Hong Kong: Reform Of Civil Procedure In Hong Kong
The Current State Of Play, And The Likely Impact On Insurers

The reform of civil procedure in Hong Kong is gathering momentum. The Interim Report and Consultative Paper of the Chief Justice’s Working Party on Civil Justice Reform was published on 29 November 2001. The Law Society’s Working Party on Civil Justice Reform released its own report and commentary in April 2002, and the Hong Kong Bar Association released its Response on 28 June 2002. Divergent approaches to the appropriate method of reform are now apparent, although there appears to be consensus on the need to take action to make Hong Kong’s civil justice system more user-friendly and efficient, and less expensive. Insurers, as wholesale users of the civil justice system, have a real interest in the outcome of the reform process.

In its report, the Chief Justice’s Working Party signalled that it was largely in favour of the wholesale adoption of the Civil Procedure Rules (CPR), widely known as the ‘Woolf Reforms’, which have been in effect in England and Wales since April 1999. These would, in effect, replace Hong Kong’s current civil procedure rules with an entirely new procedural regime. The Law Society Working Party and the Bar Association Working Party, approaching the issue from different directions, have both concluded that a more selective approach to reform is preferable – essentially, to "cherry-pick" the best aspects of the available options.

The principal defects in the current regime, as identified in the Chief Justice’s report, are that civil litigation in Hong Kong is:

• too expensive
• too slow
• too complex
• unequal

There was also concern expressed about the large and rising number of litigants before the Hong Kong courts who were not legally represented.

These are almost the same criticisms highlighted by the Woolf Report in England and which indeed have been raised elsewhere.

A point which is emphasised on the issue of cost is not simply that litigation is too costly across the board, but that costs are frequently disproportionate to the amount of money involved. Similarly, there are too many procedural hurdles in what should be relatively straight-forward matters.

The Working Party examined the reasons for these problems, and ultimately placed most of the blame on the Rules of Court and on solicitors’ conduct of proceedings. The Working Party concluded that Counsel’s fees in Hong Kong are not particularly excessive, compared to other jurisdictions, but did not deal with that point in any detail. There was also relatively little consideration of the role of the judiciary in the manner in which civil proceedings are currently conducted.

A number of options for reform taken from other jurisdictions were reviewed, but the major emphasis of the report is on the implementation of the Woolf Reforms. This is probably not surprising, given that Hong Kong’s High Court Rules were, prior to the introduction of CPR, almost identical to the English Rules. Further, Hong Kong’s legal profession has traditionally included a high proportion of lawyers trained in England. It is therefore logical that Hong Kong would look very closely at reforms adopted in England with a view to following suit, and thus be able to benefit from the accumulated experience of CPR in England. While it is not suggested that the Working Party paid inadequate attention to other options, it is clear from the report that Woolf Reforms were the preferred option. One reason for this may simply be cost; for example, the "docket" system which was adopted in some States in the US, whereby a judge is assigned a case from the outset and has the conduct of it from then on, would inevitably require an expansion in the number of judges, and would probably entail further training of current judges.

The Woolf Reforms are therefore the framework that was adopted in the Working Party’s report, and it is reasonable to assume that any discussion of the reform of civil procedure is really a question of whether or not the CPR should be adopted, and if so, whether they should be adopted in their entirety or selectively.

The CPR embraced as an overriding objective the principle that cases should be dealt with justly and in such a way as to save expense. It was thought essential to ensure that the costs of the case were proportional to the amount of money involved and the complexity of the case itself, to deal with each case expeditiously and fairly and to balance the needs of the case against the other cases requiring the Courts’ resources. The CPR were drafted to embody these objectives and a comprehensive case management system was adopted (as distinct from the ad hoc case management that took place prior to the reforms and which takes place in Hong Kong now).

As practitioners in England and Wales will readily acknowledge, the manner in which civil litigation is conducted under CPR is radically different than under previous rules. Without attempting to provide an exhaustive rundown of the CPR’s new features, some of the aspects of the CPR that would affect insurers and their legal advisors, if adopted in Hong Kong, are as follows.

Case management involves the Court taking an increasingly proactive role in the manner in which the proceedings are conducted, rather than leaving it in the hands of parties or their lawyers. In theory, it would mean that at an early stage in the proceedings, the Court would take charge of the direction of the case, and then supervise the parties and progress of the case. This ought to mean far less scope for delaying tactics, unnecessary applications, and prevent parties from pursuing marginal or pointless issues. From the point of view of an insurer defending an action on behalf of its insured, comprehensive case management ought to have the beneficial effect of cutting down the costs of both parties. There ought to be, of course, also less scope for delay. It is a well-known tactic adopted by Defendants to seek to delay the proceedings in the hope that the Plaintiff will be dissuaded from proceeding or will be sufficiently discouraged to settle on more favourable terms.

The effect of the CPR’s pre-action protocols is to require parties to, in effect, prepare their case fully before commencing proceedings, and to provide the other side with enough information to make a reasoned decision on whether or not to contest the case. Under the CPR, there are different protocols for different areas of practice, tailored to the specific requirements of each area. Hong Kong has already had limited exposure to a regime similar to this. The best known example is the Practice Direction PD 18.1 for personal injuries actions, which came into effect on 19 February 2001. This very comprehensive Practice Direction effectively re-defined the whole procedure for commencing and pursuing personal injuries actions. Experience suggests that insurers have benefited from the fact that the Plaintiffs are required to furnish more information in relation to their claims, with the result that claims can be settled (or at least liability can be established) at a relatively early stage. The downside to this approach is the fact the claim is "front-end loaded" ie the costs incurred prior to commencing proceedings are noticeably higher than cases where no pre-action protocols apply.

