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The Law Reform Commission of Hong Kong

 

Conditional Fees Sub-committee

 

Consultation Paper

 

 

 

 

 

 

Conditional Fees

 

  

 

This consultation paper can be found on the Internet at:

http://www.hkreform.gov.hk

 

 

 

 

September 2005

 

 

 

 


 

 

 

 

This Consultation Paper has been prepared by the Conditional Fees Sub-committee of the Law Reform Commission.  It does not represent the final views of either the Sub-committee or the Law Reform Commission, and is circulated for comment and discussion only.

 

The Sub-committee would be grateful for comments on this Consultation Paper by 15 November 2005.  All correspondence should be addressed to:

 

                   The Secretary

                   The Conditional Fees Sub-committee

                   The Law Reform Commission

                   20th Floor, Harcourt House

                   39 Gloucester Road

                   Wanchai

                   Hong Kong

 

                   Telephone:      (852) 2528 0472

 

                   Fax:            (852) 2865 2902

 

                   E-mail:       hklrc@hkreform.gov.hk

 

It may be helpful for the Commission and the Sub-committee, either in discussion with others or in any subsequent report, to be able to refer to and attribute comments submitted in response to this Consultation Paper.  Any request to treat all or part of a response in confidence will, of course, be respected, but if no such request is made, the Commission will assume that the response is not intended to be confidential.

 

It is the Commission’s usual practice to acknowledge by name in the final report anyone who responds to a consultation paper.  If you do not wish such an acknowledgement, please say so in your response.

 

 

 

The Law Reform Commission

of Hong Kong

 

Sub-committee on

Conditional Fees

 

 

Consultation Paper

 

 

Conditional Fees

 

________________

 

 

CONTENTS

 

 

 

 

 

Chapter

Page

 

 

Preface

1

 

 

Terms of reference

1

The Sub-committee

1

What are conditional fees?

2

Terminology

2

        Contingency fee, percentage fee, “no win, no fee”

3

        Conditional fee, uplift fee, success fee

3

            Speculative fee

3

Layout of this paper

3

 

 

 

 

1.         The costs of litigation

5

 

 

Who pays for litigation?

5

Relevant costs rules in Hong Kong

7

            Costs to follow the event - the costs indemnity rule

7

Bases of taxation in Hong Kong

8

            Costs on the party and party basis

8

            Costs on the common fund basis

8

            Costs on the indemnity basis

9

            Costs as between a solicitor and his own client

9

            Costs on the trustee basis

10

            Other costs aspects

10

    Counsel’s fees

10

                Costs of litigant in person

11

Legal aid as a source of finance for civil litigation

11

            The merits test

11

            The means test

12

            Ordinary Legal Aid Scheme

12

            Supplementary Legal Aid Scheme

13

            Criminal Legal Aid

14

Provisions against conditional or contingency fee

  arrangements in Hong Kong

15

 

 

 

 

 

2.         Contingency fee arrangements in the USA

17

 

 

Introduction

17

The percentage contingency fee

18

Other unique features of the American civil justice system

20

            Costs do not follow the event

20

            Trial by jury

20

            Punitive damages

20

            Specialised plaintiff bar

21

            Precedents not binding

21

            Discovery

21

            Absence of legal aid

22

            Class actions

22

            Non-specific pleadings

22

Conclusion

23

 

 

 

 

3.     Legislative changes in England

concerning conditional fees

24

 

 

 

Introduction

24

Maintenance and champerty

24

Criminal Law Act 1967

25

Solicitors Act 1974

27

The Royal Commission on Legal Services 1979

27

Green Paper on Contingency Fees 1989

27

            Risk of conflict of interest

28

            The United States experience

28

          Access to justice

29

            Allowing the consumer to choose

29

        Options set out in the 1989 Green Paper

29

        Responses to the 1989 Green Paper

30

Courts and Legal Services Act 1990

30

Conditional Fee Agreements Regulations 1995 and

  Conditional Fee Agreements Order 1995

31

 

After-the-event insurance

33

Counsel’s fees

36

Evaluation of conditional fee agreements in 1997

36

Further reforms 1998 – 2000

37

        Consultation Paper on “Access to Justice with

          Conditional Fees” 1998

38

 

        Conditional Fee Agreements Order 1998

38

        Access to Justice Act 1999

39

The Conditional Fee Agreements Regulations 2000

41

            General requirements

42

            Conditional fee agreements with a success fee

42

        Information which must be given to a client before

          making a conditional fee agreement

43

 

Collective Conditional Fee Agreements Regulations 2000

44

The Civil Procedure (Amendment No 4) Rules 2003 – Fixed costs

45

Conditional Fee Agreements (Miscellaneous Amendments)

  Regulations 2003

46

 

Possible further legislative changes

47

        DCA Consultation Paper June 2003

47

        Conditional Fee Agreements Forum 2003

48

        DCA Consultation Paper June 2004

48

The use of conditional fee agreements in England

52

The future of conditional fee agreements

53

 

 

 

 

4.     Problems and litigation in England

55

 

 

Introduction

55

Litigation on the recoverability of success fees and insurance

  premiums

55

 

        Callery v Gray

55

        The jurisdiction issue

56

        The prematurity issue

56

                Court of Appeal decision

57

                Government policy

57

                Policy and practical considerations

57

                The House of Lords decision

59

        Reasonableness of the success fee

61

                Court of Appeal decision

61

                Two-stage success fee

62

                House of Lords decision

62

        Reasonableness of the ATE premium

64

                Court of Appeal decision

64

                House of Lords decision

64

                Comments on Callery v Gray

65

        Halloran v Delaney – from 20% success fee to 5%

65

                Comments on Halloran v Delaney

66

The effect of BTE insurance on the recoverability of ATE premiums

67

        Sarwar v Alam – 2001

67

        Sarwar v Alam – 2003

69

        Re Claims Direct Test Cases

70

The position of event-triggered fees at common law and

  problems with the costs indemnity rule

71

 

British Waterways Board v Norman

71

        The indemnity rule

72

        Public policy

72

Aratra Potato Co Ltd v Taylor Joynson Garrett

74

Thai Trading Co v Taylor

74

        Legislation and rules

75

        Differentiating maintenance and champerty

76

        Changing public policy

77

        Absence of implied contract as to costs

78

        Conclusion

79

Bevan Ashford v Yeandle Ltd

79

Post Thai Trading Co and Bevan Ashford decisions

80

Cases not following Thai Trading Co

80

        Hughes v Kingston-upon-Hull City Council

80

        Awwad v Geraghty & Co

81

Claims intermediaries

82

        English v Clipson

82

The scope of application of section 58 of the Court and

 Legal Services Act 1990

85

 

        R (Factortame Ltd) v Secretary of State for Transport,

          Local Government and the Regions (No 8)

85

 

Hollins v Russell

86

Spencer v Wood

87

King v Telegraph Group Ltd

88

Atack v Lee and Ellerton v Harris

89

Summary of main issues

90

 

 

 

 

5.     Event-triggered fees in other jurisdictions

93

 

 

Introduction

93

Australian jurisdictions

93

        Australian Law Reform Commission, Managing Justice –

          A review of the federal civil justice system 2000

93

 

        Magic Menu Systems Pty Ltd v AFA Facilitation Pty Ltd

96

        Smits v Roach

97

        The Attorney General’s Department –

          The Justice Statement 1995

98

 

        The Law Institute of Victoria, Funding Litigation:

          The Contingency Fee Option, July 1989

98

 

        Legal Practice Act 1996, Victoria

99

        Comments of the Law Institute of Victoria

101