Introduction of Conditional Fee Agreements in Singapore
We published a newsletter regarding the introduction of conditional fee agreements in Singapore.
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Introduction of Conditional Fee Agreements in Singapore
November 2021
Lawyer (Singapore, Japan and NY, USA)
On 1 November 2021, the Ministry of Law submitted in Parliament the amendment to the Legal Profession Act (LPA) to allow for conditional fee agreements (CFAs) to be entered into between lawyers and clients in certain proceedings[1].
The amendment will allow for the introduction of CFAs, i.e. arrangements whereby a lawyer receives payment of all or part of legal fees only upon the achievement of pre-agreed conditions, such as successful completion of a claim, limited to certain proceedings: international and domestic arbitration proceedings, certain proceedings before the Singapore International Commercial Court (SICC) and related court and mediation proceedings. While this amendment permits a contract in which a fee is paid only when a previously agreed condition is achieved, a contract in which a certain percentage of the amount of damages is paid as a fee (so-called contingency fee), which is common in Japan, will continue to be prohibited.
In Japan, not only CFAs but also contingency fees are permitted. Even under the former Remuneration Rules which were abolished on April 1, 2004, the initiation fee and the remuneration fee were separately stipulated and the contingency fee system had already been introduced.
The scope of this amendment includes registered foreign lawyers and registered foreign law firms in addition to Singapore law firms.
In Singapore, CFAs are currently prohibited due to potential conflicts of interest for lawyers with respect to their obligations to clients and the courts, which derives from UK common law. However, the UK had already abolished the prohibition of CFAs in 1990 and contingency fees in 2013. Also, there has been growing needs for new funding methods, including CFAs, to enhance Singapore’s position as an international legal and dispute resolution hub and for clients to manage costs and risks. In response, a public consultation was conducted in 2019[2] and the results were generally positive in terms of responses from legal professionals.
The Ministry of Law explained that the introduction of the CFAs is part of its ongoing efforts to review the litigation funding landscape to better support the needs of businesses and lawyers, while referencing the developments in other jurisdictions. It also noted that the CFAs offer the following advantages:
(1) It helps to enhance access to justice by providing businesses or individuals with additional funding options. (2) It will level the playing field for Singapore lawyers in areas such as international arbitration or SICC proceedings, vis-à-vis their counterparts in foreign jurisdictions. (3) As fees under a CFA are contingent on the outcome, it may also help to discourage lawyers from pursuing weak cases and frivolous claims.
As mentioned above, CFAs offer the advantage that clients can access the justice more easily even if they are not sure whether they will get the result they expect.
In addition, CFAs may provide for an “uplift fee” which is higher than what would otherwise be payable if there were no CFA, because the contract is made under the disadvantageous condition for the lawyer that the remuneration is not paid unless the condition is achieved.
The Ministry of Law will continue to examine whether the contingency fee system will be effective in promoting access to justice in other categories of litigation, including domestic litigation.
[1] https://www.mlaw.gov.sg/news/press-releases/2021-11-01-proposed-framework-for-conditional-fee-agreements
[2] https://www.mlaw.gov.sg/news/public-consultations/public-consultation-on-conditional-fee-agreements-in-singapore
