Clarity on contingency fees agreements

October 1st, 2012

Mofokeng v Road Accident Fund (unreported case no 22649/09);
Makhuvele v Road Accident Fund (unreported case no 19509/11);
Mokatse v Road Accident Fund
(unreported case no 24932/10);
Komme v Road Accident Fund
(unreported case no 20268/11) (GSJ) (22-8-2012) (Mojapelo DJP)

By Kim Hawkey

Since their early origins, contingency fees agreements have been a matter of controversy and, in recent years, there has been much confusion over the exact bounds of such agreements in light of the Contingency Fees Act 66 of 1997 (the Act), which came into force in 1999.

A recent decision by Mojapelo DJP in the South Gauteng High Court in Johannesburg has, however, provided much-needed clarity on what is required when these agreements are concluded between litigants and their legal representatives in this particular court.

Mojapelo DJP used the opportunity afforded by the four matters referred to above to issue the following practice directive (in para 63 of the judgment), which he said was necessary for the court to exercise its monitoring function in respect of contingency fees agreements effectively:

Practice directive

  1. Whenever a court is required to make a settlement agreement or a draft order an order of court, before the court makes such an order –

1.1. the affidavits referred to in s 4 of the Contingency Fees Act must be filed if a contingency fees agreement, as defined in the Act, was entered into;

1.2. if no such contingency fees agreement was entered into, the attorney and his client must file affidavits confirming that fact;

1.3. where a contingency fees agreement was entered into, in addition –

1.3.1.  counsel shall confirm to the court that counsel has read such agreement and advise the court whether same complies with the Act or not;

1.3.2.  the court may in its discretion call for the submission to it of the contingency fees agreement for examination by the court.

1.4. In addition to the matters contemplated in s 4(1) and (2) of the Act –

  • the affidavit of the attorney must confirm that the attorney has explained to the client the client’s right to take the agreement and the fees charged in terms thereof for review as contemplated in s 5 of the Act; and
  • the affidavit of the client must confirm the explanation and that the client has understood such explanation and, further, that the client is in possession of the name, address and contact details of the relevant controlling professional body or bodies.
  1. The court may require compliance with the directive set out above at the end of the trial and whenever the court is required to make an order for payment of capital or part thereof in favour of the client.

Matters before the court

In all four cases before the court, the plaintiff and the defendant (the Road Accident Fund (RAF) in all of the matters) reached agreement on the quantum of the claim and costs. Further, all of the plaintiffs had entered into a contingency fees agreement with their legal representatives. In an offer of settlement to the plaintiff in each of the matters, the RAF included the following term:

‘In the event of plaintiff having concluded a contingency fees agreement with his/her attorney, such settlement shall be deemed to denote that the plaintiff and his/her attorney had complied with section 4 of the Contingency Fees Act, 66 of 1997 through having filed required affidavits with either the court, if the matter is before court, or with the relevant professional controlling body, if the matter is not before court.’

An outstanding issue in all of the matters was the conditionality of the offer. There was confusion as to whether a term was to be included in the court order recording that a contingency fees agreement was applicable and that the requisite affidavits had been filed or whether this was part of the offer and would not appear in the order.

As the parties could not agree on how the matters were to proceed, the court decided to hear them together. The court noted that the need for compliance with s 4 of the Act had the potential to affect a large number of matters and that ‘[a]n alleged non-compliance with the law could not be allowed to continue’.

After hearing argument by counsel in the various matters, the court noted that there were divergent views on –

  • the function of the court in relation to the affidavits and the Act when making a settlement an order of court; and
  • whether the contingency fees agreement ought to be placed before the court.

The Act

The court considered the intention of the legislature in enacting the Act and highlighted the importance of the court’s role in monitoring contingency fees agreements.

Section 2 of the Act provides for two forms of contingency fees agreements, which the court noted often appear in the same agreement, namely –

  • so-called ‘no win, no fee’ agreements (s 2(1)(a)); and
  • those that provide for fees equal to or higher than normal for the legal practitioner where his client is successful (s 2(1)(b)). This category is subject to limitations: Higher fees cannot exceed the normal fees of the practitioner by more than 100% and, in claims sounding in money, this fee cannot exceed 25% of the total amount awarded or any amount obtained by the client as a result of the proceedings, excluding costs (s 2(2)).

