'HK Should Allow Success-based Fees In Arbitration'

The Law Reform Commission has called for the lifting of a ban on outcome-related fee structures for arbitration cases "as soon as possible", which would allow clients to pay no or lower lawyer fees unless they win their disputes.

The commission said its proposal on Wednesday was the result of a three-month consultation that received "overwhelmingly supportive responses" for such fee structures.

It recommended that fees based on success should not be more than the normal rates charged by lawyers, while charges linked to damages should have a ceiling of 50 percent of the financial benefit received by the client.

Kathryn Sanger, the co-chair of the commission's subcommittee on the proposal, explained that major jurisdictions for arbitration, including mainland China, England and the United States, allow some form of outcome-related fee structures.

"Hong Kong is one of only two major seats for arbitration, the other being Singapore, that currently prohibits these types of success fees for arbitration," she said, adding that Singapore is also expected to change its law to permit these types of fees as well.

She pointed out that arbitration is getting increasingly popular in resolving disputes that involve different jurisdictions.

"When they are looking where to choose to seat that arbitration, clients are likely to want to seat their arbitration where they have the most flexibility as to how they can structure fee arrangements with their lawyers," she said.

"So the change in circumstances is the need to maintain Hong Kong's competitiveness and attractiveness as a seat for commercial, international arbitration," she said.

The commission also proposed that there should be a cooling-off period of at least seven days that allows the client to terminate the agreement.