The issue of Contingency Fees are a constant topic of debate and the opinions and the approach vary from practitioner to practitioner.
The views raised in this presentation are those of the presenter substantiated with basic principles of costs, relevant case law, applicable literature, math and common sense.
As such the attached presentation notes should only serve as a reference and / or guideline the reader may consider upon deciding on his / her preferred approach.
Practitioners that make use of Contingency Fee Agreements are subjected to uncertainty in the absence of factual and reasonable guidelines from governing bodies, are under constant scrutiny by the Courts and forever being questioned by clients and or overzealous colleagues who are just as oblivious to the correct application of the Act.
We hope the notes serve as a useful guide for fellow practitioners:
A. INTRODUCTION:
Contingency Fees are a very contentious topic and opinions as to the correct application thereof,vary from practitioner to practitioner.
The views raised in this presentation is that of the presenter, substantiated with basic principles of costs, relevant case law, applicable literature, math and simple common sense.
As such, this presentation should only serve as a reference and / or guideline the reader may consider when deciding on his / her preferred approach to the subject.
Practitioners that make use of contingency fee agreements are subjected to uncertainty in the absence of factual and reasonable guidelines from governing bodies, are under constant scrutiny by the Courts and forever being questioned by clients and or overzealous colleagues who are just as oblivious as to the correct application of the Contingency Fees Act 66 of 1997. (herein after referred to as the “CFA”).
The article: “Decoding Section 2(1)(a) and 2(1)(b) of the CFA; was done in an attempt to address the uncertainties, factually prove the only reasonable application thereof and in so doing secure a safe and reasonable median for practitioners – see annexure “CF1”.
When considering the correct approach, a practitioners should always ensure that his/her decision is in line with the cardinal rule of costs: “it has to be a reasonable fee” – Mkuyana v RAF (4000/2017) ZAECGHC 73; 2020 3 All 834 (ECG).
It is very important is to always remember the primary reason behind the concept of contingency fees and ultimately the promulgation of the CFA; as per Project 93 of the SALRC:
“The Commission concluded that a system of contingency fees in terms of which a prospective litigant is only liable to remunerate his or her legal representative in the event of successful litigation, can contribute significantly to promote access to the courts and that such a system is desirable” [my emphasis].
I will focus specifically on Contingency Fee Agreements in terms of Section 2(1)(a) and (b) of the CFA; see “CF2”
B. PRINCIPLE OF REASONABLENESS
The now historical Rule 28 of the Rules for the Attorneys’ Profession stipulated that “a practitioner is entitled to a reasonable fee” for professional services rendered.
The Constitutional Court confirmed that skilled professional work deserves reasonable remuneration.
See: Coetzee v Taxing Master, South Gauteng High Court and Another (2010/14197) [2012] ZAGPJHC 175; 2013 (1) SA 74 (GSJ) (19 September 2012)
“The payment by a client to the client’s own attorney is not aimed at a ‘full indemnity’, but rather is aimed at payment of a reasonable recompense for services rendered”.
The tariff in Rule 70 is not binding on attorney and own client scale costs, but merely a guide for taxation.
In exercising the discretion to determine a reasonable rate for time charges for services rendered the approach is to have regard to:
- Fees charged by other legal practitioners,
- The seniority of the attorney;
- The time taken for the work;
- The nature of the work performed
Question : What would be regarded as a reasonable fee, having regard to Section 2(1)(a) and (b) of the CFA?
A KEY APPROACH: is found in the matter of Thulo v RAF 2011(5) SA 446(GSJ);
“the client is assured of being paid at least 75% of the money amount obtained by successful litigation”.
Please Note: the 75% approach is a guideline only, albeit a very useful one:
The Act is silent on this aspect, nowhere in a reading of the Act (nor from the Commission’s investigations or findings) does it appear that the Act will guarantee the client 75% of the proceeds (especially where there is a shortage of disbursement recovered versus actual disbursements incurred, loans, interest etc.).
In the recent Supreme Court of Appeal judgement: RAF v MKM obo KM and TM and Another; RAF v NM obo CM na Another (1102/2021) [2023] ZASCA 50; [2023]2 A SA 613 (SCA) 913 April 2023; it was said:
“Suppose such a bill of costs is presented to court and upon perusal, it questions some of the items. What would it do about is? Not much, because whether a legal practitioner’s fees are reasonable or not, is not within the court’s remit. This is the function of the Taxing Master” [my emphasis].
