Consultation Paper on Outcome Related Fee Structures for Arbitration

Consultation Paper on Outcome Related Fee Structures for Arbitration

Consultation Paper on Outcome Related Fee Structures for Arbitration 1400 788 Charing

The consultation period for the Outcome Related Fee Structures for Arbitration Sub-committee of the Law Reform Commission’s (“Sub-Committee’s”) consultation paper (the “Consultation”) on Outcome Related Fee Structures (“ORFS”) for Arbitration recently came to an end, on 16 March 2021.

An ORFS is also known as a success fee agreement/arrangement.  At present, legal practitioners in Hong Kong are prohibited from charging outcome-related fees for work on contentious matters – including litigation in courts and arbitration proceedings.

For the purpose of the Consultation, the Sub-Committee considered the three types of ORFS below:-

  1. Conditional Fee Agreements (“CFAs”): An agreement where a lawyer agrees with the client to be paid a success fee in the event of the client’s claim succeeding, where the success fee is fixed and is not calculated as a proportion of the amount awarded and/or recovered by the client. CFAs include arrangements where the lawyer charges no fee and is paid only the success fee (no win, no fee) or where the lawyer charges at a discounted rate and is also paid the success fee (no win, low fee).
  1. Damages-based Agreements (“DBAs”): An agreement where a lawyer agrees with the client to be paid a success fee in the event of the client’s claim succeeding, calculated by reference to the outcome of the proceedings e.g., a percentage of the sum awarded or recovered.
  1. Hybrid Damages-based Agreements (“Hybrid DBAs”): An agreement where a lawyer agrees with the client to be paid a success fee in the event of the client’s claim succeeding, calculated by reference to the outcome of the proceedings e.g., a percentage of the sum awarded or recovered, and in addition to the success fee, also be paid fees for legal services rendered at a discounted rate.

The Sub-Committee also provided its recommendations regarding the operation of ORFS including:-

  • CFAs Where a CFA is in place, any success fee and after the event (“ATE”) insurance premium agreed by the client with its lawyers and insurers respectively should not be recoverable from the other party. There should be a cap on the success fee, which should be expressed as a percentage of normal or “benchmark” costs.  The Sub-Committee also invited proposals on the appropriate level of capping success fees, up to a maximum of 100%.
  • DBAsWhere a DBA is in place, any ATE insurance premium agreed by the client with its insurers should not be recoverable from the other party. There should be a cap on the success fee, which  should be expressed as a percentage of financial benefit or compensation received.  The client should also be able to agree on a case by case basis, whether the success fee in a DBA includes barristers’ fees.
  • Hybrid DBAs – In the event where the claim is unsuccessful, the Sub-Committee invited comments on whether the lawyer should be permitted to retain only a proportion of the costs incurred in pursuing the unsuccessful claim and if yes, the appropriate cap.

Other than the above, the Sub-Committee also invited comments on the mechanism for terminating ORFS arrangements and possible safeguards to be put in place.

We await to see the Sub-Committee’s further recommendations.

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