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Breathing Space in Commercial Contracts the Midst of the Pandemic: Online Dispute Resolution in Hong

Updated: Nov 26, 2020

In recent weeks, legal and economic thinkers have been considering the impact of the pandemic on contractual relations.  This was the focus of a recent meeting hosted by the British Institute of International and Comparative Law on 7 April 2020, resulting in a Concept Note. As a starting point, if strict enforcement of default clauses becomes the norm, the result may be “a deluge of litigation and arbitration placing a strain on the system of international dispute resolution, and reducing the prospect of more constructive solutions” (BIICL).  It is for this reason that some jurisdictions have introduced the concept of “breathing space” “offering temporary relief to specified businesses and individuals unable to fulfil their contractual obligations because of COVID-19″ (BIICL).  Included in this concept of breathing space is the encouragement of conciliation to facilitate “the continuance of a viable contract rather than bringing it to an immediate end” and equitable readjustment of relations “so that the one will not be unintentionally enriched at the expense of the other” (BIICL).

The Concept Note concludes that in the current emergency, it is necessary to have robust consultation on “the necessary contribution of the law to safeguard commercial activity, minimise disruption to supply chains, and ameliorate the adverse effects of a “plethora of defaults”, by encouraging a legal environment which is conducive to optimism and a global recovery.”

In a similar spirit, Hong Kong has introduced a new Covid-19 Online Dispute Resolution Scheme due to be launched in June 2020.  Under this scheme covering COVID-19 disputes for claims up to HK$500,000, parties pay a HK200 registration fee, then proceed through a multi-tiered dispute resolution framework:

  1. first, the parties will attempt to negotiate their disputes;

  2. if negotiations are not successful, the parties will then attempt mediation; and

  3. if mediation does not successfully result in settlement, the parties can then proceed to arbitration for a final and binding award.

Given the dynamic and evolving nature of the current crisis, dispute resolution mechanisms will likewise need to evolve to meet current needs.

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