On 17 December 2020, the Outcome Related Fee Structures for Arbitration Sub-committee of the Law Reform Commission published a consultation paper proposing that the law in Hong Kong should be amended to permit lawyers to use outcome related fee structures for arbitration taking place in and outside Hong Kong. Click here for the Executive Summary.
The recommendations are as follows:
The Sub-committee recommends that prohibitions on the use of CFAs in Arbitration by Lawyers should be lifted, so that Lawyers may choose to enter into CFAs for Arbitration.
Where a CFA is in place, the Sub-committee recommends that any Success Fee and ATE Insurance premium agreed by the claimant with its Lawyers and insurers respectively should not be recoverable from the respondent.
Where a CFA is in place, the Sub-committee recommends that there should be a cap on the Success Fee which is expressed as a percentage of normal or “benchmark” costs. The Sub-committee invites proposals on what an appropriate cap should be, up to a maximum of 100%. The Sub-committee also invites proposals on whether barristers should be subject to the same, or a different, cap and, if different, what that cap should be, up to a maximum of 100%.
The Sub-committee recommends that prohibitions on the use by Lawyers of DBAs in Arbitration should be lifted, so that Lawyers may use DBAs for Arbitration.
Where a DBA is in place, the Sub-committee recommends that any ATE Insurance premium agreed by the claimant with its insurers should not be recoverable from the respondent.
The Sub-committee invites submissions on whether the Ontario model or the Success fee model should apply to DBAs. It is the Sub-committee’s preliminary view that the 2019 DBA Reform Project’s recommendation to move to a Success fee model should be followed.
The Sub-committee recommends that there should be a cap on the DBA Payment, which should be expressed as a percentage of the “financial benefit” or “compensation” received by the client. The cap should be fixed after consultation. The Sub-committee is of the view that there is scope for capping the maximum DBA Payment at less than the 50% cap currently adopted in England and Wales for commercial claims, particularly if the Success fee model is adopted, and that an appropriate range for consultation is 30% to 50%.
The Sub-committee recommends that a CFA, DBA, or Hybrid DBA should specify whether, and if so in what circumstances:
(a) a Lawyer or client is entitled to terminate the fee agreement prior to the conclusion of Arbitration; and if so
(b) any alternative basis (for example, hourly rates) on which the client shall pay the Lawyer in the event of such termination.
(1) The Sub-committee recommends that clients should be able to agree, on a case by case basis, whether:
(a) the DBA Payment (and thus the DBA Payment cap) includes barristers’ fees; or
(b) barristers’ fees would be charged as a separate disbursement outside the DBA Payment.
(2) To the extent that barristers can be, and are, engaged directly, this could also be arranged via a separate DBA between client and barrister. In such circumstances, a solicitor’s DBA Payment plus a barrister’s DBA Payment in relation to the same claim or Proceedings should not exceed the prescribed DBA Payment cap.
The Sub-committee recommends that Hybrid DBAs be permitted.
In the event that the claim is unsuccessful (such that no financial benefit is obtained), the Sub-committee invites submissions as to:
(a) whether the Lawyer should be permitted to retain only a proportion of the costs incurred in pursuing the unsuccessful claim;
(b) if the answer to sub-paragraph (a) is “yes”, what an appropriate cap should be in these circumstances; and
(c) if the answer to sub-paragraph (a) is “yes”, whether the relevant regulations should provide that, if the DBA Payment is less than the capped amount of irrecoverable costs, the Lawyer is entitled to retain the capped amount of irrecoverable costs instead of the DBA Payment.
The Sub-committee recommends that appropriate amendments in clear and simple terms be made to:
(a) the Arbitration Ordinance;
(b) the Legal Practitioners Ordinance;
(c) The Hong Kong Solicitors’ Guide to Professional Conduct;
(d) the HKBA Code of Conduct; and
(e) any other applicable legislation or regulation
to provide (as applicable) that CFAs and/or DBAs and/or Hybrid DBAs are permitted under Hong Kong law for Arbitration.
The Sub-committee recommends that the more detailed regulatory framework should be set out in subsidiary legislation which, like the legislative amendments referred to in Recommendation 11, should be simple and clear to avoid frivolous technical challenges. Client-care provisions should also be set out in professional codes of conduct so that trivial breaches can be dealt with expeditiously by the professional bodies.
The Sub-committee invites submissions on:
(a) Whether and how the professional codes of conduct and/or regulations should address what other safeguards are needed.
(b) What should be the relevant method and criteria for fixing “Success Fees” in CFAs.
(c) Whether personal injury claims should be treated differently from other claims in Arbitration, by:
(i) imposing a lower cap on any Success Fee or DBA Payment in respect of a personal injury claim that is submitted to Arbitration; or
(ii) prohibiting Lawyers from entering into ORFSs in respect of personal injury claims that are submitted to Arbitration.
(d) Whether any additional category/ies of claim should be treated differently from other claims that are submitted to Arbitration if ORFSs are introduced.
(e) Whether a DBA Payment may be payable (depending on the terms agreed between Lawyer and client) wherever a financial benefit is received by the client, based on the value of that financial benefit.
(f) Whether the relevant financial benefit may be a debt owed to a client, eg under a judgment or settlement, rather than money or property actually received.
(g) Whether provision should be made for cases in which the result will not involve monetary damages by providing a definition of money or money’s worth that includes consideration reducible to a monetary value.
(h) Whether respondents should be permitted to use DBAs, eg to provide for a DBA Payment in the event the respondent is held liable for less than the amount claimed or less than an agreed threshold.
The Sub-committee recommends that Lawyers and legal practices should be permitted to charge separately for work done in relation to separate but related aspects of the Arbitration, such as counterclaims, enforcement actions and appeals.