C. Written Agreement
a Contingency Fee Agreement must be in writing (Section 3 1(a) of the CFA) and it has to comply in particular detail to Section 3 of the CFA.
Non-compliance will result in the agreement being nullified and cannot be rectified with a new agreement at any point after the provisions of the CFA have lapsed (see “D” supra).
The SALRC acknowledges that “…the proposed mechanism [must] recognise and protect contractual freedom; independence of the legal profession and the right to choose trade (Barkhuizen v Napier [2007] (5) SA 323 CC par 15) occupation or profession freely. However, there are a number of other factors that must be taken into consideration and balanced against each other, such as the need to broaden access to justice so as to ensure that legal services rendered are within the reach of the citizenry; and the state’s obligation to respect
Keep proper records as the practitioner has the onus to prove the existence of an agreement.
D. AT WHAT STAGE DOES AGREEMENT NEED TO SIGNED?
- Johannes v Franz Maritz Attorneys (898/2020) [2020] ZAECGHC 100 (8 September 2020) The general rule is that it needs to be entered into at a sufficiently early stage of the litigation;
- Mkuyana v RAF (4000/2017) ZAECGHC 73; 2020 3 All 834 (ECG) (2 July 2020) The agreements should be concluded at a sufficiently early stage of the proceedings to make it possible to comply with the provisions of the Act. Provisions in CFA: Section 3(h): client has 14 days from date of signature to withdraw from the agreement; Section 3(4): The client should receive a copy of the agreement upon the date the agreement is signed. A practitioner needs to ensure that the agreement is signed and delivered to the client prior to acting on a contingency fee basis; as he / she would be at risk of being ridiculed at a later stage should this formality not have been complied with. See : Letsoale v Road Accident Fund (57337/2020; 52869/2019; 70299/2018; 54979/2018) [2023] ZAGPPHC 456 (12 June 2023) [20] In reinforcement hereof, our courts have required practitioners to enter into CFAs at an early stage in the litigation and not when fees have already been incurred but not yet claimed and which are then “doubled” by later or even belated CFAs, often shortly before culmination or settlement of the matter. Such CFAs have been found to be contrary to the Act and invalid.
E. FEES: THE BASICS
E.1 NORMAL FEES
See [17] MN MASANGO v RAF; North Gauteng High Court Case Number 2012/21359
The “base” costs of fees that are taxed or agreed on an attorney and own client basis (depends on the specific terms agreed upon with client) and are usually determined on a time-based rate per hour/minute for services rendered.
The practitioner has a choice between two options under the CFA.
The practitioner has a choice between two options under the CFA.
- A Section 2(1)(a) – agreement is simply a fee agreement that is subject to the outcome and has no “cap” on the Normal Fees;
- In Section 2(1)(b) agreements the Normal fee is the basis fee from which the success fee is determined.
E.2 SUCCESS FEES
This is the fee to be charged as an “uplift” from the normal fee;
Success fees are not defined in the CFA; hence we are to consider the ordinary meaning of fees and seek guidance from the English law; the report of the SALRC, case law and relevant literature.
See: [13] & [18] MN MASANGO v RAF; North Gauteng High Court Case Number 2012/21359
See further annexure “CF3” – Courts and Legal Services Act and “CF4” clarification, Legal Ombud (UK).
The approach in the English Law is that in matters where such a lawful agreement had been entered into the practitioner will be allowed to charge an uplift (known as a “success” fee) in addition to his base costs (“normal” fee).
“The basic idea behind a contingency fee agreement is that the attorney takes on the risk of financing his or her client’s litigation in the hope; or anticipation of succeeding and should be incentivized for the risk.
Section 2(1)(b) read with section 2(2), regulates the computation of the amount of fees which an attorney can charge in a matter and is subject to the following caps:
Firstly, the maximum the “uplift” fees can be is double the normal fee;
However; secondly, the “uplift” fee is subject to a cap of 25%;
Combined, the “uplift” fee is calculated as double the normal fee or 25%; whichever is lesser.
