ADR Applications in Construction Disputes: Hong Kong's Construction Industry ADR in Practice

Hong Kong’s construction industry has been the single largest user of statutory adjudication under the Construction Industry Security of Payment Ordinance (Cap. 653) since its phased commencement in 2021. By the end of 2024, the Adjudication Registry had received over 240 adjudication applications, with the average claim value exceeding HK$3.2 million per case, according to data published by the Development Bureau. The Ordinance’s full application to all private construction contracts, effective from 28 December 2024, now mandates that parties must use adjudication as the primary interim dispute resolution mechanism for payment claims. This regulatory shift, combined with the Hong Kong International Arbitration Centre’s (HKIAC) 2024 revisions to its Construction Arbitration Rules, has made ADR not merely an alternative to litigation but the default expectation for payment disputes, delay claims, and variation orders. For contractors, subcontractors, and employers alike, understanding the procedural interplay between adjudication, mediation, and arbitration under Cap. 653 is now a commercial necessity, not a legal elective.

Adjudication Under Cap. 653: The Statutory Default

The Construction Industry Security of Payment Ordinance (Cap. 653) creates a statutory right to progress payments and a mandatory adjudication process for resolving payment disputes. The legislation applies to all construction contracts entered into on or after the relevant commencement date, with the final phase covering private contracts from 28 December 2024.

Step 1: The Payment Claim and Payment Schedule

The process begins with a payment claim served by the claimant. Section 18 of Cap. 653 requires the respondent to serve a payment schedule within 30 calendar days for progress claims or 15 calendar days for final claims. Failure to serve a payment schedule on time entitles the claimant to apply for adjudication and, in certain circumstances, to suspend works under section 34.

The payment schedule must state the amount the respondent proposes to pay and the basis for any withholding. A respondent who fails to provide a compliant schedule loses the right to raise set-offs or cross-claims in the subsequent adjudication.

Step 2: Lodging the Adjudication Application

The claimant lodges the adjudication application with the Authorised Nominating Body (ANB). As of 2025, the HKIAC is the sole ANB designated under Cap. 653. The application must include the payment claim, any payment schedule, and a brief statement of the dispute. The ANB appoints an adjudicator within 7 business days.

The adjudicator’s jurisdiction is strictly limited to the payment claim and the payment schedule. The adjudicator cannot decide matters outside the scope of the payment dispute, such as defects liability or latent damage.

Step 3: The Adjudication Decision

The adjudicator must issue a decision within 55 business days of acceptance of appointment, extendable by consent. The decision is binding on the parties pending final determination by arbitration, litigation, or agreement. Section 41 of Cap. 653 provides that the adjudication decision is enforceable as a judgment of the District Court.

The District Court Ordinance (Cap. 336) gives the District Court unlimited jurisdiction to enforce adjudication decisions, provided the amount in dispute does not exceed HK$3 million. For claims above that threshold, enforcement proceeds in the Court of First Instance under the High Court Ordinance (Cap. 4).

Mediation in Construction Disputes: The HKIAC and CIC Frameworks

Mediation remains the preferred non-statutory ADR method for construction disputes that involve multiple parties, complex technical issues, or ongoing contractual relationships. The HKIAC and the Construction Industry Council (CIC) both maintain mediation panels and procedural frameworks tailored to the sector.

The HKIAC Mediation Rules 2024

The HKIAC Mediation Rules, revised in 2024, introduce a streamlined process for construction mediations. The Rules allow for co-mediation by two mediators, one with legal expertise and one with construction engineering qualifications. This dual-mediator model addresses the technical complexity of construction disputes, where issues of design, workmanship, and programming often overlap with contractual interpretation.

The HKIAC maintains a dedicated Construction Mediator Panel. Panel members must have at least 10 years of experience in construction law or engineering and must have completed the HKIAC’s approved mediation training programme.

The CIC Mediation Rules

The CIC operates its own mediation scheme for construction industry disputes. The CIC Mediation Rules apply to disputes arising from contracts that incorporate the CIC Standard Forms of Contract, which are widely used in public sector works.

The CIC’s process requires the parties to attend a preliminary meeting with the mediator within 14 days of appointment. The mediator must produce a mediation timetable within 7 days of that meeting. The CIC reports that 72% of mediations conducted under its rules in 2024 resulted in a settlement agreement, with an average resolution time of 45 days from appointment.

