Do You Have to Pay Legal Fees If Your Claim Fails? Understanding Adverse Costs and Litigation Risk

Disclaimer: This article does not constitute legal advice. Consult a solicitor for your specific case. / 本文不構成法律建議。涉及個人案件請諮詢持牌律師。

The single greatest source of anxiety for a personal injury claimant in Hong Kong is not the strength of the evidence or the length of the wait. It is the fear of a cost order against them if they lose. This fear is particularly acute in 2025, following the Judiciary’s continued emphasis on case management and costs sanctions under the updated Practice Direction 5.3 (effective 2024), which explicitly warns litigants that unreasonable conduct or failure to mediate can trigger immediate adverse costs consequences. For a claimant who has already lost income and incurred medical bills, the prospect of paying the defendant’s legal fees—which can easily exceed HK$500,000 in a District Court trial—is a deterrent that can force a lowball settlement or outright abandonment of a meritorious claim. Understanding the mechanics of adverse costs is not optional; it is the second most important thing a claimant must learn, after proving liability.

The Core Rule: The Loser Pays

The starting point in Hong Kong civil litigation is the indemnity principle. The court orders that the losing party pays a substantial portion of the winning party’s legal costs. This is codified in Order 62 of the Rules of the High Court (Cap. 4A) and the corresponding provisions in the District Court Rules (Cap. 336H). The rule is not punitive; it is designed to compensate the successful party for the expense of being dragged to court.

The standard order is “costs to the successful party.” This means the defendant, if they win, will apply for a costs order against you. The court will assess the amount on either a “party and party” basis (standard recovery) or an “indemnity basis” (higher recovery, reserved for misconduct). In a typical personal injury case, a successful defendant can recover between 60% and 70% of their actual legal fees.

The key exception is the Calderbank offer. If the defendant makes a formal settlement offer under the principles established in Calderbank v Calderbank [1975] 3 All ER 333, and you reject it, then proceed to trial and recover less than the offer, you will generally be ordered to pay the defendant’s costs from the date of that offer. This is a powerful tool defendants use to shift cost risk onto the claimant. Claimants must treat any written settlement offer with extreme seriousness—it is not a suggestion, it is a cost trap.

There is no automatic protection for claimants. The common misconception is that because the plaintiff is an injured individual, the court will shield them from costs. It will not. Section 53 of the District Court Ordinance (Cap. 336) gives the court discretion, but the starting point remains “loser pays.” The court only departs from this rule where the conduct of the winning party was unreasonable or where the claim was of a nature that justified a different order.

The Protective Mechanisms: How Claimants Can Limit Exposure

The legal system provides three main mechanisms to reduce or eliminate the risk of an adverse costs order. Claimants must understand each one before issuing proceedings.

Step 1: The Offer to Settle under Order 22. The plaintiff can make a formal offer to settle (a “Part 22 offer”) at any time. If the defendant rejects it and the plaintiff recovers a higher amount at trial, the court will order the defendant to pay the plaintiff’s costs on an indemnity basis from the date of the offer. This is the claimant’s primary offensive tool to protect against adverse costs. If the claimant makes a reasonable offer early, the cost risk shifts to the defendant.

Step 2: The Small Claims Tribunal (SCT) limit. For claims not exceeding HK$75,000 (as of 2025), the SCT has exclusive jurisdiction. The SCT operates under a “no costs” regime—each party bears its own costs, regardless of outcome. This is the safest forum for a small claim. The limitation is that the SCT cannot grant injunctions or make declarations, and the cap on damages is strict. If your claim is genuinely worth HK$80,000, filing in the SCT will cap your recovery at HK$75,000, but you will have zero adverse cost risk.

Step 3: Conditional Fee Agreements (CFAs) and After-the-Event (ATE) insurance. Hong Kong does not permit pure contingency fees for litigation (the solicitor takes a percentage of the award), but CFAs are permitted. Under a CFA, the solicitor agrees to charge a reduced fee or no fee if the case is lost, and a success fee (up to 100% of the base fee) if the case is won. This success fee is recoverable from the losing party. Many personal injury solicitors in Hong Kong offer CFAs. Additionally, ATE insurance policies can be purchased to cover the defendant’s costs if you lose. The premium is often deferred until the case concludes. These two tools together can eliminate the claimant’s personal financial exposure. The claimant must ask specifically: “Do you offer a CFA, and can you recommend an ATE insurer?” Not all firms do.

The Real-World Arithmetic: What a Costs Order Looks Like

To understand the risk, one must understand the numbers. A typical personal injury case in the District Court (claims between HK$75,000 and HK$3,000,000) involves the following cost stages.