In respect of the calculation of these fees, Mojapelo DJP agreed in part with the judgment in Thulo v Road Accident Fund 2011 (5) SA 446 (GSJ), however he did not agree with the court’s view that an attorney may legally enter into an agreement with his client to charge the maximum possible under the Act plus taxed costs to be paid by the other side.

In respect of settlement and affidavits, s 4(1) of the Act provides: ‘Any offer of settlement made to any party who has entered into a contingency fees agreement may be accepted after the legal practitioner has filed an affidavit with the court, if the matter is before court, or has filed an affidavit with the professional controlling body if the matter is not before court.’ According to the court, this provision is peremptory and a court cannot make a settlement order until such affidavits are filed.

Section 4(3) provides: ‘Any settlement made where a contingency fees agreement has been entered into shall be made an order of court, if the matter was before court.’

In this respect, the court stated that there could not be an out-of-court settlement where one of the parties has entered into a contingency fees agreement, which reinforced the importance of the court’s monitoring role in respect of such agreements.

Role of the court

In addition to the practice directive set out above, the court elaborated on its supervisory functions in respect of contingency fees agreements.

In respect of the prescribed affidavits, the court held that these must be signed and filed: It is not sufficient for the court to be advised that the affidavits have been filed; it must have sight of the affidavits and ensure they comply with the Act.

  • Attorney’s affidavit

In terms of s 4(1), the attorney’s affidavit must state:

  • The full terms of the settlement.
  • An estimate of the amount or other relief that may be obtained by taking the matter to trial: Mojapelo DJP held that the court must be able to see what the client abandons or compromises by settling in the specific terms and at the particular stage instead of proceeding to full trial.
  • An estimate of the chances of success or failure at trial: The court should satisfy itself that it is prudent to settle having regard to the chances of success as perceived by the professional, who is aware of the evidence and the relevant considerations. The practitioner may not simply state that the chances are good or bad – he must give reasons, with reference to the available evidence and other relevant considerations.
  • An outline of the legal practitioner’s fees if the matter is settled as compared to taking the matter to trial: The court noted that the Act appears to require the practitioner to state his estimated fees at the stage of settlement and what his fees would be if the matter proceeded to trial. The court should be able to determine whether the practitioner is financially better or worse off with the settlement than he would be compared to the trial option. Against this must be weighed whether the client is financially better or worse off than he would be in the case at the end of the trial.
  • Reasons why the settlement is recommended: The court stated that it appeared that the court must be satisfied that the client is better off with the settlement and that the attorney’s financial or pecuniary interest in the capital is not allowed to outweigh that of his client.
  • That the matters in the above points (in s 4(1)(a) to (e) of the Act) were explained to the client and steps were taken to ensure that he understood the explanation.
  • That the legal practitioner was informed by the client that he understands and accepts the terms of the settlement.
  • Client’s affidavit

In terms of s 4(2) of the Act, the client’s affidavit must confirm that the attorney has complied with his obligations in terms of the Act, including that he informed the client in writing of the terms of settlement, which were explained to him and, further, that he understands and agrees to them. The client must also disclose to the court what his attitude is to the settlement.

  • Review

Section 5 of the Act creates a mechanism for a client aggrieved by the fees agreement or the fees charged to approach the relevant law society or society of advocates/Bar council, which has the power to review and set aside the provision or fees if unreasonable or unjust. The attorney must inform his client of this right and specifically state in his affidavit that he has done so. The court said that it should be clear from the client’s affidavit that the attorney furnished the client with the full contact details of the controlling body and added that it would be good practice to specify these details in the contingency fees agreement itself.

Must the contingency fees agreement be handed in?

Although the Act does not expressly provide for the agreement to be handed in to court, Mojapelo DJP held that there was no reason why the court should not call for and examine the agreement if it was necessary for the court to perform its monitoring function. The court added that attorney and client privilege does not operate against disclosure of the agreement and that, even if it did, public policy deemed such disclosure necessary.

Outcome in each of the four matters

The court made three orders in respect of the four matters.

In one of them the agreement was found to be invalid for non-compliance with the Act. The other three matters stood down for counsel to confirm that the contingency fees agreement was read and that it complied with the Act, as well as to rectify certain defects in the agreement in one of the matters.

Kim Hawkey,

This article was first published in De Rebus in 2012 (Oct) DR 48.

De Rebus