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Submission to the Law Reform Commission of Hong Kong regarding Consultation Paper on Outcome Related Fee Structures for Arbitration

  • Consultation Papers
  • 2021.03.16

The Law Reform Commission of Hong Kong issued a consultation paper in December 2020 on Outcome Related Fee Structures for Arbitration (“Consultation Paper”).  The Council welcomes the opportunity to express our views on issues raised in the Consultation Paper that pertain to consumer protection and interests.  We are committed to enhancing consumer welfare and empowering consumers to protect themselves, and to continue to be the trusted voice in striving for consumer betterment towards sustainable and safe consumption in a fair and just market.

Generally speaking, arbitration is the preferred method of dispute resolution between commercial entities.  Although it is not as usual for consumers to choose to resolve their disputes via arbitration, especially if the amounts involved are relatively small, there are still instances where disputes involve large amounts of money, and consumers may wish to use arbitration as a means of resolving their disputes with traders e.g. purchases of high value goods and services such as automobiles, jewellery, antiques, paintings, insurance products, travel products, renovation services and real estate transactions.

The Consultation Paper contains technical recommendations which involve practical concerns of legal practitioners.  As the expertise to comment on these issues lies within the legal profession and its professional regulatory bodies such as the Law Society and the Bar Association, it is inappropriate for the Council to comment on these particular aspects.  The Council provides the following views in response to the Consultation Paper.  Unless otherwise stated, the Council shall adopt the same abbreviations in the Consultation Paper.            


General view on ORFSs

  1. The Council’s stance is and has always been that consumers who have a meritorious claim should not be denied access to justice due to unaffordable legal costs.  While arbitration may not always be the best or preferred method of dispute resolution for consumers, as a matter of principle and as a consumer right, it is important that consumers have more choice as to which is the best method or who is the best counsel for their particular case.
  2. From a consumer’s perspective, Hong Kong remaining competitive and continuing to be a leading arbitration centre would definitely help attract and/or retain more providers of arbitration services and this in turn, in the long run, will provide consumers with more choice. 
  3. It is therefore the Council’s view that the Sub-committee’s recommendations to lift prohibition against ORFS in arbitration would help achieve better accessibility to justice and provide more choice.  However, this has to be based on the proviso that sufficient safeguards are to be in place for the protection of consumers.
  4. The Council is therefore supportive of the LRC’s recommendations 1 4, and 6 insofar as lifting prohibitions on the use of different types of funding models for arbitration.


Which type of funding for ORFSs

  1. The Council will leave it to the legal profession to decide which (or the availability of all) should be the better method(s) of funding out of the proposed CFAs, DBAs, or Hybrid DBAs.
  2. As for what should be the appropriate cap, similarly the Council will leave it to the legal profession to decide.  Suffice to say that any cap imposed should be reasonable and should not make a mockery of taking the matter to arbitration e.g. the consumer client is left in a situation whereby despite succeeding on a case, he/she is left with an unfavourable outcome where the legal representative retains an inequitable proportion of the award.   When determining what is an appropriate cap to impose, affordability and a proportionate return for the consumer who embark on such an arrangement with his/her legal counsel should be factors to be taken into account. 
  3. In this respect, the Council supports Recommendations 3, 7 and 10 as regards the imposition of a cap. 
  4. In addition, the Council would like to stress that legal professionals who enter into such funding methods with the consumer client, no matter from which branch of the profession, should be required under their own codes of conduct, to be totally transparent and clearly explain the terms and conditions and repercussions of the agreement to ensure there is proper understanding on the part of the consumer client in order that he/she can make an informed decision.  


Ensuring sufficient safeguards to protect consumers

  1. As mentioned above, the Council supports the recommendation to provide consumers with a variety of flexible fee arrangement choices under ORFSs, provided that consumers are empowered with all the relevant information they require so they may have the freedom to contract in alignment with their views on how they wish to manage their case, alongside the careful guidance of their legal representative.  The Council also considers that there must be sufficient safeguards in place.  The Council welcomes transparency and guidance provided by legal practitioners to consumer clients to ensure those entering into ORFSs are properly informed and have a clear understanding of their rights and responsibilities under the ORFS.  This would include, but not be limited to, consumers being informed clearly about the amount and in what circumstances they would be required to make payment for a legal practitioner’s fees and expenses.  Such information should be provided in a clear and accessible manner.  Sufficient time should also be provided to consumers to consider their options and raise queries so as to allow consumers to engage on a level-playing field with their chosen legal representatives.  Trust is an important part of the relationship between a consumer client and the chosen legal representative before embarking on handling a case together.
  2. Insofar as consequential amendment of the relevant professional guides and codes of conduct for legal practitioners is essential to reflect this, the Council supports Recommendations 11 and 12.  As the issues involved in the funding arrangements can be complex and have far reaching repercussions, financially or otherwise, the relevant professional guides and codes of conduct should ensure that clear, easy to understand language is used in the contracts and in the advice.


Mandatory imposition of a Cooling-off period for ORFS agreements

  1. The Council has always advocated in favour of the imposition of a mandatory cooling-off period to prevent unscrupulous traders from using undesirable trade practices or high pressure to induce consumers to enter into contracts.  For ORFSs, in order that consumers have the same level of protection, the Council is of the view that there should be in place such a cooling-off period.  As legal professionals are already required to abide by their respective codes of conduct which expect them to practice with the highest level of ethics and propriety, there should not be much opposition to this cooling-off period being mandatorily imposed.


Other comments

  1. The Council does not object to legal practitioners charging separately for work done in relation to separate but related aspects of the arbitration, thus offering further options and flexibility to consumer clients in managing their case.
  2. As for the proposal in Recommendation 13 for personal injury claims to be treated differently from other claims in arbitration, the Council has no comment save to suggest that such a decision should be reviewed from time to time. 


To conclude, the Council is, in the main, supportive of the recommendations contained in the Consultation Paper that prohibitions against ORFS in arbitration should be lifted.However, this support is premised on the basis that consumers continue to be provided with varied and informed choices, that consumers have enhanced accessibility to legal services in a reasonable and affordable manner and so long as consumers do not end up inadvertently entering into fee payment structures that are to their financial detriment which would frustrate the intent of lifting the restrictions on ORFSs.