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[2016] ZASCA 183
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Fluxmans Incorporated v Levenson (523/2015) [2016] ZASCA 183; [2017] 1 All SA 313 (SCA); 2017 (2) SA 520 (SCA) (29 November 2016)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
No: 523/2015
In
the matter between:
FLUXMANS
INCORPORATED
Appellant
and
LEVENSON
STEVEN ZULLA
Respondent
Neutral
citation:
Fluxmans
v Levenson
(523/2015)
[2016] ZASCA 183
(29 November 2016)
Coram:
Mpati
AP, Theron, Zondi and Van Der Merwe JJA and Makgoka AJA
Heard:
16
August 2016
Delivered:
29
November 2016
Summary:
Prescription
begins to run as soon as the creditor acquires knowledge of the
minimum facts necessary to institute action: knowledge
that the
relevant agreement did not comply with the peremptory provisions of
the
Contingency Fees Act 66 of 1997
is not a fact needed to complete
cause of action.
ORDER
On
appeal from:
Gauteng
Local Division of the High Court, Johannesburg (Windell J, sitting as
a court of first instance):
1.
The appeal is upheld with costs.
2.
The order of the High Court is set aside and is replaced with the
following:
‘
The
respondent’s special plea of prescription is upheld with
costs.’
JUDGMENT
Mpati
AP (Makgoka AJA concurring):
[1]
Until the introduction of the Contingency Fees Act 66 of 1997 (the
Act), which came into operation on 23 April 1999, legal practitioners
could not, in terms of the common law, conclude contingency fees
agreements with their clients. As was said in
Price
Waterhouse
Coopers Inc & others v National Potato Co-operative Ltd
2004
(6) SA 66
(SCA), the Act was enacted to legitimise contingency fees
agreements between legal practitioners and their clients, which would
otherwise be prohibited by the common law.
[1]
The Act requires a contingency fees agreement to be in writing and in
a prescribed form (s 3(1)) and that it be signed by the client
and
the attorney representing him or her (s 3 (2)). This appeal
originates from an application brought by the respondent, Mr Steven
Zulla Levenson, against the appellant, Fluxmans Incorporated, a firm
of attorneys, in the Gauteng Local Division, Johannesburg
(the High
Court), for an order, amongst others, declaring a contingency fees
agreement (the agreement) concluded between them to
be invalid, void
and of no force and effect. The agreement, which, it is common cause,
did not comply with the requirements of
the Act, was in relation to
fees payable by the respondent to the appellant in respect of the
former’s claim against the
Road Accident Fund (the Fund)
following a motor vehicle accident in which he was involved and
sustained certain injuries.
[2]
The declaration of invalidity was sought on the basis that the
agreement did not comply with the provisions of the Act. In addition
to the order of invalidity, the respondent sought payment from the
appellant of the sum of R844 994.57, being the amount by
which
he had allegedly been overreached, having paid costs in the amount of
R1 119 625.62. The appellant denied that it had
overreached the
respondent or that the agreement was invalid. It alleged that the
respondent’s claim, ‘if legally sustainable,
has been
extinguished by prescription’. The High Court came to the
conclusion that the respondent’s claim ‘has
not become
prescribed’ and referred the issue of the quantum for trial. It
also declared the agreement invalid. With the
leave of the High
Court, this appeal is only against the order that the respondent’s
claim has not become prescribed.
[3]
The facts are mainly common cause. On 1 February 2006 the respondent
gave instructions to the appellant to institute action
on his behalf
for damages against the Fund in respect of injuries sustained in a
motor vehicle collision that occurred on 8 October
2005. The
appellant, represented by an experienced attorney, Mr Selwyn Perlman,
accepted the instructions on a contingency fee
basis. In terms of the
agreement, which, according to the answering affidavit, was an ‘oral
contingency fee agreement’,
the appellant would be paid a
contingency fee of 22,5 per cent of the amount that would be
recovered as damages on behalf of the
respondent. The agreement was
confirmed by Mr Perlman by letter sent to the respondent by telefax,
dated 13 June 2006. The claim
was subsequently settled. The terms of
the settlement were made an order of court on 23 May 2008. In terms
of the order, the Fund
was to pay to the appellant, on behalf of the
respondent, ‘the capital sum of R 4 862 561.40 . . .
in delictual
damages’, with costs on the scale as between party
and party, including the qualifying fees of four named medical
practitioners.
In addition, the Fund undertook to cover the
respondent’s future medical and hospital expenses.
[4]
On 22 June 2008 the respondent wrote a letter to the appellant
addressed to Mr Perlman, the first two paragraphs of which read:
‘
Regarding
our discussion on Friday of my earlier request for a reduction in
Fluxman’s fee, I left the meeting feeling that
I had not
communicated clearly and that there was a need to put something in
writing.
