New Singapore legislation introduces framework for conditional fee agreements—improving the options available to law firms and their clients in arbitration

The Legal Profession (Amendment) Bill received Presidential assent and passed into law on the 8 February. The changes to the legal professional framework introduced by the Legal Profession (Amendment) Act 2022 (Act) are noteworthy because conditional fee agreements (CFAs) in international arbitration and other proceedings are now permitted—greatly improving the risk-sharing options available to parties.

As a natural progression from the introduction of third-party funding for international arbitration in 2017, the new reforms will help to bring Singapore in line with other major arbitral hubs, where the use of such arrangements is already accepted practice. For example, the Law Reform Commission of Hong Kong also announced recommendations for the use of similar outcome related fee structures for arbitrations late last year.

More risk-sharing options for parties

At present, law firms and businesses can use third-party legal finance to offset the costs relating to domestic and international arbitrations seated in Singapore (as well as certain proceedings in the Singapore International Commercial Court). However, the Act introduces further changes to the lawyer fee structures for these proceedings—specifically, the option for lawyers to work on a conditional-fee basis (or fee uplift upon a successful outcome).

This is a positive development that responds to increasing client demand for flexibility. Commercial parties are increasingly pushing back against the traditional law firm hourly fee model, while also looking for ways to recover value for their organizations through meritorious arbitration without shelling out millions of dollars in legal fees and expenses. This mindset has resulted in growing pressure on law firms to provide risk-sharing solutions to their clients.

By giving Singapore-based law firms the option to tailor their legal fee structures, the Ministry of Law is levelling the playing field with lawyers outside the city-state who are already able to offer such agreements.

The move also benefits the parties to an arbitration: Conditional fees provide clients with greater access to counsel and the courts while minimizing economic impediments that would otherwise prevent the pursuit of meritorious claims.

Law firms will need a partner in managing outcome-related fee risk

Although the changes introduced by the Act are at present limited to conditional fees, and not full contingency fees (where the fees payable are linked to the amounts recovered by the client), which remain prohibited in Singapore. Similar to contingency cases, conditional fees present an opportunity for upside for law firms upon the successful resolution of a case.  However, these cases also carry risk of expense and cash loss (albeit to a lesser extent when compared with full contingency cases) to a law firm whose clients—however meritorious their claims—may well lose. A law firm working on conditional fee arrangements risks financial losses in costs paid for lawyers’ fees.

Because law firms are normally cash-in, cash-out partnerships without access to outside equity or long-term debt, law firms often need a partner to share and help them manage the burden of the conditional or contingent fee risk they bear in representing multiple clients with meritorious but risky and expensive matters.  

Legal finance provides law firms with much needed capital to help manage their risk and maintain focus on how to best serve their clients. Burford routinely works with law firms to help them find the solutions they need, often by providing law firms financing on a portfolio basis (i.e., a capital facility that funds multiple matters in a firm’s portfolio).

Increased appeal of Singapore as a disputes hub

Singapore’s developed economy and sophisticated legal foundations make it a valuable destination for dispute resolution. International businesses often view Singapore as an impartial but geographically convenient venue to bring disputes involving parties from Asia and beyond.

In fact, Singapore made significant percentage gains as a preferred global arbitral seat in the 2021 Queen Mary survey as compared with previous surveys. For the first time, Singapore tied with London as the most preferred arbitral seat with a score of 54%.

Expanding the financing options available to corporate parties to include CFAs will make Singapore even more attractive for international businesses. Combined with Singapore’s robust legal framework and high economic growth in Asia, the CFA option could lead to a further increase in popularity for the country as a key dispute resolution hub.

As the first legal finance provider reported to fund a Singapore-seated arbitration and with an office in Singapore, we have already seen numerous funding inquiries from the region and expect demand to only increase given the new reforms.