If the litigation is successful, the attorney will be entitled to a success (or “uplift”) fee that is higher than his or her normal fee”.
Ratio: the CFA makes provision for contingency fee agreements and for a higher-than-normal fee that an attorney may charge to ‘offset’ the risk of earning no fee in the event of him or her not concluding a case successfully.
It is my humble opinion that the single biggest mistake practitioners make in considering contingency fees are to approach the 25% ‘‘cap” as a fee.
This leads to to a very relevant question :
Are the combined normal and success fees, subject to the 25% “Cap” in other words is the 25% to be regarded as a fee?
We test the correctness of the approach having regard to the ratio behind the CFA ; roots thereof and simple maths(see paragraphs “J” & “K”).
See: Letsoale v Road Accident Fund (57337/2020; 52869/2019; 70299/2018; 54979/2018) [2023] ZAGPPHC 456 (12 June 2023)
[15] Our courts have understood the principles applicable to CFAs to be “… that the legal practitioner charges his normal fee and, as an added incentive, to compensate him for the risk of undertaking the litigation, he be rewarded by being permitted to agree with his client to charge an extra fee over and above his normal fee, either equal to or a percentage increase on the normal fee”13 (again, my emphasis).
F. SOUTH AFRICAN LAW REFORM COMMISSION (SALRC) - PROJECT 93
The Commission recommends that legal practitioners, in the event of successful litigation, should be entitled to receive, in addition to their normal fees, an uplift to a maximum of 100 per cent of their normal fees.
G. CASE LAW
MN Masango v RAF; North Gauteng High Court Case Number 2012/21359
In a sense normal fees that an attorney charges his client are the fees which are included in what is referred to as attorney and client costs. Leaving aside the disbursement part of such costs, attorney and client fees are the fees that an attorney is entitled to recover from his client for professional services rendered. Such fees are payable by the client regardless of the outcome of the matter for which the attorney’s services were engaged. They are not dependent on an award for costs by the court. In a wide sense, such fees include all fees that an attorney is entitled to recover against own client on taxation.[25]
Normal fees exclude any fees that an attorney may be entitled to recover from his client by virtue of any special arrangements made with the client or in terms of some specific statutory provision applicable to a particular case or cases. Normal fees in litigation are fees which are recoverable by an attorney from his or her own client and which would be allowable on taxation of an attorney and client bill by the taxing master outside any special arrangements. The legal practitioner (the attorney in this case) and the client are required by sec 2(2) of the CFA to set out the normal fees in the contingency agreement concluded.
“Success fees”[26] are contemplated and explained, but are not defined, in section 2(2) of the CFA. They are increased fees which a legal practitioner will be entitled to recover in the event of the client being successful in the litigation to the extent set out in the agreement concluded in term of the CFA. The subsection requires the legal practitioner and the client to specify in the agreement what they will regard as success in the particular litigation.[27] A success fee is normal fee which has been increased by a pre-agreed percentage.
There is no other way of increasing the normal fee to the increased or success fee other than through a percentage. The normal fee may be increased by up to 100% to reach the success fee. Success fee may thus be and is often double the normal fee. Ordinarily a 100% increase on the normal fee in effect entitles the attorney to charge a fee for one matter as if the attorney had done two matters. A double fee is more than sufficient incentive to the legal practitioner to pursue litigation on a contingency basis. One can therefore not understand the ever increasing rampant and persistent attempt by legal practitioners (especially attorneys) to provide for and recover more than the legitimate and legalised success fee.[28]
- Mkuyana v RAF (4000/2017) ZAECGHC 73; 2020 3 All 834 (ECG) (2 July 2020) – annexure “CF5”
What section 2 does is to place a limitation on the contingency fee that an attorney may recover from his client. In the scheme of the Act this is achieved in three ways: The agreed increased fee, or as it is referred to in section 2, the success fee or uplift fee as it is also known, is firstly limited by confining it to an amount that represents an increase in the attorney’s normal fees.
The principle is that the legal practitioner charges his normal fee, and as an added incentive, to compensate him for the risk of undertaking the litigation, he be rewarded by being permitted to agree with his client to charge an extra fee over and above his normal fee, either equal to or a percentage increase on the normal fee.