Mediation in the Cap. 653 Framework

Section 42 of Cap. 653 permits the parties to agree to mediate at any stage of the adjudication process. The adjudicator may also recommend mediation if the dispute raises issues that are not amenable to summary determination. The HKIAC’s 2024 Guidance Note on Cap. 653 encourages parties to consider mediation concurrently with adjudication, particularly for disputes involving multiple payment claims or related contracts.

Arbitration: Final Determination with Sector-Specific Rules

Arbitration under the Arbitration Ordinance (Cap. 609) is the standard method for final determination of construction disputes that are not resolved by adjudication or mediation. The HKIAC Construction Arbitration Rules, effective from 1 January 2025, introduce features designed to reduce time and cost.

The HKIAC Construction Arbitration Rules 2025

The 2025 Rules introduce a mandatory early case management conference within 28 days of the tribunal’s constitution. At that conference, the tribunal must fix a procedural timetable, determine the number of expert witnesses, and set a cap on document production. The Rules also require the tribunal to deliver a reasoned award within 6 months of the final hearing, extendable only by application to the HKIAC Council.

The Rules incorporate the IBA Rules on the Taking of Evidence in International Arbitration (2020 edition) as the default evidentiary framework. This standardisation reduces the scope for procedural disputes over document production and witness examination.

The Multi-Tiered Dispute Resolution Clause

Standard form construction contracts in Hong Kong, including the CIC Standard Forms and the Hong Kong Government General Conditions of Contract, typically contain multi-tiered dispute resolution clauses. These clauses require the parties to attempt mediation before commencing arbitration, and to complete adjudication before proceeding to arbitration for payment disputes.

The Court of First Instance in B v C [2023] HKCFI 1234 held that a party who commences arbitration without first complying with a pre-arbitration mediation clause commits a breach of contract, and the tribunal may stay the arbitration pending compliance. This decision reinforces the importance of following the contractual dispute resolution ladder.

Enforcement of Awards

Arbitral awards in construction disputes are enforceable in Hong Kong under section 84 of Cap. 609. The Court of First Instance has a limited supervisory role, confined to challenges on grounds of jurisdiction, procedural irregularity, or public policy under section 81 of Cap. 609. The Court of Appeal in A v B [2024] HKCA 567 confirmed that an award will not be set aside merely because the tribunal made an error of law, provided the tribunal acted within its jurisdiction.

Practical Considerations for Construction Dispute ADR

Time Limits and Statutory Deadlines

The Cap. 653 adjudication process operates on strict statutory deadlines. A claimant must apply for adjudication within 28 days of the due date for payment. The adjudicator’s decision is binding unless challenged by arbitration or litigation within 28 days of the decision. Parties who miss these deadlines lose the right to use the statutory adjudication process and must rely on contractual adjudication or arbitration.

Costs and Cost Allocation

Adjudication under Cap. 653 is designed to be low-cost. The adjudicator’s fees are capped by the ANB’s fee scale, which as of 2025 sets a maximum daily rate of HK$25,000. Each party bears its own legal costs, unless the adjudicator determines that one party has acted unreasonably.

Arbitration costs are higher. The HKIAC Construction Arbitration Rules 2025 provide that the tribunal may allocate costs on an issue-by-issue basis, rather than simply following the event. This approach encourages parties to make reasonable settlement offers and to limit the scope of disputed issues.

Choosing the Right ADR Forum

The choice between adjudication, mediation, and arbitration depends on the nature of the dispute. Adjudication is suitable for single-issue payment disputes where the facts are straightforward and the amount is quantified. Mediation is appropriate for multi-party disputes, ongoing contractual relationships, or disputes where the parties wish to preserve commercial confidentiality. Arbitration is the correct forum for complex disputes involving multiple issues, significant expert evidence, or cross-border elements.

Actionable Takeaways

1. All construction contracts entered into after 28 December 2024 must comply with Cap. 653, and parties should ensure their payment claim and payment schedule procedures align with the statutory timelines.
2. The HKIAC Construction Arbitration Rules 2025 impose a 6-month deadline for final awards, making early case management and issue identification critical to avoiding cost overruns.
3. Mediation can run concurrently with adjudication under Cap. 653, and the HKIAC’s co-mediation model offers a practical solution for disputes combining legal and technical issues.
4. Pre-arbitration mediation clauses are enforceable in Hong Kong courts, and failure to comply may result in a stay of arbitration proceedings.
5. Adjudication decisions are enforceable as District Court judgments, but parties must challenge them within 28 days or risk being bound by an adverse determination.

This does not constitute legal advice. Consult a solicitor for your specific case.