Hong Kong is a common law jurisdiction, meaning that the law derives from judges' decisions and is developed by the courts. In Hong Kong, there is also legislation governing issues relating to construction safety and building works. In Hong Kong, construction law is made of five main bodies of law:
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Under the Buildings Ordinance (Cap. 123 of the Laws of Hong Kong), the carrying out of large-scale building works or works of a very simple nature (such as the erection of drying racks on the external walls of household apartments) are governed by the same set of controls, including the requirements to obtain prior approval and consent from the Buildings Department before commencement of works and to appoint Authorized Persons (APs) (architects, engineers and surveyors registered under the Buildings Ordinance), and registered professionals to design and supervise the works as well as registered contractors to carry out the works.
The approval of plans takes approximately two months.
Any person who intends to carry out building works is required by law to appoint an AP, and where necessary a registered structural engineer and, if building works at any stage involve geotechnical elements, a registered geotechnical engineer, to prepare and submit plans for the approval of Buildings Department under the Buildings Ordinance.
Consent for commencement of work takes approximately 28 days.
Consent to commence building works is required from the Buildings Department before the works start and the Buildings Department will monitor sites with works in progress and inspect sites regularly, particularly at critical stages, for safety assurance and for compliance with statutory requirements under law.
The requirements of the above system are too stringent for minor works which are of a smaller scale and pose a lower level of risk, so as a result the Hong Kong SAR Government introduced the Minor Works Control System, facilitating members of the public to carry out minor works in private buildings lawfully through simplified procedures and thereby improve the building safety in Hong Kong. The Building (Minor Works) (Amendment) Regulation 2020 (Amendment Regulation) came into operation on 1 September 2020 to extend the coverage of the Minor Works Control System to more small-scale building works so as to bring greater convenience to the public and facilitation to the industry.
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In Hong Kong, the following legislation is important regarding construction site safety:
These rules mainly relate to health and safety during the construction process and not the use of the development after construction is completed.
Statutory duties give rise to criminal liability which means that an offender can be prosecuted by the enforcement agencies and brought before the courts to answer criminal charges in addition to civil liability in tort (ie the law that addresses, and provides remedies for, civil wrongs not arising out of contractual obligations).
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There is Government control via:
The main Ordinances are:
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Arrangements are usually made with the Hong Kong Police Force and the Transport Department which are the agencies through which transport policy is enforced. Developers also work closely with other departments such as the Water Supplies Department, Drainage Services Department, Civil Engineering and Development Department, Buildings Department, etc, regarding roads and associated drainage. In performing building development works adjacent to public roads, developers also have frequent and close contacts with the utility operators.
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Every contract must include an adequate mechanism for determining what payments become due, when they become due and a final date for payment. A party is also entitled to payment by instalments, stage payments or other periodical payments. Finally, a party also has the right to suspend performance for non-payment. If the contract does not make adequate provision, the provisions of a statutory scheme will automatically apply to it.
Since December 2021, the Development Bureau (DEVB) of the Government of Hong Kong Special Administrative Region has published a consultation on an important new legislation for the construction industry known as Security of Payment Legislation (SOPL), which aims to establish a legislative framework for addressing improper payment practices amongst contracting parties in the Hong Kong construction industry. In May 2024, the Construction Industry Security of Payment Bill (SOP Bill) was gazetted and subsequently introduced into the Legislative Council for its first reading. The SOP Bill, once in force, will replace the SOPL for the introduction of security of payment provisions into public sector construction contracts. Whilst the Legislative Council timeline has not been made public, it is anticipated that the SOP Bill will be enacted in 2024. This SOP Bill is expected to represent a transformational change for the way in which the construction industry in Hong Kong will operate.
Once enacted, the SOP Bill will apply to all contracts and sub-contracts for public sector works including maintenance and renovation. In the private sector, the SOP Bill will only apply to the procurement of new buildings at a cost over HK$5 million or related consultancy services costing over HK$0.5 million. The SOP Bill will also apply to contracts for “ancillary” construction work such as architectural, landscaping, electrical and civil works, as well as contracts for “related goods and services” such as feasibility and planning studies and plant and equipment supply. Private sector repair (excluding hotels, serviced apartments and hospitals), maintenance,renovation and works on existing private non-residential buildings that do not require approval and consent of the building Authority under the Buildings Ordinance (Cap. 123 of the Laws of Hong Kong) will not be covered.
