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Civil Justice Reforms: The Road Ahead – Part 3

 

10 February 2009

This is the third in a series of updates on the Civil Justice Reforms (CJR) which will come into effect on 2 April 2009. In this bulletin, we consider the costs implications of the CJR for litigants, the importance of mediation under the new rules, the court's powers to grant interim relief in foreign proceedings and foreign arbitrations, and the procedural changes to the judicial review process.

As the implementation date draws closer, there will be many issues which parties to existing proceedings will need to consider. Legal advice on the potential implications of the CJR should be sought ahead of time.

Costs

The issue of costs is one of the most fundamental considerations in litigation, not only for parties in existing litigation but also for those considering commencing proceedings. It is usually one of the principal factors to be considered before taking any step in the proceedings and is something which needs to be brought to the parties' attention at the outset and at regular intervals during the course of the proceedings. Costs-related reforms were central to the Woolf Reforms in England in 1999. Indeed, Lord Woolf noted that almost all of his proposed amendments were designed in part to tackle the problem of costs. However, the success of the Woolf Reforms in reducing costs has been mixed. In general, the problem of undue expense associated with litigation in England remains. Accordingly, one of the underlying objectives of the CJR is to ensure that the litigation process is made more cost-effective for the parties involved. It has already been suggested that the success of the CJR may be measured by the extent to which the reforms will help to reduce costs for litigants in Hong Kong.

(i) Interlocutory applications

In line with the underlying objectives of the CJR and the new powers of case management, the proposed amendments will enable the courts to take into account the overall conduct of the parties when making costs orders. The general principle that costs should "follow the event" (i.e. that the winning party should receive its legal costs) will continue to apply. However, this principle will no longer be considered the usual practice in interlocutory applications. Instead, the court will impose appropriate costs orders as it sees fit, with a view to deterring unreasonable conduct at the interlocutory stages. This will mean that parties need to think twice before embarking on purely tactical interlocutory applications.

In addition, the CJR will allow courts to order summary assessments of interlocutory applications, which in practice will mean that a party subject to a costs order will be required to make immediate payment rather than wait until the costs are determined at the end of the main proceedings. Detailed taxation of costs at the interlocutory stages will no longer be necessary except at the parties' request or by order of the court as it considers appropriate. This will hopefully mean that interlocutory applications and costs will be dealt with more expeditiously under the new regime.

(ii) Costs against non-parties to proceedings

In the past, situations have often arisen where persons who are not parties to the litigation intermeddle in and/or fund proceedings in which they have no legitimate interest. In such situations, there is currently no statutory power for the court to impose costs orders against such parties as they are not parties to the main proceedings. However, under the CJR, the court will be given an express power to make costs orders against a person who is not a party to the proceedings if the court considers that it is in the interests of justice to do so. For these purposes, a non-party must be joined as a party to the proceedings (for costs purposes only) and must be given a reasonable opportunity to be heard. This new power is intended to deter any non-parties from intermeddling in litigation in the future.

(iii) Wasted costs orders extended to barristers

Under the current rules, wasted costs orders can be imposed on a party's solicitors where costs in any proceedings have been incurred as a result of them acting improperly or without reasonable excuse, or are wasted by undue delay, misconduct or default attributable to them. In such circumstances, solicitors may be ordered to bear the burden of paying any costs owed by their client to the opposing party or to indemnify opposing parties against costs which are payable to third parties.

Currently, only a party's solicitors may be subject to wasted costs orders. Traditionally, barristers have not been subject to wasted costs orders on public policy grounds, namely that "advocates should be free to conduct cases in court fearlessly, independently and without looking over their shoulders ". However, the Working Party concluded that this outdated exemption should be abolished. Accordingly, under the CJR, the ability to impose wasted costs orders will be extended to cover barristers.

Alternative Dispute Resolution - Mediation

With the increasing costs of litigation, there has been renewed focus on the benefits of alternative dispute resolution and in particular, on mediation. The focus on mediation is consistent with the underlying objectives of the CJR to encourage parties to settle their disputes and to improve the cost-effectiveness of litigation.

The CJR will see the implementation of a new Practice Direction on Mediation, which (unlike the rest of the CJR) will not come into force until 1 January 2010. Under the new rules, the court may, if it considers appropriate, impose adverse cost orders against a party which has unreasonably refused to engage in mediation following a mediation request by the other party. The parties will be asked at an early stage of proceedings to consider whether mediation is appropriate and, if they do not, to put their reasons in writing.

