Conditional Fee Arrangements Likely Soon to be Allowed in Singapore and Hong Kong

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Key Takeaways

  • Traditionally, the common law as applied in Singapore and Hong Kong has prohibited the use of conditional fee arrangements in which the lawyer’s entitlement to legal fees is contingent on the outcome of the case.
  • Singapore has recently introduced a bill that will allow for the use of conditional fee arrangements in arbitration and related proceedings.
  • Hong Kong is considering legislative proposals that may go further and allow damages-based agreements in which lawyers charge fees calculated as a proportion of any amount recovered in the proceedings.

In this OnPoint, we provide an update on recent steps taken by Singapore and Hong Kong to liberalise rules on the use of conditional fee arrangements by lawyers in arbitration and related proceedings.

Background

Presently, Singapore and Hong Kong law prohibits lawyers from entering into outcome-related fee arrangements with their clients because of the common law rule against maintenance and champerty.1 The traditional rationale for the common law rule is that ‘the champertous maintainer might be tempted, for his own personal gain, to inflame the damages, to suppress evidence, or even to suborn witnesses.’2

There has been a growing recognition, however, that the traditional rule against maintenance and champerty is unduly restrictive and may hamper access to justice for impecunious litigants. Thus, the UK abolished the prohibition against conditional fee arrangements in 19903 and allowed contingency fee arrangements (also known as damages-based agreements) in 2013.4

Singapore

Following an extensive public consultation, the Singapore government recently tabled the Legal Profession (Amendment) Bill in Parliament to legalise the use of conditional fee arrangements for arbitrations and related court and mediation proceedings.

The proposed legislation will allow lawyers to enter into conditional fee agreements, which could include: (a) a waiver of part or all of a lawyer’s fees in the event of an unfavourable outcome; and (b) an uplift fee payable in the event of a favourable outcome that is higher than what would be otherwise payable if there were no conditional fee arrangement in place. Under the proposed legislation, however, lawyers still cannot charge fees as a proportion of the amount of damages awarded to a client (in contrast to the U.S. and UK).

The Bill contemplates the Minister for Law issuing subsidiary legislation setting out detailed regulations on the use of conditional fee arrangements (which may include, for example, caps on the uplift fee that could be charged in the event of a successful outcome).

The bill is set to be debated in the Singapore Parliament in January 2022.

Hong Kong

On 17 December 2020, a sub-committee of the Hong Kong Law Reform Commission (the HKLRC) published a consultation paper proposing that lawyers be permitted to adopt outcome-related fee structures for arbitration proceedings in or outside of Hong Kong, as well as court and mediation proceedings under Hong Kong’s Arbitration Ordinance.

Unlike the approach adopted in Singapore, the HKLRC recommended that lawyers be allowed to utilise the full gamut of outcome-related fee structures, including conditional fee arrangements and contingency fee or damages-based arrangements. The sub-committee also recommended that percentage caps be placed on the success fees that could be charged under these arrangements.

In its response dated 6 July 2021, the Hong Kong Bar Association expressed general support for the HKLRC’s recommendations with certain caveats, including a proposal that arbitrations involving personal injuries be excluded from the scope of any law reform, and suggested certain safeguards to protect the public interest.

It is expected that the Hong Kong government will table legislation in due course to implement the recommendations of the HKLRC.

Conclusion

The changes afoot in Singapore and Hong Kong are likely to be well-received by users of arbitration and mediation as they allow greater flexibility in the financing of disputes and the allocation of risk between clients and their legal counsel.

The proposed changes will supplement the existing rules in Singapore and Hong Kong, which allow for third-party funding in arbitration-related proceedings. Notably, third-party funding is usually only available for claimants (as funders usually seek a percentage of the amount recovered in the proceedings). In contrast, conditional fee arrangements will also be available for respondents.

The changes will bring the two jurisdictions into line with other leading arbitration seats, while closing a loophole whereby legal counsel practising offshore could potentially have greater flexibility in how their fee arrangements were structured as compared to locally regulated lawyers who specialise in arbitrations in Singapore and Hong Kong.

 

Footnotes

1) ‘Maintenance’ is defined as ‘officious intermeddling in litigation’, while ‘champerty’ is a particular form of maintenance ‘where one party agrees to aid another to bring a claim on the basis that the person who gives the aid shall receive a share of what may be recovered in the action’: Law Society of Singapore v Kurubalan s/o Manickam Rengaraju [2013] SGHC 135 at [40].

2) In re Trepca Mines Ltd (No 2) [1963] Ch 199 at pp 219–220.

3) UK Courts and Legal Services Act 1990, section 58.

4) UK Legal Aid, Sentencing and Punishment of Offenders Act 2012, section 45.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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