Second Reading Speech by Second Minister for Law, Mr Edwin Tong, on the Legal Profession (Amendment) Bill

12 Jan 2022 Posted in Parliamentary speeches and responses

1. Mr Speaker, I beg to move, “That the Bill be now read a second time”.

I. Introduction

2. Sir, over the years, the Ministry of Law has dedicated much effort to strengthening Singapore’s position as an international dispute resolution hub. We continually –

   a. Look for opportunities to drive work to Singapore and Singaporeans;

   b. Keep abreast of developments in other jurisdictions; and

   c. Update our regime so that we can continue to remain an attractive place for businesses to want to be at, and to deal with and address their legal needs.

3. These efforts have yielded results –

   a. Singapore is recognised as a premier legal services hub, in Asia and also the rest of the world.

   b. In 2020, Singapore’s exports of legal services exceeded $0.9 billion, which is more than 40% of the value-added (VA) of Singapore’s legal services.

   c. In 2021, Singapore was, for the first time, selected as the most preferred seat of arbitration in the world, alongside London, in the Queen Mary University of London and White & Case International Arbitration Survey. This is a fine achievement, especially during the COVID-19 pandemic, which has itself presented new challenges.

4. Even so, Sir, we cannot afford to rest on our laurels. It is imperative for us to continually review, strengthen and update our legislative framework, in order to stay competitive and meet the needs of businesses and users alike.

5. The proposed amendments in this Bill are part of these ongoing efforts to further buttress and enhance our offering and our position as a legal hub.

6. There are two key sets of amendments in this Bill:

   a. First, to introduce a framework for allowing conditional fee agreements (“CFAs”) in prescribed categories of proceedings; and

   b. Second, to refine the scope of representation of foreign lawyers in the Singapore International Commercial Court (“SICC”).

7. The Bill also makes a miscellaneous amendment to clarify the date certain provisions relating to the regulation of foreign lawyers and foreign law practice entities was operationalised, following the transfer of relevant regulatory functions from the Attorney-General to the Director of Legal Services on 18 November 2015.

8. Let me now speak on the first set of amendments, relating to CFAs.

II. Amendments to Introduce Framework for CFAs

A. Background on litigation funding reforms

9. The introduction of a CFA framework builds on our reforms in the litigation funding space, to enhance our offerings as a dispute resolution hub.

10. To set the context, I will provide some background on litigation funding in Singapore, before going into the proposed legislative framework for CFAs.

11. Broadly, litigation funding refers to methods of funding legal proceedings.

12. In Singapore, lawyers’ costs are typically paid by the client, as we have historically been more conservative about litigation funding.

13. This is due to traditional prohibitions against maintenance and champerty, concepts which we have ourselves inherited from the English common law system. These rules were originally developed to guard against officious intermeddling in litigation, and potential conflicts of interest, which lawyers providing financial assistance may face vis-à-vis their duty to their own clients, who may be vulnerable litigants, and also to the Court.

14. However, we have been taking incremental steps and looking at the landscape holistically.

    a. As legal costs can be substantial, we have observed a growing trend of alternative funding methods internationally;

    b. We have therefore been studying how to better meet the needs of businesses and individuals, and also enhance access to justice;

    c. We have taken into account what has been done elsewhere in other jurisdictions;

    d. The safeguards that have been implemented - some of the learnt experiences that they have had d since then; and

    e. Working out how we can better contextualise them for use in Singapore.

15. One area of reform we have introduced is in third-party funding (“TPF”), where a party unconnected to the dispute funds the claim, usually in exchange for a share of the damages awarded, if the claim succeeds.

    a. In 2017, we introduced a legislative framework to allow TPF in international arbitration proceedings.

    b. Since then, funders have reported an upturn in requests for funding in Singapore, with funding provided in some cases. The legal and funding communities also shared that the reforms have been useful and beneficial.

    c. We have therefore extended the framework in June 2021 to domestic arbitration, certain proceedings in the SICC, and also, related court and mediation proceedings.

    d. Apart from the above, we also observed interest and needs for TPF in certain insolvency-related matters before the courts, and various reforms were worked into our insolvency legislation.

16. Given the positive feedback received from the TPF reforms, with few risks and downsides observed, we have continued to study other potential reforms in the litigation funding space. This includes CFAs, which is the focus of this Bill.

B. Conditional fee agreements

17. CFAs are arrangements where a lawyer receives payment of a part, or all, of his or her legal fees, only in specified agreed circumstances, such as when the client’s claim is successful. CFAs may take the form of a “no win, no fee”, or a “no win, less fee” agreement, depending on how the fees are to be paid to the lawyer if the claim is unsuccessful.

18. CFAs and contingency fees are currently prohibited and unenforceable in Singapore, under the rules against maintenance and champerty.

