LegCoPaper No.CB(2)1132/96-97
Ref : CB2/BC/47/95

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

held on Thursday, 9 January 1997 at 8:30 am
in Conference Room A of the Legislative Council Building

Members Present :

Hon Fred LI Wah-ming (Chairman)

Members Absent :

Attendance by Invitation :

Action Committee

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 Mr Winston CHU, Convenor of Action Committee

II.Meeting with Mr Thomas TSE Lin-chung and Ms Susan LIANG

III. Dates of future meetings

I.Meeting with Mr Winston CHU, Convenor of Action Committee

(Appendix II to LegCo Paper No. CB(2)858/96-97)

Mr Winston CHU briefed members of his views on the proposed abolition of scale fee for conveyancing in the Legal Services Legislation (Miscellaneous Amendments) Bill 1996, as set out in his paper which had been issued to members as Appendix II to LegCo Paper No. CB(2)858/96-97. In broad terms, his views are that the proposal would undermine the independence of the legal profession, that Hong Kong needs stability to ensure a smooth transition to 1997, that it is not in the interest of the rule of law to sacrifice quality of the legal profession for price, that there is no justification for Government to push the Bill through with haste when Hong Kong is facing a change of sovereignty, and that an independent commission should be appointed to consider the legislative proposal in depth.

2. Mr CHU considered that the consultation made by the Hong Kong Government was inadequate as far as abolition of scale fees was concerned, especially compared with Singapore and Australia. In Singapore, an independent commission, with membership ranging from retired judge to consumers, had studied abolition of scale fee for over one year and had drawn up a detailed report for the guidance of the Singapore Government. Singapore eventually decided not to change the system of scale fees. Similarly, in Australia, an independent commission had deliberated abolition of scale fee for over one year and had produced a detailed report which enabled Australia to decide to abolish scale fees.

(Post-meeting notes: the two reports are with the Secretariat. Members were issued a copy of the Singapore report without annexes except Annex A and a copy of the Contents Section and the Executive Summary of the Australian Report vide LegCo Paper No. CB(2)580/96-97.)

3. Mr CHU continued to say that the Government had failed to present a fair and objective picture to the public in respect of abolition of scale fee. He urged members to consider the benefits of having independent advice from an independent, knowledgeable, well-represented and full-time commission.

4. Mr CHU also referred members to pages 19 to 22 of the report of the independent commission of Singapore which set out the situation in Malaysia, New South Wales of Australia, Hong Kong, New Zealand and England. Members noted that in Malaysia and Hong Kong the scale fee was not abolished; in New South Wales the scale fee was abolished in 1991 and in New Zealand, the abolition of the fixed fee scale was followed by a reduction of fee and it was reported that there had been a drop in the standards of service owing to the need to cut corners in order to stay competitive. In England, the fixed fee scale was abolished in 1972 and there were evidences of cut price conveyancing and inadequate services to clients and a rising claim for indemnity. Mr CHU also tabled an article published in the New Law Journal by Mr Tony Holland entitled "Cut price conveyancing" in England, which highlighted problems as a result of the abolition of scale fees. (The article was issued to absent members vide LegCo Paper No. CB(2)913/96-97 after the meeting.) Mr CHU described the experience of England as disastrous. He also drew members attention to the fact that the English Law Society had to employ 700 people to check the quality of work of the legal firms.

5. Mr CHU then referred to Mr TSE Lin-chungs suggestion (point 3 on page 2 of Mr TSEs paper, issued vide LegCo Paper No. CB(2)827/96-97) that price factor would balance "unfair" competition between new firms and well-established firms. He commented that it amounted to sacrificing quality of work for price.

6. Mr CHU said abolition of scale fee would destroy the legal system which had been in place for over 50 years, and was untimely in the light of the impending change of sovereignty. In this regard, he emphasised that solicitors were officers of the Court, as provided in section 3(2) of the Legal Practitioners Ordinance, Cap.159 (the Ordinance), and had professional responsibilities and duty to their clients, and were not tradesmen, nor taxi-drivers. The proposal of the Government would in effect bring down the reputation of lawyers and would ultimately destroy the rule of law in Hong Kong.

7. Mr CHU submitted that the scale fee system was a positive approach and enabled the Law Society to maintain proper professional standard and discipline. The system could ensure solicitors to have a reasonable income and to give good quality service. The Costs Committee could monitor the level of scale fee. Its membership, as stipulated in section 74 of the Ordinance, could also fairly represent the interests of the public and the legal profession and a fair balance of these interests. Proposal for changes in the scale fee had to be approved first by the Costs Committee and then by the Chief Justice.

8. Referring to the point made by the Government that the Law Society had failed to call for a general revision of scale fee in recent years, as set out in paragraphs 44 to 47 of the paper entitled "The case against scale fee for conveyancing" prepared by the Legal Department (sent to individual members by the Deputy Law Officer under cover of his letter dated 2 January 1997), Mr CHU said that the Director of Lands should have known the change in land prices in his official capacity and the Government could initiate meeting of the Costs Committee as well as the Law Society. He also referred members present to the fact that the Law Society had proposed a meeting of the Costs Committee on 10 June 1996 which was turned down by the Chairman of the Costs Committee on 13 June 1996. He opined that the Government could obtain information on solicitors costs and overheads via the Costs Committee, if it really wanted to do so.

