CONDITIONAL FEE AGREEMENTS NOW PERMITTED IN SINGAPORE

Lawyers in Singapore are now able to enter into Conditional Fee Agreements (CFAs) in selected proceedings, including arbitration and certain Singapore International Commercial Court (SICC) proceedings.

In January 2022, Singapore passed a bill to permit CFAs (see our post here). This bill came into effect on 4 May 2022, with the passing of the Legal Profession (Conditional Fee Agreement) Regulations.

Businesses with legitimate claims but preferring to deploy their cash flow elsewhere or share risk with their lawyers can now turn to CFAs for an alternative method of funding meritorious claims. CFAs can also help a broad range of clients to manage the cost associated with arbitrating a dispute.

As discussed here, these amendments build on Singapore's 2021 reforms, which allowed third-party funding in arbitrations and related court and mediation proceedings, as well as SICC proceedings,

Clients have the freedom to negotiate any fee structure or uplift with their lawyers.  The availability of different types of fee arrangements will depend on the lawyers' assessment of the dispute and both client and lawyers' attitude to risk and reward.

Some disputes (or parts of disputes) will suit an hourly rate model with a success component built into the rates.  Some disputes will suit a fixed fee approach with the success component to reflect the risk of costs exceeding the fixed fee.  In the right case, lawyers may accept to act on a 'no win no fee' basis.

Can your cases benefit from CFAs?

CFAs are now allowed in relation to:

• international and domestic arbitration proceedings in and outside Singapore;
• proceedings that are commenced in the SICC for so long as they remain in the SICC; and
• related court and mediation proceedings.

This includes work done for the purposes of, and before, the contemplated proceedings, such as preliminary advice, negotiations or the settlement of disputes. CFAs are permitted even if those proceedings are not eventually commenced, or if the dispute is settled.

When crafting the terms of the CFA before proceedings have been commenced, disputing parties and lawyers must specify clearly the conditions on which the uplift or additional fee structure can then be triggered.

Points to consider when structuring a CFA

Broadly, clients are free to structure a CFA to suit their needs.  For example, lawyers and clients can agree that a traditional fee structure will apply to one part of a case, and a CFA will apply to another. The fee agreement may incorporate both fee structures from the outset, or provide that one type of fee structure will be converted to the other if specified "trigger" events occur.

When structuring an appropriate CFA, lawyers and clients should consider factors such as the complexity of the work, the time needed to undertake the work and the risks taken by both parties under the CFA. They should also discuss and provide for how and when the CFA may be terminated and, if the CFA is terminated, how the remuneration structure will apply.

Lawyers and clients must ensure that their CFAs comply with the requirements in the Legal Profession Act (as reported in our earlier post) and the Legal Profession (Conditional Fee Agreement) Regulations. The regulations require lawyers to provide information on the CFA to the client before entering into a CFA, including:

• the nature and operation of the CFA and its terms;
• the client’s right to seek independent legal advice before entering into the CFA;
• that the uplift fees are not recoverable; and
• that the client continues to be liable for any costs orders that may be made against it by the court or arbitral tribunal.

The regulations also must include the following prescribed terms:

• the particulars of the specified circumstances in which remuneration and costs or any part of them are payable to the lawyer under the CFA;
• the particulars of any "uplift fee" (ie the remuneration or costs in excess of those that would have been due if there had been no CFA);
• that lawyers and clients must comply with the cooling-off period of five days after a CFA is entered into, during which either party may terminate the agreement via a written notice;
• that any variation of the CFA must be in writing and expressly agreed to by all parties to the CFA, and for variations related to costs, there is a cooling-off period of three days after the CFA is varied, during which either party may terminate the variation agreement via a written notice; and
• that upon termination of the CFA during the cooling-off period, the client is not liable for any remuneration or costs incurred during the cooling-off period except for services expressly instructed by or agreed to by the client.

This mandatory requirement for a cooling-off period should help to avoid any potential disputes between clients and lawyers regarding CFAs.

There is no legal cap on the conditional fee subject to Singapore professional conduct rules that prohibit lawyers from overcharging their clients. A very large fee compared to effort may risk engaging the overcharging rule.

If the CFA does not satisfy statutory requirements or is invalid, then the clients' legal fees will be subject to the usual regulation of the Singapore courts as if there was no CFA.

Under the regime, parties can only recover from another party the amount of costs to which it would have been entitled if there had been no CFA but not the "uplift" component.

During the second reading of the bill, Singapore's Law Minister noted that, in other jurisdictions where the uplift fee may be payable as part of party-and-party costs, the losing party may attempt to challenge the validity and application of the CFA to avoid paying uplift fees to a successful party as part of legal costs. In contrast, Singapore seeks to avoid satellite litigation where CFAs are challenged by the unsuccessful party.

Are damages-based agreements (contingency fees) still prohibited in Singapore?

Damages-based agreements (described as contingency fees in some jurisdictions) remain prohibited. The uplift fee cannot be a percentage or proportion of the damages awarded.

In contrast, as noted in our post here, Hong Kong has tabled a bill recommending that Hong Kong allows lawyers to charge success fees for arbitrations, including damages-based agreements (as well as CFAs or "Hybrid DBAs" which combine elements of both CFAs and DBAs).

How we can help your business

Herbert Smith Freehills is a market leader in disputes pricing. Our Pricing and Analytics Team works with our lawyers and clients to achieve optimal pricing and commercial arrangements that work for everyone. We offer a variety of innovative and bespoke solutions, including CFAs and other alternative fee arrangements.

Our Litigation Funding and Risk Transfer Insurance practice for dispute resolution is a unique offering in the global market. We are well versed in the opportunities and risks of funding disputes. Our clients benefit from our knowledge and experience in managing third-party funded disputes and our deep and long-running relationships with all the major funders.

To find out more about alternative pricing options, including CFAs and third Party Funding for disputes in Singapore, please contact Alastair Henderson, Elaine Wong, Tom Furlong, Gitta Satryani, Dan Waldek, Christine Sim, Joshua Chia, John O'Donoghue, or your usual Herbert Smith Freehills contact.