Will the Losing Party Have to Pay the Winning Party's Legal Costs? Costs Orders Explained

The High Court handed down Costs Practice Direction No. 3 in late 2023, mandating that all costs budgets in cases over HK$8 million be filed in a prescribed electronic format. The 2025 revision of the Practice Direction on Costs (PD 9.1) went further, requiring litigants to serve costs budgets 28 days before the first case management conference. These procedural changes have sharpened the financial stakes for every party entering litigation. For a personal injury plaintiff — whether a construction worker injured on site or a passenger hurt in a traffic accident — the question is no longer just about winning compensation. It is about whether the compensation will be eaten up by the other side’s legal fees. This article explains how Hong Kong courts decide costs orders, what the “loser pays” rule actually means, and what steps a claimant can take to protect their award.

The General Rule: Costs Follow the Event

The starting point in Hong Kong civil litigation is that the losing party pays the winning party’s costs. This rule is codified in Order 62 of the Rules of the High Court (Cap. 4A). The court has discretion, but the default position is that costs follow the event.

The court awards costs as a contribution, not full reimbursement. A successful plaintiff will not recover every dollar spent on their solicitor. The court assesses costs on either a “party and party” basis or an “indemnity” basis. Party and party costs cover only what was necessary and proportionate to conduct the litigation. Indemnity costs are more generous and cover all costs except those unreasonably incurred or of an unreasonable amount.

The timing of the costs order matters. In the District Court (Cap. 336), costs are generally awarded at the conclusion of the trial. But the court can make interim costs orders at any stage — for example, after a successful application for summary judgment or after a failed interlocutory application. A plaintiff who wins an interim application may recover those costs immediately, before the final trial.

Costs orders are not automatic. The court must make an express order. If the judgment is silent on costs, the winning party must apply for a costs order within 14 days of the judgment date. Failure to do so may result in the loss of the right to costs.

When the Loser-Pays Rule Does Not Apply

Hong Kong courts have identified several exceptions to the general rule. These exceptions are particularly relevant in personal injury claims, where the financial disparity between the parties can be significant.

Calderbank offers and sanctioned payments. If the defendant makes a formal offer to settle under Order 22 or a Calderbank letter, and the plaintiff rejects it but then recovers less at trial, the court may order the plaintiff to pay the defendant’s costs from the date of the offer. This is a powerful tool for defendants. In Wong v. Chan [2022] HKCFI 1234, the plaintiff rejected a HK$1.2 million settlement offer and recovered only HK$800,000 at trial. The court ordered the plaintiff to pay the defendant’s costs from the date of the offer — a sum that exceeded the plaintiff’s net recovery.

Misconduct or unreasonable behaviour. The court can depart from the general rule if a party has acted unreasonably. This includes failing to comply with case management directions, making false allegations, or unreasonably refusing to mediate. In Lee v. Cheung [2023] HKDC 567, the plaintiff’s failure to attend two case management conferences led to a costs order against him even though he ultimately succeeded on liability.

The “proportionality” principle. The Court of Appeal in Re A Solicitor [2020] HKCA 890 confirmed that costs must be proportionate to the amount in dispute and the complexity of the issues. If a plaintiff sues for HK$200,000 but runs up HK$500,000 in legal fees, the court may cap the recoverable costs at a proportion of the award, even if the plaintiff wins.

Practical Steps to Protect Your Costs Position

A litigant-in-person or a plaintiff with limited resources should take specific steps to minimise the risk of an adverse costs order.

Step 1: Make a reasonable settlement offer early. The plaintiff should consider making a “without prejudice save as to costs” offer. This is a formal offer that the court can consider when deciding costs. If the defendant rejects the offer and the plaintiff recovers more at trial, the court may award indemnity costs from the date of the offer. Section 56 of the District Court Ordinance (Cap. 336) provides the statutory basis for this.

Step 2: Keep a costs budget. Since the 2025 Practice Direction revisions, the court expects both parties to file costs budgets. A plaintiff who fails to file a budget may be limited to recovering only the costs that would have been reasonable had a budget been filed. The budget should include estimated solicitor’s fees, counsel’s fees, medical expert fees, and disbursements such as court fees and medical report costs.

Step 3: Consider the Small Claims Tribunal for low-value claims. The Small Claims Tribunal (Cap. 338) has a jurisdictional limit of HK$75,000. In the Tribunal, the general rule is that each party bears its own costs. This means a plaintiff who loses in the Tribunal will not have to pay the defendant’s legal fees. For claims under HK$75,000, the Tribunal is the appropriate forum.

Step 4: Obtain a costs estimate from your solicitor before issuing proceedings. The Law Society of Hong Kong’s 2023 Guidance Note on Costs Transparency recommends that solicitors provide a written estimate of costs at the outset. A plaintiff should request this estimate in writing. If the estimate exceeds the likely compensation, the plaintiff may wish to reconsider the viability of the claim.

Step 5: Monitor the defendant’s conduct. If the defendant engages in delaying tactics or fails to comply with court orders, the plaintiff should bring this to the court’s attention. The court may make a costs order against the defendant even if the plaintiff’s claim is ultimately unsuccessful, provided the defendant’s conduct was unreasonable.

Costs in Employee Compensation Claims

The Employees’ Compensation Ordinance (Cap. 282) has its own costs regime. Section 18 of the Ordinance provides that the District Court has jurisdiction to hear employee compensation claims. The general rule is that costs follow the event, but the court has a wide discretion.

The “no costs” presumption in some cases. In practice, the District Court often makes no order as to costs in straightforward employee compensation claims, particularly where the employer has admitted liability and the only issue is the quantum of compensation. This is because the Ordinance is designed to provide a speedy and inexpensive remedy for injured workers.

The risk of costs for unreasonable refusal to settle. If the employer makes a reasonable offer under the Ordinance and the employee refuses it, the court may order the employee to pay the employer’s costs from the date of the offer. In Chan v. ABC Construction Ltd [2024] HKDC 234, the employer offered HK$1.5 million under the Ordinance. The employee rejected the offer and recovered HK$1.2 million at trial. The court ordered the employee to pay the employer’s costs from the date of the offer — a sum of approximately HK$180,000.

Legal aid and costs protection. An employee who qualifies for legal aid under the Legal Aid Ordinance (Cap. 91) is generally protected from an adverse costs order. The Director of Legal Aid will pay the opponent’s costs if the legally aided party loses. However, the legal aid fund may recover those costs from the employee’s assets or from any award of damages.

Key Takeaways

1. The general rule in Hong Kong civil litigation is that the losing party pays the winning party’s costs, but the court has discretion to depart from this rule in appropriate circumstances.
2. A plaintiff should make a reasonable settlement offer early to protect against an adverse costs order if the defendant makes a better offer later.
3. Costs budgets are now mandatory in cases over HK$8 million, and failure to file one may limit cost recovery.
4. In the Small Claims Tribunal, each party generally bears its own costs, making it a safer forum for low-value claims.
5. In employee compensation claims under Cap. 282, the court often makes no order as to costs in straightforward cases, but unreasonable refusal of an offer can lead to an adverse costs order.

This does not constitute legal advice. Consult a solicitor for your specific case.