The limited purview of the Contingency Fees Act

March 1st, 2019
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By Terrence Davis

This article expounds on the limited purview of the Contingency Fees Act 66 of 1997 (the Act). This Act has been used incorrectly by certain legal practitioners and judges to invalidate common law contingency agreements, despite these agreements not being tainted by the mischief of champerty.

The South African Law Commission Project 93 titled ‘Speculative and Contingency Fees’ November 1996 made the recommendation that contingency fee agreements should be legalised and that common law prohibitions on such fees should be removed. It was stated that a system of contingency fees ‘can contribute significantly to promote access to the courts’ and ‘such a system is desirable’. This resulted in the promulgation of the Act.

The Act is an enabling statute in that it enables legal practitioners to enter into certain contingency agreements with their clients, which agreements were previously unlawful in terms of the common law on account of them facilitating gambling in law suits. These agreements are known as ‘pactum de quota litis’ and are called maintenance and champerty.

The Act is not a constraining statute in that it does not prohibit any contingency agreement. The purview of the Act is limited to those contingency agreements, which are unlawful in terms of the common law. The Act does not affect lawful ‘common law’ contingency agreements. This is confirmed in the case of Fluxmans Inc v Levenson 2017 (2) SA 520 (SCA). At para 32, Zondi JA (Theron JA and Van der Merwe JA concurring) held ‘that it is incorrect that the Act prohibits the conclusion of a “common law” contingency fees agreement. The Act permits the parties to conclude such agreement. It in fact allows them to do something that would otherwise be unlawful under the common law. In other words, the Act was enacted to overcome the prohibition, which existed under the common law [Price Waterhouse Coopers Inc and Others v National Potato Co-operative Ltd 2004 (6) SA 66 (SCA) para 41]’ (my italics).

Further the judgment of Zondi JA clarifies the often misconstrued statement of Southwood AJA in the matter of Price Waterhouse Coopers Inc and Others v National Potato Co-Operative Ltd 2004 (6) 66 (SCA) at para 41G that ‘[a]ny contingency fee agreement between such parties [the legal practitioners and their clients] which is not covered by the Act is therefore illegal.’ The statement of Southwood AJA is restricted to the unlawful ‘common law’ contingency fee agreements, as it is only these agreements, which come within the purview of the Act. The Act does not cover lawful common law contingency fee agreements, which therefore remain legal.

In other words, the Act neither prescribes contingency fee agreements, which are legal under the common law, nor creates a new category of illegal contingency fee agreements. This view is confirmed by Willis JA in the minority judgment in the case of Mostert and Others v Nash and Another 2018 (5) SA 409 (SCA) at para 145 where he held that ‘[t]here was no blanket prohibition on remuneration being dependent on the outcome of an uncertain future event. To the extent that certain other cases decided in the High Court may have suggested that any agreement between an attorney and client that made fees payable on the happening of an uncertain future event were “unlawful contingency fees,” these cases were wrongly decided’ (my italics).

The Act deals only with unlawful ‘common law’ contingency fee agreements, and legitimises these agreements by regulating the terms and conditions, which must be introduced into the agreements. If the Act were not followed strictly, the unlawful contingency agreements would remain unlawful. (The form and content of contingency agreements legitimised by the Act are set out in ss 2 and 3 of the Act.)

The investigation of a contingency fee agreement is a two-step procedure, namely –

  • to establish that the agreement is void in terms of the common law on account of it being champertous (gambling in lawsuits); and
  • to ascertain whether the champertous agreement has been permitted by the Act.

Resort to the Act is only required if the first step establishes the existence of champerty.

The fact that payment of an attorney’s fee is made subject to the happening of a future uncertain event, does not in itself constitute a champertous arrangement. Financial assistance given in good faith to help a litigant prosecute an action in return for a reasonable recompense or interest in the suit has, for a very long time, not been regarded as unlawful. This was held to be the case by Kotze CJ in Thomas Hugo and Fred J Möller NO v The Transvaal Loan, Finance and Mortgage Company [1894] 1 OR 336 at 339 – 341 (which is quoted by Southwood AJA in Price Waterhouse Coopers Inc at para 27). This judgment justifies the exclusion of the aforesaid financial arrangement from the purview of the Act; it is not an unlawful common law contingency agreement requiring legitimisation under the Act.

Terrence Davis BCom LLB HDip Tax HDip Co Law (Wits) is a legal practitioner at LindsayKeller in Johannesburg.

This article was first published in De Rebus in 2019 (March) DR 4.