Instructing attorney plans to seek special leave to appeal the judgment to the SCA.
Attorneys handling Road Accident Fund (RAF) cases and other matters involving contingency fees have been dealt a significant blow by a full court of the high court judgment that clarified how their maximum fees in these cases must be calculated.
Judge Anthony Millar, with judges Nomonde Mngqibisa-Thusi and Jabulani Nyathi concurring, on Friday dismissed an appeal in the High Court in Pretoria by Fred de Bod to a judgment and order granted on 30 September 2024.
In the original judgment, the court declared invalid the contingency fee agreement entered into between the RAF claimant and his attorney because of the attorneys’ failure to comply with the Contingency Fees Act.
Attorney Gert Nel, the instructing attorney to De Bod, said the judgment in his view is simply wrong and he will be seeking special leave from the full court to appeal the judgment to the Supreme Court of Appeal (SCA).
Nel said if they succeed with their special leave to appeal, then this ruling is stayed until the SCA makes its own ruling.
“Hopefully it won’t take too long,” he said.
On the basis of Millar’s judgment, he added, every attorney who is doing work on a contingency fee basis will have to rethink whether or not it is worth their while to keep on financing their client’s litigation and then also to have to pay their client’s legal fees.
“That can never be right,” he said.
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Two types of contingency fee agreements
Judge Millar said the crisp issue for determination in this appeal is whether, properly construed, the agreement in question falls foul of the Contingency Fees Act or not.
He said contingency fees agreements between legal practitioners and their clients are prohibited by the common law and may only be entered into lawfully within the parameters of the act.
Millar said some confusion persists regarding what is permitted and what is not permitted in terms of the act.
He said it is apparent from previous judgments that the act permits two types of contingency fee agreements – one in terms of Section 2 (1)(a) and the second in terms of Section 2(1)(b) of the act.
Judge Millar said the first is an ordinary “no win, no fee agreement” where the legal practitioner, subject to a successful outcome, will charge their client their ordinary fees.
He said these are referred to in the act as “normal fees” and are subject to taxation should the practitioner’s client require it.
Judge Millar said the second type of contingency fee agreement is also a “no win, no fee agreement” but in this instance, besides the entitlement to the “normal fee” on a successful outcome, the legal practitioner is able to negotiate, based on their assessment of the risk, a “surcharge” or “success fee” of up to 100% of the normal fee – provided the combination of the two does not exceed 25% of the capital amount recovered by the client.
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Starting point when recovering fees
Judge Millar said taking guidance from the act, when fees are recovered in terms of such agreements, the starting point is for the drawing of an attorney and own client bill of costs based on the “normal fees”.
He said this bill may either be agreed or may be subject to taxation by the taxing master but in regard to Section 2(1)(a) agreements, this is the process that applies to the calculation and assessment of all fees in litigious matters irrespective of whether or not they are subject to the act.
He said in regard to Section 2(1)(b) agreements, the starting point is the same and an attorney and own client bill of costs must be agreed or taxed.
It is after this has occurred that the process by which the “surcharge” is determined, with the taxed or agreed attorney and own client costs multiplied by two.
Millar said once this calculation has been done, a comparison occurs.
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Comparison of costs
The capital amount recovered by the client is multiplied by 25% and that amount is compared to the “normal fee” plus the surcharge.
Millar said the two together are the “success fee” and if the “success fee” is less than the 25% then that is what the legal practitioner recovers as a fee.
However, if the “success fee” is more than the 25%, then only that amount that represents the difference between the success fee and the 25% is the additional amount the legal practitioner may recover.
He added that the total fee, which includes both the “normal fee” and the “surcharge” – referred to in Section 2(2) as the “success fee” – is limited in total to no more than 25% of the amount recovered by the client.
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Determining the facts
Millar said if the 25% is to be regarded as a fee upon which value-added tax (Vat) is to be charged, this would mean the effective rate being charged to the client is 28.75% based on the present Vat rate of 15%.
“This patently offends against the act.”
He said the appeal was argued on the basis that the quoted clauses in their terms did not fall foul of the provisions of the act.
He referred to an example of the fees charged in terms of a contingency fee agreement and said it is readily apparent in this case that it is not going to be implemented by the legal practitioner in accordance with the provisions of the act but rather on a basis, as set out in the example, that “serves his interest and not that of the client”.
“Since the only way in which a valid contingency fee agreement can be entered into is in terms of the act, any such agreement which does not comply either in its terms or in its application, is unlawful.”
Millar said it is for this reason the court that heard the matter was correct in setting aside the contingency fee agreement and that this appeal must fail.
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Alternative view
Nel said Millar states that lawyers working in terms of a contingency fees agreement should recover as much as they can for their clients and should then also subsidise their legal expenses.
He said this could result in their clients getting more than 100% of the capital amount, which is enrichment.
Nel added that another matter was heard in the North Gauteng High Court about a month ago where a judge ruled the 25% maximum legal fees attorneys can charge using a contingency fees agreement excludes the 15% Vat.
He said the counsel he appointed for this matter before Judge Millar was not asked to argue this issue and yet it was included in the judgment.
This article was republished from Moneyweb. Read the original here.