19. However, allowing CFAs can bring about several advantages. Let me outline them.

20. First, it updates our litigation funding framework and aligns it with developments and practices on the international front. This helps to enhance the competitiveness and vibrancy of our legal industry and landscape.

    a. While Singapore lawyers are currently not allowed to offer CFAs, other common law jurisdictions have already moved away from these traditional prohibitions.

    b. For instance, England and Wales abolished the prohibitions in the 1990s, and together with the United States, Australia, and Canada, allow CFAs in various forms today.

    c. The proposed framework for CFAs in this Bill, therefore helps to level the playing field for our Singapore lawyers in certain practice areas, vis-à-vis foreign lawyers in these other jurisdictions. Often times, our lawyers compete on an international front, with foreign lawyers from other jurisdictions. They can offer CFAs, whilst our lawyers are not able to offer CFAs as part of their engagement with their clients.

21. Second, allowing CFAs can also enhance access to justice.

    a. This is particularly pertinent with current business interruptions caused by the COVID-19 pandemic.

    b. Businesses with legitimate claims, but facing cash flow problems, may not be able to put out full legal fees at the outset.

    c. CFAs will help provide such claimants with an alternative method of funding meritorious claims, which they may otherwise not be able to pursue.

22. In jurisdictions that allow CFAs, other advantages have also been observed:

    a. As lawyers are typically better placed to evaluate the legal risks of a claim, compared to clients, sharing of financial risks of litigation between client and lawyer can also be beneficial.

    b. Just as CFAs can enable pursuit of meritorious cases, they can also discourage the pursuit of weak cases and frivolous claims, as lawyers’ fees are contingent on the outcome of the claim.

23. We studied the approaches taken in other jurisdictions, and sought feedback from stakeholders via a public and closed consultations.

24. Having carefully reviewed all the feedback received, looked at the landscape and studied the outcomes in the various other jurisdictions, we have designed a framework for CFAs in Singapore, as set out in this Bill, which we believe best allows us to make an initial move on CFAs, whilst at the same time, studying the impact it may have on the broader litigation funding landscape. Let me now take you through the key features of the framework, as well as the safeguards that we have built into this framework.

C. Key features of CFA Framework in Bill

25. Clauses 3 to 6 of the Bill set out the overarching framework for CFAs, while further details and safeguards will be prescribed in subsidiary legislation.

26. Broadly:

    a. Clause 3 states that lawyers will not be prevented from entering into a CFA that complies with the new Part 8A of the Legal Profession Act (“LPA”), where the CFA framework will be housed.

    b. Clause 4 amends existing section 111 in Part 8 of the LPA, to clarify that Part 8 of the LPA does not apply to an agreement which is a CFA that complies with the new Part 8A.

    c. Clause 6 sets out the proposed Part 8A of the LPA, which will provide the main framework for CFAs in Singapore. The proposed Part 8A will have 6 new sections, sections 115A to 115F.

27. Section 115A defines key terms in the CFA framework, and sets out the scope of Part 8A. In that regard, similar to Part 8 of the LPA, Part 8A will apply to Singapore law practices and certain registered foreign lawyers and foreign law practices.

28. Section 115B creates a statutory exception for CFAs that comply with prescribed requirements. To be clear, the statutory framework for CFAs is not intended to override existing common law principles on CFAs relating to impecunious clients, which can continue to provide access to justice for such litigants.

29. CFAs will be enforceable only in prescribed proceedings. As a start, we intend to prescribe the following proceedings by way of subsidiary legislation:

    a. First, international and domestic arbitration proceedings;

    b. Second, certain proceedings in the SICC; and

    c. Third, related court and mediation proceedings.

30. This will be, as members may recall, the same categories as the extended TPF framework that we have put in place. As CFAs are a new development in Singapore, we are taking an incremental, measured approach, more cautious at the start, starting with proceedings where litigants tend to be more commercially sophisticated.

31. We are concurrently studying the feasibility of allowing CFAs in other categories of proceedings, such as domestic proceedings.

    a. The rationale for an extension of the framework would be aimed at uplifting the legal profession to further enhance and pursue access to justice for more litigants, who may otherwise not have such access.

    b. But as these proceedings may involve more vulnerable litigants, we will study it more carefully. We intend to closely consult all relevant stakeholders in the legal industry and other interested parties before making a move on this.

32. Section 115B(6) provides that the range of work that can be covered by a CFA include:

    a. Work done for the purposes of, and before, contemplated proceedings, such as preliminary advice, negotiations or the settlement of disputes. Often times, these are matters which are pre-cursor to the substantive work, and the framework provides that CFAs can cover this kind of work as well.

    b. This is even if those proceedings are not eventually commenced, or if the claim or dispute in those proceedings is settled. But obviously in those cases, the terms of the CFA must appropriately reflect the specific conditions on which the uplift or additional fee structure can then be triggered.