You
mentioned that I had stated, at the time of my request, that I had
not understood the contract. Whilst I was aware when signing
the
letter of engagement, that Fluxman’s would earn a fee of 22,5%
of any settlement, I did not at the time, understand the
nature or
extent of my injuries.’
It
was alleged in the founding affidavit that the letter recorded a
meeting held between the respondent and Mr Perlman ‘to
discuss
this issue amongst others’. The ‘issue’ that was
discussed clearly related to the contingency fees charged
by the
appellant, because the respondent went further to allege that Mr
Perlman assured him ‘that the fees charged were reasonable’
and that he ‘had no reason to doubt [Mr Perlman’s] word
at that time’.
[5]
It is not in dispute that in or about August 2008 the respondent
received a statement of account from the appellant which reflected
that he had been paid a total amount of R3 290 138.90, made
up as follows: R3 103 449.39 in respect of capital
and
R186 689.51, being the costs recovered from the Fund. More than
five years thereafter, on 9 April 2014, the respondent
wrote a letter
to the appellant in which he alleged that it had recently been
brought to his attention that the contingency fees
agreement entered
into between him and the appellant, in February 2006, did not comply
with the provisions of the Act. He referred
to the judgment of the
Gauteng Division in
De
La Guerre v
Ronald
Bobroff & Partners Inc & others
[2013]
ZAGPPHC 33 (delivered in February 2013), which was upheld, he said,
by the Constitutional Court in February 2014.
[2]
That decision found, amongst others, he wrote, that ‘any
agreement outside the Act is invalid, null and void’. The
respondent accordingly invited the appellant, on the basis that the
agreement was unlawful, to advise, by no later than 30 April
2014,
what its proposed revised fee was and of ‘the process that will
be applied with regard to [his] reimbursement’.
In all,
the respondent sought to be reimbursed for moneys that had been
incorrectly debited against his account with the appellant.
[6]
In coming to the conclusion that the respondent’s claim has not
become prescribed, the High Court upheld the respondent’s
argument that he only acquired knowledge of the facts from which the
debt arose ‘when the Constitutional Court’s judgment
on
contingency fees agreements was delivered in 2014’.
[3]
The High Court held that the date upon which the respondent acquired
the requisite knowledge was ‘when the minimum facts
necessary
to launch the present application came to his knowledge’. This
meant, in the view of the Court, that the ‘minimum
facts
necessary’ for the debt to have become due was the respondent’s
knowledge that the agreement was unlawful and
thus invalid.
[7]
The question to be determined in this appeal is, therefore, whether
the High Court correctly found that the respondent’s
claim had
not become prescribed. This, in turn, requires a consideration of the
provisions of s 12 of the Prescription Act 68 of
1969 (the
Prescription Act), the
relevant parts of which read:
‘
(1)
Subject to the provisions of subsections (2) and (3), prescription
shall commence to run as soon as the debt is due.
(2)
If the debtor wilfully prevents the creditor from coming to know of
the existence of the debt, prescription shall not commence
to run
until the creditor becomes aware of the existence of the debt.
(3)
A debt shall not be deemed to be due until the creditor has knowledge
of the identity of the debtor and of the facts from which
the debt
arises: provided that a creditor shall be deemed to have such
knowledge if he could have acquired it by exercising reasonable
care.’
It
has not been suggested that the appellant prevented the respondent
from ‘coming to know of the existence of the debt’.
Section 12(2)
is therefore of no application in the enquiry.
[8]
In its answering affidavit, deposed to by Mr Perlman, the appellant
said:
‘
The
alleged debt asserted in this application would have become due on
the date on which payment was made by the applicant to the
respondent, upon which date (on the applicant’s version) the
amount was payable to the applicant. On the applicant’s
version
he became aware (or should reasonably have so become aware) of his
alleged cause of action and claim on 1 September 2008,
the date from
which interest is claimed. From that date (at the latest) the
applicant had knowledge of the identity of the respondent
as
(alleged) debtor and of the facts from which his claim and the debt
arises
.’
This
court, therefore, has to determine whether the respondent indeed had
actual or deemed knowledge of ‘the facts from which
the debt
arises’ from 1 September 2008 as alleged by the appellant. That
must have been the date on which the respondent
became aware of the
actual amount of the costs deducted from the money paid by the Fund
in settlement of his claim, since the statement
of account sent to
him by the appellant was dated 20 August 2008. The respondent claimed
interest on the sum allegedly due to him,
calculated as from 1
September 2008. It is not in dispute that the identity of the
debtor was known to him all along. The
appellant, as a debtor who
invoked the special defence of prescription, bore the onus of
establishing ‘both the date of the
inception and the date of
the completion of the period of prescription’.