The SOP Bill provides for the parties’ autonomy to agree on their terms of contract in respect of contract payments and dispute resolution mechanism is respected except for the following:
payment response by the paying party shall be served on the claiming party within 30 days and the paying party shall make payment of admitted amount within 60 days to the claiming party from the date of payment claim served by the claiming party;
conditional payment provisions (such as ‘pay when paid’ clause, etc.) shall be rendered ineffective and unenforceable;
claimant may refer a payment dispute to adjudication through which the adjudicator shall decide on the payment dispute within 55 working days from the date of his appointment, and the adjudicated amount shall be paid as decided by the adjudicator;If the claiming party is dissatisfied with the adjudicator’s determination, both parties may refer the payment dispute to litigation or arbitration. The adjudicator’s determination is binding on the parties unless and until the dispute is determined by litigation or arbitration;and
claiming party / claimant may exercise his right to suspend or reduce rate of progress if admitted amount / adjudicated amount is not received.
The Contracts (Rights of Third Parties) Ordinance, Cap 623, which came into force on 1 January 2016, also applies to construction contracts. Under this Ordinance, a third party can enforce a term of the contract, if the contract expressly provides for this, or if, on the proper construction of the contract, the term purports to confer a benefit on the third party.
As far as the works themselves are concerned, the contractor must do the work with all proper skill and care. Breach of this duty includes the use of materials containing patent defects. There is also an implied warranty that the contractor will use materials that are reasonably fit for the purpose for which they are to be used (whether or not that is a purpose for which the materials are commonly supplied) and of good quality. If a contract is silent in relation to liability for design, there is an implied term that the services will be carried out with reasonable skill and care. The burden of proof falls on the party claiming that the supplier of the service (design and build contractor, design sub-contractor or consultant) has failed to use reasonable skill and care. These terms will be implied only if the contract is silent on the issues; express terms are required to displace the implication of these terms.
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Institutional standard forms are issued by public and local authorities and sanctioned by the construction institutions.
Examples include the:
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The main parties involved in a construction project are:
This is the party procuring the work (usually a land developer). With respect to building contracts, this entity is usually referred to as the 'employer'. In relation to the contracts of engagement of professional consultants, this party is usually referred to as the 'client'.
The employer will usually enters into a contract directly with the main contractor, who will then be responsible directly to the employer for building the project in accordance with the plans, specifications, and the laws. Main contractors seldom employ a large standing workforce. Instead, they subcontract separate parts of the construction works to different subcontractors.
The team of professional consultants usually appointed are as follows.
Authorized Person (AP)
The role of an AP is governed by the provisions of the Buildings Ordinance (Cap. 123 of the Laws of Hong Kong). An AP may be an architect, engineer or surveyor by profession. An employer who wishes to carry out building works or street works must appoint an AP as the co-ordinator of such works. All plans submitted to the Buildings Department for approval must be prepared and signed by the AP.
Registered Structural Engineer (RSE)
The role of an RSE is also governed by the provisions of the Buildings Ordinance. An RSE must be a structural engineer. An employer who wishes to carry out building works or street works, must also appoint an RSE for the structural elements of such works. Plans relating to foundation or containing structural details or calculations are usually prepared and signed by the RSE.
Architect
Any person in Hong Kong involved in the design construction or fitting out of buildings and describing himself as an ‘architect’, ‘registered architect’ or ‘RA’ must be registered under the Architects Registration Ordinance (Cap. 408 of the Laws of Hong Kong). As well as being responsible for the design of the work on an ongoing basis, the architect is often also appointed under many standard forms of building contract, as contract administrator. Frequently, the architect is also the authorized person who has to ensure compliance with planning requirements and building regulations, and to supervise and monitor works.
Engineer
A person is not entitled to describe himself as a ‘registered professional engineer’ or to use the initials ‘RPE’ with or without a qualifying discipline unless he is registered under the Engineers Registration Ordinance (Cap 409 of the Laws of Hong Kong). The nature of the construction contract will determine which area of specialization or discipline the engineer will require (eg structural, electrical and mechanical or geotechnical) and the manner in which he is employed (eg independently by the employer or as a consultant to the architect).
Quantity surveyor
A person is not entitled to describe himself as a ‘registered professional surveyor’ or to use the initials ‘RPS’ with or without qualifying divisions unless he is registered under the Surveyors Registration Ordinance (Cap 417 of the Laws of Hong Kong). A quantity surveyor’s role has traditionally involved measuring and valuing work, both prior to the commencement of construction (ie assembling bills of quantities for the employer or pricing bills of quantities for the contractor) and during the course of construction. The surveyor’s role has now also been extended under some contracts to advise architects or engineers on the amount payable under interim or final certificates.
