deter its industry-wide application by construction professionals. These disadvantages may be overcome, or at least minimized, by appropriate practice, as explained in the following.

Enforceability concerns – The nonbinding and potentially nonconclusive nature of mediation is a major disincentive to parties who believe that they have a strong case. Paradoxically, when the parties once face a dispute, both sides tend to believe that they are righteous and should have a strong case (Fisher et al. 2011) and thus would refrain from mediating. In the mindset of some construction professionals, arbitration but not mediation has been regarded as the default way of ADR because the former could lead to an enforceable award. To address this concern, a thorough understanding of the settlement stage of mediation is useful and helpful. When settlement is reached between the parties, the mediator shall provide the parties a “Without Prejudice Mediation Agreement” for the parties to sign in good faith and with the mediator signing as a witness. This “Without Prejudice Mediation Agreement” is not legally binding and is subject to review by parties, which are encouraged to obtain independent legal advice in doing so. After review, the mediator shall provide the “Mediation Agreement” to the parties for signing, and that forms a legally binding contract for execution. These procedures effectively safeguard the enforceability of the mediated agreement.

Med-arb is the hybridization of mediation and arbitration and is essentially a combination of mediation and arbitration as a hybrid mechanism of dispute resolution. The disputing parties first attempt to settle the matter by mediation. If mediation does not result in a settlement, the dispute resolution agreement provides for the mediator to be appointed as arbitrator and for him/her to proceed to resolve the dispute through arbitration (Oghigian 2003). In Hong Kong, med-arb is an emerging ADR mechanism and has begun to receive appreciation (Mak 2005). As explicated in the preceding sections, specialization rather than generic treatment of construction dispute resolution is recommended by the authors. Likewise, specialized construction med-arb to tackle the sophistication and uniqueness of construction disputes is advocated.

To understand med-arb, knowledge of arbitration is essential. Basically, arbitration is a process by which a dispute between two or more parties as to their legal rights and liabilities is referred to and determined in a judicial manner, with binding effect, by the application of law by an independent neutral party (an arbitrator or arbitral tribunal) outside the courts (Chee 2006). The essential features of arbitration include consensual, confidential, and private process with party autonomy; judicial nature of proceedings; determinative, final, and legally binding process; limited intervention by courts; jurisdiction of arbitral tribunal primarily set out by terms of arbitration agreement; and case management by arbitral tribunal. Detailed explanation of construction arbitration can be found in relevant literatures (Eilenberg 2003; Chee 2006; Cheng and Soo 2013). Under the Hong Kong legislation, the conduct of arbitration has been regulated by the Arbitration Ordinance (Chapter 341) (Hong Kong Government 1997) until recently; this ordinance was repealed with the new Arbitration Ordinance (Chapter 609), which came into effect in 2014 (Hong Kong Government 2014).

As construction med-arb brings together the elements of both mediation and arbitration; it shares the key features of mediation in its mediation phase and shares the key features of arbitration in its arbitration phase.

Med-arb offers various advantages that give it an edge over conventional mediation and arbitration. These are noteworthy for construction professionals.

Time and cost savings – Med-arb provides the possibility to conclude a case after the mediation phase. In such circumstances, the time and cost incurred by the dispute resolution process would be equivalent to those of mediation. Even if arbitration is required in the med-arb process, the issues that need to be resolved would possibly be substantially narrowed after the mediation process, leaving only a few tough and complex issues to be arbitrated. Hence, the total time and cost expenditure would be less than arbitrating at the start. As speedy and low-cost resolution of construction disputes is highly appreciated, med-arb provides an attractive alternative compared to the prevailing arbitration process. Compared to mediation, med-arb can always yield a decision that effectively eliminates the time and cost required by subsequent dispute resolution processes in case the mediation fails.

However, med-arb is associated with the following drawbacks that construction personnel should pay attention to.

Confidentiality may be compromised – In accordance with the principles of mediation, all revealed information and documents are confidential. With such privilege, the individual party is motivated to disclose sensitive information in confidence to the mediator, who is prohibited from disclosing such information to the other party. However, during arbitration, the parties would be more refrained from disclosing sensitive information, which may provoke adverse inferences. As seemingly there is a conflict between the confidentiality of mediation and that of the ensuing arbitration, the confidentiality aspect of med-arb has been challenged by its critics (Landry 1996). In practice, the neutral party in med-arb must be fully aware of the confidentiality principles in mediation and in arbitration and perform his/her roles accordingly.