Ian Cocking

Cocking & Co

Hong Kong www.cockingco.com

ian.cocking@cockingco.com Tel: +852 2123 0388

Biography

Ian is a partner of Cocking & Co, which was established in 2019 as an independent law firm specialising in construction. Founded with long-time colleagues, partners Dennis Wong and Gilbert Kwok, the firm handles construction and infrastructure projects in Hong Kong and also represents Chinese contractors internationally. Ian is recognised as one of the leading legal advisers to the industry, with over 30 years’ experience. He is an accredited mediator and adjudicator.

What are security of payment (SOP) provisions and how are they being introduced in the Hong Kong construction industry?

SOP is a new initiative for Hong Kong, which aims to facilitate timely contractual payments. The Development Bureau of Hong Kong issued a Technical Circular (Works) No. 6/2021 on 5th October 2021 to incorporate mandatory SOP conditions into all new public works contracts and subcontracts.

How can the construction industry players prepare themselves for the introduction of the SOP provisions?

Contractors should prepare to incorporate the Mandatory Subcontract Conditions and the SOP Provisions into their subcontracts. Subcontractors should do likewise down the subcontract chain. The contractors/ subcontractors should also seek legal advice to review their own subcontracts to ensure that they are in line with the SOP provisions, e.g. conditional payment provisions (pay-when-paid) are no longer enforceable.

What is adjudication and what are its advantages?

Adjudication is a simple and expeditious method for resolving payment disputes. It is commonly associated with construction disputes and adopts a “pay now, argue later” approach aimed at improving the cash-flow situation among subcontractors, consultants and suppliers. An adjudication decision is binding pending referral of the matter to arbitration or court.

Under the SOP provisions, the direct payment mechanism entitles a subcontractor of any tier to request Government (Employer) to make direct payment for any unpaid adjudicated amount (in lieu of seeking the Court’s assistance). How do you anticipate it will work in practice?

The direct payment mechanism depends upon successful incorporation of the Mandatory Subcontract Conditions and the SOP provisions in all relevant subcontracts. Under the government’s Special Conditions of Contract, the subcontracting of a part of the works by the main contractor is limited to two tiers of subcontracting.

Main contractors must check and advise the government with documentary proof on whether a subcontractor claimant has been satisfied with any payment made by the subcontract respondent or whether any subcontractor at higher tiers to the subcontract claimant has become bankrupt etc. This may increase the administrative burden for main contractors.

In your view, should adjudication cover payment disputes involving extension of time (EOT) for completion of works?

There has been some controversy as to whether the scope of adjudication should extend to EOT awards and time-related payment issues. Presently, the proposal is that an adjudicator shall have the power and jurisdiction to decide time-related costs forming part of the payment dispute. In deciding the amount of time-related costs, the adjudicator shall have the power and jurisdiction to decide a party’s EOT entitlement. An adjudication decision on the timerelated costs is binding and enforceable on an interim basis, but a decision on EOT is not binding. However, the HKCA has expressed views that decisions on both time-related costs and EOT should be binding. In my view, it is preferrable and more convenient for the parties if adjudication covered both.

How would adjudication decisions be enforced?

Enforcement by a subcontractor of an adjudication decision will rest on direct payment by the employer. This depends upon an unbroken chain of contracts incorporating the SOP provisions. If direct payment is not made for any reason, a subcontractor will have to rely upon the pressure it can bring to bear on the defaulting party by exercising a contractual right to suspend/ slow down its works. The subcontractor will not be liable for any loss and damages suffered by others, and will be entitled to EOT and prolongation costs as a result of the suspension. However, the rest of the supply chain will be left to deal with the consequences. What are the implications of the Occupational Safety and Occupational Health Legislation (Miscellaneous Amendments) Bill 2022?

The Hong Kong Government published the bill in the Gazette on 13th May 2022. The bill is aimed at providing better protection of workers’ occupational safety and health, and proposes to increase the penalties and extend the time limit for prosecution for offences committed by proprietors of industrial undertakings, employers, or occupiers of premises.

It is unclear whether the increased penalties will have the intended deterrent effect and lead to fewer industrial accidents. Among the many implications, the pegging of the maximum fines to business turnovers would lead to higher operational costs and an increase in insurance premiums. If enacted, the legislation will significantly impact the operations of all contractors.

What is the impact of the Maeda Corporation v Bauer Hong Kong Limited [2020] HKCA 830 decision in drafting and negotiating future construction contracts?

In drafting and negotiating future construction contracts, it is likely that fresh consideration should be given as to whether to include the right of appeal in Schedule 2 of the Arbitration Ordinance.

This will not be the only unintended consequence. The decision advocates strict adherence to notice provisions. Paying parties are likely to concoct ever more ferocious conditions precedent to entitlement. In a situation like Bauer’s where a subcontractor has a “like rights” entitlement, this may backfire as the main contractor may not be able to recover the subcontractor’s share where the employer can show that the subcontractor’s notice is defective.

Parties claiming payment will be compelled to fire off more notices and to cover every eventuality, effectively defeating the purpose of providing a real notice. This will further fuel the vicious circle that leads to disputes.

The decision is a further indication of the trend towards applying a literal rather than purposive interpretation to contract terms.

WWL says: Ian Cocking receives a plethora of endorsements from peers, who herald him as “a leading construction practitioner in Hong Kong who brings a gravitas few can match”.