A “Measured Approach” to Conditional Fee Agreements with the Enactment of the Legal Profession (Amendment) Act 2022
On 12 January 2022, the Ministry of Law (“MinLaw”) of Singapore announced various amendments to the Legal Profession Act 1966 (“LPA”), which were subsequently passed in the Legal Profession (Amendment) Act 2022.1 The amendments that this article addresses relate to “Conditional Fee Agreements” (“CFAs”), a type of alternative funding for litigation that had previously been prohibited in Singapore.
Litigation funding covers the various means that parties may choose to use in order to fund dispute proceedings. Singapore has historically taken a more conservative approach to litigation funding than other arbitration hubs. However, recent amendments to legislation in Singapore indicate a transition toward wider acceptance of alternative funding, with the approval of third party funding in international arbitration in 2017, and domestic arbitration, certain proceedings in the Singapore International Commercial Court (“SICC”), and related court and mediation proceedings.2 The latest amendments to the LPA demonstrate wider acceptance of alternative funding for litigation in Singapore, cementing its position as a power centre for arbitration, particularly in view of its recent decision to move forward with acceding to the Hague Service Convention.3
What are Conditional Fee Agreements?4
A CFA is an agreement with a legal representative which provides for his or her fees and expenses (or any part of them) in respect of contentious proceedings to be paid only in certain circumstances, usually only if the client wins the case. CFAs may provide for an uplift fee, that is, a fee payable to the lawyer upon satisfaction of certain conditions, that is higher than would otherwise be payable for the lawyer’s services.
Where a business with a meritorious claim is facing cash flow problems, it may not be able to fund the litigation required to pursue its claim. CFAs can provide an answer to these businesses and, accordingly, they can enhance access to justice. As the Second Minister for Law, Mr Edwin Tong, noted in his speech to Parliament, this is particularly relevant in light of recent business interruptions caused by the COVID-19 pandemic. CFAs can serve a dual purpose in not only enabling the pursuit of meritorious claims, but also discouraging lawyers from taking on weak or frivolous claims, as lawyers’ fees are contingent on the outcome of the claim.5
CFAs vs Contingency Fee Agreements
CFAs should be distinguished from Contingency Fee Agreements: The latter are a form of litigation funding where payment of the lawyers’ fees is similarly dependent upon the result of the litigation or arbitration, but the fees are calculated not by reference to the lawyers’ usual fees for the work carried out but as a proportion of the damages awarded to the client. Contingency Fee Agreements have been permitted in the UK for all contentious business since 2013, but will continue to be prohibited in Singapore.
Scope of the Legal Profession (Amendment) Bill
The Legal Profession (Amendment) Act 2022 will apply to Singaporean law practices and certain registered foreign lawyers, and specifies the range of work that can be covered by a CFA. The range of work includes not only litigious work, but also matters which are pre-cursor to litigation, such as work carried out for the purposes of, and before, the commencement of any contemplated proceedings (including preliminary advice and negotiations on the settlement of disputes). This is permitted even if proceedings are not eventually commenced, or if the claim or dispute in those proceedings is settled.6 This development will be beneficial, as it allows parties the use of CFAs even where they are hoping to settle the dispute or where there is a risk that proceedings will not be commenced.
Parties will need to be careful to clearly draft the terms of the CFA, and identify the specific trigger for the payment of the fees if a dispute is settled rather than being heard in court or arbitration. Issues to consider include the level of fee if only preliminary work is carried out and how any success fee can be measured (such as on the basis of saved costs in negotiating a settlement or whether the amount of work will be taken into account).
Uplift fees will not be recoverable as part of legal costs from the opposing party. The MinLaw has clarified that this seeks to avoid the issues of satellite litigation. Where uplift fees are recoverable as part of an award of costs, this provides an opportunity for additional litigation, as the losing party may wish to challenge the validity and application of the CFA.7 The exclusion of uplift fees avoids these additional costs.
The Bill contains important safeguards intended to protect vulnerable clients. The CFA must meet certain requirements for it to be valid. In addition, the CFA must comply with regulations that will be made in secondary legislation.8 These regulations are expected to cover a wide ranging set of requirements, such as terms and conditions that must be included in the CFA, prescribed information that must be provided to a client and miscellaneous requirements relating to the form of CFAs, limits on the remuneration and costs etc.9
A Measured Approach
The MinLaw clarified that CFAs will be enforceable only in prescribed proceedings, which will be provided for in secondary legislation. In the first instance, CFAs will be allowed in international and domestic arbitration proceedings; secondly, they will be introduced in certain proceedings in the Singapore International Commercial Court (“SICC”); and thirdly, in related court and mediation proceedings.”10 The MinLaw has signalled its intention to proceed with a “measured approach,” progressing more cautiously at the start and starting with proceedings where litigants tend to be more commercially sophisticated.
At the heart of the reforms was the aim of “strengthening Singapore’s position as an international dispute resolution hub.”11 The MinLaw’s continued efforts to modernise Singapore’s outlook as a forum for international arbitration have proven successful with Singapore rising to be one of the world’s leading centres for dispute resolution. In 2020, Singapore’s exports of legal services exceeded $0.9 billion, which is more than 40% of the value-added of Singapore’s legal services.12 In 2021, Singapore was, for the first time, selected as the most preferred seat of arbitration in the world, alongside London, in the Queen Mary University of London and White & Case International Arbitration Survey.13
It is not yet possible to accurately assess the full scope of the CFA framework in Singapore, or how it will impact Singapore’s role as a key arbitration hub, as various issues remain to be settled through subsidiary legislation. It is clear that Singapore’s approach to CFAs is more conservative than England and Wales; firstly because contingency fee arrangements remain prohibited, and secondly because their applicability is still limited to prescribed proceedings (as of now).
However, the move to permit CFAs will be welcomed by the wider commercial world and continue the trend of Singapore as an attractive option for commercial arbitration. CFAs offer the possibility of risk-sharing among legal professionals and clients, and, as such, they are likely to be particularly attractive for high stakes claims, allowing the clients to circumvent certain financial restraints. There is reason to believe that their global popularity as a litigation funding tool will be similarly mirrored in Singapore. On the other hand, it remains to be seen how restrictive the CFA framework will actually be in practice, as secondary legislation may substantially curb its application, ultimately dictating the popularity of such arrangements in Singapore. Overall, Singapore’s “measured approach” seems a sensible one, striking a welcome balance between the concern to protect more vulnerable litigants and the desire to keep up with the modern requirements of the markets of international arbitration.
*Eleonora is a Trainee at our London Office
4 Many common law jurisdictions have removed the restrictions on CFAs, including England and Wales, which abolished the prohibition on CFAs in 1990. The United States, Australia, and Canada all allow CFAs in various forms.
6 https://sso.agc.gov.sg/Bills-Supp/40-2021/Published/20211101?DocDate=20211101; Section 115B (6)
8 https://sso.agc.gov.sg/Bills-Supp/40-2021/Published/20211101?DocDate=20211101; Section 115B(4)(c)
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.