Project manager
Where a project manager is appointed in a large construction project, his role is to organize and coordinate the activities of the contractor and the professional team (ie architect, engineer, quantity surveyor, etc). The precise scope of these obligations will depend upon the terms of his appointment and the nature of the construction project.
Funder
This is the term used to describe the banks and other institutions and parties (for example, government or charitable organizations in the case of urban regeneration, infrastructure and cultural/sports projects) who provide finance to the employer towards the development
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Risks borne by the contractor in a construction contract are usually in relation to failure to build, defective work or delay.
The term ‘force majeure’ is used with reference to all circumstances independent of the will of man and which are not in his power to control. Unlike most industry forms, the Standard Form of Building Contract often used in Hong Kong do contain a force majeure clause allowing the contractor additional time to complete the works. The term ‘force majeure’ must be construed as a whole with the rest of the contract and with regard to the nature and other terms of the contract.
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An increase in pressure on government finances has made the HKSAR Government to explore other financing options, such as Public-Private Partnership (PPP) schemes, as part of its Private Sector Involvement ("PSI") initiative, for the delivery of public services and infrastructure. The construction industry, having suffered a downturn over the last few years, is also keen to explore with the Government the development of PPPs.
The Hong Kong International Exhibition Centre project is a landmark PPP, where the private sector contributed 15% of the investment.
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It is possible and indeed quite common for the parties to enter into a lump sum contract, ie a contractor will receive payment of a fixed sum which has been agreed in advance upon completion of the whole contract works. Under this system, the design would be completed and the work would be quantified when a contractor submits its tender to the employer. This would have the benefit of ensuring uniformity and accuracy in the description of works.
However, if the scope of work under a lump sum contract is varied, the contractor will be paid an extra sum according to the contractual provisions in the contract (if any). In practice, the employer will usually pay more than the fixed amount stated in the contract to the contractor. This will happen if there are variations or a direct loss and expense claim due to the disturbance of regular progress of the works, or if there are fluctuations in the quoted rates. Usually, both employer and the contractor will want to have such flexibility built into the contract.
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Different types and levels of insurance will be obtained by different participants of a construction project. These will generally include insurance of the works, third party liability insurance and professional indemnity.
The Agreement and Schedule of Conditions of Building Contract for Use in Hong Kong – Standard Form of Building Contract (Private Edition) (HKIS) provides for the contractor to obtain insurance against loss or damage by fire, etc, in the joint names of the employer or contractor.
The HKIS Form imposes an obligation on the contractor to indemnify the employer against any liability for personal injury or death or damage to property arising out of the carrying out of the works, and to maintain (and cause any subcontractors to maintain) insurance to cover for such liability of the contractor.
This is taken out by architects, engineers, quantity surveyors and other consultants to cover liability for their negligent acts, errors or omission in respect of their professional work.
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Different types of security will be entered to guarantee performance of obligations by the parties to a construction contract. These include bid bonds, payment bonds and performance bonds.
Contractors will be required to provide a bid guarantee when bidding for a project. The owner may want some recourse if the lowest bidder fails to enter into the contract.
A payment bond is a guarantee by the surety that it will pay the contractor's bill for labour and materials incurred in the project. Labour and materials are defined as whatever is necessary to be used in the performance of contract.
Performance bonds guarantee the contractual obligation of the contractor will be met, protecting the owner from possible losses if the contractor breaches the contract or defaults. Performance bonds can be classified into conditional and on-demand bonds. Conditional bonds require the employer to prove the contractor has failed to perform his contract. An on-demand bond, on the other hand, requires no such evidence.
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Methods of payment vary according to the works. The four main types of payment are:
Payment is usually made when the works are completed. However, it is common for the contractor to have the right of payment by instalment or interim payment in the progress of the construction as it gives the contractor funding for the performance of works and supply of materials during construction.
As an alternative to the interim payment, a lump sum contract may provide for milestone payment. The employer will make periodic payments to the contactor by reference to certain stages of the work or stated intervals. In other words, the milestone payment approach makes interim payments subject to achievement of predetermined progress milestones.
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Most construction contracts provide a date or stipulate a period for the contractor(s) to complete the works. The failure to achieve completion by the date or within the stipulated period is a breach of contract.
Clauses for extension of time for completion can be inserted into the contract. Most construction contracts set out a mechanism for the architect to award extensions of time. Under the Agreement and Schedule of Conditions of Building Contract for Use in Hong Kong – Standard Form of Building Contract (Private Edition) (HKIS), it is for the contractor(s) to first give notice of delay, and then for the architect to assess, in his opinion whether there was any actual delay caused by the events as specified. These events include, inter alia, inclement weather, variations, and late receipt of instructions or drawings.
