Exactly one year ago in my Message titled “20th Anniversary of SHRs” in the January 2017 issue of Hong Kong Lawyer, I wrote about the obsolete solicitors’ hourly rates for party and party taxation in civil proceedings (“SHRs”). The SHRs were last reviewed in 1997 and had remained static since then for 20 years.
I am pleased to return to the same topic in my January 2018 Message, with good news.
The Law Society’s effort over the past years in urging the Judiciary to update the obsolete SHRs has come to fruition. The Judiciary has revised the SHRs with effect from 1 January 2018.
At the conclusion of a court case, the court will normally award costs to the winning party. “Taxation of costs” by a taxing master will be required if the litigating parties cannot reach agreement on the quantum of costs. SHRs are set for the purpose of taxation of costs on a party and party basis. They do not affect what the clients have agreed to pay to their own solicitors in accordance with their retainers. However, the ramifications of applying obsolete SHRs are far-reaching. They have adverse impact on the interests of successful litigants, access to justice and the status of Hong Kong as an international dispute resolution centre.
Prior to the revision of the SHRs, the difference between the SHRs and the market rates could range from 15% to as much as 50%. What a successful litigant recovered from the losing party under a costs order, pursuant to the principle of “loser pays”, had become substantially insufficient to cover what he actually paid his solicitors. The widening recoverability gap had eroded the principle of “loser pays” and diminished the attractiveness of Hong Kong as an international dispute resolution centre.
Hong Kong prides itself in having a robust, efficient and fair legal system. Public confidence in the legal system is built through various factors including, importantly, an expectation that there is an effective mechanism to recover reasonable costs on the success of a meritorious claim. A wide recoverability gap effectively penalises those who have faith in our legal system and choose to initiate proceedings here. If this anomaly becomes the norm, people will be discouraged to exercise their rights to seek justice by initiating court proceedings and eventually forced to settle with the counterparty on unfavourable terms even if they have a strong case. This would result in a denial of access to justice to individuals and corporations of different economic capacities.
The Law Society considered it important that the root of these problems be resolved urgently. We had therefore tirelessly raised concerns about the outdated SHRs with the Judiciary. The Law Society also commissioned an independent consultancy report in 2013 (“2013 Report”) to study the level of adjustments that should be made to the SHRs to reflect changes in the market conditions.
On the basis of the 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. We had monitored closely the work progress of the Judiciary’s Working Party and urged it to progress the review expeditiously. We also reflected members’ comments on the review to the Working Party. For instance, we recently shared with the Working Party members’ observation on the faulty design of the questionnaire in the survey conducted by the Working Party and the suitability of the survey consultant.
The Judiciary concluded its review at the end of 2017 and the revised SHRs came into effect on 1 January 2018. The adjustments made by the Judiciary are close to the level recommended in the 2013 Report. However, those rates in the 2013 Report were rates recommended in 2013, which was five years ago. Nevertheless, it is still a step forward. There is a substantial increment to the 1997 SHRs and our efforts have not been wasted.
The table below shows a comparison of the previous SHRs, the recommended rates in the 2013 Report and the new SHRs for the High Court and the District Court:
Going forward, the Law Society will closely monitor the implementation of a regular review mechanism of SHRs. Never do we wish to see another 20th anniversary of SHRs!
Further, the Law Society is looking at other fixed costs that need to be reviewed and updated. One of them is the fixed costs for matrimonial causes under the District Court (Fixed Costs in Matrimonial Causes) Rules. The last review of these fixed costs was 17 years ago in 2000. It is time for an update. We will follow up with the Judiciary on the progress of the review.
As we step into 2018, may I take this opportunity to wish all readers a healthy and prosperous year ahead!