Reed Smith Client Alerts

On 16 December 2022, the Arbitration (Outcome Related Fee Structures for Arbitration) Rules (Cap. 609D) (“Rules”) came into effect setting out the detailed requirements for outcome related fee structures (“ORFS”) in Hong Kong.

This article introduces those regulatory requirements for ORFS in Hong Kong and compares them against the equivalent in Mainland China and Singapore. Arbitration users might want to explore the new pricing options for resolving cross-border disputes involving the three jurisdictions.

Authors: Lianjun Li Donald Sham Min Li Cheryl Yu Timothy Cooke Eric Xu Bernard Yee (Resource Law), Zicong Zeng

Background

Hong Kong law traditionally prohibited Hong Kong based arbitration lawyers from entering into contingency fee arrangements with their clients. Since 22 June 2022, such restriction has been lifted by the newly added Part 10B of Hong Kong’s Arbitration Ordinance (Cap. 609) (“Ordinance”).

As we discussed in our previous alert, the Ordinance has permitted the use of ORFS by both Hong Kong and foreign qualified lawyers in arbitrations seated in and outside of Hong Kong (Articles 98ZI and 98ZA of the Ordinance). The ORFS regime applies only to arbitration, emergency arbitration, related mediation and court proceedings (e.g. applications to Hong Kong courts to enforce or set aside an arbitral award).

The Ordinance provides for three types of ORFS:-

  • Conditional fee agreement (“CFA”) under which the client agrees to pay the lawyer a success fee in the event of a successful outcome in the matter.
  • Damages-based agreement (“DBA”) under which the lawyer only receives payment if the client obtains a financial benefit (which means “any money or money’s worth” but excludes any awarded legal fees and expenses 1 in the matter, and such payment is calculated by reference to the financial benefit, such as a percentage of the monetary sum awarded to the client.
  • Hybrid damages-based agreement (“Hybrid DBA”) under which the client agrees to pay the lawyer not only a fee (which is usually discounted) for the legal services rendered by the lawyer during the course of the matter but also an additional fee in the event that the client obtains a financial benefit.

The Ordinance provides for the validity and enforceability of the above ORFS agreements if they meet the general and specific conditions, set out in the Rules.

General and specific conditions for ORFS agreements

We have summarised below the general conditions applicable to all types of ORFS agreements and specific conditions applicable to each of them. Arbitration users are recommended to include all essential terms to ensure the enforceability of their ORFS agreements.

Agreement table