HK aims to regain crown as favoured arbitration hub

Globally, clients are moving away from hourly rates

Under the ORFS bill, lawyers can make more if their case succeeds.

Currently, lawyers handling arbitration cases in Hong Kong usually get paid by the hour Compared to Singapore and other top arbitral seats, Hong Kong’s proposed ORFS regime is broader under standard fees arrangements. But with the Law Reform Committee’s (LRC) push to finally allow legal practitioners to enter into outcome-related fee structures (ORFS), lawyers can structure a fee arrangement that specifically suits the individual client and the specific case.

Globally, clients are “moving away from hourly rates and towards sharing risk with their advisers,” Kathryn Sanger, a partner at Herbert Smith Freehills and co-chair of the Law Reform Committee’s sub-committee that proposed the ORFS changes, told Hong Kong Business.

The establishment of the ORFS regime will, therefore, attract more clients to have their case arbitrated in Hong Kong, and put the city on the same playing field as its competitors—London, New York, Mainland China, and Singapore— which are already allowing similar fee agreements.

“The sooner we sort of play catch up, and this bill comes into force, as legislation, the better,” Mark West, partner at Reed Smith Richards Butler LLP, told Hong Kong Business. because it permits the full range of ORFS structures, namely Conditional Fee Agreement (CFA), Damages Based Agreement (DBA), and the Hybrid DBA. In Singapore, where amendments to the law were recently introduced, only CFAs are permitted.

Three ORFS regimes

Under a CFA, Sanger said clients agree to pay the lawyer an additional fee, known as a success fee, in the event of a successful outcome for the client, as determined by clients with their lawyers. “The success fee can be an agreed flat fee, or calculated as a percentage uplift on the lawyer’s usual fee or the fee that the lawyer would have charged if there were no CFA in place,” she explained. “The client may also pay fees during the life of the matter, typically at a discounted rate. Alternatively, lawyers and clients may agree on a ‘no win, no fee’ CFA, where the client pays no fees at all unless the claim succeeds,” she added. For a DBA, lawyers will not charge

their clients any fee during the life of the arbitration, and will only do so if the latter obtains a “financial benefit” from the case. Lastly, if parties agree on a Hybrid DBA, lawyers will be able to charge their clients some fees during the period of the arbitration, likely at a discounted rate, as well as a DBA payment in the event the client obtains a financial benefit For arbitrations seated in or outside territory, lawyers can still charge success fees, as long as they are Hong Kong-based. Lawyers and clients based outside Hong Kong can likewise take advantage of the new rules when working on a Hong Kong-seated case, said Sanger. “In both cases, and in response to market demand, this provides maximim flexibility to lawyers in Hong Kong, and users of arbitration in the region,” said Sanger. Meanwhile, West warned that the proposed safeguards and restrictions The sooner we that would be applicable to ORFS play catch up, are susceptible to being “navigated,” and this bill especially under a hybrid damages comes into force based fee structure. For example, as legislation, lawyers can, if the client agrees, apply the better an enhanced hourly rate to mitigate against the risk of the success not materialising. “The law firm acting for the claimant may have its capital or its time costs, its unpaid time costs locked up for considerable periods of time, which obviously affects cash flow. Usually, they would factor that into their model and expect some sort of return on that as well,” West said. Sanger, however, said that this will “ultimately be a matter for lawyers to agree with their clients.”

The big winner

Once the ORFS gets implemented, the biggest winner would be the Kathryn Sanger clients. According to Sanger, ORFS arrangements reduce the risks inherent in pursuing a commercial claim through arbitration, like cost and duration. ORFS will not only benefit clients on a low budget, but it can also help businesses which may want to use their cash or budget elsewhere whilst Mark West resolving a dispute.