What does the contingency agreement mean for you the client?

Although this article does not deal with Labour or Construction Law matters it is still relevant to clients wanting to engage attorneys on a contingency basis.

NB: Please note that this article is for informational purposes only and not for the purpose of providing legal advice. Should you require more information on this topic or any issue arising out of this please contact Allardyce & Partners on 011-234 2125 or enquiries@www.allardyce.co.za

 “A recent judgment of the full bench of the Eastern Cape High Court has highlighted the limitations of the Contingency Fees Act, No. 66 of 1997 (the Act). In Mathimba and Others v Nonxuba and Others 2019 (1) SA 550 (ECG) the applicant (a client) appointed the second respondent (a firm of attorneys) to represent him on a contingency basis in two damages claims: one against the Road Accident Fund (RAF) and the other against the MEC for Health Eastern Cape (MEC). After the award was paid into the second respondent’s trust account and the applicant received a bill of costs, the applicant formed the view that his attorneys had deducted an excessive sum for fees and disbursements. The applicant then approached the High Court for an order declaring that the contingency fees agreement entered into in respect of the RAF and MEC matters were invalid and void for non-compliance with the Act.

In coming to the conclusion that the contingency fees agreement in respect of the MEC matter was not compliant with the Act, the court made some important observations which impact both attorneys and advocates:

1.    The purpose of the Act is to enhance access to justice by (i) enabling a litigant to make use of a contingency agreement where he could not otherwise afford a lawyer to handle a case on his behalf, and (ii) creating an incentive for a lawyer to take on a case that involves a measure of risk.

2.    The Act is not intended to ensure colossal wealth to lawyers who very often run cases for their own benefit instead of the litigant’s benefit.

3.    To protect against this type of abuse, Section 2(2) of the Act has provided for some safeguards:

3.1.    The legal practitioner is permitted to charge a contingency fee that is no more than double his/her normal fee.
3.2.    In return for the ability to charge a contingency fee, the legal practitioner will not be entitled to any fees if the client is unsuccessful in the proceedings;
3.3.    The contingency fee is limited to (i) 25% of the amount awarded in the judgment, or (ii) double the normal fee of that practitioner, whichever is lower;
3.4.    This means that if double the normal fee results in the client having to pay a fee that is higher than 25% of that which was awarded to the client, then the 25% cap will apply. Where, however, double the normal fee does not exceed 25% of the money awarded, then double the normal fee is the maximum that can be raised.
3.5.    If there is more than one legal practitioner involved in the matter, they cannot charge more than 25% of the award received by the client. In other words, in matters where the Act applies, there is a globular fee limitation of 25% of the award that cannot be exceeded no matter how many legal practitioners are involved. This does not apply to disbursements that must be dealt with separately in the contingency agreement.
3.6.    An attorney may not enter into a contingency agreement with his client to charge the maximum permissible under the Act as well as taxed costs to be paid by the other side. What is recovered as party and party costs is due to the client.

The court went on to make some further observations that may not be known to all legal practitioners:

4. There is no provision for an advocate to sign a contingency agreement separately from an attorney. What is contemplated by Section 2 of the Act is a single contingency agreement per matter to which only legal practitioners participating in the contingency arrangement (including two counsel if more than one is involved) will be parties. This way, the 25% globular cap will not be exceeded by legal practitioners using separate contingency agreements, which would have the effect of circumventing the provisions of the Act.

5. It is possible for the attorney to act on contingency and the advocate not to act on contingency. In such a case, the advocate’s fees will be paid by the attorney in the usual way and treated as a disbursement.

6. Counsel’s fees are only treated as a disbursement by an attorney when it comes to drafting a bill of costs. An attorney may recover from party and party costs only disbursements and not fees.

The court then reviewed the contingency agreement relating to the MEC matter and found that it had been signed by the second respondent law firm and the third respondent (an advocate). However, the agreement was not in compliance with the Act by virtue of the following:

–  The agreement dealt only with the advocate’s fee and not the attorney’s fee. By omitting to deal with the attorney’s fee, this enabled the attorney to charge a separate and additional fee that was not subjected to the 25% globular cap.

–  The arrangement as how disbursements were to be paid was omitted, but should have been included in the contingency agreement.

–  The agreement was confusing about how partial success (such as a settlement) in the matter was to be defined. It appeared that the advocate would be entitled to a full success fee even in the event of partial success.

For these reasons, the court held that the advocate could only recover such fees as may be allowed on a party and party scale. This meant that he was not part of the contingency arrangement, and the 25% cap contemplated by Section 2 of the Act would be applicable to the attorney’s fee only.”

Ivor Heyman
Advocate of the High Court
Member of the Johannesburg Bar

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