Uplift fees

33. Another key feature of the CFA framework is that “uplift fees” may be provided.

    a. Section 115A(1) provides for a definition for this “uplift fee”, which are the fees payable to the lawyer in specified circumstances, that are higher than what would otherwise be payable if there were no CFA.

    b. The lawyer and client may and should agree on the specific circumstances under which the uplift fee should be paid. These circumstances can be amended as the case progresses, if agreed. Basically, the CFA is an agreement between the parties – lawyer and client – and these agreements can be varied or altered from time to time subject to there being consensus by the parties.

Parties have freedom to structure CFAs

34. As I said, because the CFA is, in essence, a contract between the lawyer and client:

    a. Parties will be free to determine a mutually agreeable arrangement for the payment of fees, subject to the prescribed requirements in our framework.

    b. As in any contract, parties should also ensure that the terms are sufficiently clear, which may include scenarios for when such a contract might be terminated.

35. I also wish to make clear that:

    a. CFAs are not intended to replace traditional fee structures, but instead, provide an additional funding option between a lawyer and his client.

    b. Lawyers and clients can agree on a traditional fee structure in one area of work, and a CFA in another, so it can be a combination of both fee structures; or might also seek to convert one to the other -, depending on the circumstances.

    c. There is no impediment to usual payment practices, such as collecting deposits for fees, except that no deposit should be collected for the uplifted portion, which depends on the triggering of a condition which will take place on a future occasion.

    d. Parties may agree to include or exclude the payment of disbursements from the CFA. That is entirely up to the parties’ choice and the terms they seek to write into the CFA.

    e. Lawyers and clients should also discuss and provide for how and when a CFA may be terminated, and the fees to be paid should the CFA be terminated prematurely. This is for obvious reasons so you have clarity upfront because sometimes, a client may decide to choose a different lawyer halfway through the proceedings, and you do not want the fact that there is a CFA to cloud the question as to what is the appropriate amount of fees to be paid at that juncture.

D. Safeguards to protect clients

36. The Bill and subsidiary legislation will introduce safeguards to mitigate the risk of any potential abuse of CFAs by lawyers.

37. Under section 115B, a CFA must meet certain requirements for it to be valid.

    a. First, the CFA must be in writing and signed by the client.

    b. Second, it must not provide for the remuneration and costs to be payable as a proportion of the amount recovered by the client. For example, it cannot be a proportion of the damages that a client may recover. Such arrangements, which are often known as contingency fee agreements, will continue to be prohibited in Singapore.

i. The reason for this is because the payment received by lawyers in such agreements has no direct correlation with the work done, and the amount of damages that a client may recover is dependent on a client’s particular circumstances and the damage and injuries that may be suffered. If you allow such proportions to be part of a CFA, this may give rise to added risks of conflicts of interest for the lawyer.

ii. We will continue to study developments in this area.

c. Third, the CFA must comply with regulations that will be made under section 115B(7). These include:

i. Information that the lawyer must provide to the client – for instance, how the CFA operates, and how uplift fees are calculated in the particular case.

ii. Second, terms and conditions that must be included in the CFA, such as a “cooling-off” period after the CFA is entered into, during which the client or lawyer may terminate the CFA by giving written notice.

38. We emphasise that CFAs do not change existing obligations of solicitors under statute or common law, unless expressly stated. Lawyers will continue to be subject to the Legal Profession (Professional Conduct) Rules (“PCR”), including obligations to:

    a. Act in the best interests of their clients;

    b. Evaluate whether any consequence of a matter involving the client justifies the expense or risk of pursuing the matter;

    c. Withdraw from representing a client in certain circumstances, due to say, ethical reasons - these are obligations and responsibilities which a lawyer would be very familiar with; and

    d. Finally, of course, not overcharge.

39. This will be clarified in amendments to the PCR.

40. MinLaw will also be working with the Law Society to develop Guidance Notes on CFAs, with the aim of guiding the legal profession through these new developments.

41. MinLaw will also continue to review the landscape and the use of CFAs in practice and may also develop additional, different safeguards for different categories of proceedings, as may be appropriate.

E. Ancillary matters in Bill

42. Finally, apart from the features mentioned above, the proposed sections 115C to F of the Bill provide for ancillary matters relating to CFAs. They are adapted from the current Part 8 of the LPA, but with modifications, and cover matters such as:

    a. The effect of a CFA on legal costs;

    b. How the validity or effect of a CFA is to be assessed; and

    c. The consequences of a change in, the death of, or incapacity of, or the winding up of, a solicitor or law practice.

