Substantial statutory reform to the practice and procedure of the Hong Kong Court system became effective on 2 April 2009; the so called "Civil Justice Reform" (CJR). The underlying objectives of the CJR - which parties have a duty to assist the Court in furthering - include increasing the cost-effectiveness, speed and efficiency of Court proceedings and facilitating pre-trial settlements.
This article examines how the CJR has worked in practice since its introduction and its implications for corporate parties (and in-house counsel or company officers) in defending a Court action or deciding whether to commence one.
We focus on the following specific reforms, which are aimed at promoting the above underlying objectives:
- active case management;
- statements of truth;
- mediation (effective from 1 January 2010); and
- sanctioned offers and payments.
Summary
In deciding whether to commence proceedings, you should bear in mind that with the CJR, you will have to actively progress your claim and ensure your pleaded case and witness statements are accurate. This will mean incurring higher costs at an earlier stage in proceedings, rather than putting-off those costs prior to trial.
Similarly, in defending an action, you must ensure the accuracy of your case and evidence and assist the Court in actively progressing the matter.
Significantly, for both parties, the CJR has incentivised pre-trial settlements.
Active case management
Case management conferences
With CJR, the Court proactively controls the progress of cases up to trial by way of active case management and, particularly, the "case management conference" (CMC). Once the parties have filed pleadings, the Court will set a timetable for interlocutory steps and set a future date for a CMC. Prior to the CMC, parties are required to disclose if they have complied with the timetable and explain any non-compliance. At the CMC, the Court assesses the parties' compliance with its timetable, with a view to setting the case down for trial.
Significantly, CJR seeks to avoid delay caused by the adjournment of hearing / trial and CMC dates: these are immovable except in exceptional circumstances.
In our experience, the Court takes the CMC procedure very seriously and will readily make costs orders against parties who unreasonably fail to comply with its timetable and may only grant extensions on the basis that unless the outstanding procedural step is completed by a certain date, judgment be entered for the opposing party. Significantly, the Court may also provisionally strike out a plaintiff's claim if they fail to attend a CMC (see below).
Late interlocutory applications
Courts are very reluctant to allow late pre-trial applications, including amendments to pleadings, further discovery and further witness statements, which would otherwise have the effect of adjourning (immovable) hearing dates.
In two cases (one an interlocutory application to serve a witness statement days prior to a hearing on assessment of damages1, and the other involving an application by an interested party to be heard at a hearing for judicial review in two weeks' time2) the Court noted it would not generally allow late applications which raised new issues, such that the opposing party would have insufficient time to respond prior to the hearing if the applications were allowed.
Undue delay
Where a plaintiff had failed to take any step in the action for two years, the Court ordered the plaintiff to progress its claim or have it dismissed with costs3. The Court found the delay to be an abuse of process but declined to dismiss it as the plaintiff could (re)commence another action, causing greater overall cost and delay in resolving the dispute. The Court noted that:
Failure to attend CMC
In a case where a plaintiff's solicitors failed to attend at a CMC, the Court provisionally struck out of the plaintiff's claim (but restored it mainly on the basis that practitioners might not be aware of the new reform4).
Pleadings - no bare denials
Bare denial to pleadings is no longer allowed. In pleading a defence, a party must give reasons for its denial or plead a different version of events. As such, a party must consider carefully whether it has a proper defence to a claim and, if not, admit the claim either in whole or in part. It is no longer possible to plead a bare denial to "buy time".
Implications
In determining whether to commence proceedings, parties should note that the Court now expects plaintiffs to progress their claims - a writ cannot simply be lodged as a tool to apply commercial pressure to an opposing party absent a commitment to continue with the proceedings.
Once an action is commenced, the CJR does offer plaintiffs an opportunity to maintain pressure on the opposing party, with stricter Court timetables and fewer adjournments, with a view to having the case determined at an early stage or settled on more favourable grounds.
Defendants can no longer "go slow" and push the entire responsibility for the progress of an action on to plaintiffs. Defendants have a positive obligation to assist the Court with the speedy and efficient resolution of disputes.
Statements of truth
Parties and witnesses (factual and expert) are now required to sign a statement that they believe the facts contained in their pleadings and statements respectively are true and, additionally in the case of experts, their opinion is honestly held.
Corporate parties must execute statements of truth to pleadings by persons holding a senior position in the body: a director, secretary or manager.
The Court takes statements of truth very seriously and may strike out a claim on the basis that the statement of truth in the statement of claim was false5. Mis-statements may also expose parties to contempt proceedings.
