Finally, some security for payment in Hong Kong

By Steven Yip and Samuel Cho

The long-awaited legislation proposed for security of payment will shortly see the light of day. It has been the subject of a decade-long debate since the Tang Report was first published in 2001, which highlighted the problems associated with payment disputes in the construction industry in Hong Kong and recommended that ‘consideration should be given to… enacting security of payment legislation’. The public consultation process for the proposed legislation was originally due to take place some months ago. The signs are that this will now commence very soon, and the much anticipated legislation will hopefully come into effect as early as 2016. This article considers some of the key provisions of the proposed legislation.

The proposed legislation will apply to construction activities carried out in Hong Kong. It will also apply to construction activities performed outside of Hong Kong provided the work products are finally delivered to, and incorporated into, a project in Hong Kong. Importantly, the proposed legislation will apply to construction activities regardless of whether the parties make their contract orally or in writing. Conditional payment provisions such as ‘pay when paid’ will be prohibited and have no effect.

Some construction contracts will be excluded from the scope of the proposed legislation. For example, construction contracts entered into with residential occupiers as counterparties with a contract value of less than HKD5m (£380,000), or less than HKD500,000 for professional services or supply-only contracts, will be excluded from the scope. Employment, insurance, guarantee and investment contracts will also be excluded…

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