Although the Practice Direction does not take effect until next year, in our view, this delay is unlikely to have a significant impact on the requirements for parties to consider mediation from 2 April 2009, as the court will still have a general discretion on costs and may take into account the parties' conduct in respect of mediation when exercising that discretion. This is consistent with the underlying objectives, which encourage settlement, and the court’s new case management powers, all of which will be effective from 2 April.

The judiciary has also indicated that after 2 April, the court may recommend mediation on its own initiative if it considers it appropriate. It has been suggested that if necessary, parties may elect to attend a short hearing before a master, where the pros and cons of mediation will be explained to them in more detail. However, despite the seemingly robust approach, the court will not force mediation on parties as it recognises that mediation can only be successful if it remains a voluntary process.

Interim relief in aid of foreign proceedings and foreign arbitrations

(i) Interim relief in aid of foreign proceedings

Under the current law, a Hong Kong court does not have jurisdiction to grant interim relief by way of a Mareva injunction in aid of foreign proceedings in respect of a defendant's assets located in Hong Kong. There is also no mechanism allowing a plaintiff of such foreign proceedings to serve a defendant outside Hong Kong for the purposes of applying for interim relief in a Hong Kong court. In view of these restrictions, the Working Party considered it necessary to implement changes to ensure that a Hong Kong court would have power to assist in foreign proceedings.

Under the CJR, a Hong Kong court will be able to grant interim relief in aid of foreign proceedings provided those proceedings are capable of giving rise to a court judgment which may be enforced in Hong Kong. This power applies even where the interim relief sought is not ancillary or incidental to any proceedings in Hong Kong. The current rules regarding service of proceedings outside of Hong Kong have also been amended to provide that service will be permissible in relation to an application for interim relief where the only relief sought by a plaintiff is a Mareva injunction in Hong Kong.

(ii) Interim relief in aid of arbitrations with a foreign seat

The present Arbitration Ordinance gives a Hong Kong court the power to grant interim measures "in relation to a particular arbitration proceeding", without stating expressly whether such power applies to arbitrations with a seat outside of Hong Kong (s.2GC Arbitration Ordinance). In practice, the Hong Kong courts have interpreted this provision broadly and granted interim relief in aid of foreign arbitrations. The amendments to the Arbitration Ordinance under the CJR are intended to codify the common law position.

Accordingly, following the CJR, the Hong Kong courts will have the express power to grant interim relief in aid of foreign arbitrations, provided the arbitration proceedings are capable of leading to an arbitral award which can be enforced in Hong Kong. In line with the changes in respect of foreign court proceedings outlined above, a Hong Kong court will also be able to grant a Mareva injunction to restrain a defendant's assets in Hong Kong without that injunction being ancillary to any arbitration proceedings in Hong Kong.

Judicial Review

There has been a noticeable increase in applications for judicial review in recent years following a string of prominent public interest related applications. A number of recent applications have been commenced against the regulators on grounds of human rights violations in the exercise of investigative powers. We anticipate that the number of judicial review applications will continue to rise in the coming year in view of the increase in regulatory investigation activity.

Under the current regime, an applicant seeking leave to apply for a judicial review does so on an ex parte basis (i.e. neither the respondent nor any persons directly affected by the application are required to be served with the leave application). Such parties are only notified of the substantive application by way of service of a summons after leave is granted. Any opposing party may also be given an opportunity to be heard at the substantive hearing.

The Working Party on CJR considered whether the leave application itself should be served on all interested parties from the outset. However, given the potential delays and increased costs, it was eventually decided that the order granting leave along with any directions should be served on the respondent and any "interested parties" only after leave for a judicial review application has been granted. For these purposes, "interested parties" will be anyone who is "directly affected" by the application.

Following the proposed amendments under the CJR, the classes of persons that are currently permitted to be heard at a judicial review hearing will also be broadened to include not only those who wish to oppose the application but also those who wish to support it. However, the court will retain its general discretion to allow only "proper persons" to be heard as it considers appropriate.

Under the CJR, there will also be wide provisions for the court to allow any party that applies for leave to file evidence or make representations at the substantive hearing. These proposed amendments are intended to ensure that all parties with a sufficient interest in the judicial review proceedings are afforded an opportunity to be heard.

Our CJR website

To access Parts 1 and 2 of our CJR updates, other CJR articles and related information, please visit our website at: www.allenovery.com/cjrhk. Please note that Part 2 of our CJR bulletins has recently been updated and can be found on our website.

We will continue to provide further updates on developments following the implementation of the CJR after 2 April 2009.

 

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