LegCo Paper No. CB(2) 715/96-97
Ref : CB2/BC/47/95

Minutes of the Third Meeting of the Bills Committee
on the Legal Services Legislation (Miscellaneous Amendments) Bill 1996

held on Thursday, 7 November 1996 at 4:30 pm
in Conference Room A of the Legislative Council Building

Members Present :

    Hon Fred LI Wah-ming (Chairman)
    Hon Mrs Selina CHOW, OBE, JP (Deputy Chairman)
    Hon Ronald ARCULLI, OBE, JP
    Hon Emily LAU Wai-hing
    Hon James TO Kun-sun
    Hon Howard YOUNG, JP
    Hon Albert HO Chun-yan
    Dr Hon LAW Cheung-kwok
    Hon Bruce LIU Sing-lee
    Hon Mrs Elizabeth WONG, CBE, ISO, JP

Members Absent :

    Hon Mrs Miriam LAU Kin-yee, OBE, JP
    Dr Hon LEONG Che-hung, OBE, JP
    Dr Hon Philip WONG Yu-hong
    > Hon Christine LOH Kung-wai
    Hon Andrew CHENG Kar-foo
    Hon IP Kwok-him
    Hon Ambrose LAU Hon-chuen, JP
    Hon Margaret NG

Attendance by Invitation :

Consumer Council
Mr LI Kai-ming
Acting Chief Executive
Ms Agnes YUNG
Chief Legal Affairs Officer

Solicitors Concern Group
Mr Philip LI
Mr Arthur TSO
Mr John CHAN
Ms Yolanda FAN
Mr Daniel WONG

Kao, Lee & Yip, Solicitors, Notaries Agents for Trademarks & Patents
Ms Jessica YOUNG
Partner
Ms Mable LEUNG
Trainee Solicitor

Hong Kong Conveyancing & Property Law Association Ltd
Mr S H LEUNG
President
Mr John L HODGSSON
Vice-President

Clerk in Attendance :

Mrs Betty LEUNG
Chief Assistant Secretary (2)3

Staff in Attendance :

Mr Jimmy MA
Legal Adviser
Miss Flora TAI
Senior Assistant Secretary (2)3



I. Meeting with representatives of the Consumer Council

(LegCo Paper No. CB(2) 361/96-97)

At the invitation of the Chairman, Mr LI Ka-ming informed the meeting that the Consumer Council supported : (a) clause 7 of the Bill which required a solicitor or a solicitor corporation to pay interest on clients’ accounts; and (b) clause 18 of the Bill which rendered void any contractual provision requiring a property purchaser to pay the vendor’s legal costs when the vendor was also the developer of such property.

2. In response to Mrs Selina CHOW’s enquiry, Mr LI Ka-ming said that there should have no correlation between scale fees and quality of legal services, as could be concluded from the facts that : (a) other professions, such as doctors, did not have mandatory scale fees for services; (b) scale fees presently charges by solicitors were simply pegged at levels of property prices and had no bearing on the amount of legal work done; and (c) it should be the responsibility of the professional regulatory body to control the standard and quality of services of the profession. To address Mrs CHOW’s worry that price war would affect quality of services adversely, Mr LI pointed out that scale fees in other professions, such as architects, were for reference only and there did not seem to have any price war in each of them.

3. Ms Emily LAU asked the Consumer Council’s viewpoints on the claims of the Law Society of Hong Kong (the Law Society) on the abolition of scale fees, which were : (a) it might lead to increase in touting activities and unlawful profit-sharing between solicitors and unqualified persons; and (b) it led to declining professional standards in Ontario, England and Scotland. Ms Agnes YUNG said that since the Consumer Council had not researched into these aspects, it was not in a position to affirm or dispute such claims. However, other factors, such as economic recession, could account for the recent increase in the number of negligence claims in England.

4. Dr LAW Cheung-kwok queried why it was considered necessary that the support of all consumers should be obtained before implementation of multi-disciplinary practices (MDPs), since the proposal was only to offer it as a choice to the solicitors. He remarked that market forces would certainly help the solicitor’s decisions. Mr LI Ka-ming explained that the Consumer Council did not support the proposal of MDPs because it might create a potential conflict of interests between such practices and the consumers, which the latter might not be aware of.

