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10 December 2019
The monetary jurisdiction for civil cases heard by Hong Kong's busy District Court was significantly increased in December 2018 (for further details please see "Significant increases to District Court's monetary jurisdiction"). The District Court's general monetary jurisdiction for civil claims is HK$3 million (having previously been HK$1 million). The court's general equity jurisdiction involving (for example) disputes relating to land is HK$7 million. These jurisdiction limits have changed on three occasions since 1997. During that time, parties awarded their costs following trial in the District Court have been caught by the so-called 'Two-Thirds Rule' – namely, the starting point for the recovery of their costs on taxation (assessment by the court) is that they cannot recover more than two-thirds of the amount that would have been allowed for equivalent work in the High Court. In light of its increased monetary jurisdiction, the District Court now determines more complex and important civil cases. Therefore, a good case can be made for the abolition of the Two-Thirds Rule. If this is a step too far, in the current circumstances of Hong Kong, a legislative provision should be implemented that provides judges with a wide and flexible discretion to depart from the rule where appropriate in all the circumstances.
The importance of the District Court in Hong Kong cannot be overstated. It is a busy court that hears all manner of criminal and civil cases. The court determines not only general civil litigation cases but also certain specialist cases that make up a large part of its caseload – for example, the Family Court (a specialist court) and the employees' compensation list. Notably, the High Court personal injuries list practice direction applies to the District Court (with suitable adaptations).
The District Court is situated in a single location in the heart of Hong Kong. Solicitors have full rights of audience, as do barristers.
The District Court's civil monetary jurisdiction was last increased in December 2018 – the previous increase having been in December 2003. Since April 2009, the same civil procedure rules have applied to the District Court as have applied to the High Court. Going forward, the District Court will become busier as more cases are transferred from the High Court (in an attempt to free up resources) and as civil claims of up to HK$3 million and HK$7 million are commenced.
The types of civil case heard by the District Court are increasingly complex and often involve no less time and effort than civil cases in the High Court. Indeed, certain employees' compensation cases, matrimonial disputes and related financial orders and commercial cases heard in the District Court are important and far from routine.
Against this background, it seems odd that a party who receives an award of costs in their favour after trial in the District Court is (in effect) penalised by a costs recovery rule that provides, as a starting point, that they cannot recover more than two-thirds of what they could have recovered in the High Court.(1) It is worth emphasising that this is a starting point. If a recovering (successful) party cannot agree costs with a paying (losing) party and has to go through an assessment (taxation) process, their recoverable costs will be further discounted according to the discretion of the costs-managing judge or master.
In short, successful parties in the District Court may suffer a significant difference between their actual costs and the costs that they recover from the losing party and often have to fund this themselves. For legally aided parties that are successful at trial, their legal representatives are (in effect) left to absorb the difference themselves.
The justification for the Two-Thirds Rule is that it keeps parties' costs in proportion to the amounts in dispute and promotes overall access to justice. However, this justification appears to have become out of date in the modern litigation environment of Hong Kong – it also ignores the fundamental point that civil litigation in the District Court may be no less complicated than many comparable cases in the High Court.
In short, the Two-Thirds Rule has served its purpose.
The simplest way forward is to abolish the Two-Thirds Rule. As a result, costs recovery in the District Court would proceed on the same basis as the High Court. This should not be a complicated legislative change and would involve the abolition of Order 62, Rule 32(1A) of the Rules of the District Court. Such abolition requires recognition that modern day civil litigation in the District Court is now very different to the time when the Two-Thirds Rule was first introduced.
The prospects for abolition are probably not that good. Change in Hong Kong is difficult and/or time consuming, even when it is justified.
Another option would be to proceed with a simple legislative amendment that introduces a judicial discretion into Order 62, Rule 32(1A), allowing a trial judge to depart from the Two-Thirds Rule in justified circumstances(2) – for example, given the complexity of a particular case or by reference to a comparable case in the High Court. The discretion should be provided for in plain and simple language – it need not be referenced to any detailed criteria or limited to exceptional circumstances, otherwise the default position is likely to be that the Two-Thirds Rule will still apply. Rather, it is better to have a provision that allows for a wide discretion and to trust that over time it will be exercised reasonably and consistently, taking into account (among other things) the time and effort that a successful party's lawyers properly spend on a case and how complex the case is.
The Two-Thirds Rule has long served its purpose and the time for change has come.
For further information on this topic please contact David Smyth or Warren Ganesh at RPC by telephone (+852 2216 7000) or email (firstname.lastname@example.org or email@example.com). The RPC website can be accessed at www.rpc.co.uk.
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