The CPR goes much further than this, of course, by also requiring parties to be far more specific when pleading cases, and by requiring parties to verify pleadings with a "statement of truth". The purpose behind these rules is to prevent parties from obfuscating. Again, from an insurers’ point of view, the advantage is that less costs would be incurred in unnecessary points, and that the avenues for delaying a claim (by, for example, raising numerous alternative arguments to defend the claim) are greatly reduced.

The CPR has had a major effect on the discovery stage of litigation. At present, the obligations in relation to disclosure in Hong Kong are very broad, and in many cases involve considerable time and expense in searching for, collating and listing documents, the large majority of which are of marginal or even no real relevance to the case. The CPR provisions in relation to discovery limit disclosure to a much narrower range of documents. The CPR also make it clear that the scope of discovery will depend on the complexity and the value of the claim. If these measures are adopted in Hong Kong, the position again would be that the scope for dragging out proceedings by pursuing requests for disclosure is greatly reduced. Conversely, however, it may also be more difficult to compel a party to discover documents that are likely to lead on a chain of enquiry to further documents, perhaps thereby limiting the scope for attacking its case. The reduced ambit of discovery and the corresponding reduction in a number of documents together with the time spent dealing with discovery, will usually mean less costs for the insurers to shoulder.

The CPR introduced a new regime governing settlement offers. Currently, only a Defendant has the option of making a payment into Court, thereby putting the Plaintiff at risk for costs. This is an effective (although perhaps under-utilised) tactic available to Defendants.

Under the CPR the Plaintiff is also able to make an offer to settle. If this offer is not accepted, and is eventually bettered by the Plaintiff, then the Court could award much higher levels of costs, and punitive interest, against the Defendant. Obviously, this could put greater pressure on insurers to settle claims earlier, especially if such an offer is made before proceedings are commenced.

The principles governing payments into Court by Defendants were not substantively altered by the CPR.

Herbert Smith has probably the widest experience of litigating under the CPR. Our main conclusions, after three years of the new system, can be summarised as follows:

• case management by the courts can lead to unexpected and unfair results, which are very difficult to appeal;
• the pre-action protocols, coupled with Plaintiff’s offers and active case management, have materially advantaged Plaintiffs, who can put huge pressure on Defendants to settle at an early stage;
• the ‘front-loading’ of costs tends to mean that, although actions are on average settled at an earlier stage, the costs savings, if any, are minimal.

The Law Society Working Party is not satisfied that the Woolf Reforms have proven to be the panacea they are often portrayed to have been. It believes that delay and expense of litigation proceedings can be addressed by a more stringent adherence to the present High Court Rules rather than a whole-hearted adoption of a completely new regime. It did, however, agree that some radical new approaches are needed for some matters to make dispute resolution more cost effective and expeditious, including a more streamlined discovery process which keeps the present wide test of relevance.

The Bar Association Working Party has welcomed the Chief Justice’s appointment of a Working Party to review the civil justice system with a view "to ensuring and improving access to justice and reasonable cost and speed". It generally supports many of the proposed amendments but highlights the need for further and continuing consultation.

The Bar’s response to the consultation paper sets out general concerns that increased expediency of civil procedure may be at the expense of justice and that the proposed reforms may not lead to any substantial saving of legal costs.

The Bar Association Working Party supports the Working Party’s objective regarding case management but emphasises the need for the improved quality and training of both members of the Bar and judges and a more efficient system of allocation of cases to these judges.

The Chief Justice’s Working Party is presently reviewing all of the response to the proposals it made in its Consultative Paper. The next step is for the Working Party to produce firm recommendations for reform, which may happen before the end of 2002.

It is common ground between the Law Society and the Bar Association that a whole-hearted implementation of the English CPR is not necessary in Hong Kong.

A type of ‘cherry-picking’ exercise has been suggested by both as being a more appropriate method of upgrading Hong Kong’s Civil Justice system; a process of selection which would allow a tweaking of some of the present rules and a complete overhaul of others, as necessary. It would also allow room for the incorporation of successful procedural methods or rules from jurisdictions other than England and Wales which do not seem to encounter the delays, complexities, expense and perceived unfairness of parts of the Hong Kong civil justice system.

Adoption of the Woolf Reforms in Hong Kong would inevitably involve teething problems, with no Hong Kong case law to refer to. Lord Woolf himself, when implementing CPR in England and Wales, commented that the notes to the Rules of the Supreme Court in force prior to April 1999 are now of ‘historic interest only’ and that "all learning should be forgotten". The Hong Kong courts would presumably look to English case law for guidance in solving any such teething problems.

The accumulated knowledge and expertise in Hong Kong would not need to be ‘forgotten’ however, with a selective or cherry-picking approach.

Which areas to replace or change and how, is still a matter of considerable debate. Insurers should nevertheless assume that reforms will be implemented that will result in a greater level of case management, greater pressure on Defendants to settle at an early stage, and some curtailment of interlocutory proceedings.

© Herbert Smith 2002

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