The normal fee of the practitioner is therefore taken as the base fee from which a percentage increase is by agreement with the client permissible to arrive at the amount of the success fee.
“What is important is that there is a base (the normal fee) from which a percentage increase is permissible. This is the ordinary and only basis on which the practitioner may increase fees.
The legal practitioner first determines his normal fee, which he would have been entitled to charge without a contingency fee, and then increases it in terms of the contingency fees agreement.
The success fee is a fee which has been increased from the normal fee.”[7]
This statement is correct [my emphasis].
- JS Bekker v A de Agrela & Others (A5096/2019;42125/2018) [2022] ZAGPJHC 939
Applying the principles applicable to contingency fee agreements in terms of the CFA referred to above, the following applies to a “no win, no fee” agreement in terms of section 2(1)(a) of the CFA:
- Should the client achieve success in the litigation:
(a)
(a)The legal practitioner will be able to charge the client his or her “normal” fee. (If the agreement entails that the legal practitioner will be able to charge more than his or her normal fee, the agreement will fall within the ambit of section 2(1)(b) of the CFA) [my emphasis]
H. VALUE ADDED TAX (VAT)
See: MN Masango v RAF; North Gauteng High Court Case Number 2012/21359
Is VAT plus fees subject to the “cap”?
see “CF7” – The reader must appreciate this annexure is for noting only
I. RULE 6 OF THE CFA
More Uncertainty: See 6.3 in relation to 6.7 – see annexure “CF6”
What follows is a simple illustration why the “Cap” cannot “blanketly” be applied to the total fee (normal and success fee) as per Rule 6.7.
J. ILLUSTRATION: “GEPN1”
- Limitation (25%) applied to Normal and Success fee – Rule 6.7 approach:
*The Party and Party costs (fees only) is used as the normal fee for illustrative purposes
| Capital settled in the amount of | R208 493.90 |
|---|---|
| 25% | R52 123.47 (as opposed to Normal fee of R167 997.63) |
| Sub Total | R156 370.42 |
| Plus Party and Party Costs | R167 997.63 (R89 095.82 / R78 901.81) |
| Total | R 324 368.05 |
Based upon the Rule 6.7 approach, as per Rule 6, the client will receive R 115 874.15 more than the actual settlelment award; essentially being enriched at the expense of the practitioner and totally in conflict with the approach by the SALRC and the ratio behind the CFA.
- Normal plus “Capped” success fee.
| Capital | R208 493.90 |
|---|---|
| 25% | R52 123.47 |
| Sub Total | R156 370.42 |
| Party and Party Costs | R392 848.52 (R 167 997.96; plus, disbursements R 224 850.89) |
|---|---|
| Normal Fee | R167 997.63 |
| Success Fee | R52 123.47 (Double normal fee R 335 995.26 or R 52 123.47; whichever is lesser). |
| Plus, Disbursements | R224 850.89 |
| Total | R444 971.99 |
| Capital less Fees and Disbursements | - R236 478.09 |
| Plus Party and Party Costs | R392 848.52 |
| Payment to client | R156 370.42 (75% of Capital) |
| 75% guideline | R156 370.42 |
K. ILLUSTRATION “GEPN2"
- Limitation (25%) on Normal and Success fee – Rule 6.7 approach:
| Capital settled in the amount of | R5 565 219.60 |
|---|---|
| 25% | R1 391 304.90 |
| Normal fee | R444 845.74 |
| Success Fee |
R889 691.48 (Double Normal fee or 25 % whichever is lesser) |
| Total Fee |
R1 334 537.20 (costs still need to be taxed NOT blanket 25% fee) |
| Sub Total | R4 230 682.40 |
| Plus Party and Party Costs | R813 005.44 |
| Total | R5 043 687.80 |
- Normal plus “Capped” success fee.