Stage 1: Pre-trial costs. If the case settles before a trial date is set, the defendant’s costs are usually limited to HK$30,000 to HK$80,000. This covers statements of claim, defences, discovery, and one or two case management conferences.

Stage 2: Trial costs. If the case proceeds to a one-day trial, the defendant’s costs can range from HK$150,000 to HK$300,000. This includes preparation, counsel’s fees, and the trial day itself. For a two-day trial, the figure rises to HK$300,000 to HK$600,000.

Stage 3: Post-trial and assessment. If the defendant wins and obtains a costs order, they will file a bill of costs. The court will then assess the bill. The defendant will recover, on average, 60-70% of their actual fees. So a defendant who spent HK$400,000 may recover HK$260,000 from you.

The judgment debtor’s position. If you cannot pay, the defendant can enforce the costs order through garnishee proceedings (freezing your bank account), a charging order on your property, or a bankruptcy petition. A costs order is a judgment debt. It carries interest at 8% per annum under the High Court Ordinance (Cap. 4, s. 49). Failure to pay can lead to a statutory demand and, ultimately, bankruptcy.

The impact of legal aid. If you are granted legal aid by the Director of Legal Aid, the Director pays your solicitor. If you lose, the Director may still be ordered to pay the defendant’s costs, but the Director will only pay out of the legal aid fund. The aided person is not personally liable for the defendant’s costs, except to the extent of any contribution they were required to make. Legal aid is the ultimate protection against adverse costs, but it is means-tested and merits-tested. As of 2025, the financial eligibility limits are approximately HK$260,000 in disposable capital and HK$200,000 in annual disposable income for civil cases.

Practical Steps Before You Issue a Writ

A claimant should never issue a writ without first performing a cost-risk analysis. The following steps are not legal advice, but they reflect the standard procedure that a prudent solicitor would follow.

Step 1: Quantify your claim accurately. Overvaluing your claim is the most common mistake. If you claim HK$2,000,000 but the medical evidence supports HK$200,000, you are at extreme risk. The defendant will make a Calderbank offer at HK$150,000. If you reject it and recover HK$180,000 at trial, you will pay the defendant’s costs from the date of that offer. Get a medical report from a specialist and a quantum assessment from a barrister before issuing.

Step 2: Obtain a written cost estimate from the defendant’s solicitors. This is unusual, but it can be requested. The defendant’s solicitors are not obliged to provide it, but many will, especially if the claim is straightforward. A written estimate of the defendant’s costs to trial gives you a concrete figure to weigh against your potential recovery.

Step 3: Consider mediation. The court now expects parties to mediate. Failure to mediate without good reason can lead to a costs sanction under Practice Direction 5.3, even if you win. If you refuse a reasonable invitation to mediate, and then lose, the court may order you to pay costs on an indemnity basis. Mediation is confidential and costs are low (typically HK$5,000 to HK$15,000 per party).

Step 4: Secure funding. If you cannot afford ATE insurance or a CFA, consider whether your claim is strong enough to justify the risk. A weak claim with a low quantum is better abandoned than litigated. The cost of losing is not just the defendant’s fees; it is the stress, the time, and the potential bankruptcy.

The 2025 Landscape: What Has Changed

The cost environment in Hong Kong has tightened in 2024-2025. The Judiciary’s updated Practice Direction 5.3 (Costs in Civil Proceedings) now explicitly states that the court will consider the conduct of the parties before and during proceedings when making costs orders. This includes failure to comply with case management directions, failure to disclose documents, and failure to engage in alternative dispute resolution.

The impact on personal injury claimants is direct. If you delay in providing discovery, or if you fail to attend a case management conference, the court may order you to pay the defendant’s costs for that hearing immediately—even if you ultimately win the case. These “interim costs orders” are becoming more common. The court’s message is clear: the loser pays, but the unreasonable party pays early.

The rise of fixed costs. The District Court has been piloting a fixed-cost regime for certain personal injury claims since 2023. Under this regime, the costs recoverable by the successful party are capped at a fixed amount (e.g., HK$80,000 for a one-day trial). This reduces the risk for claimants, but it also reduces the incentive for solicitors to take on complex cases. The pilot is expected to expand in 2026.

Actionable Takeaways

1. Never issue a writ without first obtaining a written cost estimate from the defendant’s solicitors and securing ATE insurance or a CFA.
2. Make a formal settlement offer under Order 22 as early as possible to shift the cost risk onto the defendant.
3. If your claim is under HK$75,000, file in the Small Claims Tribunal to eliminate adverse cost risk entirely.
4. Attend every case management conference and comply with every court direction—failure to do so can trigger interim costs orders against you, regardless of the final outcome.
5. Apply for legal aid if you meet the financial criteria—it is the only mechanism that fully protects you from paying the defendant’s costs.