As of May 4, 2022, for the first time in Singapore, lawyers and their clients are legally permitted to enter into contingency fee agreements (CFA) in arbitrations and certain legal proceedings. Under DWIs, some or all of an attorney’s fees and expenses, including any success fees, depend on the outcome of the litigation. Before today, these CFAs were prohibited and unenforceable in Singapore under common law rules against maintenance and champerty. This significant and highly anticipated development brings Singapore closer to its position in other major global dispute resolution centers and further strengthens Singapore’s position as a premier seat for international arbitration.
The new CFA regime is expected to improve financing options for clients (in addition to traditional fee arrangements and third-party financing) and improve access to justice for disenfranchised parties. In this legal update, we provide a practical overview of the new CFA regime.
The Legal Profession (Amendment) Act 2022 (the Modification of the APL), which came into force (substantially) on 4 May 2022, amends the Legal Professions Act (the Law) to provide for a new CFA regime.
The genesis of the LPA amendment was the Department of Justice’s August 2019 public consultation on reforms to license DWIs, which received positive feedback. Prior to 2019, previous consultations over the past decade on international arbitration reform have also sometimes focused on contingency fees and litigation funding. Although traditionally opposed to performance-related fee arrangements, by implementing this amendment, Singapore marks a paradigm shift, influenced by the CFA’s long-standing overseas developments and a strong desire to improve and maintain Singapore’s position as a leading global center for legal services and one of the most popular arbitration seats.
Legal Profession (Professional Conduct) Rules 20151 have also been amended to be consistent with changes to the CFA landscape and to clarify that it is not a breach of professional conduct rules for Singapore-based lawyers to agree success fees. These changes came into effect on May 4, 2022.
The new CFA regime
The new CFA regime applies to Singapore law firms and relevant foreign lawyers and foreign law firms in Singapore.
What is a CFA in Singapore?
The law refers to a CFA as an agreement between lawyers and their clients which provides that all or part of the lawyer’s fees and expenses in dispute resolution proceedings (in Singapore or outside Singapore) are payable only under specified circumstances set out in the CFA. . These can be defined in a CFA to include a range of predictable outcomes, such as when the client succeeds in its claim or defense or when certain other agreed-upon outcomes (defined as “success”) are achieved ( for example, prompt resolution of the Case). The CFA may provide for the payment of a success fee or “increased” fee, i.e. higher fees to be paid as legal fees (than would otherwise be payable without the CFA) if the lawyer reaches the specified circumstances defined as “success”.
Under the new regime, “no benefit, no charge” or “no benefit, less charge” CPAs can be entered into. In the first scenario, lawyers and clients can agree that if the claim fails, the lawyer receives nothing but if the claim succeeds, the lawyer receives 200% of the fees (100% representing the actual fees incurred and 100% representing the markup).
In the second hypothesis, the client can agree to pay a certain percentage of his lawyer’s fees and expenses whatever the outcome of the case (for example 50% of the fees and 100% of the disbursements), 150% of these fees being, for example, payable if the complaint is successful (50% of that comprising the success fee via an increase in fees).
When can CFAs be used in Singapore?
Mirroring the recently enacted Third Party Funding Regime in Singapore, CFAs are licensed in the same categories of proceedings:
- international and national arbitrations;
- Proceedings before the Singapore Court of International Trade; and
- related legal and mediation proceedings2.
This policy is coherent because it can be said that the authorization of AFCs follows logically from a liberalization which allows financing by third parties. Both reforms involve allowing a party other than the litigant to gain an interest in the dispute resolution process, in exchange for an outcome-oriented incentive structure. In practice, this also means that CFAs and third-party financing can be used together, providing even more flexible financing solutions. Accordingly, this development is particularly welcome as it fulfills a long-standing expectation of sophisticated international parties arbitrating and litigating in Singapore.
In light of the new regime, clients may also wish to convert the traditional fee arrangements they currently have in place to CFA, particularly if they prefer their lawyers’ economic interests to be aligned with their own, or if this solves a cash flow problem within Their business.