| Capital settled in the amount of | R5 565 219.60 |
|---|---|
| 25% | R1 391 304.90 |
| Sub Total | R4 173 914.70 |
| Party and Party Costs | R813 005.44 (R444 845.74 plus R368 159.70 expenses) |
| Normal fee | R444 845.74 |
| Success Fee | R889 691.48 (Double normal fee or 25% whichever is lesser) |
| Total Fee | R1 334 537.20 (R444 845.74 plus R889 691.48) |
| Plus, expenses | R450 000.00 |
| Total | R1 784 537.20 |
| Sub Total | R3 780 682.40 |
| Plus, Party and Party costs | R813 005.44 |
| Payment to client | R4 593 687.80 (82 % of Capital) |
| 75% guideline | R4 173 914.70 |
L. DISCUSSION
- Experience has shown that the question on whether or not normal and success fees are both subject to the “cap” becomes an issue in smaller matters or matters under R 1 million;
- Having regard to the fact that the same approach should be followed in all matters regardless of the value a practitioner at the very least should be allowed to recover his normal fees.
See: [16] & [17] MN Masango v RAF; North Gauteng High Court Case Number 2012/21359
- Contractual freedom allows a practitioner to enter into a CFA with his client on a Section 2(1)(a) and 2(1)(b) agreement in the same document (subject to Section 3);
- Hence the conundrum with smaller claims can easily be addressed by stipulating that “partial success” would imply a capital settlement had been reached of less than R 1 million in which case Section 2(1)(a) would apply and in matters where capital had been settled in excess of a R 1 million would be described as “success” in which case Section 2(1)(b) would apply;
Important to remember the principle of reasonableness and apply the 75% Rule in Section 2(1)(a) matters; - As can be seen in the example discussed in Par. “J” the nett result, bar expenses in the Rule 6.7 and the Normal plus caped Success fee scenario; should almost be exactly the same.
Having regard to the intention of the Act and the recommendations made by the SALRC one cannot agree with Rule 6.7 as applied to smaller capital claims;
The practitioner will always be left “out of pocket” at the expense of the client (at the very least not being able to recover his normal fee even if only on a Party & Party scale).
M. CLEAR DISTINCTION
Having regard to the above there has to be a clear distinction between what should be regarded as Normal and Success Fees.
The 25% “cap” is not a fee.
The current Rule 6.7 is at odds with the practical implementation thereof; this was addressed in a letter to the LPC dated the 10th of September 2020 – see annexure “CF9” & “CF10”.
We are yet to receive a reply from the LPC.
N. “PERFECTING THE AGREEMENT”
Section 4 provides the final stumblingblock in “perfecting the validity” of an agreement
Judicial supervision over “settlements” .
See: RAF v Taylor and other Matters (1136-1140/2021) [2023] zasca 64 (8 May 2023)
and:
RAF v MKM obo KM and Another; RAF v NM obo CM and Another (1102/2021) [2023] ZASCA50; [2023] 2 All SA 613 (SCA) (13 April 2023)
Stringent requirements of Section 4(1) and (3) needs to be complied with;
Before Court: file affidavit at Court;
Not before Court: file with the Professional controlling body;
The relevant question being:
Having regard to the abovementioned judgement and Par. 11 of the Revised Directive, dated 22 May 2023, does before court imply that the matter had to be enrolled? See annexure marked “CF8”
According to Prof. Hennie Klopper: this would apply to matters not subject to litigation or where the matter is litigated but not on trial. – see “CF14”; par 3.2.5.3
Non-compliance invalidates the agreement and any payment (fees drawn) in relation thereto is unlawful;
RAF has no obligation to insist that a practitioner obtain judicial oversight before concluding an agreement.
O. PRACTICAL PROBLEM
Most if not all of the branches of the LPC does not have the infrastructure to accommodate the requirement in terms of Section 4(1); (see annexures: “CF9”;” CF10”;” CF11;” CF12” & “CF13”).
See example of the Legal Practitioner’s affidavit in Compliance with Section 4(1) – annexure “CF15”.
P. PARTY AND PARTY COSTS
Mofokeng v RAF 2009/22649
A practitioner is not entitled to retain the Party and Party costs over and above the contingency fee.
However, the practitioner may only recover, from party and party costs, once he has recovered his full attorney and client fees, only his / her out of pocket expenses (not fees)
see Damages by:HB Klopper; on page 483 and 484 thereof, annexure “CF16” at footnote 636 and “CF17”.
Q. SECTION 35(7) OF THE LEGAL PRACTICE ACT
This will only result in additional risk of compliance when implemented, creating more opportunity to attack the validity of agreements and will certainly lead to practitioners having second thoughts to consider assisting clients on a contingency basis.
