Introduction

The long-awaited increase in the guideline solicitors' hourly rates (SHRs) adopted for party and party taxation in civil proceedings was announced towards the end of 2017. The new rates came into effect on January 1 2018 and should serve to narrow the gap between successful litigants' incurred and recoverable costs.

Background

The general rule in civil proceedings in Hong Kong is that "costs follow the event". Put another way, at trial the courts will normally order the losing party to pay the winner's costs. In theory, this ensures that parties which are forced to incur costs in protecting their position are not left out of pocket as a result. Where parties cannot agree on the amount of such costs, an assessment or 'taxation' exercise is conducted by a taxing master usually on a 'party and party' basis. This means that the winning party is entitled to recover such costs as are necessary for the attainment of justice or for enforcing or defending its rights.(1)

Taxation is carried out in part by reference to guideline SHRs. These are generally used to determine the hourly rates applied in calculating the amount of solicitors' fees that can be recovered by the winning party.

The SHRs were last revised in 1997, while hourly rates charged by solicitors' firms have, unsurprisingly, increased in line with inflation and broader changes to the legal services industry. The result has been an increasingly wide margin between what successful parties pay their solicitors and what they recover from their opponents.

Proposals for reform

In view of this, various stakeholders (including the Law Society of Hong Kong) have for some time been arguing that the outdated SHRs should be revised to reflect the current actual cost to civil litigants. As part of its efforts, in 2013 the Law Society commissioned KPMG to produce an independent consultancy report which considered the changes that would need to be made to bring the SHRs in line with prevailing market rates charged by law firms in Hong Kong.

The Law Society's commissioned report concluded that normal hourly rates should be increased by an average 55%. It also recommended the introduction of additional rate bands for solicitors with 15 years' or more post-qualification experience (PQE) and for those between nine and 14 years' PQE, given that previously there was a gap between the seven to eight years and the 10 years-plus bands.

Latest developments

These developments prompted the chief justice to form a working party in 2014. In short, the working party's review culminated in a decision by the judiciary in early December 2017 (sooner than many expected). The new SHRs took effect on January 1 2018 for all work done from that date.

For ease of reference, the following table sets out the new rates for the High Court and District Court, and a comparison with the previously applicable SHRs.(2)

PQE (years)

Previous rate – High Court (HK$)

New rate – High Court (HK$)

Previous rate – District Court (HK$)

New rate – District Court (HK$)

Over 15

N/A

5,800

N/A

3,860

Nine to 15 (previously over 10 years)

3,200-4,000

5,200

2,100-2,600

3,460

Seven to eight

2,900-3,500

4,500

1,900-2,300

3,000

Five to six

2,400-3,000

3,900

1,600-2,000

2,600

Two to four

2,000-2,500

3,200

1,350-1,650

2,130

Newly qualified

1,600-2000

2,600

1,066-1,280

1,730

Trainee

1,066-1,300

1,700

700-860

1,130

Litigation clerk

800-1,000

1,300

533-660

860

Law costs draftsman

1,600

1,800

1,600

1,800

Compared to the previous rates, the new SHRs represent an average increase of around 44% on solicitor and litigation clerk rates and 12.5% on law costs draftsman rates.

Comment

Hong Kong's reputation as a premier dispute resolution centre risked being undermined by the increasing gap between the costs that a successful party paid its lawyers and the costs that could be recovered from the other party. This raised concerns relating to access to justice and parties' ability to protect their full legal rights.

The increasing 'recoverability gap' also undermined the principle that, subject to the discretion of the courts, "costs follow the event" at trial (the amount of such costs to be assessed by the court, if not agreed between the parties).

Therefore, the revision to the SHRs will be welcome news for potential litigants with meritorious claims or defences. Insurers should also take note.

That said, the new rates are based on proposals made in 2013 and, as such, in many instances they may not reflect the most up to date market conditions, albeit they do represent a significant increase.(3)

While the changes mean that litigation will likely become more expensive for losing parties, the prospect of paying a greater proportion of an opponent's costs should have the advantage of focusing the parties' attention on the merits of their case and should, when appropriate, encourage earlier settlement.

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.

For further information on this topic please contact David Smyth or Hannah Fletcher at RPC by telephone (+852 2216 7000) or email (david.smyth@rpc.com.hk or hannah.fletcher@rpc.com.hk). The RPC website can be accessed at www.rpc.co.uk.

Endnotes

(1) High Court Rules and District Court Rules, Order 62, Rule 28(2).

(2) Readers should check primary sources and check with their lawyers where appropriate.

(3) The next review will be in four years' time.