Speech on Legal Profession (Amendment) Bill
Zhulkarnain Abdul Rahim
12 January 2022
Mr Zhulkarnain Abdul Rahim (Chua Chu Kang): Mr Speaker, Sir, I rise in support of this amendment Bill. At the outset, I declare my interest as an international commercial disputes lawyer.
Singapore is a leading international dispute resolution hub because our legal profession, judiciary and laws are not only leading the cutting edge on the forefront of legal development, but they have also adapted to keep us ahead of the curve to meet the ever-changing needs of global legal demands.
I welcome this Bill which seeks to continue to firmly strengthen Singapore’s position as an international legal and dispute resolution hub.
I will be focusing my speech on Conditional Fee Agreements (CFAs). CFAs will increase access to justice for litigants. Since 2017, the law has already provided availability of Third Party Funding as an option in limited circumstances, for example, in international and, subsequently, domestic arbitrations.
There is already a growing trend of alternative funding methods for litigation and arbitration globally. This is especially important given the economic downturn and conservative outlook faced by many corporate clients all over the world.
On contingency fees, Prof Patricia Danzon, an American economist stated: “The common allegation that the contingent fees induces attorneys to bring claims with little legal merit has no basis in logic. The fact that the fee depends on winning provides an incentive to screen out issues with little legal merit. An incentive that is lacking with an hourly fee.” Further, various studies have shown that CFAs or similar arrangements discourage lawyers to take on unmeritorious cases. The CFAs provide a financial disincentive not to commence frivolous suits or claims.
However, I do have five clarifications for the Minister.
Firstly, with parties left on their own to decide on the uplift or finer details of the CFA, will there be some practice guidelines on the quantum of the uplift within the CFA? The Bill itself seeks to address this by placing a restriction that the uplift or contingent fee cannot be a percentage of the claim or damages to be recovered.
However, should there perhaps be a mandated cap on the uplift in certain circumstances? This is to prevent the uplift from being too disproportionate to what would have been reasonable standard of costs?
I appreciate and welcome the fact that lawyers may still be held liable for overcharging under the CFAs, pursuant to amendments under the Legal Professional Conduct Rules. However, as alluded to by Members Mr Murali Pillai and Mr Lim Biow Chuan, guidance as to how much of an uplift can also provide helpful guidance as to what is excessive or overcharging in a CFA. In the UK, contingency fees, or damages-based agreements (DBAs), have been permitted for contentious work in litigation or arbitration proceedings in England and Wales. This means that lawyers can conduct litigation and arbitration in this jurisdiction in return for a share of any damages.
Depending on the type of cases, there are differences in the limit of cap for such a contingency fee. In this regard, would the Ministry also consider in the future to finetune the cap in the principles of proportionality, for example, a 50% maximum cap of uplift from the agreed fee. If the CFAs are extended to other categories of disputes, then this cap can be adjusted downwards to reflect the greater consumer or client protection required or vulnerability of certain groups of clients in the future. A cap may also help offer the best balance to prevent legal costs from spiraling upwards and, at the same time, attract the optimal amount of disputes to Singapore.
My second clarification is in relation to the resolution of disputes in CFAs. The new section 115C states that the uplift fees will not be recoverable from the losing party in respect of party-and-party costs. Thus, the uplift fees will have to be paid from the pocket of the client to the lawyer. I welcome this amendment as it means that there is a lesser risk that CFAs may impact party-and-party costs and costs of litigation all around.
The Bill also allows that such uplift in CFAs can also be based on reduced hourly rates, instead of a lump sum uplift. This is very progressive and much welcomed.
In the UK, the permissibility of such “hybrid” arrangements was not clear within its legislation and was the subject of an English Court of Appeal case which only recently clarified the position.
Given the possibility of disputes arising out of the CFAs, can I confirm if lawyers and clients can still refer their solicitor-and-client fees in the CFAs for taxation in the case of a dispute? This will be more straightforward and cost-effective than filing a separate claim in Court or arbitration for a dispute under the CFA.
My third clarification is in relation to protection of lawyers entering into CFAs. May I ask and confirm that lawyers agreeing to CFAs would not be held personally liable for adverse party-and-party costs when acting under such CFAs unless, of course, if there are circumstances of personal or professional misconduct in which case that attracts personal liability for costs.
My fourth clarification is on the duty of disclosure. To what extent should such CFAs be disclosed by way of statutory or regulatory obligations, for example, through SGX announcements or audited yearly financial statements? This is because in an ongoing litigation or arbitration proceeding, such disclosures may cause a certain perception of pressure to succeed on the part of both the client and the party to that CFA. This may impact the dynamics between the two competing parties or conflicting parties in the dispute, for instance.
My last clarification is centered on the protection for the client. I understand from MinLaw’s press release that safeguards will be implemented in the subsidiary legislation. What are these safeguards to protect a client entering into CFAs and how long, perhaps, would be the cooling-off period for a client in the CFAs? After a CFA has been entered into and, for instance, a client changes lawyers, or the lawyer withdraws from the case, what are the safeguards or guidelines to prevent a client being left in the lurch after having already entered into the CFA.
