Why 'no win, no fee' is no go for Hong Kong lawyers

A medieval law punishes lawyers for taking a financial interest in cases, even though other jurisdictions allow such conditional or contingent fees

PUBLISHED : Sunday, 07 April, 2013, 12:00am
UPDATED : Sunday, 07 April, 2013, 5:28am

In Britain, the United States and Australia, they call it "no win, no fee" litigation. A lawyer takes on a case for no upfront fee in return for a slice of whatever the client wins. It's considered a vital way to give those without the means to mount an expensive legal action a shot at justice.

In Hong Kong, a lawyer taking on such an action risks falling foul of a law dating back to medieval England. It's known as champerty, and for lawyer Louie Mui Kwok-keung, it's led to a 3½ year jail sentence. Champerty is an archaic piece of common law which prohibits parties with no direct interest in a legal action from encouraging and supporting litigation in return for a share of the proceeds from successful lawsuits or favourable out-of-court settlements.

It has remained valid even after most other common-law jurisdictions have legalised so-called conditional or contingent fee arrangements - a point Mui's counsel made in his defence at the District Court last month.

But Judge Amanda Woodcock was not convinced, telling the court: "The fact that [champerty] is ... no longer an offence in other jurisdictions is not a factor that would attract leniency."

Mui, the first barrister to be convicted of the offence in Hong Kong, was jailed for what Woodcock said were "obnoxious" deals to buy into his clients' lawsuits and pocket more than HK$1.6 million from their damages payments.

In 2009, Winnie Lo Wai-yan, 40, was the first solicitor in Hong Kong to be convicted of conspiracy to commit champerty and maintenance - where litigation is assisted by a person with no legitimate interest in it. She was given a 15-month sentence but her conviction was quashed in the Court of Final Appeal last year, with the court saying it was wrong of the trial judge to draw inferences about her participation in the lawsuits.

In his final remarks, Mr Justice Roberto Ribeiro raised the question of whether liability for maintenance under criminal law or civil common law - tortious liability - should be retained in Hong Kong after being dropped in England and Wales and Australian states.

"In England and Wales, criminal and tortious liability for both maintenance and champerty were abolished by the Criminal Law Act 1967. … Such liability was abolished in Victoria in 1969, in South Australia in 1992 and in New South Wales in 1995 by the Maintenance and Champerty Abolition Act 1993 (NSW)," Ribeiro told the top court.

"The issues are, however, of some complexity and may involve taking a different view in respect of maintenance as opposed to champerty; and of criminal as opposed to tortious liability. It is in my view a fit topic to be referred to the Law Reform Commission," he wrote in the judgment.

Even the prosecution in Mui's case admitted the offence was so obscure that Winnie Lo's case was the only available precedent it could come up with after it had "gone through the whole world".

Patrick Sherrington, a partner at Hogan Lovells, an international law firm with offices in various jurisdictions including Hong Kong, Britain and the United States, described a contingent or conditional fee as any fee for services provided where the fee is payable only if there is a favourable result.

It is usually defined as a fee charged for a lawyer's services only if the lawsuit is successful or is favourably settled out of court.

Until a law change that took effect last week, a British lawyer could take on a conditional fee arrangement. If an action succeeded, the lawyer would receive their usual fee and an additional "success fee" - capped at no more than 100 per cent of the normal fee. This would be payable by the party defending the action.

Britain has now moved to a model closer to the American system, in which a lawyer taking on a "no win, no fee" case would instead receive a proportion of the damages a plaintiff receives - a contingent fee.

"In the English legal system, it is generally referred to as 'no win no fee'," Sherrington said.

"However, if the case is won, the lawyer will be entitled to the normal fee based on hourly billing, plus a success fee. The success fee in England must be, as a percentage, no greater than 100 per cent of the normal fee. This contrasts with the contingency fee in the US, which gives the successful attorney a percentage of the damages awarded in favour of his client."

There are arguments for allowing contingency fee arrangements, not least the fact that it provides access to the courts for those who cannot afford to pay their lawyer's fees and costs of civil litigation, Sherrington said.

The arrangement, he argues, provides a powerful motivation to the lawyer to work diligently on the client's case. Also, because lawyers assume the financial risk of litigation, the number of cases that are speculative or without merit may be reduced, Sherrington said.

Despite all the arguments in favour of contingency fees, Sherrington warns that the arrangement does not necessarily guarantee civil justice or even access to the courts, not least because "lawyers tend to cherry pick only the strongest claims which are most likely to succeed".

The topic of conditional fees was studied by the Hong Kong Law Reform Commission in 2007. It recommended the creation of a conditional legal aid fund. It would brief out cases to private lawyers, finance the litigation, and pay the opponent's legal costs should the litigation prove unsuccessful.

It defined conditional fees as "based on the traditional basis of calculation of legal fees; the difference is that, if the civil lawsuit is lost, then no legal fee will be charged, whereas if the civil lawsuit is won, then an additional percentage of the traditional legal fees will be charged.

"In contrast," it added, "contingency fees are based on the amount of compensation recovered from a civil lawsuit.

"If the civil lawsuit is lost, no legal fee will be charged, whereas if the civil lawsuit is won, then a percentage of the compensation recovered will be charged as legal fees."

The fund would have been permitted to engage the private lawyers it instructed on a conditional fee basis and charge the client on a contingency fee basis.

The Hong Kong government, however, rejected the proposal.

The insurance sector warns that any such arrangement would mean more claims and lead to more lawsuits, especially involving personal injuries, that would eventually drive up insurance premiums.

In Britain, "no win, no fee" law firms have been dubbed "ambulance chasers" and accused of driving up insurance premiums. The Association of British Insurers says British consumers pay £2.7 million (HK$40 million) per day to "no win, no fee" firms by way of insurance premiums, while a government report revealed that the National Health Service paid out £8 billion as a result of lawsuits in the last five years - with two-thirds of that sum going to lawyers, rather than victims. That prompted the British government to change the law, limiting the amount lawyers can claim in legal fees to 25 per cent of the total damages.

The Hong Kong Law Society said that, besides the risk of a champerty prosecution, they strongly prohibit contingency or conditional fee arrangements.

The Hong Kong Solicitors' Guide to Professional Conduct, issued by the Law Society, stipulates: "A solicitor may not enter into a contingency fee arrangement for acting in contentious proceedings".

The Bar Association maintains its view that there are strong considerations mitigating against the implementation of conditional fee arrangements in Hong Kong. These include a desire to preserve the honesty of the legal profession and avoid intrinsic conflicts of interest.

And Director of Public Prosecutions Kevin Zervos also believes the city should not simply follow the lead of overseas jurisdictions on the issue but should instead look into the local context.

"The idea of lawyers or agents taking a certain percentage of the compensatory monies that should go to a person as part of their claim is generally viewed unfavourably and it is considered that it may be open to abuse," Zervos told the Post.

"Remember, we are not the UK and we are not America, we are Hong Kong, we have our own local issues and should make sure our law suits our purposes.

"There is a tendency to blindly follow what is happening somewhere else. But you've got to put it in context. It is essential to have an informed debate for any changes. And we should make sure our law suits us and meets our local conditions and circumstances. There is a particular issue with recovery agents in Hong Kong," he said.

"Maintaining the offence of champerty is regarded as the right public policy for the current circumstances, and for that reason the court still upholds it. The issue may be subject to debate. But in the meantime, it remains until we decide which way we should go."