[4]
[9]
In
Truter & another v Deysel
[2006] ZASCA 16
;
2006 (4) SA
168
(SCA), this court held that the term ‘debt due’ means
a debt, including a delictual debt, which is owing and payable,
and
that –
‘
A
debt is due . . . when the creditor acquires a complete cause of
action for the recovery of the debt, that is, when the entire
set of
facts which the creditor must prove in order to succeed with his or
her claim against the debtor is in place or, in other
words, when
everything has happened which would entitle the creditor to institute
action and to pursue his or her claim.’
[5]
(Footnote omitted.)
And
‘cause of action’ for purposes of prescription was held
to be-
‘
every
fact which it would be necessary for the plaintiff to prove, if
traversed, in order to support his right to the judgment of
the
Court. It does not comprise every piece of evidence which is
necessary for the plaintiff to prove each fact, but every fact
which
is necessary to be proved.’
[6]
(Footnote omitted.)
[10]
As has been alluded to above, the High Court found that ‘[t]he
invalidity of a common law contingency fee agreement is
a fact and
not a legal conclusion’ and that the respondent was not aware
that an Act prohibiting the agreement existed. It
also found that the
respondent had been overcharged. Two things need to be clarified. The
first is that the Act does not prohibit
a contingency fees agreement.
As has been mentioned above, it legitimises an agreement otherwise
prohibited at common law. The
second is that counsel for the
appellant submitted, correctly so, that the High Court erred in its
finding that the invalidity
of the agreement is a fact and not a
legal conclusion. In
Claasen
v Bester
[2011]
ZASCA 197
;
2012 (2) SA 404
(SCA) Lewis JA referred to
Truter
[7]
and
Minister
of Finance & others v Gore
NO [2006] ZASCA 98; 2007 (1) SA 111 (SCA)
[8]
as well as
Van
Staden
,
[9]
where this court had left open the question whether the nullity of a
contract (a legal conclusion) was a fact for purposes of s
12 of the
Act, and said:
‘
These
cases [
Truter
and
Gore
]
clearly do not leave open the question posed and not answered in
Van
Staden
.
They make it abundantly clear that knowledge of legal conclusions is
not required before prescription begins to run. There is
no reason to
distinguish delictual claims from others.’
[10]
Claasen
was
referred to by the High Court in its judgment, but regrettably, the
court must have missed or misunderstood the authoritative
statement
just quoted.
[11]
The respondent’s claim is based on enrichment. He claims
repayment of money paid by him in terms of an illegal and invalid
contract (
condictio
ob
turpem
vel iniustam causam
).
As has now been authoritatively decided, lack of knowledge of the
invalidity of a contract does not postpone the running of
prescription,
[11]
which
begins to run immediately after the payment was made.
[12]
[12]
But the respondent’s case was not simply that he did not know
that the agreement was invalid (which is a legal conclusion).
It is
set out as follows in his founding affidavit:
‘
I
have since ascertained and been advised by my present legal
representatives that the percentage fee agreement for 22.5% plus VAT
in the circumstances of my case and my dealings with Fluxmans, as set
out more fully hereunder, is known as a “common law
contingency
fee agreement” and is illegal and unenforceable
as
it does not comply with the Contingency Fees Act
66
of 1997.’ (My emphasis.)
And:
‘
In
the letter ‘SZL4’ I informed Fluxmans that I had become
aware of the Judgments of the Constitutional Court and that
on
consideration of my Statement of Account annexure “SZL2”,
I was of the view that the agreement entered into between
myself and
Fluxmans was invalid
as
it did not comply with the Provisions of the Contingence Fees Act 66
of 1995.
’
(My emphasis.)
The
letter and statement of account referred to were annexed to the
founding affidavit. The second paragraph of ‘SZL4’
reads:
‘
It
has recently been brought to my attention that the contingency fee
agreement entered into between Fluxmans and myself in February
2006
did
not comply with the Contingency Fees Act 66 of 1997 (the Act).
’
(My emphasis.)
Further
down in the letter, ‘SZL4’, he states that the court
(Constitutional Court) found that ‘at common law
a contingency
agreement between an attorney and client is unlawful’. It
therefore becomes necessary to consider the question:
when did the
debt arise (s 12(3) of the Act)?
[13]
In its answering affidavit the appellant alleged that the
respondent’s claim ‘is premised on an oral contingency
fee agreement’ concluded between the parties in February 2006.
The deponent also alleged that at the time of the conclusion
of the
agreement he ‘did not understand the terms of the contingency
fee agreement to be in contravention of the [Act]’
and said
that the agreement was concluded in good faith. It was conceded
during argument before us that the agreement did not comply
with s 3
of the Act, the terms of which are peremptory. The agreement was
therefore invalid, hence the order declaring it as such.
