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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 in relation to a claim 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 notes that, although conditional fees could enhance access to justice for such persons, conditions at this time are not appropriate for the introduction of conditional fees. The report explains that a successful conditional fees regime requires the long term availability of affordable insurance (called "after-the-event" insurance) to cover the opponent's legal costs if the legal action fails. However, responses from the insurance industry to an earlier consultation paper issued by the Commission suggested that this was unlikely to be the case in Hong Kong.

In the absence of "after-the-event" insurance the report does not recommend the introduction of conditional fees because those in the middle income group might not be able to absorb the other side's costs, and might face financial ruin if required to pay those costs.

Given the widespread support on consultation 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 clients on a contingency fee basis.

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

The report proposes that 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.

The report suggests 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.

Press Release (PDF) (MS Word)
Executive Summary (PDF) (MS Word)
Report (PDF) (MS Word)

Important Notices