Law Reform Commission approves ORFS recommendations

Law Reform Commission approves ORFS recommendations

Hong Kong takes steps to lift the ban on outcome-related fee structures

Hong Kong's Law Reform Commission (LRC) has approved the recommendations of a sub-committee established to investigate the outcome-related fee structures (ORFS), including the conditional fee agreements (CFAs) and damages-based agreements (DBAs).

Co-chaired by two Herbert Smith Freehills lawyers, partner Kathryn Sanger and consultant Briana Young, the committee's report followed a consultation launched in 2020 that elicited overwhelming professional support for the reforms.

The committee had looked at the no-win and low-fee arrangements of CFAs, DBAs and hybrid DBAs and conducted a review of leading jurisdictions.

While lawyers in Hong Kong are prohibited from entering into ORFS for litigation and arbitration proceedings, other jurisdictions, including Singapore, have adopted or are adopting the reforms, potentially leaving the Special Administrative Region at a disadvantage.

The Herbert Smith report concluded the ban should be lifted for ease of proceedings and enforcement, but that their use should not be extended to proceedings in Hong Kong's courts.

Young said, "For Hong Kong to remain a world-class arbitral jurisdiction, its lawyers should be able to offer parties the same fee flexibility as other major seats, a flexibility that clients are increasingly demanding."

The report made a number of technical recommendations, including on the level of the success fees charged under ORFS, limiting them to 100 percent of normal benchmark costs, equivalent to the position in England and Wales. It also said costs under DBAs should be capped at 50 percent of the financial benefit, also similar to the position in London.

Sanger stated, "Parties like their lawyers to have a stake in their arbitral success. The proposed reforms make that possible, within a framework of strong regulation to protect them."

The Special Administrative Region's Department of Justice (DOJ), with a view to seeking legislative amendments to the Hong Kong law, will now study the proposals. The new Legislative Council, elected recently, would consider it in due course.

Amidst positive market reaction, Hong Kong-based vice president at Burford Capital, Emily Tillet said, the proposed reforms were "demonstrably beneficial for both law firms and their clients" bringing Hong Kong in line with other global arbitration hubs. "As law firms take on more client risk, we are confident they will welcome risk-sharing partners like Burford Capital," she added.

Jern-Fei Ng QC, an arbitrator member at Temple Chambers, agreed, "The implementation of the recommendations can only solidify Hong Kong's popularity as one of the leading arbitral seats in the world." The reforms would "widen the spectrum of ways in which a party can pursue a meritorious claim in arbitration," he added.

Other members of the committee included Hong Kong Law Society president C M Chan, former Allen & Overy co-head of arbitration Matthew Gearing QC, now of Fountain Court, and Benny Lo and José-Antonio Maurellet SC, of Des Voeux Chambers, both respected commercial barristers.