Outcome Related Fee Structures by lawyers in arbitration

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Authored by: KK Cheung and Genevieve Lam

On 15 December 2021, the Outcome Related Fee Structures for Arbitration Sub-committee of the Law Reform Commission published a report recommending the lifting of the prohibition on the use of outcome related fee structures (ORFS) by lawyers in arbitration taking place in or outside Hong Kong. For details of different types of ORFS, please see the article in our February 2021 newsletter.

Highlights of the Commission’s recommendations

The Commission recommends:-

• Success fee premium and legal expense insurance premium shall not in principle be borne by the unsuccessful party, save in exceptional circumstances;
• There should be a cap on the success fee – capped at 100% of benchmark costs (i.e. fees that lawyers would charge their clients without ORFS agreement);
• “Damages-Based Agreement” payment as agreed between the lawyers and their clients should be capped at 50% of the financial benefit obtained by the clients;
• The subsidiary legislation should specify, on a non-exhaustive basis, that a lawyer/client is entitled to terminate a ORFS agreement prior to the conclusion of the arbitration;
• Amendments be made to (1) the Arbitration Ordinance (Cap 609), (2) the Legal Practitioners Ordinance (Cap 159), (3) the Hong Kong Solicitors’ Guide to Professional Conduct, and (4) the Hong Kong Bar Association’s Code of Conduct in clear and simple terms;
• 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.
• Various safeguards should be included in the subsidiary legislation such as:-
  • the ORFS must be in writing and signed by the client;
  • the lawyer should inform client that they have the right to obtain independent legal advice;
  • the ORFS should be subject to a minimum 7-day cooling-off period; and
  • the exclusion of personal injury claims from ORFS for arbitration.

Comments

All major arbitral seats permit some form of OFRS nowadays. The law reform relating to ORFS for arbitration should therefore attract more contracting parties to choose Hong Kong as the seat of arbitration and maintain Hong Kong’s competitiveness as a leading arbitration centre.

Key Contacts

Kwok Kit (KK) Cheung

Partner | Litigation and Dispute Resolution

Email or call +852 2825 9427