20th Anniversary of SHRs

The review of the obsolete solicitors’ hourly rates for party and party taxation in civil proceedings (“SHRs”) has been the topic of the “President’s Message” in previous issues. Since 2013, my predecessors have been reiterating our concerns about the widening gap resulting from the growing divergence between the SHRs and the market rates. The progress in addressing our concerns has been disappointing and I feel duty- bound to highlight the urgency of the matter yet again.

To examine the appropriateness of the SHRs, which have remained static since 1997, the Law Society commissioned an independent consultancy report in 2013 (“2013 Report”) to study the level of adjustments that should be made to SHRs to reflect changes in the market conditions. Based on the survey results, the 2013 Report concluded that the normal hourly rate reflecting the normal market conditions should on average be 55 percent above the existing SHRs. Further, it recommended that the revised SHRs should be adjusted annually according to an inflation-linked index and be subject to more substantial reviews on a periodic basis to realign it to the prevailing normal average hourly rates in the market.

On the basis of the above findings of the 2013 Report, the Law Society urged the Judiciary to review and update the SHRs. The Judiciary responded by setting up a Working Party in January 2014. After nearly one and a half years in April 2015, the Judiciary reported to the Legislative Council (“LegCo”) that the Working Party had decided to conduct a consultancy study by a two-stage approach – the first stage by an independent consultant on the methodology to be used for the review and the second stage by another independent consultant on the calculation of the SHRs based on the approved methodology. The Judiciary advised LegCo that the first stage was expected to finish by mid 2015 and the second stage by the end of 2015 or early 2016. It is now 2017, but it is disappointing to note that not even the first stage of the consultancy has been completed.

As we have submitted time and again, the legal service market has undergone a lot of changes since 1997. The increasing competition from other providers in the market, the growing demand for quality and specialised legal services resulting from intensifying regulatory changes in different sectors, and the rising labour costs and overheads all operate to shape the cost of the legal services. The market thus already operates efficiently to reflect the costs of production with an appropriate margin to encourage participation in the market. The SHRs should be set as close to the actual prevailing average market rates as possible without seeking to use arbitrary ways to adjust SHRs downwards.

If legal costs recovery is artificially controlled to the extent that an unreasonably wide recoverability gap (ie, the difference between what a successful litigant has actually paid to his lawyer, and what he can recover from the other party under a costs order) is created, it will discourage victims from exercising their rights to seek justice by initiating legal proceedings. Some may be forced to settle on unfavourable terms even if they have a meritorious claim because they anticipate that they will not be able to recover their reasonable costs owing to the wide recoverability gap. This effectively results in a denial of access to justice.

Further, Hong Kong’s reputation as an international financial centre equipped with a robust, efficient and fair legal system will be adversely affected if there is not even an effective mechanism to enable parties in a dispute to recover reasonable costs on the success of a meritorious claim. If those who have faith in Hong Kong’s legal system and choose to initiate proceedings here end up being penalised by an “empty costs order” even when they succeed in their claims, Hong Kong can hardly remain competitive as a preferred venue choice for international dispute resolution.

Nearly four years have elapsed since the Law Society commissioned the 2013 Report. Further, it is already the 20th anniversary of the SHRs. I urge the Judiciary to expedite its review of the SHRs which is too long overdue!

Jurisdictions: 

President, The Law Society of Hong Kong