[14]
In
Van
Staden
the appellant (defendant) had, in terms of what was referred to as an
‘Offer to Purchase’, sold to the respondent (plaintiff)
a
share block in a share block scheme for R28 000. The share block
entitled the owner thereof to the right of use of a flat
and parking
area (the premises) in a certain building. The plaintiff took
occupation of the premises on 1 November 1981. He paid
the deposit
and thereafter the monthly instalments and levies in terms of the
agreement. Disputes arose as a result of the plaintiff’s
failure to sign ‘a proper deed of sale’ which the parties
had agreed would be drawn upon the fulfilment of a particular
condition. That condition was fulfilled on 19 September 1982. The
plaintiff vacated the premises more than three years after he
had
taken occupation. He thereafter issued summons in April 1985 claiming
repayment, in terms of s 18
[13]
of Share Block Control Act 59 of 1980 (Share Block Act), of the
amounts he had paid to the defendant. The defendant, in turn,
counterclaimed, also in terms of s 18 of the same Act, for payment of
reasonable compensation for the use of the premises which
the
plaintiff had enjoyed, as well as for damages he had caused to the
premises. The parties were each partially successful in
their claims.
One of the defences raised by the defendant was prescription. It was
alleged that the plaintiff’s claim for
repayment of moneys paid
in respect of the months of December 1981 and January to March 1982,
inclusive, had prescribed. This special
defence of prescription was
unsuccessful.
[15]
Section 17 of the Share Block Act provides that a contract for the
acquisition of a share ‘shall state the matters required
by
Schedule 2 [to that Act] and be accompanied by the documents referred
to in that Schedule’. On appeal to this court it
was argued on
behalf of the defendant that because of non-compliance with the
provisions of s 17 the agreement (‘Offer to
Purchase’)
was void
ab initio
and that the plaintiff’s claim for
repayment of each instalment, that is the debt, arose immediately
after payment of each
such instalment. This court considered the
provisions of s 12(3) of the Act and reasoned as follows (at 216B-E):
‘
Die
probleem in die onderhawige geval draai om die toepassing van die
woorde “die feite waaruit die skuld ontstaan”
in art
12(3) van die Verjaringswet. Die respondent was klaarblyklik bewus
van die basiese feite. Hy het geweet wat die aard en
inhoud van die
kontrak was. Uiteraard was hy bewus daarvan dat feitlik geen van die
besonderhede vereis deur art 17 van die Wet
daarin opgeneem was nie.
Ook het hy geweet dat die stukke waarna in die artikel verwys word,
nie die kontrak vergesel het nie.
Hy was dus bewus van die feite wat
aangetoon het dat art 17 van die Wet nie nagekom is nie. Hy het
geweet dat hy betalings kragtens
die kontrak gemaak het. Myns insiens
was hy dus van meet af aan ten volle bewus van al die feite wat
aanleiding gegee het tot die
spesiale remedies voorgeskryf deur art
18 van die Wet. ‘n Mens kan aanvaar dat hy eers later bewus
geword het van watter
vereistes deur art 17 van die Wet gesel word,
en van watter regte hy verkry het toe die appellant nie hierdie
vereistes nagekom
het nie.’
[14]
This
court accordingly held that the plaintiff had knowledge of the facts
from which the debt arose when he made the first payment.
The court
therefore upheld the defendant’s special plea of prescription.
[16]
In
Claasen
the respondent (Bester) issued summons on 14 December 2007 seeking a
declarator that a deed of sale, in terms of which he had sold
a farm
to the appellant (Claasen), was void or voidable and that he was
entitled to the return of the farm. He tendered a refund
of the
purchase price of R175 000. The contract of sale was concluded
in or about September 2001. The parties had agreed -
and this was
reflected in the deed of sale – that Bester could buy the farm
back. Bester had been in financial distress and
the farm was about to
be sold at a sale in execution. The price at which he could buy back
the farm was, however, not reflected
in the deed of sale. The
relevant clause in the deed of sale provided that the purchase price
and the terms and conditions of such
sale would be determined by the
parties when the right to repurchase was exercised. Bester claimed
not to have read the provision
and that he had relied on the attorney
who drew up the deed of sale to include a provision that the price
would be market-related.
He testified at the trial that when the sale
was discussed at a meeting in the attorney’s office on 25
September 2001 he
had insisted that the price at which he would buy
back the farm ‘must be market-related’. He only realised
when he
obtained a copy of the deed of sale on 3 March 2004 that such
a provision had been omitted. Attempts to have the ‘right’
to purchase back the farm registered against the title deed failed.
Bester was informed on 11 January 2006 that the provision purporting
to record the right to buy back the farm was a nullity.
[17]
Claasen’s special plea of prescription failed before the trial
court. His appeal to this court was upheld on the basis
that
prescription began to run as from 3 March 2004, when Bester knew that
no provision had been made in the deed of sale in relation
to the
price at which he could buy back the farm from Claasen. Thus, when
Bester issued summons on 14 December 2007 his claim had
become
prescribed.
