Archive: September 13, 2016

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Proposed Security of Payment Legislation in Hong Kong

Proposed Security of Payment Legislation in Hong Kong

By Sacha M. Cheong and Dominic C. Lau, K&L Gates, Hong Kong

A prominent feature of the construction industry is its pyramid structure with long chains of contracts and sub-contracts from developers down to small sub-contractors and suppliers.

The inclusion of conditional payment terms (favorable to the paying party), frequent disputes at all stages of the projects, and cumbersome dispute resolution processes can often result in substantial delay in payments to the smaller sub-contractors and suppliers. On the one hand, these sub-contractors and suppliers are usually dependent on the parties higher up in the contracting hierarchy for new work, and they often lack the financial means and resources to engage in protracted disputes. On the other hand, delayed or nonpayment could adversely affect their cash flow, resulting in difficulties in ordering and securing goods and services, paying employee wages, and sometimes even the suspension of work.

To address these problems, the United Kingdom pioneered the statutory adjudication scheme for security of payment in 1996, which has since been followed (with slight variations) by several other countries, including Australia, New Zealand, Singapore, and Malaysia.

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