An employer may also claim for damages for delay caused by the contractor(s). These are often referred to as liquidated damages and relate to where the parties have pre-determined the amount payable by the contractor to the employer as damages for any delay. This genuine pre-estimate of loss dispenses with the employer's need to prove actual loss which may result in a considerable saving of costs.
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All forms of standard contracts commonly used in Hong Kong provide for the architect/contract administrator to order variations. In general, instructions to the contractor to carry out works which fall within the scope of works as set out in the contract will not constitute a variation and are part of the contractor's contract price.
Most standard form contracts contain complex mechanisms for valuation of and payment for variations. The Agreement and Schedule of Conditions of Building Contract for Use in Hong Kong – Standard Form of Building Contract (Private Edition) (HKIS) provides for variations to be valued in accordance with the prices in the contracts bills (namely, bills of quantity) for "work of similar character executed under similar conditions". Therefore, as long as the varied works are similar to works which are priced in the contract bills, the prices (or rates) as contained in the contract bills must be used, even if the result would be unduly profitable or unprofitable for the contractor. This is because the rates or prices are agreed by the parties and they are not entitled to vary them unilaterally.
However, if the subject of variation is not within the scope of the bills of quantity, the parties may have to agree on the price of such works. Failing which, the price may be determined by a neutral third party who will then fix a reasonable and fair price for such works.
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Hong Kong law does not explicitly state what has to be achieved before ‘completion’ of the building works can be certified, and this is a commercial term to be agreed between the parties.
Completion is usually described as practical completion or substantial completion and is reached when the architect/contract administrator issues a certificate to that effect. Practical completion means that the building should be ready for all practical purposes so that it can be used for the purposes intended by the parties immediately upon completion. That does not mean that there might not be defects or imperfections provided that those did not interfere with the beneficial occupation and use of premises for its intended purposes.
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In Hong Kong, limitation periods are imposed by statute, primarily the Limitation Ordinance (Cap. 347 of the Laws of Hong Kong). There are different limitation periods for different types of cause of action. For example, the limitation period is six years for a normal contract claim, but twelve years if the contract was created by deed (this is a special way of executing a contract and most building contracts are executed in this way).
In a contract claim, the limitation period will run from the date when the contract was breached. It will thus be necessary to determine whether or not the limitation period has expired. If it has, the claimant may be barred from bringing a claim against the alleged wrongdoer. By the same token, if a claim is brought out of time, the defendant will be able to plead the defence of limitation.
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Usually, the developer will limit his liability for the design and construction of the works to a stipulated period after completion of the works under the agreement between the developer and the end users (usually ending on the expiry of the defects liability period under the building contract for the development, but depending upon the developer, the nature of the project and the stage in the economic cycle).
Such liabilities may also be excluded by contract with the end users. However, such exclusion clauses are subject to the Unconscionable Contracts Ordinance (Cap. 458 of the Laws of Hong Kong) and the Control of Exemption Clauses Ordinance (Cap. 71 of the Laws of Hong Kong). The Control of Exemption Clauses Ordinance prohibits the exclusion or restriction of liability for death or personal injury resulting from negligence and requires all exclusion or restriction of other liability for negligence to satisfy the requirement of reasonableness.
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As engineers, architects and surveyors have no contractual relationship with end users, their liability arises under the general law of tort. Any duties which an architect/contract administrator may owe to an end user will be derived from the particular circumstances of the project. Such liability is generally limited to a liability in respect of physical damage, including personal injury, where the accident can be shown to result from a negligent permanent design or in the unusual situation where the architect has positively intervened or designed or controlled the contractor's work. If the end-user has a reasonable opportunity to carry out an inspection and thus discover the existence of any defects likely to cause damage, the architect/contract administrator may not be held liable for these defects. However, liability could attach where the defects were unlikely to be discovered upon inspection
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A collateral warranty is an agreement which is related to another primary contract. It is entered into by the person engaged or appointed under the primary contract in favour of a third party beneficiary who is not a party to the primary contract but who has an interest in the construction project.
Collateral warranties are gaining popularity in today's construction industry to fix liability for third parties who otherwise have no legal standing to claim over the works in issue. Developers, financing institutions, employers, contractors and professional team members can all be increasingly involved in the giving or receiving of warranties.
In Hong Kong, the use of collateral warranties is still at an early stage of development. This may due to the different approach in the financing of construction projects and the bargaining powers of the ultimate purchasers or tenants of premises in Hong Kong and the other parts of the world.
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The Hong Kong courts of civil jurisdiction have inherited an adversarial system where the parties themselves initiate the proceedings and decide what issues of fact and law are put forward for the decision of the court.