[18]
It has been held, in the context of s 12(3) of the Act, that the
appellant (in this case) must show what the facts are that
the
respondent was required to know before prescription could commence
running and that it must also show that the respondent had
knowledge
of those facts on the date prescription is alleged to have commenced
running.
[15]
The
respondent made the allegation, in his founding affidavit, that he
‘did sign a written fee agreement’ confirming
that the
appellant would accept instructions from him ‘on a contingency
on the basis that [he] would pay a fixed 22.5% plus
VAT of the
damages recovered’ on his behalf. He also stated that he signed
various documents on the day that he consulted
at the appellant’s
offices – it appears this was on 1 February 2006. He was,
however, unable to recall whether a copy
of what he had signed was
given to him, but said that despite a diligent search he was ‘unable
to locate a copy of such written
fee agreement’. Although the
appellant asserted in its answering affidavit that the respondent did
not sign various documents
on 1 February 2006, it was not suggested
that he never signed any document. It is true, according to the
answering affidavit, that
Mr Perlman did furnish the respondent with
a motor vehicle claim form which the latter had to complete. But, as
early as 22 June
2008, the respondent, in a letter to the appellant
to which he never received a response, mentioned that ‘when
signing the
letter of engagement’ he was aware of the
percentage fee that the appellant would earn. In my view, this
clearly supports
his version that he signed ‘a written fee
agreement’ confirming that the appellant would accept his
instructions ‘on
a contingency on the basis that [he would] pay
a fixed 22.5% plus VAT of the damages recovered’.
[19]
It was not argued or suggested in this court, nor could it be so
argued, in my view, that the respondent knew, or must have
known, at
any stage before he stumbled across the
Bobroff
decision, that what he said he signed in the appellant’s
offices was some other document and not a written contingency fees
agreement contained in a prescribed form as required by s 3(1)(a) of
the Act, and that he therefore knew that the agreement was
not in
writing. It was also not suggested that the respondent knew, or must
have known, that the document which he believed was
the contingency
fees agreement did not contain other information as required in terms
of any other provision of s 3 of the Act.
Nor was it suggested that
the respondent could not reasonably have believed that the document
he signed contained a contingency
fees agreement that complied with
the provisions of the Act. A finding that a copy of the document
which the respondent believed
to be the written contingency fees
agreement was made available to him cannot be made on the papers. And
if the document he signed
was not one confirming the terms of the
contingency fees agreement as he said it was, it could, in any event,
not be argued that
he knew that the agreement was not in writing as
required by s 3(1)(a) of the Act. It could not be suggested,
therefore, that the
respondent had knowledge from the inception, or
at any time before February 2014, of the basic facts from which the
debt arose.
[20]
I disagree, therefore, with the finding (in paragraph 41 of the
judgment of the majority, which I have had the privilege to
read)
that the respondent knew that the fees which he paid to the appellant
were calculated on the basis of ‘the
oral
contingency fees agreement which he concluded with the appellant
(Perlman)’. (My emphasis.) Stripped of all excesses, the
appellant’s case was that from 1 September 2008, at the latest,
the respondent ‘had knowledge of the identity of the
[appellant] as (alleged) debtor and of the facts from which his claim
and the debt arises’. No attempt was made in the answering
affidavit to show what the facts are that the respondent was required
to know, and in fact knew on or before 1 September 2008,
before
prescription could commence running.
[16]
The general statement that the respondent’s claim ‘is
premised on an oral contingency fee agreement’ does not
assist
the appellant in this regard. The respondent’s claim was
premised on an invalid written contingency fees agreement.
[21]
Counsel for the appellant only dealt, in their heads of argument and
before us, with the issue relating to the invalidity of
the agreement
and ignored the second part of the respondent’s case, namely,
that the agreement did not comply with the provisions
of the Act,
that is, that the respondent was aware of facts that indicated that
there was no compliance with the provisions of
s 3 of the Act. This
was probably because of the finding of the High Court that the
invalidity of a common law contingency fees
agreement is a fact and
not a legal conclusion. The issue of non-compliance was, however,
squarely raised in the founding affidavit.
[22]
There was some suggestion in the appellant’s heads of argument
that even if the law required knowledge of the invalidity
or voidness
of an agreement in order for prescription to commence running, the
respondent would still not be able to rely on
s 12(3)
of the
Prescription Act. It
was submitted that on his own version the
respondent would be ‘deemed to have such knowledge’ as by
the exercise of
reasonable care he could have acquired it. The matter
of
Price
Waterhouse Coopers Inc & others v National Potato Co-Operative
Ltd
2004
(6) SA 66
(SCA) para 41, in which it was held that any contingency
fees agreement that is not covered by the Act is illegal, was decided
in 2004 and, so it was contended, the respondent could, by the
exercise of reasonable care, have acquired knowledge of the fact
of
the invalidity of the agreement. Although a different finding has
been made, I suspect that these submissions would still have
been
advanced.
