Hong Kong has published a new Bill to allow lawyers to enter into outcome-related fee structures (ORFS) for arbitration1. The Bill is expected to be passed into law in late 2022 and, once enacted, will provide an additional funding model beyond the existing third-party funding regime (which does not apply to lawyers).2
What are ORFS?
ORFS are alternative fee arrangements that may be agreed between a lawyer and a client. Traditionally, such arrangements are prohibited by the doctrines of champerty and maintenance that constitute common law torts and offenses. The Bill seeks to lift the prohibition for arbitration and related court or mediation proceedings and expressly provides for three types of arrangements:
- conditional fee agreement (CFA): where the client agrees to pay the lawyer a success fee only in the event of a successful outcome, which can be an agreed flat fee or a percentage uplift on the fee that the lawyer would have charged if not for the CFA;
- damages-based agreement (DBA): where the lawyer charges no fees during the course of the arbitration and receives payment only if the client obtains a “financial benefit,” which is defined broadly to mean money or money’s worth including any reduction of potential liability; or
- hybrid damages-based agreement: where the lawyer charges some fees (usually discounted) and a DBA payment where the client obtains a “financial benefit.”
How to benefit from rules of ORFS under the Bill?
While the proposed reform remains underway, clients can expect more flexible fee arrangements to be available for arbitration in the near future. This will apply equally to arbitration in and outside Hong Kong and related court or mediation proceedings commenced under the Arbitration Ordinance. In addition, the proposed reform allows clients to enter into ORFS with lawyers qualified to practice the law of any jurisdiction, further enhancing Hong Kong’s leading position as an international arbitration center.
Sidley welcomes the proposed changes in the law, which will bring Hong Kong in line with other major arbitral seats, most of which permit some form of ORFS. Clients can look forward to alternative fee arrangements beyond the traditional hourly fee model and effectively share the risks with those they choose to instruct.
1 The Arbitration and Legal Practitioners Legislation (Outcome Related Fee Structures for Arbitration) (Amendment) Bill 2022 (the Bill). The Bill was first read on March 30, 2022, and is pending the resumption of the second/third reading.
2 Amendments to the Arbitration Ordinance (Cap. 609) to allow third-party funding in Hong Kong came into effect on February 1, 2019.
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