Editorial | Fee reform will allow city’s legal sector to compete

Hong Kong has embarked on a reform pivotal to enhancing its position as an international arbitration centre. In a potential legal breakthrough, the Law Reform Commission has recommended allowing lawyers to use an “outcome-related” fee structure for arbitration in and outside the city. The proposed reform is crucial in that it would give the legal sector the much-needed flexibility to compete with other jurisdictions that have long embraced such an approach.

The so-called no win, no fee arrangements are currently not allowed for litigation or for arbitration in Hong Kong. They are often associated with lawyers in the US and other countries who claim a big proportion of the damages won by their clients in accidents and other cases. Hong Kong, however, has a long-standing principle that lawyers should not have a financial interest in the outcome of the cases they handle.

Reasonable as it is, the rule has become an disadvantage in the increasingly competitive field of international arbitration. The reform commission believes that the city’s status as a major arbitration centre would almost certainly be undermined unless the law is amended to permit an outcome-based fee structure. The United States, England, Australia and mainland China already have such an arrangement.

Various fee-charging methods have been recommended, such as lawyers charging no fee if the case is lost, or a discounted fee plus an “uplift” upon winning the case. Another option is to link the charge to the outcome, based on a percentage of the amount awarded or recovered. A fee cap has also been proposed to guard against abuse.

The proposals have potential benefits, such as greater access to justice, increased flexibility in pricing, management of financial risks and alignment of lawyer and client interests, according to the commission. Concerns such as lawyers acting against their clients’ interests for personal gain can be addressed through appropriate safeguards. Popular arbitral seats, such as London, Paris, Geneva and New York, have adopted different forms of outcome-based charges, while Singapore is also reforming its system. Hong Kong stands to lose out if it does not close the gap.