Jurisdiction - Hong Kong
Hong Kong – Security Of Payment: What Is Best For HK?

6 June, 2013


There has been widespread discussion recently regarding the case for the introduction of security of payment legislation into the construction industry in Hong Kong.  Internationally this is not a new topic, Hong Kong is considering following the footsteps of a number of major jurisdictions such as the UK, a number of states of Australia, New Zealand, Singapore and Malaysia.  The reaction to such legislation in those jurisdictions has generally been positive although there are significant differences in the scope of the legislation in each jurisdiction, reflecting the local needs and concerns.  These differences reflect different approaches in respect of the scope of legislation, rights conferred, procedure involved and consequences of failure to comply.


At a recent forum "Competition Law cum Security of Payment Forum" organised by the Construction Industry Council ("CIC"), at which partner Damon So spoke, various aspects of security of payment measures and their (potential) implementation in Hong Kong were discussed.  The need for improved security of payment to contractors and sub-contractors was raised in the Tang Report (Construct for Excellence, Report of the Construction Industry Review Committee, January 2001.) in 2001.  The Government and the CIC have since taken various administrative measures to try and address the problem, along with other problems identified in the report. The Government for example is implementing the Dispute Resolution Adviser scheme, following the experience of the Housing Authority and Architectural Services Department, as well as adopting the NEC3 form in a number of public works contracts, with a view to creating a collaborative working environment and reducing disputes on payment and generally.  The CIC has also published guidelines on dispute resolution and partnering.


Despite these administrative measures, in a survey on payment practice commissioned by the Development Bureau in 2011, it was reported that despite the administrative measures, there was around HK$10 billion worth of outstanding payment problems for payments made to contractors or sub-contractors. Respondents generally felt that legislative measures, in addition to administrative ones, would be useful in improving payment problems in the construction industry, particularly for the private sector which does not benefit from the Government's administrative initiatives.


The Government is now actively considering the introduction of security of payment legislation in Hong Kong and its scope and terms.  Some particular issues to consider include whether the security of payment legislation in Hong Kong should:


(a)   prohibit conditional payments namely "pay if/when paid" payment terms;

(b)    provide for rights to progress payments for work done and set time for payment;

(c)   provide for a right to suspend works if payment is not duly made;

(d)   provide for mandatory statutory adjudication or some other form of speedy dispute resolution measure such as short form arbitration; and

(e)    limit any such adjudication or dispute resolution measure to progress payment issues only.  


It is understood that a working group is currently looking at the drafting of legislation, which will be the subject of public consultation in due course.  Stakeholders in the construction industry should now begin to consider, if not already have, what they think would work best for Hong Kong and take the opportunity before or during the consultation to voice out their concerns or opinions so that any security of payment legislation finally passed would reflect the best practice suitable for the Hong Kong environment.



For further information, please contact:


Timothy Hill, Partner, Hogan Lovells
Damon So, Partner, Hogan Lovells



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