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Conditional Fee Arrangements - the latest development in the Singapore disputes landscape

Posted on 18 November 2021

On 1 November 2021, a bill to amend the Legal Profession Act had its first reading before Parliament (the "Bill"). If passed, the Bill would allow litigants and their lawyers to enter conditional fee arrangements ("CFAs") whereby the whole or a part of the legal fees are payable only in specified circumstances – usually a successful claim or defence of the action.

While the Bill does not specify which proceedings would apply to it, Singapore's Ministry of Law has noted that they would include international and domestic arbitration proceedings, certain proceedings in the Singapore International Commercial Court (“SICC”), and related court and mediation proceedings.[i]

Following the introduction of litigation funding for international arbitration and related court proceedings in 2017[ii] – and the June 2021 extension to include domestic arbitration and certain proceedings before the SICC – the tabling of the Bill was significant but not unexpected.

We elaborate below on the Bill's background, its key features, and our views on its impact on the Singapore disputes landscape.

Background

CFAs have historically been prohibited in Singapore due to the old common law prohibitions on "maintenance" (whereby a third party assists to maintain litigation, usually by providing financial assistance) and "champerty" (whereby a third party pays a portion of the litigation costs in return for a share of the proceeds). CFAs were also banned as an apparent safeguard against vexatious litigants who could potentially abuse such arrangements and commence unmeritorious claims. But the converse is also true – litigants with a good claim may opt to forego it or be pressured into a poor settlement simply because they lack the ability to properly fund their litigation.

Sophisticated clients may also benefit with the option of sharing the risk of unsuccessful litigation with their lawyers. This may play a part in their consideration of selecting counsel or the preferred forum for resolving their disputes. Various jurisdictions, have permitted the use of CFAs in a bid to be the forum of choice.

In 2019, the Ministry of Law conducted a public consultation to collate feedback on CFAs. In particular: (i) the categories of proceedings where CFAs should be permitted; (ii) formalities to CFAs; and (iii) whether several mandatory terms should be introduced.[iii]

In a press release,[iv] the Ministry of Law announced that it had received positive feedback which indicated that the removal of the prohibition against CFAs would strengthen Singapore's position as an international dispute resolution hub by:

  • Enhancing access to justice by enabling corporations or individuals to pursue meritorious claims where they would be otherwise unable to do so.
  • Levelling of the playing field for Singapore lawyers in international arbitration and SICC proceedings (since foreign lawyers are already able to offer CFAs in certain circumstances).

Key features of the Bill

How it works

The Bill provides that litigants may enter a CFA with their lawyer for their costs in certain proceedings. A CFA could then provide that the whole or any part of the legal costs would only be payable in specified circumstances – such as by providing for an uplift over the gross sum of fees or hourly rates of costs.

This is subject to the following requirements:

  • The CFA must not provide for remuneration of costs to be payable as a percentage or proportion of the amount of damages awarded to the client.
  • The CFA must be in writing and signed by the client.

The scope of work covered under a CFA is not just limited to work arising from formal legal proceedings, but it also extends to the provision of preliminary advice or in the settlement of a claim prior to the commencement of any legal proceedings (irrespective of whether litigation is actually commenced).

Safeguards

The Bill sets out that there will be the following judicial oversight over the implementation of CFAs:

  • An application may be made to Court over any question relating to the validity or effect of a CFA. This may be done by the parties to the CFA, as well as by any person who "is or is alleged to be liable to pay, or is or is claiming to be entitled to be paid, the remuneration or costs in respect of [the CFA]". This provides an avenue for third party funders to seek relief should any dispute arise over their liability for costs.
  • In the event of death / incapacity of a solicitor, the winding up / dissolution of their law practice, or a change of solicitor, an application may be made to the Court to set aside or enforce the CFA. In that event, the Court may also order for an assessment of the amount payable under the CFA.

Comments

While the CFA framework is still being debated in Parliament, there are some developments that potential users should look out for.

All eyes will be on whether there will be a prescribed maximum limit on the remuneration or costs which may be charged under a CFA.  It will also be interesting to see if the regulations prescribe for different maximum limits depending on the stage that proceedings are resolved (for example, prescribing a lower maximum limit if the proceedings resolve before trial may encourage a plaintiff to explore mediation or other forms of amicable settlement that may save time and cost for both parties). Further, disputes may arise between a litigant that is party to a CFA and a third party who may be contractually required to indemnify that litigant for its legal costs (commonly used in the standard terms between banks and their customers or in insurance policies), on grounds that the increased legal fees due to the CFA was not within the contemplated scope of the indemnity. Query whether there will be specific regulations which deal with this scenario.

The Bill is a welcome development to further enhance Singapore's reputation as an international dispute resolution hub.  By allowing the introduction of CFAs, Singapore is taking steps to level the playing field between Singapore based lawyers and their colleagues overseas.  We shall continue monitoring updates on the Bill as it is debated in Parliament.

For more information about how we may be able to assist you with your funding needs, please see MDR Solutions I.

Mishcon de Reya LLP, Singapore branch is licensed in Singapore as a Foreign Law Practice and only undertakes Singapore law related work in those areas permitted by its license

[i]https://www.mlaw.gov.sg/news/press-releases/2021-11-01-proposed-framework-for-conditional-fee-agreements

[ii] https://www.mlaw.gov.sg/news/press-releases/2021-06-21-third-party-funding-framework-permitted-for-more-categories-of-legal-preceedings-in-singapore

[iii] https://www.mlaw.gov.sg/news/public-consultations/public-consultation-on-conditional-fee-agreements-in-singapore

[iv] See note (i) above.

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