Attorney and Client Fees – Bridging Finance

Introduction

Bridging FinanceOver the past few years, the frequency of payments received from the RAF has deteriorated from 14 (fourteen) days to 9 (nine) months.

Having to add another 9 (nine) months to receive payment from the Fund in a process that on average should take 36 months places enormous financial pressure and strain on clients.

This phenomenon has resulted in quite a few bridging finance companies appearing that are prepared to assist clients, subject to approval, by advancing money to cope whilst having to wait for payment from the RAF.

The arrangement between the bridging company and the client is based on a contract and the parties are bound by the agreement.

The attorney is not a party to the agreement and may only act upon the instructions of his client to ensure that once the RAF does make payment, the bridging company is re-reimbursed to the value of the loan (including the finance, interest administrative costs etc.).

An attorney may not engage his/her client on a loan agreement as it may result in a conflict of interest.

In some matters, one also has to take the medical aid contribution into account which may further reduce the amount the client expects to receive.

Bridging companies usually take into account all deductibles like attorney and client fees and medical aid contributions when assessing their risk to recover the loan plus additional finance cost and interest.

CALCULATING FEES

The advantage of receiving “bridging finance” comes at a cost and it is these costs, that are often the subject of many a query pertaining to a final statement of account rendered by the attorney.

The Attorneys’ fees remain the same and are taxed and based upon the fee agreement between the attorney and the client regardless of the involvement of a bridging company.

Clients tend to forget that upon borrowing money from a bridging company, there will be finance costs involved, which will increase the initial (principal) amount borrowed and reduce the net amount paid when applied to the funds received from the RAF.

Attorney and client fees only apply to the capital amount obtained by successful litigation.

The bridging company’s portion is then also deducted which may lead to the misconception that the attorney’s fees are not in accordance with the original fee agreement.

In these cases, should the bridging company’s contribution be disregarded the attorney’s fees indeed proves to be in accordance with the agreement, as the following example will explain:

Client signs a bridging loan for R 50 000.00 having to repay R 65 000.00 (interest and admin costs etc. added to principal loan)

Example:

Capital Settlement amount: R 500 000.00
Less Attorney and client fee: R 200 000.00
Sub-total: R 300 000.00
Plus Party and Party costs: R   75 000.00
Total owed to client: R 375 000.00 (75% of R 500 000.00) in accordance with attorney and client fee agreement)

However, when bridging finance is applied a further deduction is made:

Sub Total: R 375 000.00
Less bridging finance: R   65 000.00
Total: R 310 000.00*

*nett value of settlement amount after deducting bridging loan.

The client should realize that the fact that he/she receives less than 75% of the settlement amount is in no way attributed to the practitioner’s account but rather the finance costs payable in relation to the agreed terms set by the bridging company.

CONCLUSION

Bridging finance may be valuable in alleviating immediate financial constraints and obligations.

Remember to have regard to the attorneys’ fee and medical costs when applying for a loan.

Clients must ensure that they understand the specific terms of the agreement with the bridging company and especially the costs implication of a prospective loan, as they run the real risk of receiving far less of the capital as was originally anticipated as a result thereof.

Gert Nel B.Proc LLB (UP)

Director at Gert Nel Incorporated, Attorneys