[23]
In his founding affidavit the respondent averred that he is a lay
person and that he relied on the appellant to represent his
interests
and to advise him properly and fairly. It is clear that he placed his
trust in the appellant, who, he would have thought,
were the experts
on matters legal and would handle his claim professionally. He
referred to Mr Perlman, who handled his claim,
as ‘a very
experienced attorney’, and felt confident that he ‘would
be properly advised and represented in all
respects’. There
is nothing in the papers to suggest that he should at any stage have
realised that there had been
non-compliance with the provisions of
the Act and which should have led him to believe that he should seek
legal advice elsewhere.
It is true that he was not happy with the
amount of the fees that he paid in terms of the agreement, but that
was no reason for
him to even suspect that there had not been
compliance with the provisions of the Act. He merely felt that,
because of the nature
and extent of his injuries, the percentage fees
he was required to pay should be less than 22.5 per cent. There can
be no basis,
therefore, for a submission that the respondent could,
by the exercise of reasonable care, have acquired knowledge, at an
earlier
stage, of facts that would indicate non-compliance with the
Act. It follows that prescription did not begin to run until the
respondent
acquired knowledge, during February 2014, that the
appellant had not complied with the provisions of the Act. I would
accordingly
dismiss the appeal.
________________________
L Mpati
Acting
President
Zondi JA (Theron and
Van der Merwe JJA concurring):
[24]
I have read the well reasoned judgment prepared by Mpati AP. However,
I regret that I cannot agree with my learned colleague
that the
appeal should be dismissed. In the judgment (paras 18 and 19) Mpati
AP concludes that the respondent’s claim had
not become
prescribed because the respondent did not have knowledge from the
inception, or at any time before February 2014, of
the basic facts
from which the debt arose. I disagree with his conclusion. It is
based on the finding that the respondent’s
version that he
concluded a written fees agreement, is correct. In my view, the
appeal should succeed and the appellant’s
special plea of
prescription should have been upheld by the High Court.
[25]
The background facts have been set out in detail in the judgment by
Mpati AP, for which I am grateful and support his narration.
It is
common cause that on 2 February 2006 the appellant, a firm of
attorneys, concluded a percentage-based contingency fees agreement
with the respondent in terms of which the appellant agreed to
represent the respondent in the institution and prosecution of an
action against the Road Accident Fund (the RAF) for damages for
personal injuries suffered by the respondent in a motor vehicle
collision on 8 October 2005. The parties agreed that the appellant
would charge the respondent a contingency fee of 22.5 per cent
plus
VAT of the damages that the respondent recovered from the RAF. This
agreement did not comply with the requirements of the
Act
[17]
and neither were its provisions discussed prior to, and at the time
that it was concluded.
[26]
The RAF subsequently settled the respondent’s claim and the
terms of the settlement were made an order of court on 23
May 2008.
In terms of the order, the RAF, among others, was to pay to the
appellant, on behalf of the respondent, the capital amount
of
R4 862 561.40. Upon receipt of the capital amount and legal
costs from the RAF the appellant deducted from that amount
a sum of
R1 109 101.02 representing a contingency fee of 22.5 per
cent plus 14 per cent VAT and paid the balance to the
respondent on
20 August 2008.
[27]
More than 6 years later on 9 April 2014, the respondent wrote a
letter to the appellant in which he claimed that he had recently
became aware that the appellant had overcharged him because the
contingency fees agreement, on the basis of which the fees were
calculated, failed to comply with the Act and was therefore null and
void. For this proposition the respondent referred to the
judgment of
the Gauteng Division in
De
La Guerre v Ronald Bobroff & Partners Inc & others
unreported
case no 22645/2011 delivered on 13 February 2013, which he said, was
upheld by the Constitutional Court in February 2014.
[18]
In that case the Gauteng Division found, on the authority of a
decision of this Court in
Price
Waterhouse Coopers
,
[19]
that the contingency fees agreement which is not covered by the Act,
is illegal. The respondent accordingly demanded that the statement
of
account rendered by the appellant to him on 20 August 2008 be debated
or that the reasonable fees be agreed upon.
[28]
The appellant rejected the respondent’s demand and contended
that it had acted according to ‘both the spirit and
requirements of the Contingency Act’.
[29]
The appellant’s refusal prompted the respondent to launch an
application in the High Court seeking, among others, an
order
declaring that the common law contingency fees agreement concerned be
declared invalid, void and of no force and effect and
that the
appellant be ordered to pay to him the sum of R844 994.57. The
appellant opposed the application and contended among
others that the
respondent’s claim had become prescribed.