The provisions of subsection 35(7) are unrealistic and unreasonable.
It will be virtually impossible to provide the client with a cost estimate upfront, particularly in respect of litigation matters.
The legal practitioner is not aware how the case is going to develop, how many interlocutory applications may be required, how many documents there will be, how many consultations will be required, how long the case will take, how many postponements there will be, etc.
The cost estimate section is too wide and unworkable.
The problems inherent to it is a further motivation why the LPC should be encouraged to set fee guidelines.
R. REASONABLE PROSPECTS OF SUCCESS
Letsoale v Road Accident Fund (57337/2020; 52869/2019; 70299/2018; 54979/2018) [2023] ZAGPPHC 456 (12 June 2023)
[15] Our courts have understood the principles applicable to CFAs to be “… that the legal practitioner charges his normal fee and, as an added incentive, to compensate him for the risk of undertaking the litigation, he be rewarded by being permitted to agree with his client to charge an extra fee over and above his normal fee, either equal to or a percentage increase on the normal fee”13 (again, my emphasis). Not only do I respectfully align myself with this pronouncement of the law but, coming from a full court, it also carries considerable weight. This interpretation of the Act, with reference to PWC, in my view properly enunciates the context within CFAs have been legitimised14.
[16] The “contingency” contemplated in the Act does not find application where a case is hopeless and has no reasonable prospects of success. To assist a client to pursue such an action would be to act contrary to Clause 3.10 of the Code of Conduct applying to legal practitioners15. Logically, the converse would also hold true – where there is no risk or contingency of failure the Act should also find no application.
Properly interpreted, the Act only permits a legal practitioner in instances where, after proper assessment, he or she has determined that there are some risks attached to the client’s case, but that there is a reasonable prospect of success and that the practitioner is prepared to share that risk of the reward of a “success fee”.
[17] The fact that the Act also provides for CFA’s on a “no win, no fee” basis i.e one without an additional “reward”, confirms the interpretation that something more must be present in a matter before a practitioner becomes entitled to doubling of his or her fees or effectively sharing in the spoils of successful litigation in monetary terms.
This “additional” element is the risk or contingency attached to the merits of the case. It is the sharing in the “speculative” nature16 of otherwise doubtful litigation by the practitioner with his client, that entitles the practitioner to the “reward” reflected by the success fee.
[18] The Act is also not intended to be “… a mechanism for a legal practitioner to charge fees that are unreasonable and to unjustifiably increase his [or her] fees simply to place him [or her] in apposition to recover the maximum of the success fee which the Act allows”.
[19] The assessment of the merits or prospects of success of a client’s case, requires “… that before entering into the agreement, a full and proper assessment of the client’s prospects of being successful in the proceedings be undertaken”.
[20] In reinforcement hereof, our courts have required practitioners to enter into CFAs at an early stage in the litigation and not when fees have already been incurred but not yet claimed and which are then “doubled” by later or even belated CFAs, often shortly before culmination or settlement of the matter. Such CFAs have been found to be contrary to the Act and invalid.
[21] Because of the speculative nature of litigation wherein a practitioner’s fees are governed by a CFA and to “… minimize the disadvantages inherent in the contingency fee system and to guard against its abuse …” the safeguards and oversight functions provided for in sections 2, 3 and 4 of the Act have been promulgated.
[22] An abuse of process exists where a process or mechanism “… is divested from its true course so as to … achieve an improper end…”.
[23] To enter into a CFA in instances where success is so virtually guaranteed that no or only a negligible contingency existed, would be contrary to the Act and render the CFA invalid. The same would apply when no proper assessment of any risk has been undertaken. The vast majority of actions instituted against the RAF fall into these two categories. Why do certain practitioners then enter into these agreements and not simply either wait until culmination of the litigation for their fees or enter into a “no win, no fee” agreement? The only inference is that it is a simple mechanism where practitioners in effect double their fees with little or no risk. This amounts to an “improper end” and an abuse. [24] Of course, there are many instances where there may be a risk [my emphasis]
Discussion :
Section 2 (1) of the CFA
Notwithstanding anything to the contrary in any law or the common law, a legal practitioner may. if in his or her opinion there are reasonable prospects that his or her client may be successful in any proceedings, enter into an agreement with such client in which it is agreed—
What is a reasonable chance of success in law?
