In a blow for many attorneys who enter into a contingency fee agreement with their clients – especially in Road Accident Fund matters – three judges ordered that contingency fees agreements must strictly comply with the Act, and it is not permissible for a legal practitioner to recover more than 25% of the capital amount towards fees.

The Gauteng High Court, Pretoria, on Friday found that the Contingency Fee Act was not enacted to provide legal practitioners with an alternative preferential method of determining their fees over and above normal fees.

“Normal fees” as defined in the Act, remain the standard by which the reasonableness of the fees of a legal practitioner is determined. The surcharge which is added to normal fees to make up the success fee bears no relation to the value of services rendered, but is a function of risk, Judge Anthony Millar, who wrote the judgment, said.

Contingency fees are a “no win, no fee” payment arrangement where a lawyer’s fee is paid only if the client wins the case. The lawyer receives a predetermined percentage of the money recovered if the client’s case is won. The fee is a percentage of the total settlement or award – usually 25% of the recovered amount.

The case before the high court followed an appeal against a judgment and order granted last year in terms of which the contingency fee agreement entered into between the plaintiff – Fred de Bod – and his attorney was declared to be invalid for want of compliance with the Contingency Fees Act.

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. Even though the Act is written in clear language and ought to be readily understandable to legal practitioners who are prepared to accept instructions from their clients on this basis, there persists some confusion regarding what is permitted and what is not permitted in terms of the Act, Judge Millar said.

In the appeal before the court, De Bod entered into a contingency fee agreement with his lawyer. It provided for a succession fee in addition to the attorney’s normal fee. This was calculated at either double the normal fee or 25% of the capital amount, whichever was lower. The agreement was earlier declared invalid by the high court as it did not comply with the Act.

The court now on appeal agreed and found that the lawyer’s approach to the calculations prioritised financial gain over the client’s protection.

Attorney Gert Nel, who intends to take the judgment on appeal, explained that contingency fee agreements are allowed, subject to strict compliance with the form of the agreement and specific statutory requirements. Making provision for contingency fees or higher-than-normal fees is to “offset” the risk of earning no fee in the event of a practitioner not concluding a case successfully.

Historically, contingent practitioners would not require clients to pay a deposit; instead, they would, after determining whether there are reasonable prospects of success, carry the financial burden on behalf of their clients, only charging an agreed fee in case of success.

“The intention of the legislature was to incentivise contingent practitioners for the risk of not earning an income at all; hence the practitioner is allowed to charge a higher than normal and/or success fee,” Nel said.

He added that if the high court’s ruling is upheld, it will place enormous pressure on legal practitioners and may effectively result in the indigent losing their day in court – effectively taking “the keys of the court” out of the hands of the poorest of the poor.

“Having regard to the huge public interest and the plight of all contingent practitioners, we are compelled to file an application for special leave for appeal to once and for all secure clarity on the forever ongoing debate around contingency fees,” Nel said.

zelda.venter@inl.co.za

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