Singapore: Singapore Launches Public Consultation On Conditional Fee Agreements

At present, conditional fee agreements (CFAs) are prohibited under Singapore law, putting Singapore at a disadvantage compared to some other major arbitral seats, such as London. On August 27, 2019, Singapore’s Ministry of Law launched a public consultation to solicit feedback on proposals for legislative amendments introducing a framework permitting CFAs for international and domestic arbitration proceedings in Singapore, certain proceedings in the Singapore International Commercial Court (SICC), and any mediation relating to these proceedings. The consultation period will run for six weeks, ending on October 8, 2019.

Background of CFAs

The Ministry of Law describes CFAs as a form of alternative legal funding which entitles a lawyer to payment of fees (or additional fees) only if his/her client’s claim is successful. CFAs sometimes provide for a success fee (or “uplift”) in addition to the lawyer’s standard fees in the event of success. While CFAs are used in many countries (including the United Kingdom, the United States, and China), Singapore currently prohibits CFAs because such agreements violate the doctrines of maintenance and champerty. This prohibition has been thought necessary to protect vulnerable litigants, to guard against abuse of the court process, and to mitigate against lawyer misconduct. However, proponents of CFAs say that such arrangements promote access to justice.   

CFAs are distinguishable from contingency or damages-based arrangements in which the lawyer shares an agreed proportion of the sum recovered by the client, irrespective of the services performed. Like CFAs, contingency arrangements are currently prohibited under Singapore law; the Ministry of Law does not propose a change to the law prohibiting contingency arrangements.

The Ministry of Law’s Proposals

The Ministry of Law proposes to implement the changes under a Civil Law (Amendment) Bill. The Ministry of Law first seeks feedback on four key components of its proposals:

Scope of Applicability

First, the Ministry of Law proposes to limit the use of CFAs to arbitration, certain SICC proceedings, and related mediation. The Ministry of Law plans to study whether CFAs would promote access to justice in other types of proceedings in the future.

Protecting Litigants

Second, the Ministry of Law proposes certain safeguards in its framework to protect litigants. CFAs must be in writing and signed by the client. Clients must be fully informed of the nature and operation of the CFA and must confirm that they have been informed of the right to seek independent legal advice before entering into the CFA. The Ministry of Law proposes several requirements, such as a “cooling off period” during which the client may terminate the CFA in writing. The lawyer and the client must agree the definition of a “successful outcome”. If a success fee or uplift is contemplated, the basis for the calculation of the success fee or uplift must be agreed, and an estimate or range of such fee must be prescribed. The client must acknowledge his or her liability for any costs orders made by the Court or tribunal notwithstanding the CFA. Under the proposals, non-compliance with these mandatory requirements would render the CFA void. In such cases, the lawyer’s fees would be calculated by the court (where the client is successful) and the lawyer would not be entitled to any success fee or uplift.

In addition, the Ministry of Law is considering whether to impose a cap on the success fee or uplift and seeks feedback from the public on whether such a cap should be imposed, and why.

Regulating the Legal Profession

Third, the Ministry of Law proposes to introduce professional conduct rules to regulate the conduct of lawyers entering into CFAs with their clients. These professional obligations are proposed to include a requirement to disclose the existence of the CFA to the Court or tribunal and to every other party to those proceedings, and reinforcement of the lawyer’s duty to act in the best interests of his or her client, including in advising on the decision to settle.

Maintaining Fairness

Fourth, the Ministry of Law proposes that in cases where a CFA is in place, any order for costs made in the proceedings against the losing party shall not include any part of the success fee or uplift that the victor may have to pay to his or her lawyer under the CFA.

Observations and Commentary

If adopted, the Ministry of Law’s proposals on CFAs would bring Singapore closer in line with the alternative fee arrangements available to litigants in many other jurisdictions. The proposals by the Ministry of Law show that Singapore is continuing to innovate and working hard to maintain its stature as one of the world’s leading centers for dispute resolution.  

In practice, the popularity of CFAs will hinge on the specific provisions adopted. If the provisions ultimately require lawyers to forgo all fees in the event of an unsuccessful outcome (as is common in personal injury cases, for example), law firms will be unlikely to accept that risk because arbitrations are often sophisticated, resource-intensive proceedings. Considering that the Ministry of Law proposes to limit CFAs to arbitration, certain SICC proceedings, and related mediation, the provisions will have to be formulated in a manner tailored to such matters. The most practical and/or logical outcome would be for the risk of “no win” to be built into the base rate or fee charged for the proceeding. For example, the lawyer might charge significantly discounted rates (or a fixed fee) as a baseline (e.g., a 25% discount) in exchange for an equally significant upside, i.e., a 25% premium on standard rates, in the event of a successful outcome.  This would allow clients and lawyers to share the risk of some portion of the litigation costs.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

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