[30]
The High Court dismissed the appellant’s special plea of
prescription holding that the respondent only acquired knowledge
of
the facts (that common law contingency fees agreements are unlawful)
from which the debt arose when the Constitution Court’s
judgment
[20]
on contingency
fees agreements was delivered in February 2014 and that before that
date the respondent was not aware that an Act,
prohibiting such
agreements existed and that he was overcharged. It held that the
invalidity of a common law contingency fees agreement
is a fact and
not a legal conclusion. The appeal is with the leave of the High
Court.
[31]
Before setting out my reasons for reaching a different conclusion, I
must agree with Mpati AP that the issue before us is whether
the High
Court correctly found, when it did, that the respondent’s claim
had not become prescribed. That issue, in turn,
requires a
consideration of the provisions of s 12 of the Prescription Act 68 of
1969 (the
Prescription Act).
[32
]
I also agree with Mpati AP’s conclusion that the High Court
erred in finding first, that ‘the invalidity of a common
law
contingency fees agreement is a fact and not a legal conclusion’
and secondly, that the Act prohibits contingency fees
agreements. I
am in full agreement with the reasons that Mpati AP advances in
support of that conclusion. I wish to emphasise in
relation to the
High Court’s second finding, that it is incorrect that the Act
prohibits the conclusion of a ‘common
law’ contingency
fees agreement. The Act permits the parties to conclude such
agreement. It in fact allows them to
do something that would
otherwise be unlawful under the common law. In other words, the Act
was enacted to overcome the prohibition
which existed under the
common law (
Price
Waterhouse Coopers Inc
para 41), which is quite the opposite of the High Court’s
second finding.
[33]
The relevant parts of
s 12
of the
Prescription Act are
set out fully
in para 7 of Mpati AP’s judgment and I consider it unnecessary
to repeat them. But to the extent that it is
necessary,
s 12(1)
provides that subject to the provisions of subsecs (2), (3) and (4)
of
s 12
, extinctive prescription commences to run as soon as the debt
is due. The term ‘debt’ is not defined in the
Prescription Act and
the courts have held that it must be given a
wide and general meaning.
[21]
The courts have also held that the words ‘debt is due’
must be given their ordinary meaning and that it is due when
it is
immediately claimable by the creditor and it is immediately payable
by the debtor.
[22]
[34]
This court in
Truter & another v Deysel
[2006] ZASCA 16
;
2006 (4) SA 168
(SCA) para 16 said that:
‘
For the
purposes of the [Prescription] Act, the term “debt due”
means a debt, including a delictual debt, which is owing
and payable.
A debt is due in this sense when the creditor acquires a complete
cause of action for the recovery of the debt, that
is, when the
entire set of facts which the creditor must prove in order to succeed
with his or her claim against the debtor is
in place or, in other
words, when everything has happened which would entitle the creditor
to institute action and to pursue his
or her claim.’
(See,
for example,
Evins v Shield
Insurance Co Ltd
1980
(2) SA 814 (A)
at
838D-H; and
Deloitte Haskins
& Sells Consultants (Pty) Ltd v Bowthorpe Hellerman Deutsch (Pty)
Ltd
[1990] ZASCA 136
;
1991
(1) SA 525
(A)
at
532H-I. See further M M Loubser
Extinctive
Prescription
(1996) para
4.6.2 at pp 80-81 and the other authorities there cited.)
[35]
In terms of s 12(3), a debt is not deemed to be due until the
creditor has or ought to have had knowledge of the identity of
the
debtor and the facts from which the debt arises. In the founding
affidavit, the respondent, in setting out the facts from which
the
debt (his claim) arises, alleges as follows:
‘
9.
I have since ascertained and been advised by my present legal
representative that the percentage fee agreement for 22.5% plus
VAT
in the circumstances of my case and my dealing with Fluxmans, as set
out more fully hereunder, is known as a “common
law contingency
fee agreement” and is illegal, invalid and unenforceable as it
does not comply with the Contingency Fees
Act 66 of 1997 (“the
Act”).
.
. .
20.
I am a layman and it was only after I read of the Constitutional
Court Judgment of 20 February 2014 that I decided thereafter
to write
to Fluxmans to obtain clarity in regard to the basis upon which I had
been charged in my case.
.
. .
24.
After the handing down of the Judgments in the
De La Guerre
and
SAAPIL
[2013 (2) SA 583
(GSJ)] cases on 20 February 2014 I
addressed a letter to Selwyn Perlman at Fluxmans dated 9 April 2014,
a copy of which is annexed
hereto marked “SZL4” . . .
25.
In the letter “SZL4” I informed Fluxmans that I had
become aware of the Judgments of the Constitutional Court and
that on
consideration of my Statement of Account annexure “SZL2”
I was of the view that the agreement entered into
between myself and
Fluxmans was invalid as it did not comply with the Provisions of the
Contingency Fees Act 66 of 1997
”.
