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K19. Costs
K19.1. The role of costs orders in our present system
| 552. | In our system, as in many others, a person who litigates faces potential exposure to two sets of expenses if he loses: the costs payable to his own lawyers and the sums that he may be ordered to pay to the other side on account of the costs they have incurred. (Note 488) Liability for the first set of costs is obvious, representing payment for professional services engaged. Liability to pay all or part of the other side's costs is the consequence of the rule applicable in Hong Kong (as in England and Wales, Australia and elsewhere, but generally not in the United States) requiring the losing party to pay the winning party's costs. This is sometimes referred to as a "cost-shifting" rule. |
| 553. | The procedural rules perform different functions when dealing with these two types of costs. In relation to a party's own costs, the present rules constitute essentially a laisser-faire system, relying on market forces to regulate fees. |
| 553.1 | The court's intervention to disallow excessive fees charged by one's own lawyers is generally limited to cases where the client seeks a solicitor and own client taxation of the solicitor's bill. |
| 553.2 | On such taxations, the applicable rule (Note 489) places a high hurdle in the way of intervention. The starting point is permissive of the costs charged, prescribing that "all costs shall be allowed except in so far as they are of an unreasonable amount or have been unreasonably incurred". It goes on to provide that "all costs incurred with the express or implied approval of the client" are conclusively presumed to have been reasonable in amount. There is a presumption - this time rebuttable - against reasonableness only where costs are "of an unusual nature" such as would be disallowed on a common fund taxation. |
| 553.3 | It is plain that such a rule aims only at disallowing fees that are unjustifiably incurred or significantly excessive when compared to the general run of fees charged. It does not address or encourage any reduction of the general run of fees. |
| 553.4 | The laisser-faire approach is further reflected in provisions (Note 490) of the Legal Practitioners Ordinance, Cap 159, which allow a solicitor to enter into a contentious business agreement with his client to be "remunerated either by a gross sum or by a salary, or otherwise, and at either a greater or a less rate than that at which he would otherwise have been entitled to be remunerated." Where such an agreement exists, the solicitors' costs are generally not subject to taxation by the court. They are only taxed where, on the client's application, the court sets aside the agreement on the ground that it is unfair or unreasonable. |
| 553.5 | The only other power of the court affecting the fees which a solicitor may charge his own client is the power (Note 491) to order a solicitor to bear costs personally in relation to costs "incurred improperly or without reasonable cause or ...... wasted by undue delay or by any other misconduct or default". Such an order can only be made after the solicitor is given a reasonable opportunity to show cause why it should not be made. Generally, there must be a serious dereliction of duty amounting to professional misconduct before the penalty is imposed. (Note 492) This is obviously again not a power addressing costs generally, as opposed to penalising individual misconduct by solicitors. (Note 493) |
| 554. | Our present provisions imposing liability to pay the other side's costs have two main functions. First, they give effect to the "cost-shifting" principle. Thus, while acknowledging that the court has a broad discretion in relation to making costs orders, O 62 r 3(2) lays it down that costs should normally follow the event, ie, be paid by the losing party to the winner. Secondly, the rules are designed to enable costs orders to compensate a party and to act as a sanction against the other side, where the other side has taken a procedural step which is wasteful, misconceived or in the nature of misconduct. (Note 494) |
Notes
| 488 | If a litigant wins, he may have to pay or have set off certain orders as to costs incurred in the course of the proceedings. He may also have to absorb a proportion of his own lawyer's costs where the costs recovered from the other side do not cover them in full. <back> |
| 489 | Under HCR O 62 r 29. <back> |
| 490 | Sections 58 to 62, modelled on ss 59 and 61 of the Solicitors Act 1974 in the UK. <back> |
| 491 | Under HCR O 62 r 8. <back> |
| 492 | HKCP 2001, 62/8/2. <back> |
| 493 | As previously discussed, the present sanctions apply only to solicitors in civil cases and it is a matter for consultation as to whether barristers should be made subject to wasted costs orders. <back> |
| 494 | HCR O 62 r 7. <back> |
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