(To watch the full press conference with sign language interpretation, click here.)

To preserve and promote Hong Kong's competitiveness as a leading arbitration centre, the Law Reform Commission today recommended amending the law to allow lawyers to use outcome related fee structures (ORFS) for arbitration.

At present, lawyers in Hong Kong are prohibited from entering into ORFSs for litigation and arbitration proceedings.

The commission published a report following a study by its Outcome Related Fee Structures for Arbitration Sub-committee.

Law Reform Commission sub-committee co-chair Kathryn Sanger said such prohibitions should be lifted as quickly as possible.

“The response has showed that this is very much what stakeholders and users of arbitration in Hong Kong want and in fact need. And critically, from the Hong Kong public perspective, this brings Hong Kong into line with other major arbitration seats.

"It allows Hong Kong to maintain its status as a leading arbitration seat, it allows us to be competitive, which benefits everybody in Hong Kong, including not only the legal profession, but also the users of arbitration because we are seeing that clients are demanding that we be permitted to allow these types of fees so that they can keep choosing to seat their arbitrations in Hong Kong.

“And in fact, given the rise in arbitration involving Mainland parties, including claims arising out of the Belt & Road Initiative, of which there are an increasing number in Hong Kong, it is important that we can charge legal fees on a same or on a similar basis to our counterparts in the Mainland where these types of fees have been permitted and in fact have been working very well for some time now.”

In the report, the commission recommended three types of agreements which a lawyer may enter into with a client.

“The first is what we call conditional fee agreements, or CFAs, where lawyers charge benchmark fees or a discount of benchmark fees and an uplift on those fees if the case is successful.

“The second type is what we called damages-based agreements, or DBAs, and this is where the lawyer charges no fees through the lifetime of the arbitration, but takes a percentage of the financial benefit that the client obtains in that arbitration.

“And the last type is what we called a hybrid damages-based agreement. These are agreements that are suited to long-running, complex, sophisticated commercial arbitrations, where it would be difficult for a lawyer not to charge any fees at all through the lifetime of the dispute, that they are permitted to charge a discounted fee. And then also to take a percentage share of the outcome once the arbitration has concluded.”

The commission also suggested that any agreement dealing with ORFS should be in writing.

“They should state clearly when and in what circumstances the lawyer's fees and expenses should be payable.

“They should state clearly what the definition of success and financial benefit is, which we have recommended should be as broad as possible to meet demand and provide flexibility to clients.”

The report further advised implementing particular safeguards.

“There will be a minimum cooling-off period of seven days which actually is longer than many other jurisdictions, which have five days, that we felt that was an important safeguard for clients entering into these types of arrangements in case the client changes his or her mind.

“And the lawyer also has an obligation to inform the client of the need and the right, in fact, to take independent legal advice.”

Click here for the report.