What are the new requirements?
The parties may negotiate with their lawyer a mutually acceptable EFC, but this is subject to specific requirements of the Act and the Legal Profession (Contingent Fee Agreement) Regulations 2022. As with all funding agreements, the terms of the contract will require careful consideration and negotiation. Although permitted, law firms in Singapore are likely to be reluctant to make contingent disbursements (arbitral institution fees, attorneys’ fees, expert fees, etc.) under a CFA to avoid the risk of not being refunded if the client loses, so issues like this will need to be addressed upfront.
Regarding the main requirements and characteristics under the Act:
- Prior to the execution of a DWI, attorneys must give their clients certain information and the client must sign and date an acknowledgment that they have received and understood this information. This includes information about the nature and operation of the CFA (including its terms), the client’s right to seek independent advice before entering the CFA, and the fact that mark-up fees are not recoverable from the losing party and that the client remains responsible for any costs order made against them by a court or tribunal.
- The CFA must be written and signed by the client. The CFA does not remove the need for an agreement on the terms of engagement between the lawyers and the client.
- The law is prescriptive as to certain terms that must be included (set out in Regulation 5). One of these terms is a cooling-off period of 5 days following the signing of the CFA, during which time it can be terminated (generally, without liability for costs).
- A CFA will not affect the recovery of costs by another party from a client who has engaged attorneys under a CFA.
- A client who has retained attorneys under a CFA cannot recover from the losing party more than the amount owed by the client to the client’s attorney.
- CFAs may cover the fees and costs associated with preliminary and preparatory advice in connection with, as well as the negotiation or settlement of, any proceedings contemplated. This applies even if those proceedings are never initiated or if the dispute is settled but, in either case, the CFA should carefully reflect the specific conditions under which the uplift will be triggered.
Are there any restrictions?
- It is important to note that damages-based contingent fees (damages-based agreements or “DBAs”) are still not permitted in Singapore; this means that, unlike some jurisdictions, success fees cannot be calculated as a percentage or proportion of the amount of damage awarded or other amounts recovered in the litigation. This stems from the Justice Department’s concern that DBAs provide a monetary benefit to attorneys who have “no direct correlation with work performed” and “may create additional risks of conflicts of interest for the lawyer”.3
- Further, as noted above, surcharge costs are not recoverable as part of party costs (i.e., they cannot form part of an adverse costs order). This limitation should (i) prevent satellite disputes, such as the losing party challenging the validity of the CFA, and (ii) may encourage the negotiation of reasonable uplift fees. There is currently no maximum limit to the increase in fees that can be charged and what is reasonable depends on the facts and the extent of the risks shared with the lawyers. As a safeguard for clients, the CFA Framework expressly recognizes the importance of informing clients that they can seek independent advice when negotiating a CFA with their lawyers.
Who oversees the CFA scheme?
To guard against abuse, Singapore courts retain ultimate control over the application of CFAs. For example, courts have the power to enforce or overturn the CFA if a client changes lawyers or law firms while the CFA is still in effect. The law also addresses the consequences of a lawyer’s death, incapacitation, or the winding up of a law firm in circumstances where a DWI is not fully executed. These provisions should provide customers with the assurance that the new regime provides sufficient support (through the local courts) in the event of problems with their DWI.
Learn more about the CFA regime
We understand that the Law Society of Singapore will in due course issue a “CFA Guidance Note“.
For more information on the new CFA regime, what it may mean for your business, as well as how to leverage Mayer Brown’s extensive experience with CFAs across its global practice, please contact Yu-Jin Tay, Paul Teo, Kay-Jannes Wegner, Daniel Chua or Lisa Dubot.
You are also invited to join us at our roundtable on June 22, 2022 on “Negotiate a litigation funding agreement you can live with“. We’ll discuss ways your business can maximize its return when negotiating a litigation funding agreement and discuss how to tell when a funder is offering you good business terms, when you should say ” yes” or walk away from the deal and how you can protect the negotiations from discovery. register here.