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Conditional Fees
(HKLRC Consultation Paper)

The Conditional Fees Sub-committee of the Law Reform Commission (LRC) released a consultation paper on conditional fees.

The sub-committee recommends, amongst other proposals, that existing prohibitions against the use of conditional fees should be lifted for certain types of civil litigation, so that lawyers may choose to charge conditional fees in appropriate cases.

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 consultation paper recommends that lawyers should be allowed to use conditional fees in certain types of civil litigation, including personal injury cases, family cases not involving the welfare of children, insolvency cases, employees' compensation cases, professional negligence cases, some commercial cases, product liability cases and probate cases involving an estate. Conditional fee agreements should not be extended, at least initially, to defamation cases, criminal cases, and cases in which an award of damages is not the primary remedy sought.

To maintain a healthy balance between the rights of claimants and defendants, the sub-committee recommended some mechanism to safeguard defendants against nuisance claims.

The consultation paper points out that conditional fee arrangements cannot function properly without the availability of "After-the-Event" insurance ("ATE insurance". However, the indications are that it is possible that ATE insurance may not be available at an affordable level and on a long-term basis in Hong Kong.

To cater for the possibility that conditional fees cannot be successfully launched without ATE insurance, the sub-committee 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 sub-committee has further recommended the setting up of a "non-government contingency legal aid fund" ("CLAF", which would probably be run by an independent body, and that applicants would have to satisfy a "merits" test in respect of their proposed litigation, but would not be subject to any means test. The scheme would take a share of any compensation recovered, so that it would be self-financing. Lawyers working for the scheme would be paid on a conditional fee basis. The scheme would also pay the defendants' legal costs in unsuccessful cases; and so would, in effect, take over the role of ATE insurance.

Professor Edward K Y Chen, chairman of the LRC's Conditional Fees Sub-committee. stressed that the recommendations in the consultation paper were put forward for discussion and did not represent the sub-committee's final conclusions. The sub-committee invites and would welcome views, comments and suggestions on any issues discussed in the consultation paper.

Press Release (PDF) (MS Word)
Executive Summary (PDF) (MS Word)
Consultation Paper (PDF) (MS Word)

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