Most construction litigation over a project of normal size comes under the jurisdiction of the Court of First Instance of the High Court of Hong Kong (CFI) which has jurisdiction of unlimited financial value.
A Construction and Arbitration List exists within the CFI to facilitate the disposal, by the designated judge in charge of the list, of the specialized classes of litigation concerning matters of civil or mechanical engineering, building or other construction work, claims regarding professionals or besides specializing in practice related to the construction industry and arbitration.
On appeal, the disputes will be dealt with by the Court of Appeal and, if necessary and allowed, by the Court of Final Appeal which is the highest court in Hong Kong. Appeals conducted by the Court of Appeal are at present by way of rehearing. It is open to the Court of Appeal to re-assess the facts, albeit generally only on the basis of documentary record rather than by rehearing oral evidence afresh.
In construction litigation, the prospective appellant faces added dimensions of difficulty. The appellant court may be reluctant to intervene or change the findings of fact of the trial judge, particularly if the trial judge had the benefit of inspecting the site of the subject matter in dispute.
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Arbitral awards enjoy much greater international recognition than judgments of national courts. About 160 countries or places have adopted the New York Convention, which facilitates enforcement of awards in all contracting states including Hong Kong.
Judicial systems do not allow the parties to a dispute to choose their own judges. In contrast, arbitration enables the parties to have their disputes resolved by people who have specialized competence in the relevant field.
Arbitration is not public, and only the parties themselves receive copies of awards.
In arbitration, the arbitral award may be overturned only in very limited situations, other than default by the arbitrator or a defect in the process.
Unlike litigation, leave from courts is not required for serving documents out of jurisdiction (eg the People's Republic of China) in arbitration proceedings. It saves the parties to an arbitration a great deal of time and cost.
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ADR refers to any method of resolving disputes other than by traditional litigation such as adjudication, mediation, etc. In recent years, the construction industry has been in the frontline of the innovative development and novel use of ADR and it is probably one of the largest users of ADR services among all the business sectors.
Adjudication may be defined as an accelerated and cost-effective form of dispute resolution that, unlike other means of resolving disputes involving a third party intermediary, the outcome is a decision by a third party which is binding on the parties in dispute. In Hong Kong, there is yet no scheme for statutory adjudication or, indeed, noticeable movement toward one. Adjudication, when adopted in construction contracts, is usually only available as one of the multi-tier processes of dispute resolution. The New Engineering Contract 1993, and the Government of Hong Kong ACP contracts provide for adjudication. It is also available in the ICE Conditions of Contract (7th Edition), but is optional. Adjudication is facilitated by the Hong Kong International Arbitration Centre (HKIAC). The HKIAC published its adjudication rules in September 2008 based on consideration of English resources and Hong Kong resources (including the Airport Core Programme Adjudication Rules, the Conditions of Contracts Sub-Committee Paper on ADR for public works and the Construction Adjudication Rules 2013 published by the Hong Kong Government.
Mediation is the process in which the parties to a dispute, assisted by a neutral third party ie the mediator, identify the issues, develop options, consider alternatives and endeavour to reach an agreement to settle.
For the construction industry, the use of mediation has steadily grown over the last ten years. Under the Civil Justice Reform, parties to a dispute have to explore the possibility of mediation before pursuing litigation. Unreasonable refusal by a party to mediate will risk adverse costs orders. The Mediation Ordinance (Cap. 620 of the Laws of Hong Kong) was enacted in June 2012 and came into operation on 1 January 2013 to provide a proper legal framework for the conduct of mediation in Hong Kong without hampering the flexibility of the mediation process. The aim of the Mediation Ordinance is to promote, encourage and facilitate the resolution of disputes by mediation, and to protect the confidential nature of mediation communications. The Mediation Ordinance applies to any agreement to mediate if such mediation is wholly or partly conducted in Hong Kong, or if the agreement to mediate specifies that the laws of Hong Kong are to be applied, regardless of whether the mediation is conducted before, on or after the commencement date of the Mediation Ordinance.
For purely technical disputes, the parties can agree to appoint an expert to determine a matter of fact (more common) or law in a final and binding manner. It is a private and confidential method of dispute resolution.
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What are the main sources of law that govern and regulate contracts for the design or carrying out of building works?
Hong Kong is a common law jurisdiction, meaning that the law derives from judges' decisions and is developed by the courts. In Hong Kong, there is also legislation governing issues relating to construction safety and building works. In Hong Kong, construction law is made of five main bodies of law:
Last modified 7 Oct 2024