There must be a reasonable chance of success in halting or averting the suffering which has justified the intervention, with the consequences of action not likely to be worse than the consequences of inaction.
Reasonable prospects mean a 51% or greater chance that you will be successful in your pursuit of legal proceedings.
A plaintiff’s claim has reasonable prospects of success if there are reasonable prospects of damages being recovered on the claim.
The Legal Profession Uniform Law Application Act 2014 (NSW) schedule 2 states that a law practice must not provide legal services on a claim or defence of a claim for damages unless a legal practitioner associate responsible for the provision of the services concerned reasonably believes on the basis of provable facts and a reasonably arguable view of the law that the claim or the defence (as appropriate) has reasonable prospects of success. This requires more than just having an arguable case.
Rule 3. Legal practitioners, candidate legal practitioners and juristic entities shall –
3.10 advise their clients at the earliest possible opportunity on the likely success of such clients’ cases and not generate unnecessary work, nor involve their clients in unnecessary expense; Assessing prospects of success is one of the most critical parts of forming a resolution strategy.
At the time of providing the advice your lawyer must have a proper basis for reasonably believing the stated prospects of success, based on all of the material available.
However, it is important to note that Judges and Magistrates are human and there is not necessarily one ‘right answer’.
Therefore, even if you have a good case, success can never be guaranteed or predicted.
In the South African context, it is important to have regard to:
“SUBMISSIONS BY THE LAW SOCIETY OF SOUTH AFRICA ON THE REPORT REGARDING THE INVESTIGATION INTO LEGAL FEES – INCLUDING ACCESS TO JUSTICE AND OTHER INTERVENTIONS – PROJECT 142” – see annexure “CF18”
The LSSA maintains that it is primarily the state’s duty, and not the legal profession’s, to ensure access to justice for all.
Failure by the state to ensure access to justice for all is not a self-standing ground for denying legal practitioners the ability to charge reasonable fees for legal services.
5.1.1
The LSSA appreciates the Commission’s acknowledgement that “Legal practitioners bear the Liability for costs and disbursements whilst the matter is pending resolution. Therefore, there is some risk transferred to legal firms pending the outcome or finalisation of the matter.”
5.1.2.3
As far as personal injury matters are concerned there are various risks at the time of concluding the agreement. Risk not only pertains to liability, but also to the credibility of the client; the nature and extent of the injuries; whether the injuries translate into a financial loss and to what extent, if any; rehabilitation of the client; accommodations at work; and the nature and extent of the quantum. The test is a subjective one that needs to be made at the time of taking instructions, rather than looking back once a matter has been finalised. [my emphasis]
The clients benefit from a full array of experts in order to define the nature and extent of such injuries and by implication to rule out injuries and sequelae. In this context, it is impossible for a legal practitioner to assess the risk, unless medical and other expert evaluations are conducted. Should the client not be medically impaired or the legal practitioner not be able to prove his / her case in court (i.e., there may be various other reasons), it is the legal practitioner who absorbs the risk and costs of litigation.
Therefore, to consider the risks after the matter has been successfully finalised, will be a skewed perspective of the realities of practice. The risk that a legal practitioner incurs to assist members of the public at the time of accepting the instruction will not be accurate if analysed retrospectively. This will unfairly prejudice the legal practitioner. [my emphasis]
5.1.2.4
Claimants are often indigent and would otherwise not have access to justice to remedy the wrong that they have suffered, either at the hands of medical practitioners, the state, drivers of motor vehicle accidents, etc.
