The Alternative Legal Fees Structure: Basic Fees + Success Fees

Contingency fee agreements, between lawyers and clients, are agreements wherein lawyers are only paid if a suit, action or proceeding is won.

For example, the Plaintiff and Defendants in Federal Furniture Industries Sdn Bhd v Chim Yiam Lee, Tan & Associates (Dahulunya dikenali sebagai Chim Yiam, Lee & Associates)(Disaman sebagai firma guaman) [2012] MLJU 1629 entered into an agreement whereby:

“… the Plaintiff is to pay the Defendants a sum equivalent to 20% of the debt amount recovered from the proceedings initiated by the Defendants.”[1]

Learned authors David W. Neubauer and Stephen S. Meinhold point out, in the context of the United States of America, that “lawyers representing plaintiffs in personal injury cases typically work under a contingency fee agreement.”[2]

Contingency fee agreements are expressly prohibited by Section 112 of the Legal Profession Act 1976 (“LPA 1976”):

“Except as expressly provided in any written law, or by rules made under this Act, no advocate and solicitor shall

(b) enter into any agreement by which he is retained or employed to prosecute any suit or action or other contentious proceeding which stipulates for or contemplates payment only in the event of success in such suit, action or proceeding.” (emphasis mine)

The rationale behind the prohibition stems from the “… abuses to which it may give rise. The common law fears that the champertous maintainer might be tempted, for his own personal gain, to inflame the damages, to suppress evidence, or even to suborn witnesses.”[3] (emphasis mine)

Lawyers, however, have creatively circumvented Section 112 of the LPA 1976 by introducing agreements which involve the payment of a basic fee coupled together with the payment of a success fee (“Basic Fees + Success Fees Agreement“). The former is payable notwithstanding the outcome of the suit, action or proceeding.

The Basic Fees + Success Fees Agreement has been tested in the courts and have been upheld as being valid.

In Chai Chee Chin and Others v Tetuan Zahari Ong & Co [2005] MLJU 623 (“Chai Chee Chin“), the agreement was for 20% of the monies awarded by the Land Administrator subject always to a minimum legal fee of RM1,000.00.

Azmel bin Haji Maamor J (later FCJ) held that the agreement was not contrary to Section 112(1)(b) of the LPA 1976 as the Defendant will be paid regardless of the circumstances and decision made in the proceedings before the Land Administrator.[4]

The Court of Appeal in Lua & Mansor (suing as a firm) v Tan Ah Kim [2017] 3 MLJ 371 (“Lua & Mansor“) affirmed the decision of the High Court in Chai Chee Chin and remarked that:

“… the pre-agreed costs by the parties in this case is known as success fees, and not contingency fees because the agreed 15% fees is not contingent upon the defendant winning the case but it was additional fees agreed, in addition to the RM20,000 basic fees.”[5] (emphasis mine)

Recently, in Jacob and Toralf Consulting Sdn Bhd & Ors v Siemens Industry Software Gmbh & Co Kg (previously known as Comos Industry Solutions GmbH and previusly known as Innotec GmbH) & Ors [2018] MLJU 767 the agreement between the respondents and their lawyer was for:

“… payment of an agreed fee of a fixed sum of RM 200,000.00 and 5% of any award from a successful conclusion of the trial of the plaintiffs’ claim or of any sum agreed to by way of an out of court settlement of the plaintiffs’ claim.”[6]

The learned High Court judge made no reference to Chai Chee Chin or to Lua & Mansor but nevertheless held that the champerty, as embodied in s. 112 of the LPA 1967, was not proven.[7]

Unfortunately, the Basic Fees + Success Fees Agreement has not been tested at the apex court. Having said that, the Basic Fees + Success Fees Agreement remains a valid legal fee structure until and unless Lua & Mansor is overruled by the Federal Court.