SINGAPORE TO ALLOW CONDITIONAL FEE ARRANGEMENTS

On 1 November 2021, a bill to permit Conditional Fee Arrangements (CFA) had its first reading in the Singapore Parliament. If the bill is passed, it will permit law firms and lawyers in Singapore to enter into CFAs with their clients in respect of certain types of disputes (whether relating to proceedings in Singapore or any other foreign state), together with related advice and legal services, even if formal legal proceedings are not actually commenced.

This is a further indication of Singapore's responsiveness to the needs of international commercial parties who are considering using Singapore as an arbitral seat or location for the resolution of their disputes. If passed, this will provide new options for clients for funding their disputes, in addition to third-party funding which, as reported in our previous post, is now also possible for international arbitration proceedings and related court and mediation proceedings, Singapore International Commercial Court (SICC) proceedings, domestic arbitration proceedings and related mediation proceedings.

This post provides a high-level overview of the key features of the bill. We will explore the bill, and the options it provides, in more detail once the bill is passed and further information about the implementing regulations is known.

What is a CFA?

Typically, CFAs provide for payment of the lawyer’s standard fees in specified circumstances, i.e. in the event of success if the client’s claim is successful as per a pre-agreed definition of success and also may include an uplift in the amounts to be paid in that event.

CFAs are distinguishable from full contingency or damages-based arrangements in which the lawyer is paid a percentage of the damages awarded. Such arrangements are prohibited in Singapore, and that will stay the same even if the bill is passed.

What are the proposed requirements of a CFA?

According to the proposed bill, to be valid and enforceable, the CFA must:

• be in writing and signed by the client;
• not provide for the remuneration or costs to be payable as a percentage or proportion of the amount of damages or other amounts awarded to or recovered by the client in any contentious proceedings;
• not exclude liability for the lawyer's negligence or other professional responsibility; and
• be neither void nor voidable under the common law principles of contract having regard to the circumstances in which the CFA was made and interest of all the parties to the agreement taken as a whole.

Subsidiary legislation to implement safeguards is also anticipated that will prescribe the:

• types of contentious proceedings that may be the subject of a CFA, the form of the CFA;
• parties that would have capacity to enter into CFAs;
• terms and conditions of a CFA;
• information a lawyer must provide to the client before entering into a CFA; and
• maximum uplift fee or set guidelines regarding how the uplift fee should be calculated.

It is anticipated that, as a minimum, CFAs will be permitted for disputes subject to resolution by international arbitration and mediation, or by the Singapore International Commercial Court (SICC).  It is also expected that the Singapore Rules of Court will be updated to include provisions governing the procedure and the assessment of costs payable under a CFA.

How can the CFA be enforced?

The bill provides a framework for the Court of Justice in which the contentious proceedings or any part of the proceedings was conducted (including the SICC), or if the proceedings were not conducted in a Court of Justice, then the General Division of the Singapore High Court, to determine matters relating to the enforcement and determination of questions relating to the validity or effect of a CFA, as well as to safeguard clients from overcharging or deal with the impact on a CFA of a change in a client's law firm.

Will the CFA affect the costs recoverable from the losing party?

Under the proposed bill, a CFA will not affect the recovery of costs from the client by another party (e.g. if the client subject to the CFA loses a case and has an adverse costs order made against them, the CFA will not operate to prevent the winning party from recovering its costs). Also, if a CFA provides for payment by a client to its lawyers of an uplift fee, the bill provides that such uplift fee cannot be recovered as part of an adverse costs order against a losing party. The client can only recover from the losing party the normal amount of costs, as if there had been no CFA. This differs from some jurisdictions which may allow the recovery of such uplift fees. In any event, the bill provides that client cannot recover from the losing party more than the amount actually paid to the client's lawyer.

How can you benefit from CFAs?

The proposed changes provide further encouragement to parties to specify arbitration in Singapore or choose the SICC as their dispute resolution forum in their commercial contracts.

This is particularly relevant at a time when an increasing number of parties affected by post-pandemic events have meritorious claims, but may be unable to commence their claims due to a temporary liquidity or cash flow issues. The adoption of CFAs could therefore promote access to justice by allowing parties with difficult financial circumstances to work with their lawyers and/or third-party funders to bring meritorious claims through arbitration and SICC proceedings in Singapore.

The use of the CFAs will also provide sophisticated commercial parties with additional alternatives for managing legal costs risk, through risk sharing with their lawyers.

Our approach to CFAs

CFAs are commonly used in many common law countries. Our Litigation Funding and Risk Transfer Insurance practice for dispute resolution is a unique offering in the global market. We are well versed on the opportunities and risks in managing disputes with a CFA, and our clients benefit from our knowledge and experience in this space.

We view disputes in the same way that your in-house team approach your business – we make decisions on a risk / reward basis. Whilst recognising the need to deliver high quality legal advice, we know that the management of disputes involves numerous strategic decisions and that an integral part of this decision-making process is the assessment of the potential costs involved.

We pride ourselves on balancing our clients risk profile with our own and accentuate this through our industry leading approach to CFAs.

We are established thought-leaders in the area of third-party funding in international disputes, and we actively demonstrate commitment to continue to be recognised as such globally. We boast the only disputes focused Pricing & Litigation Funding practice in the global market. Our clients can also benefit from our long serving and deeply embedded relationships with all major funders and insurance brokers within the market.

If you want to find out more about the bill, or funding options (including CFAs and Third Party Funding) for disputes in Singapore more generally, please contact Alastair Henderson, Gitta Satryani, Elaine Wong, Tom Furlong, Dan Waldek, Christine Sim, or your usual Herbert Smith Freehills contact.