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Winning litigants left counting the cost

By Alex Liu

Hong Kong, 28 June 2022: Access to justice is a pillar of any legal system and cost is a significant factor. When faced with a civil dispute, litigants need to consider not only the strength of their case but also the potential legal costs and how much of these can be recovered if successful.

In Hong Kong, costs are calculated according to the Solicitors’ Hourly Rates (SHRs), which are set by the Judiciary and subject to review every four years. The prevailing SHRs are invariably lower than the actual rates charged by law firms – who have their own overheads to consider – which means winning litigants typically face a shortfall in the costs they can recover.

So it is understandable that solicitors and law firms have expressed disappointment with the Judiciary’s recent decision to maintain SHRs at their current level until the next review. There is a feeling this arrangement will exacerbate the disproportionate “recovery gap” which, in some instances, deters people from pursuing a claim no matter how meritorious it may be.

Background

Following a civil court case, the successful party is usually awarded costs. However, if the parties are unable to agree on the amount, there is taxation of costs by a taxing master to determine the figure. Typically, costs are taxed on a “party and party” basis, meaning costs which are “necessary or proper for the attainment of justice or for enforcing or defending the rights of the party whose costs are being taxed” can be recovered by the successful party.

The SHRs serve only as guidance and are not binding, but taxing masters rarely depart from them. A successful litigant can usually expect to get back between 60% and 75% of actual costs from the other party.

Stagnation

After being revised by the Registrar of the High Court in 1997, SHRs went unchanged for many years. In 2013, the Law Society of Hong Kong commissioned accounting giants KPMG to review SHRs. The resulting report recommended that SHRs be increased on average by 55% to better reflect the normal rates charged by law firms and that additional bands be introduced for work done by senior solicitors. It further recommended the rates be adjusted annually in line with inflation.

In response, the Judiciary appointed a working party which took almost four years to conduct its own review. As a result, SHRs were increased in January 2018 by an average of more than 40% and two additional bands of seniority of solicitors were introduced. Further, the working party recommended SHRs should be updated every four years by an internal group of the Judiciary. Hence the 2022 review, which has ended with the Judiciary deciding SHRs should remain unchanged. The Law Society has written to the Judiciary expressing its disagreement with this outcome.

Comment

The current SHRs do not reflect real hourly rates and maintaining their present level until the next review will only increase the recovery gap. By the time the next review is due – most likely around the end of 2025 – we will be in the unsatisfactory position of SHRs having increased just once in almost three decades.

The widening recovery gap could see successful parties settling cases in less favourable terms simply to save costs. Once costs become a factor in determining a party’s actions, then access to justice is compromised. Effectively, we currently have a system which punishes a deserving plaintiff and gives defendants ample reason to fight. Further, looking at the bigger picture, Hong Kong’s status as an international dispute resolution centre may also be adversely affected.

A Partner in BC&C since 2000, Alex Liu’s key areas of practice include commercial and corporate litigation, investigations by governmental bodies such as the SFC, ICAC and Commercial Crime Bureau, insolvency and debt restructuring, intellectual property, defamation, property and commercial contract drafting. He can be contacted at alex@boasecohencollins.com.

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