9. Mr CHU submitted that he was now working for a fair scale fee for conveyancing work and he could not agree with the Governments proposal for complete abolition of scale fee on the ground that anti-competition was bad, because he feared that it would lead to a lack of proper control in the quality of legal work which would not be in the public interest. He cautioned that it would be difficult to restore the scale fee system, if abolished. He said that an effect of the abolition of scale fee in Hong Kong would be that lawyers would become "ambulance chasers", as in America, and would cause society to become more litigious. Also, life would be difficult at time of economic recession due to undercutting of price for survival.

10. Members then raised a number of questions and discussed them with Mr CHU. The gist of discussion is summarised in the following paragraphs.

11. Mr Howard YOUNG asked Mr CHU whether scale fee was being circumvented and whether it was interfering market forces, as suggested by the Government. Mr CHU replied that the problem was due to the economic recession in 1994 whereby law firms had to make offers to estate agencies for introduction of business. He agreed nevertheless that there was a need to revise the scale fee.

12. Mr Bruce LIU said that it was a fact that the public was complaining about the high level of scale fee. He asked why there was no scale fee for other professions such as doctors and accountants and why these professions could stand competition and what the differences were between these professions and the solicitor profession. He asked also whether the membership of the Costs Committee should include representative(s) of the consumers as well. Mr CHU said the answers were in the "No Competition Policy" section on page 4 of his submission, which were: firstly, the consumer could not take a chance on getting a defective title; secondly, the consumer was not in a position to assess the quality of the legal work; and thirdly, defects in title might only come to light years later and too late. He agreed that the membership of the Costs Committee might need to be reviewed, but he emphasised the need for representation of the legal profession.

13. Miss Margaret NG expressed her empathy with Mr CHU, not only in advocating for retention of scale fee, but also for continual existence of the legal profession with privilege and responsibility. She asked if Mr CHU would accept the Governments presumption that free competition was good and in the public interest, and the burden would be on the Action Committee to prove otherwise, and whether the example of England for failing to restore the scale fee could be taken as an indication of admission that it could not be proved that scale fee was in the public interest. Mr CHU replied that open competition and market forces were appropriate for commercial enterprise and not for the legal profession. He felt that the legal system in Hong Kong was better than that in England.

14. The Chairman thanked Mr CHU for coming to the meeting to express his views to members. Mr CHU also left three copies of "The Hong Kong Solicitors Guide to Professional Conduct, Volume 1" published by the Law Society of Hong Kong with the Secretariat for members reference.

II.Meeting with Mr Thomas TSE Lin-chung and Ms Susan LIANG

(LegCo Paper No. CB(2)827/96-97)

15. Mr Thomas TSE opined that the principle of scale fee should not be accepted, the system of scale fee had in fact bankrupted, and there was no proof that the system had maintained the standard of quality of work of solicitors. He felt that the system created unfair competition between non-developer solicitors and developer solicitors, between non-banker solicitors and banker solicitors and, between new solicitor firms and well-established firms, and was against free economy. He could not agree that solicitors who did not charge scale fee for conveyancing were breaching the code of professional conduct or were discharging their professional duties at a lower standard.

16. Ms Susan LIANG said she favoured abolition of scale fee for the following reasons: (a) it would be in the public interest to do so since legal cost for conveyancing work would be reduced; (b) it was already the case that negotiations did exist for conveyancing fee and the Law Society had not disciplined solicitors who did not charge scale fee; (c) no correlation could be ascertained between scale fee and quality of legal service in conveyancing work. As a matter of fact, there had already been a large number of claims in respect of conveyancing work under the Professional Indemnity Scheme even under the existing system of scale fee and she invited the Law Society to provide the relevant information; (d) there was no reason to link conveyancing fee to property price; and (e) there was no reason to give solicitors preferential treatment in running business. Ms LIANG further pointed out that Mr Winston CHU had organised a signature campaign on "whether solicitors are interested to have a commission set up to investigate whether the present system should change". The campaign could not get the signatures of the majority of solicitors and some solicitors she had spoken to who had put down their signatures were not opposed to the Bill at all. She regarded the campaign as a delaying tactic for the passage of the Bill. She had summoned courage to speak openly against the position of the Law Society and she felt that there were a number of solicitors who were supportive of the Bill but who dared not speak openly against the Law Society.

17. Mrs Selina CHOW then raised several points for discussion, as follows: (a) why solicitors were afraid to speak openly their views against the scale fee if it was a fact that the Law Society had not disciplined solicitors who did not charge according to the scale; (b) whether consumers were paying a reasonable fee now; (c) whether the Costs Committee was fulfilling its role; (d) whether it was the intention of the scale fee system to secure a safe environment for solicitors to work independently, without the need to compete unnecessarily and resorting to action such as undercutting, and whether such intention was correct; (e) why the Bills Committee had taken up the role of the policy panel and had spent considerable time studying and meeting various deputations on the policies of the proposals of the Bill (which were controversial because Government attempted to change the legal system by attempting to change the income of solicitors) and whether it was right for the Bills Committee to do so; and (f) the Government should answer why the Bill was introduced to the LegCo despite the fact that the policies had not been discussed thoroughly.