Perhaps the Ministry can consider a public awareness campaign to assist potential clients on the pitfalls of a CFA and what can be done in the event of a withdrawal or termination of the same.
Sir, CFAs may inadvertently evoke a diverse set of views and responses among lawyers and users of our legal system. Some view such arrangements as the salvation for the impecunious. Others fear that they open the floodgates of litigation of frivolous claims. However, one thing for certain, the calibrated approach towards CFAs as taken by the Ministry in this Bill will help cement Singapore as a leading dispute resolution hub in the world.
Notwithstanding my clarifications and comments, I stand in support of the Bill.
Minister for Law Mr Edwin Tong Chun Fai (selected excerpts of response during Second Reading of the Bill)
On taxation of solicitor-and-client costs:
On taxation of solicitor-and-client costs under the CFA, Mr Zhulkarnain Abdul Rahim asked whether the taxation process in Court will still be applicable in respect of solicitor-and-client costs under a CFA. He also asked if disputes regarding the validity of CFAs would fall under the scrutiny of taxation proceedings, or if they should be subject to separate Court or arbitration proceedings.
Generally, Sir, solicitor-and-client costs under a CFA are not subject to a taxation. This is provided under section 115C(5) of the Bill and it is similar to the position for contentious business agreements under the current section 112(4) of the LPA. If there are questions, however, on the validity or the effect of a CFA, parties should bring an application to Court under section 115D(2) of the Bill.
Under section 115D(5) of the Bill, if the Court finds that the CFA either does not satisfy the statutory requirements or is found to be void or voidable, then the costs under the CFA can then be assessed in accordance with the rules applicable to taxation.
On personal liability of lawyers for adverse costs under CFAs:
Mr Zhulkarnain Abdul Rahim also sought confirmation that lawyers agreeing to CFAs would not be held personally liable for adverse party-and-party costs under a CFA, unless there are circumstances of personal or professional conduct that attracts personal liability for costs. That is correct. Under a CFA, a client will continue to be liable for any cost orders that may be made against the client. This will also be clarified in subsidiary legislation.
On disclosure of CFAs to SGX or other regulatory bodies:
On Mr Zhulkarnain Abdul Rahim’s query about the disclosure of CFAs vis-à-vis regulatory obligations, such as SGX announcements or audited financial statements, let me reiterate again a point I made at the start of the reply speech, that CFAs really are an additional fee structure. It is an agreement that allows lawyers and their clients to work out a fee structure. CFAs are not intended to change, nor do they change, any existing statutory or regulatory obligations relating to disclosure, from what is expected if normal fee agreements are entered into by companies. So, in assessing whether you need to make an announcement, the usual criteria will apply, whether it is material in the particular context of the circumstances of that particular announcement. Companies and lawyers will still have to make an assessment and assess the extent to which a CFA will need to be disclosed, in the context of existing guidelines and the regulations governing disclosures.
On protection mechanisms and safeguards for litigants:
Mr Zhulkarnain asked about other protection mechanisms for litigants and what safeguards are available for a litigant who had entered into a CFA with a lawyer and thereafter changes lawyers; or whose lawyer decides to withdraw from the case.
My first response really is to ensure that, as you prepare the CFA, structure the terms which will cater for these eventualities. Sometimes, parties change lawyers; sometimes, there might be changes in the way in which the case proceeds. It is best to ensure that, as far as possible, in terms of an agreement, you cater for these scenarios upfront. So, lawyers and their clients should discuss and provide for how and when the CFA may be terminated, and if it is terminated before the conclusion of the case, how would the remuneration structure and what triggering conditions will apply in those cases. And this, I would say, is no different from current traditional fee agreement that is based on either time cost or conclusion of some milestones and so on. So, parties should deal with this as a matter of agreement.
Where a client changes lawyers after a CFA is entered into with the first lawyer, section 115F of the Bill contemplates this scenario and provides for the consequences of such change.
Either party can apply to the Court and the Court will have the same power to enforce or set aside the agreement as if the change had not occurred, having regard to the relevant terms of the CFA.
With regard to fees payable to the first lawyer, the Court may order the amount due in respect of anything done by the lawyer under the CFA to be assessed. So, there could be a scenario where, before the conclusion of the case, a lawyer is discharged but a substantial amount of work is done. The Court can then make an assessment as to what amount will be appropriate under the assessment, to be paid under the CFA for this lawyer.
The principles are largely similar to existing principles relating to contentious business agreements, as set out in section 115 of the Legal Profession Act.
Where a lawyer withdraws from representing a client under a CFA, existing rules under the PCR will also continue to apply. This includes obligations on the lawyer to take reasonable care to avoid foreseeable harm to the client, such as giving reasonable notice and cooperating with the client’s new lawyers. None of these will change with the CFA.