5. Mr Ronald ARCULLI asked and Mr LI Ka-ming confirmed that the Consumer Council would not oppose to the proposals of MDPs and incorporation of solicitors’ practices provided : (a) the Law Society would make rules on such practices, after detailed consideration; and (b) adequate safeguards for consumers to be properly compensated were put in place. In this connection, Mr LI remarked that implementation of a statutory fidelity fund, as recommended in the Report on the Consultation Exercise and Proposals for the Way Forward, which had not been included in the Bill, could better protect the consumer’s interest.

6. Mr Howard YOUNG asked whether consumers’ complaints in the past against the legal service were mainly about lawyers’ fees. Mr LI Ka-ming responded that they were mainly about the requirement for the buyers to pay the legal costs of the developers, and to a lesser degree about scale fees as well. He agreed to provide the relevant statistics to members after the meeting. He further pointed out that the Consumer Council supported the abolition of scale fees on the basis of the principle consideration that commercial activities and their charges should be open and competitive. The existing scale fees should only be maintained with justifications since they were anti-competitive. However, no adequate justification had been put forward so far. In this connection, Mr Albert HO asked and Mr LI said that the new proposal of the Law Society on scale fees should be implemented immediately in the interest of the consumers, pending the LegCo’s decision on the proposal of abolishing scale fees. Members then suggested that the Consumer Council should study the relationship between scale fees and professional indemnity scheme and the experience in other jurisdictions in abolishing the scale fees for the consideration of the Bills Committee. Mr LI agreed to consider members’ suggestion and to provide further information, if available.

Consumer
Council

Consumer
Council

II. Meeting with representatives of Solicitors Concern Group

(Appendix 1 to LegCo Paper No. CB(2) 355/96-97)

7. At the invitation of the Chairman, Ms Yolanda FAN said that the Solicitors Concern Group believed that abolition of scale fees would not be in the interest of the public because firstly, it could not ensure that the fees paid by consumers were reasonable and secondly, it might lead to the decline of legal services. Mr John CHAN supplemented that abolition of scale fees would lead to responsible solicitors being driven out of practice, which would in turn lead to grave consequences such as defective titles. To address the problem, the Group had proposed a minimum/maximum scale, which was attached to its written submission to members. Mr CHAN pointed out that the minimum scale reflected the estimated costs of legal work done for a standard conveyancing transaction. It was necessary to set down the minimum scale because delivery of legal services was not operation of business. Mr Philip LI then explained that the maximum scale took into consideration the complexity of some assignments. Mr LI undertook to provide information on the basis for the proposed scales for members’ consideration. Mr James TO then asked about the premise of the proposed minimum/maximum scales and how the hourly rate of a solicitor with five years’ experience at $2,500 was arrived at. He observed that the proposed scales were not calculated according to the workload and complexity of transactions, nor were they correlated with property price. Mr John CHAN and Mr Philip LI explained that the hourly rate was about the earning power of a solicitor with five years’ experience and corresponded with the payment scale kept by the High Court’s Registrar for lawyers with such standing.

Solicitors
Concern
Group

8. Ms Emily LAU asked why the Concern Group considered that the legal profession could not withstand price competition. Mr John CHAN replied that consumers would continually negotiate for the lowest amount of legal fee for conveyancing work if scale fees were abolished, and that solicitors would then have to undergo a cut-throat competition among themselves in order to attract consumers. In response to Dr LAW Cheung-kwok’s enquiry, Mr CHAN said that at present it was a breach of the Law Society’s Code of Practice for solicitors to charge fee other than the scale fees basis and abolition of scale fees would legalise price negotiation. Mr Bruce LIU then asked and Mr Daniel WONG responded that salary payment was a major component of overheads for a law firm. It was therefore possible for an irresponsible law firm to operate at a very minimal cost for a considerable period, bear in mind that: (a) solicitors were subject to disciplinary sanction by the Law Society and were to bear civil liabilities only; and (b) compensation for their negligence of work would be paid out from the professional indemnity fund.

