Challenge to award based on success fee arrangements rejected by Hong Kong court

A Hong Kong court in BB v. KO [2023] HKCFI 2661 recently dismissed a challenge to the enforcement of a $50 million arbitral award handed down in Chicago in favor of a top US law firm for fees due under a contingency fee arrangement.

While success fees have been allowed in arbitration-related proceedings in Hong Kong since December 16, 2022, outcome-related fee structures remain prohibited for Hong Kong litigation because of the common law rules of maintenance and champerty, which still apply. The issue in the case was whether the US style contingency fee arrangement related in some part to litigation in Hong Kong—rendering the enforcement of the award contrary to public policy.

Outcome-related fees in Hong Kong arbitrations

Under the recent reforms, parties to an arbitration seated in Hong Kong benefit from a range of alternative fee options, including conditional fee agreements (CFAs), damages-based agreements (DBAs), and hybrid DBAs (a combination of CFAs and DBAs).

By allowing more risk management options for parties through alternative fee arrangements, Hong Kong joins major arbitral seats including London, Paris, Geneva, New York and Singapore, all of which allow alternative fee arrangements to varying degrees. The reforms benefit lawyers and clients alike as they support freedom of contract between lawyers and clients. As a result, clients can expect more flexible pricing and lawyers in Hong Kong will be able to compete on a level playing field with international peers.

The adoption of outcome-related fees in Hong Kong also strengthens Hong Kong’s third-party funding regime which has been in place since 2017. Even top-tier law firms will need to explore how their arbitration teams can work with litigation finance companies to manage the significant costs and risks associated with running disputes on an outcome-related fee basis.

The impact of BB v. KO

Dismissing the challenge to the award, the court in BB v. KO found on the evidence that the contingency fee arrangement did not relate to litigation in Hong Kong and therefore was not champertous. Further, the challenge to the award was more than two years out of time and there was no good reason to grant an extension. Indemnity costs were awarded in favor of the law firm.

While this decision certainly cannot be viewed as a blessing for the enforcement of success fees for Hong Kong litigation—which remains prohibited at common law—it does demonstrate that Hong Kong courts are not overly restrictive on success fees for disputes in other fora and ultimately signals continued favorable treatment where possible of clients’ freedom to enter into alternative fee arrangements with their law firms where permitted, whilst being mindful of the way in which contingency fee arrangements are documented to ensure that an arrangement linked to one dispute is not also inadvertently linked to another dispute which the parties do not intend to be subject to that arrangement.