Outcome Related Fee Structures for Arbitration
by Justin Yuen
Published: February, 2021
Submission: February, 2021
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Currently, Hong Kong lawyers are prohibited from charging outcome related fees in arbitration, other than pursuant to third party funding arrangements (for more information about third party funding, please see the article in our September 2017 newsletter). On 17 December 2020, the Outcome Related Fee Structures for Arbitration Sub-committee of the Law Reform Commission (Sub-committee) published a consultation paper proposing changes to Hong Kong law to enable lawyers to use outcome related fee structures (ORFS) for arbitration taking place in and outside Hong Kong, with the objective of maintaining Hong Kong’s status as one of the world’s top arbitral seats and to enable it to compete on an even playing field with other leading arbitral seats which allow some form of ORFS. The Sub-committee’s view is that such fee arrangements are attractive to clients for many reasons, including financial risk management, access to justice, and a general desire that their lawyers share the risks inherent in litigating or arbitrating a claim.
What is an ORFS?
An ORFS is an agreement between a lawyerand client, whereby the lawyer advises on litigation or arbitration proceedings (Proceedings) which are contentious and the lawyer receives a financial benefit if those Proceedings are successful within the meaning of that agreement. For the purposes of the Consultation paper, ORFS include CFAs, DBAs and Hybrid DBAs, which are as follows:
CFA: Conditional Fee Arrangement - An agreement, pursuant to which a lawyer agrees with their client to be paid a success fee in the event of the client’s claim succeeding, where the success fee is not calculated as a proportion of the amount awarded to or recovered by the client. CFAs include arrangements where (a) the lawyer charges no fee during the course of the Proceedings, and is paid only the success fee if the client’s case succeeds (also known as “no win, no fee” agreement); or (b) the lawyer charges a fee during the course of the Proceedings, either at the usual rate or at a discounted rate, plus the success fee if the client's case succeeds (also known as a "no win, low fee" agreement).
DBA: Damages-based Agreement - An agreement between a lawyer and client, whereby the lawyer receives payment only if the client is successful, and where the payment is calculated by reference to the outcome of the Proceedings, for example as a percentage of the sum awarded or recovered.
Hybrid DBA: Hybrid Damages-based Agreement - An agreement between a lawyer and client whereby the lawyer receives both fees for legal services rendered (typically at a discounted hourly rate) and a payment that is calculated by reference to the outcome of the Proceedings, for example as a percentage of the sum awarded or recovered if the client is successful.
As well as recommending permitting the use of ORFS for arbitration for lawyers, the Sub-committee makes recommendations on the operation of CFAs, DBAs and Hybrid DBAs, including the following:
(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.