Court decisions on building contract disputes: a Coasian empirical analysis

This thesis is an economic analysis of court decisions on building contract disputes in Hong Kong. The analysis was informed by a thesis based on the corollary of the Coase Theorem as developed by Lai, Lai and Hung (2008), and Lai, Ng and Yung (2008) that "under the condition of positive transaction costs, the allocation of legal entitlement will be affected by the pattern of the law" and the principle that "the law would assume certain the pattern that seeks to reduce transaction costs." It aims to evaluate the applicability of this thesis to the analysis of legal disputes on building contracts. The research question is whether under the conditions of positive transaction costs and/or poorly defined legal entitlements, the pattern of court decisions will be solely affected by the pattern of law (i.e., established legal principles and precedents) or any other objective factors. To address this question, four hypotheses were established and 145 sets of disaggregate data (facts identified from reported court decisions) were tested by a probit model. The hypotheses tested whether court decisions will be affected by inherent factors of the disputes namely the rank of the disputants in the hierarchy of sub-contracting, the legal question in the dispute, the existence of counterclaims and the seniority of the counsel representing the litigants. The test results showed that court decisions favour a party on the lower tier of the subcontracting hierarchy and the plaintiff on a question of fact.