Conditional Fee Arrangements

In 2017, in the perennial race to be Asia’s leading arbitration seat, both Hong Kong and Singapore amended their law to permit third party funding for arbitration. The law of champerty and maintenance, insofar as it applied, was abolished to the extent of the new statutory schemes. In both jurisdictions this permitted the funders, under controlled circumstances, to share in the recovery produced by the case. That is to say, both conditional fees and full contingency fee arrangements were legalised. In both jurisdictions, conditional fees to some extent, third party funding and contingency fees remain impermissible in litigation.

Now Singapore proposes to go further. The Ministry of Law has issued a Consultation Paper seeking views on allowing ‘conditional fee agreements’ (“CFAs”) for certain court proceedings in Singapore (www.mlaw.gov.sg/content/minlaw/en/news/public-consultations/Public-Consu... period ends 8 October 2019). It is proposed that CFAs may be on a simple ‘no win no fee’ basis or include an ‘uplift’ for success. Full contingency fees are not within the proposals.

The proposed reform is to extend to international and domestic arbitration related court proceedings and certain prescribed proceedings in the Singapore International Commercial Court (SICC), including mediation proceedings arising out of or in any way connected with such proceedings. The basic idea is to align the prospective CFA framework with the third party funding framework.

So far as arbitration is concerned, this will allow the third party funding mechanism to extend to proceedings arising out of arbitration, for example enforcement or setting aside proceedings. So far as the SICC is concerned, this may well much enhance the attractiveness of the Court to international parties.

Some of the proposed rules and safeguards are as follows:

1. The lawyer must inform the client of the nature and operation of the CFA and its right to seek independent legal advice.

2. There is a mandatory “cooling off period” during which the client may terminate the agreement.

3. There must be a definition of what constitutes a “successful outcome”, although this is for the parties, rather than the legislation, to define.

4. If there is an uplift or success fee, the agreement must state the basis of calculation

5. Finally, the client must acknowledge its continued liability for any costs orders that may be made by the Court or arbitral tribunal.

As with third party funding, it is envisaged that a Code of Practice will be developed for lawyers to follow.

The US, as many will know, has long permitted full contingency fees. In the UK, following evolving reform starting in 1990, a wealth of experience has been gained in permitting both conditional and subsequently contingency fees in litigation and arbitration in controlled circumstances.

A blanket ban on even simple conditional fees seems, at the least, outdated in the modern world, if not positively contrary to good policy. In 2012 in Winnie Lo v HKSAR [2012] 15 HKCFAR 16 the Court of Final Appeal observed that it is no wrong for solicitors to rely for recovery of their fees on payment of costs orders by the losing opponent, which envisages no fees if the client loses. In 2013 in Law Society of Singapore v Kurubalan [2013] SGHC 135, [2013] 4 SLR 91 [82], the Singapore High Court, following the same authorities, held that it was permissible and even honourable for a lawyer to act for an impecunious client in the knowledge that he would likely only be able to recover his appropriate fees if the claim was successful, but this seems to impose an impecuniosity test. The proposed Singapore scheme has no impecuniosity requirement.

Given the competition around the world to attract arbitrations to the leading seats, these reforms may well be said to be overdue, and perhaps unduly narrow in scope. Given the HKSAR Government’s pro arbitration policy, hopefully Hong Kong will be swift to follow suit.

Jurisdictions: 

Practising Barrister and Arbitrator