The Courts have also indicated that non-compliance with the requirements as to statements of truth may render witness statements inadmissible6.
Amendment of factual matters in pleadings will now be difficult, as a party cannot provide statements of truth to two factually different versions of events.
Implications
The requirement for statements of truth will likely mean that parties incur more costs at an early stage in proceedings, through collating and analysing the relevant documentary and oral evidence, in order to certify the accuracy of a claim / defence and witnesses' evidence. However, this will also give parties an earlier indication of the strength or weaknesses of their case.
Mediation
Mediation is a voluntary, out-of-Court process whereby the parties agree to involve an independent third party to facilitate a resolution (rather than decide who should win or lose), usually on a private, confidential and "without prejudice" basis.
Whilst Courts are not empowered to order mediation, the CJR encourages parties to mediate or face adverse costs orders (following trial) if they are found to have unreasonably failed to mediate.
The Courts appear more likely than not to find refusals or failures to mediate "unreasonable" and make adverse costs orders even if a party is successful at trial7. Specifically, the Court has indicated that it will not accept as arguments for a party's refusal to mediate that liability is in dispute (the rationale of mediation is to resolve disputes) or proceedings have reached an advanced stage.
Further, Courts have declined to award a successful party their costs of the action on a more generous basis than party-party costs on the basis of that party's failure to mediate8.
Implications
Although it is outside of the scope of this article to consider the benefits and disadvantages of mediation, mediation does potentially offer, in certain circumstances, a means of readily and cost-effectively resolving disputes.
In light of this, as well as adverse costs sanctions, parties should seek advice on and seriously consider whether mediation is suitable (it may not be, for example, where the case involves important issues of public interest) and whether it is reasonable to mediate, particularly where the other party has requested it.
Sanctioned offers and payments
The "sanctioned offers/payments" regime encourage parties to settle prior to trial.
If a plaintiff rejects a defendant's sanctioned offer / payment and fails to better it at trial (even if successful), the Court may disallow interest on any judgment sum and order indemnity costs with penalty interest on those costs from the date the offer could have been accepted. The same applies for defendants who fail to better a plaintiff's sanctioned offer unless the Court also orders penalty interest on any judgment sum.
Where defendants have failed to better a plaintiff's sanctioned offer, the Courts have ordered interest on judgment sums at three per cent and two per cent above judgement rate (currently eight per cent), indemnity costs and interest thereon at three per cent and two per cent above judgment rate9.
Implications
This regime offers parties a useful strategic tool to put pressure on the other to settle a case or to protect the offeror's position of costs.
The offeror must be comfortable that the offer - if accepted - provides it with a satisfactory outcome in light of the merits of its claim / defence and unrecoverable costs had it proceeded with the case.
If the offer is rejected and not bettered at trial, the offeror would have protected its position on costs, including the (high) costs of trial.
In deciding whether to accept a sanctioned offer or payment, parties should carefully consider the likelihood of failing to better that offer at trial.
Conclusion
In short, CJR has the effect of:
- increasing costs for both plaintiffs and defendants at an earlier stage in proceedings due to compliance with case management orders and ensuring, on the evidence, the truthfulness of their pleadings and witness statements;
- encouraging the early settlement of disputes by mediation and the sanctioned offer / payment mechanism; and
- discouraging "delaying" tactics by way of proactive Court supervision of cases and costs sanctions.
1 Liu Chen v Chan Poon Wing [2009] HKEC 1650.
2 Lo Hom Chau v Director of Marine [2010] HKEC 398.
3 Erp Furniture Ltd v Top Pine Timber Products Ltd [2010] HKEC 522.
4 World Chinese Business Investment Foundation Ltd v Shine Rainbow Marketing Ltd [2010] 2 HKC 294.
5 Tong Kin Hing v Autron Mauritius Corp [2010] 1 HKLRD 77.
6 Liu Chen v Chan Poon Wing [2009] HKEC 1650.
7 Leung Catherine v Tary Ltd [2009] HKEC 1669.
8 Chong Cheng Lin Courtney v Cathay Pacific Airways Ltd [2010] HKEC 272.
9 The Garden Co Ltd v Smart Year Ltd [2009] 5 HKLRD 542, Tsoi Hak Kong Herbert v Kok Wai Chun [2009] 4 HKLRD 215, Amoi Electronics Co Ltd v Kin Cheung Transportation (Hong Kong) Co Ltd [2010] HKEC 235.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