43. Let me highlight two points from this range of amendments.

44. First, section 115C provides that uplift fees will not be recoverable as part of legal costs from the opposing party. That means that uplift fees that are triggered or payable as a result of the fulfilment of a condition of a CFA will not be recoverable as part of party-and-party costs, should the client be successful in the proceedings.

    a. This seeks to avoid the issues of satellite litigation faced by other jurisdictions, where it has been noted that CFAs were challenged by the unsuccessful party, to avoid paying uplift fees to a successful party as part of legal costs. In other jurisdictions, if the uplift fee is payable as part of party-and-party costs, it provides an opportunity for there to be additional litigation for the losing party to challenge the validity and application of the CFA. We want to avoid this.

45. Second, section 115D concerns questions on the validity and enforceability of a CFA.

    a. In determining such questions, the court will:

i. Examine whether the requirements of a CFA as set out in section 115B have been met, and whether the CFA is void or voidable on the usual contractual principles, such as incapacity, mistake, misrepresentation, and so on;

ii. The court will also have regard to the circumstances in which the agreement was made and the interests of all parties to the agreement, i.e. the client and the lawyer, taken as a whole.

b. The court should also consider the purpose and context of a CFA when determining its enforceability. As an example, the mere fact of an uplift should not call the CFA into question, although the amount of uplift should be commensurate with the risk undertaken by the lawyer.

c. As the CFA is a contract between the client and the lawyer, such an approach is based on well-established contractual principles, and provides certainty to parties.

III. Amendments to Refine Foreign Lawyers’ Scope of Representation in the SICC

46. Let me now move on to the next set of amendments.

47. Clause 2 seeks to refine the scope of representation of a foreign lawyer in certain proceedings in the SICC, particularly international corporate debt restructuring and insolvency cases.

48. In the last 5 years, we have made tremendous progress to our corporate debt restructuring and insolvency regime.

    a. Our laws have remained progressive, open and modern, whilst balancing the interests of creditors, debtors and other stakeholders, all of whom have an interest in particularly large, cross-border, complex insolvencies.

    b. As an indicator, in 2020 alone, there were more than 100 restructuring related applications.

49. The proposed amendment seeks to build on this momentum and enhance Singapore as a premier centre for debt restructuring and insolvency matters both regionally, as well as globally, internationally. Such matters typically involve a multi-jurisdiction dimension and significant foreign elements, including proceedings in foreign courts, which may otherwise not be heard in Singapore.

50. The SICC was identified, by the Committee to Strengthen Singapore as an International Centre for Debt Restructuring in 2016, as a conducive forum to hear insolvency matters, with international elements and multi-jurisdictional issues.

51. The SICC was established in 2015 to hear transnational and commercial disputes. It broadens and complements existing dispute resolution options.

52. The proposed refinements leverage on the SICC’s strengths and attractive infrastructure, and seeks to facilitate the efficient and effective presentation of arguments and resolution of debt restructuring and insolvency proceedings in the SICC:

    a. First, the SICC’s jurisdiction over international restructuring and insolvency cases was clarified in the Courts (Civil and Criminal Justice) Reform Act 2021; and

    b. Second, in connection with that, Clause 2 of this Bill proposes to refine the scope of foreign lawyers’ representation.

53. Corporate debt restructuring and insolvency work can be complex and proceedings will often involve transnational and inter-connected issues, with mixed issues of foreign and local law, along with mixed issues of law and fact.

    a. The proposed refinements here seek to facilitate collaboration between local and foreign lawyers for the efficient and fair resolution of such cases before the SICC.

    b. In turn, it will benefit litigants and other stakeholders, and support the growth of international cases being heard in Singapore.

54. Let me just briefly take Members through the proposed amendment –

    a. First, a foreign lawyer with full registration may submit on matters in the prescribed proceedings, subject to the following restrictions:

i. The foreign lawyer will only be allowed to submit on matters with permission granted by the Court; and

ii. The foreign lawyer will not be permitted to make a submission on a matter of Singapore law.

b. Second, subsidiary legislation may provide for:

i. The various categories of specified proceedings that these refinements will apply to;

ii. Factors that the court may consider in deciding whether to grant permission to the foreign lawyer; and

iii. Exceptions to any of these restrictions.

55. At this juncture, I would like to highlight that I am also moving an amendment to the Bill, at its Committee stage, to clarify that:

    a. A foreign lawyer with full registration will be able to appear and plead, subject to the restrictions proposed by Clause 2 of this Bill, in proceedings preliminary to the prescribed relevant proceedings and relevant appeals.

    b. This will align this Bill with the Courts (Civil and Criminal Justice) Reform Act 2021, that I mentioned earlier, which introduced a further category of “preliminary proceedings” in Section 36P(1) of the Legal Profession Act, in which a foreign lawyer with full registration may appear and plead in.

56. Sir, with the introduction of the refinements above, the Bill will further MinLaw’s efforts to enhance Singapore’s attractiveness as a dispute resolution hub.

57. With that, Sir, I beg to move.

Last updated on 12 Jan 2022