Hong Kong: Hong Kong Law Reform Commission Proposes Conditional Fees for Litigation Cases

Introduction

In Hong Kong unless you are poor enough and your case has enough merits to qualify for legal aid under the Legal Aid Scheme, it is often too expensive to instruct barristers and solicitors under the split profession system to litigate disputes. As a result, an increasing amount of litigation in recent years has been conducted without legal representation, causing unnecessary delays and wasted costs in the process. In the case of civil trials and civil appeals in the High Court alone, the percentage of hearings involving unrepresented litigant(s) rose from 37% in 2001 to 42% in 2004.

Currently, unlike the UK, Canada or Australia, a solicitor in Hong Kong may not enter into a conditional or contingency fee arrangement to act in contentious matter.

On 14 September 2005, the Law Reform Commission Conditional Fees Sub-Committee released a consultation paper on conditional fees and suggested that the ban on conditional fees should be lifted for certain types of civil litigation.

Conditional fees are a form of "no-win, no fee" arrangement. If the case is unsuccessful, the lawyer will charge no fees. In the event of success, the lawyer charges his usual fee plus an agreed flat amount or percentage "uplift" on the usual fee. The additional fee is often referred to as an "uplift fee" or a "success fee. These are different from the US style of contingency fees which are generally based on a percentage of the amount recovered.

• personal injury cases;
• family cases, except where the welfare of children is involved;
• commercial cases in which an award of damages is the primary remedy sought;
• product liability cases;
• probate cases involving an estate;
• insolvency cases;
• employees’ compensation cases; and
• professional negligence cases.

However, the Sub-Committee does not recommend, at least for now, extending conditional fees to cover criminal cases, family cases involving the welfare of children, defamation cases or cases in which an award of damages is not the primary remedy sought.

In addition, in order to protect defendants from having nuisance and frivolous claims brought against them, the Sub-Committee has recommended that a claimant, using a conditional fee arrangement should be required by law to notify the defendant of this fact in order to allow the court to have discretionary power to require security for costs in appropriate cases.

One crucial factor in determining whether conditional fees will work is whether "After-the-Event" insurance ("ATE Insurance") will be available. For litigation cases in Hong Kong, an unsuccessful litigant will generally be required to pay the legal costs of the successful party. Even in a conditional fee arrangement, although the unsuccessful litigant does not have to pay his own costs, the litigant may still be required to bear the costs of the successful party. Therefore, conditional fee arrangements cannot function properly without the availability of ATE Insurance. However, the indications are that it is likely that ATE Insurance may not be available at an affordable level and on a long-term basis in Hong Kong particularly because of the small size of the Hong Kong market for such insurance.

In view of this, it is therefore recommended that Government should increase the financial eligibility limits of the present Supplementary Legal Aid Scheme, as well as expanding the types of cases covered by the scheme. Further, the Sub-Committee recommended the setting up of a "non-government contingency legal aid fund", probably run by an independent body. Applicants would have to satisfy a "merits" test but not any "means" test. The scheme would be self-financed by taking a share of any compensation recovered and lawyers would be paid on a conditional fee basis. The scheme would also be responsible for paying the defendant’s legal costs in unsuccessful cases, in effect, taking over the role of ATE Insurance.

The initial response from the legal and commercial sector on the paper is the fear of an outburst of litigation should conditional fees be implemented. Their fear is not unwarranted since conditional fees, combined with ATE Insurance would virtually guarantee that litigation is "risk-free". However, with some of the safeguards such as security for costs in place and the presence of a "merits" test for the suggested "non-government contingency legal aid fund", it is still early days to make such a hasty judgment.

Our Litigation Department has experienced lawyers in a wide range of commercial and civil litigation matters. If you have any question regarding the above article or would like to have a copy of the Consultation Paper, please do not hesitate to contact us.

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.