9. Ms Yolanda FAN also said that the Solicitors Concern Group supported the Administration’s proposal to vitiate any provision of a sale and purchase agreement which required the purchaser to pay the developer’s legal costs. In this regard, Mr Ronald ARCULLI asked about the economic and legal impact if such a proposal was to be implemented with retrospective effect. Mr John CHAN agreed to respond to Mr ARCULLI’s question after the meeting. He added that the Administration could in fact implement such proposal immediately to disallow developers to charge legal costs from purchasers, without the need for legislative exercise.

Solicitors Concern Group

10. Mr Philip LI said that although MDPs as a "one-stop shopping" concept would be an appealing idea, it was still early for Hong Kong to implement the proposal, particularly in view of the challenges which would be faced by the legal profession during the transitional period, i.e. use of Chinese in courts and adaptation of laws. The Solicitors Concern Group also supported the proposal of solicitor incorporation in light of its advantages.

III. Meeting with representatives of Kao, Lee & Yip, Solicitors, Notaries Agents for Trademarks & Patents

(Appendix 2 to LegCo Paper No. CB(2) 355/96-97)

11. At the invitation of the Chairman, Ms Jessica YOUNG briefed members on the submission. With reference to abolition of the professional indemnity fund proposed in the submission, Mr James TO asked and Ms YOUNG agreed that mandatory self-insured scheme should be required if professional indemnity scheme was abolished.

12. The Chairman asked and Ms YOUNG clarified that they did not object to the concepts of incorporation of solicitors’ practice and MDPs but they could not support the proposals as they were in the light that fundamental parameters for strict guidelines and adequate safeguards had not been established in the Bill. In reply to Mr Albert HO, Ms YOUNG said that they did not support the proposal to prohibit developers from requiring buyers to pay the developers’ legal costs on the grounds that: (a) it was a degeneration of the principle of freedom of contract; and (b) it was not workable because the developers could simply add the legal costs to the property price. Mr Bruce LIU asked and Ms YOUNG responded that an adjustment of the scale fees might be a better solution than abolition in the interests of the consumers.

IV. Meeting with representatives of Hong Kong Conveyancing & Property Law Association Ltd

(LegCo Paper No. CB(2) 373/96-97)

13. At the invitation of the Chairman, Mr John HODGSSON briefed members on their submission. Ms Emily LAU asked and Mr HODGSSON said that cross-subsidisation was a practice in the legal profession. Resources were lacking for sole practitioners and smaller firms to deal with legal work relating to the commercial, corporate finance and banking fields. His own practising experience in England when scale fees were abolished was that small law firms had suffered financially and had closed down accordingly. Consumers would have to seek legal services in criminal, divorce and litigation work from the large law firms which then could control their fees and fix them at a relatively high level. The public would therefore suffer not only because of higher fee for legal services, but also because of a small legal profession. In this connection, Mr James TO informed the meeting there had been a different view which was that abolition of scale fees might increase the competitiveness of small law firms which could operate at a lower level of overheads. Mr HODGSSON remarked that setting a scale of minimum charges could ensure law firms a minimum income.

V.Dates of future meetings

14. Members noted the letter from Winston Chu & Co. on behalf of the Action Committee which requested to meet with the Bills Committee (issued vide Appendix 4 to LegCo Paper No. CB(2) 355/96-97).

15. The Bills Committee agreed that the next meeting should be held on Tuesday, 19 November 1996 at 2:30 pm to consider clauses 14 and 15 of the Bill which added new sections 43B and 49A providing for notaries public and solicitors to enter into MDPs. Members would meet representatives of the Administration and the Law Society during the first session and those of the Action Committee during the second session. As the Chairman would be out of town, Mrs Selina CHOW, Deputy Chairman of the Bills Committee, agreed to chair the meeting. Members also agreed to schedule another meeting on Monday, 25 November 1996 at 4:30 pm to meet with the Action Committee on other provisions of the Bill.

(Post-meeting notes : At the request of the Action Committee and with the concurrence of Mrs Selina CHOW, the Bills Committee met Mr Martin RAYBOULD, solicitor of the United Kingdom, on his opinion about the abolition of scale charges in the United Kingdom during the second session of the meeting scheduled for 19 November 1996.)

16. The meeting ended at 6:55 pm.

LegCo Secretariat
29 November 1996

Last Updated on 27 October 1997
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