Conditional Fees
(HKLRC Report)

On 9 July 2007, the Law Reform Commission (LRC) released a report on Conditional Fees.

The report recommends, amongst other proposals, that notwithstanding that conditional fees can enhance access to justice to a significant proportion of the community who are currently neither eligible for legal aid nor able to fund litigation themselves, conditions at this time are not appropriate for the introduction of conditional fees.  A successful conditional fees regime requires that insurance to cover the opponent's legal costs, should the legal action fail, would be affordable and available on a long-term basis. However, this is unlikely to be the case in Hong Kong.

Conditional fees are a form of "no-win, no fee" arrangement. If the case is unsuccessful, the lawyer will charge no fees. In the event of success, the lawyer charges his normal fees plus a percentage "uplift" on the normal fees. Conditional fees are different from the American form of contingency fee, where the lawyer’s fee is calculated as a percentage of the amount of damages awarded by the court.

At present, conditional fees, like other forms of "no win, no fee" arrangements, are unlawful for civil legal proceedings involving the institution of legal proceedings. The restriction has its origins in the ancient common law crime and tort of champerty and maintenance.

Given the high cost of litigation in Hong Kong, those in the middle-income group whose means are above the limits set down by the Legal Aid Scheme and the Supplementary Legal Aid Scheme would have difficulty financing litigation.

The report does not recommend conditional fees without the necessary "after-the-event' insurance because the middle income people are not rich enough to absorb the other side's costs, and might face financial ruin if required to pay the other side's costs.

Given the widespread support for the expansion of the Supplementary Legal Aid Scheme, the report recommends that the Government should increase the financial eligibility limits of the Supplementary Legal Aid Scheme, as well as expanding the types of cases covered by the scheme.

The report has further recommended the setting up of a Conditional Legal Aid Fund ("CLAF") to screen applications for the use of conditional fees, brief out cases to private lawyers, finance the litigation, and pay the opponent's legal costs should the litigation prove unsuccessful.

CLAF would engage the private lawyers on a conditional fee basis while CLAF would charge client on a contingency fee basis.

A feasibility study should be carried out into establishing CLAF as a statutory body under the governance of an independent board.

CLAF should have a generously set upper financial eligibility limit but should not have a minimum financial eligibility limit.  To be eligible for CLAF, an applicant must also satisfy the merits test.

It has been suggested that mediation should be incorporated into CLAF in view of its growing success and popularity, and the savings it could potentially achieve in legal costs.  CLAF should encourage litigants to use mediation and where the aided party consents to mediation and CLAF considers mediation appropriate, CLAF should fund the aided party's mediation costs.  On the other hand, an unreasonable refusal to make a sufficient attempt at mediation could, subject to the court's discretion, become a basis for making an adverse costs order after the conclusion of the case.

Important Notices