18. The Chairman said he had consulted members regarding what deputations the Bills Committee should meet, the Bills Committee must study the policy aspects of the Bill since they were highly controversial, and the Government would need to answer at a later meeting scheduled for 22 January 1997 why the Bill was introduced despite the controversy.

19. At the invitation of the Chairman, Mr TSE said that it was a fact that some solicitors had exempted fee in respect of some legal document(s) for property transaction. This situation had pointed towards the direction of abolition of scale fee and arose because of the need to compete for business. The Law Society did not consider the exemption breaching its rules. Since most solicitors had agreed to accept a reduced fee, and since this had happened for at least five years, he considered that it was timely to abolish the scale fee and that formal abolition of scale fee would not lead to unhealthy competition of business. It was more for the benefit of developer solicitors and banker solicitors than for the consumers if it was decided to maintain the policy to provide a stable working environment for solicitors.

20. Mr TSE considered that the Law Society Council represented the interest of the large law firms more than that of practising solicitors in general, and had managed to do so by the proxy system for electing Council members, and the fear of some solicitors to speak openly against it was genuine.

21. Ms LIANG considered that the main thrust of the issue should be whether it was in the public interest to reduce legal costs, and she opined that this might lead to a possible direction for improvement of the standard of legal service.

22. Mrs Miriam LAU referred to Mr TSEs paper and noted that until mid 1996, he was in support of scale fee. She asked why in the letter dated 30 July 1995 to the Attorney General, Mr TSE supported scale fee for the reasons that qualities of legal service were intangible and problems would arise years after because of poor quality of work. She asked why Mr TSE was no longer in fear of such problems, or in fear of the increase in the amount of indemnity claims in the years to come, as the experience in England had shown. She asked whether Mr TSE had undertaken any survey to illustrate that about 90% of solicitor firms in Hong Kong did not support scale fee as he had claimed, in the penultimate paragraph of his letter dated 4 January 1996 to the Attorney General, that about 10% of the law firms in Hong Kong supported scale fee. Mr TSE said that he had undertaken no survey to substantiate his claim. It was purely his impression. Nevertheless, he did not feel that it was right that the opinion of solicitors on scale fee should form undue weight in the deliberation of the Bills Committee. He was now advocating abolition of scale fee together with other proposals which included separate legal representation and disallowing developer solicitors to receive legal fee from purchasers. He believed that his proposals could better protect the consumers interest. Since scale fee had not been faithfully charged for some years and since there had no manifestation that the standard of legal work had dropped because of this, he could not support the claim that formal abolition of scale fee would lead to lowering of professional standard.

23. Miss Margaret NG pointed out that how the Bill could affect solicitors as a profession on the one hand and consumers in general on the other hand was important factor for consideration by the Bills Committee. She felt that there should be additional information on how the provisions of the Bill could affect the society. She asked Mr TSE whether it was a breach of the code of conduct if solicitors did not charge scale fee and why this happened and whether the quality of existing professional service in property transaction was adequate. Mr TSE said that the Law Society was monitoring the quality of legal service and it had not highlighted any problem so far. It was not a breach of the code of conduct to exempt fee for certain documents and solicitors did not charge the scale fee because they were satisfied with the income derived from the lower fee they charged.

24. Mr Bruce LIU declared an interest as a solicitor of Mr TSEs firm. He pointed out that there were three different streams of opinions on abolition of scale fee in Mr TSEs firm. He considered that the existing rule allowing solicitors to exempt fee in respect of document(s) could avoid cut-throat competition, as in England. He considered that piece-meal engineering of amendment to the system could avoid problems, provide guidelines for fee and a limited degree of competition. Mr TSE said that consumers could bargain fee to a certain extent at present. The point that needed further consideration was whether the degree of bargaining should be relaxed or restricted.

III. Dates of future meetings

25. Further meetings had been scheduled as follows:

Friday, 17 January 1997 at 8:30 am to meet the Hong Kong Bar Association on the Bill, in particular the proposed provisions relating to the new status of Senior Counsel, the Barristers Disciplinary Tribunal and solicitor corporations; and
Wednesday, 22 January 1997 at 8:30 am to meet the Administration on abolition of scale fee.

26. The meeting ended at 10:50 am.

LegCo Secretariat
16 January 1997

Last Updated on 27 October 1997

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

held on Thursday, 9 January 1997 at 8:30 am in Conference Room A of the Legislative Council Building

I.Meeting with Mr Winston CHU, Convenor of Action Committee

II.Meeting with Mr Thomas TSE Lin-chung and Ms Susan LIANG

III. Dates of future meetings

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

held on Thursday, 9 January 1997 at 8:30 am
in Conference Room A of the Legislative Council Building