The introduction of this additional test will discourage practitioners from taking on cases with less risk involved, thus denying those claimants access to justice
One must also have regard to the fact that during consultation the practitioner depends solely on the bona fides of the information provided by client (which in itself is a risk) and has to make
a call then and there considering when the agreement needs to be signed (Section 3). [my emphasis]
In assessing prospects of success on RAF matters both merits and quantum need to be considered and the client advised accordingly – especially after the 2008 amendment of the RAF Act, not guaranteeing the success of a claim for general damages or otherwise
Having regard to the above only 51% and higher prospect of success is required and no matter, regardless of how good the merits are, is guaranteed;
The Act does not require a matter to be “hopeless and with no reasonable prospects of success” to apply it merely states that in the practitioner’s opinion there are prospects of a successful proceedings –
A plaintiff’s claim has reasonable prospects of success if there are reasonable prospects of damages being recovered on the claim
S. CFA TRANSFERRED FROM ONE PRACTITIONER TO ANOTHER
See: Letsoale v Road Accident Fund (57337/2020; 52869/2019; 70299/2018; 54979/2018) [2023] ZAGPPHC 456 (12 June 2023)
[31] Hereafter the following chain of events occurred, which was confirmed by a separate affidavit from the plaintiff: he was contacted by MJS and was called to their offices where he was requested to sign a power of attorney in their favour. He was uncomfortable with the situation, left the offices, telephoned Ms Swanepoel’s assistant and met up with them. He was then advised of the LPC’s advices whereafter he terminated the mandate with Ayob and Associates and gave his current attorneys a mandate. It was then that the second CFA was entered into with the plaintiff on the same day.
[32] Both the plaintiff and Ms Swanepoel saw the CFA of 11 October 2021 as a continuation of the initial CFA albeit with a new firm of attorneys. I find that, in these circumstances, this CFA does not fall foul of the judgment in Tjatji and neither does it contravene the Act.
T. CANCELLATION OF MANDATE
Will the first practitioner be allowed to charge a “success” fee prior to the matter having achieved “success” or “partial success” as described in the agreement?
Two Scenarios:
- Immediate payment required
Probably not as “success” or “partial success” as defined in the original agreement would not have been achieved. If the practitioner is not prepared to wait he would have to make provision for an acceleration clause for fees and disbursement based upon an agreed hourly tariff;However having regard to Rule 4.4 it seems that a practitioner may demand immediate payment of the disbursements only and would have to wait for fees to be paid upon finalization. - Payment upon achieving “success” or “partial success”
Make provision for a clause that stipulates that the fees will be drawn from the first available funds and will be treated in accordance with Rule 6 of the Contingency Fees Act 66 of 1997.
Remark:
- The first practitioner will seemingly be allowed to draw a normal and success fee once the matter has become finalized subject to the agreement (the new practitioner will probably attend to the account as a disbursement (see Rule 4.3) client to be informed of additional cost as a result;
- It would be advisable to have the normal fee taxed the moment the mandate is canselled as to allow the new attorney to commit (see Rule 4.4) to pay / give and undertaking in relation thereto.
S. RECOMMENDATIONS
-
- A clear definition of “Success” fees as a separate fee in addition to “Normal Fees” need to be introduced;
- Only the “Success Fee” should be subject to the “Cap”;
- A further “Cap” should be introduced subjecting both Section 2(1)(a) and Section 2(1)(b) -agreements to the 75% approach: “the client is assured of being paid at least 75% of the money amount obtained by successful litigation”.
T. IMPORTANT COST CONSIDERATIONS
- An invalid agreement cannot be rectified at any stage after the effective time subject to the CFA has lapsed;
- A practitioner will still be able to charge an attorney and client fee but on a Party and Party scale and with reference to Rule 70;
- A practitioner is not allowed to simply charge 25% of the client’s capital (fees still need to be taxed and the relevant formula applied in determining a reasonable fee) – see [19];{20] & [22]: MN MASANGO v RAF; North Gauteng High Court Case Number 2012/21359;
- Important: any fee agreement that is subject to the success of matter must comply in all material aspects to the CFA.
- Prescription of a claim based upon an invalid agreement:
Levenson v Fluxmans Inc. 2015 (3) SA 361 (GJ) suspicion could not be equated to knowledge and is not enough for the prescription period to start running.The day the requisite knowledge (minimum facts as to allow application) is obtained is the day prescription starts running. - If all else fails use the Party & Party fees as the Normal Fee (especially in smaller claims);
- Keep proper file notes of all discussions with client concerning costs / fees and as far as possible ensure that the client signs a consultation note to confirm same.
- Discuss payment frequency and time frames with client especially in RAF matters, which usually entails two payments.Clients are often prone to lodge a complaint at the LPC prior to receiving the second payment.