[36]
The respondent says the agreement he concluded with the appellant was
in writing and that he was given a copy to sign, which
he did. He
alleges, however, that he is unable to produce a copy of the
agreement as he cannot locate it after a diligent search.
On the
evidence, such agreement does not exist. The deponent to the
appellant’s answering affidavit denies that the agreement
he
concluded with the respondent was in writing and in substantiation of
that denial refers to a letter he addressed to the respondent
on 13
June 2006 embodying the terms upon which the appellant accepted the
respondent’s instruction. The letter reads:
‘
This
serves to confirm the arrangement that we have in regard to our fees
is as follows:-
We
shall charge you 22½% plus VAT thereon on whatever amounts we
recover from the Road Accident Fund alternatively R1 500.00
plus
VAT for the time spent per hour by the writer on the matter,
whichever of the two is the greater.
.
. .
Obviously
the above is on the contingency that we recover the moneys from the
Fund.’
The
appellant’s version that the agreement between the parties was
a verbal one is not denied by the respondent in the replying
affidavit. To the extent that there is a dispute on whether or not
the agreement was in writing that dispute in accordance with
the
Plascon
Evans
principle
[23]
must be resolved in the appellant’s favour.
[37]
It is clear from the aforegoing that the agreement the parties
concluded, did not comply with the peremptory requirements of
s 3
of the Act which, among others, require a contingency fees agreement
to be in writing and signed by the client and an
attorney
representing such client. The agreement, the parties concluded, is
therefore invalid.
[38]
In respect of its defence of prescription the appellant avers that
the debt asserted by the respondent became due on 20 August
2008, the
date on which the respondent paid fees to the appellant. It contends
that from that date the respondent had knowledge
of the identity of
the appellant and the facts from which his claim arose.
[39]
In its opposing affidavit the appellant did not rely upon the proviso
to
s 12(3)
of the
Prescription Act. But
in the heads of argument the
appellant submitted in the alternative that, to the extent that
knowledge of the invalidity of a common
law contingency fees
agreement was a ‘fact’ for the purposes of
s 12(3)
,
the respondent could, by the exercise of ‘reasonable care’,
have acquired knowledge of such ‘fact’. In
the light of
the conclusion I have reached it is not necessary to decide on the
appellant’s alternative defence.
[40]
The respondent’s case therefore is that prescription did not
commence to run against its claim before 20 February 2014
because he
did not by that date have knowledge of the facts from which the debt
arose. He says he did not know that the percentage
fee agreement he
concluded with the appellant is a ‘common law contingency fees
agreement’ and
is
illegal and unenforceable as it does not comply with the
Contingency
Fees Act.
. .’ (My emphasis).
[41]
The question, therefore, is whether before February 2014 the
respondent had knowledge of the facts from which his claim arose.
In
my view, the respondent did have knowledge of such facts. Immediately
after he paid the fees to the appellant on 20 August 2008
the
respondent knew all the facts even though he did not know the legal
conclusion flowing from those facts. The respondent knew
that fees
which he paid to the appellant on 20 August 2008 were calculated on
the basis of the oral contingency fees agreement
which he concluded
with the appellant (Perlman). On his own evidence, the respondent
then also knew all the other facts that he
relied upon in his
founding affidavit for the conclusion that the contingency fees
agreement was invalid. He knew that the appellant’s
fees were
not limited to double their normal fee or 25 per cent of the amount
awarded, whichever was the lower. He also knew that
before the
agreement was entered into; he was not advised of any other ways of
financing the litigation and of their respective
implications; he was
not informed of the normal rule that in the event of him being
unsuccessful in the proceedings he may be liable
to pay the taxed
party and party costs of the RAF in the proceedings; he was not
advised that he would have a period of 14 days,
calculated from the
date of the agreement, during which he would have the right to
withdraw from the agreement by giving notice
to the appellant in
writing. He knew that none of this formed part of the contingency
fees agreement. Therefore, even if the contingency
fees agreement
should be regarded as a written agreement, by 20 August 2008 the
respondent knew all the facts that he relied upon
for his claim in
his founding affidavit. According to him, what he did not know,
however, was the legal conclusion flowing from
these facts, namely
that it was invalid because of its failure to comply with the Act. In
para 20 of the judgment Mpati AP states
that counsel for the
appellant only dealt in their heads of argument and before us with
the issue relating to the invalidity of
the agreement and ignored the
second part of the respondent’s case, namely, that the
agreement did not comply with the provisions
of the Act. I disagree.
[42]
Knowledge that the relevant agreement did not comply with the
provisions of the Act is not a fact which the respondent needed
to
acquire to complete a cause of action and was therefore not relevant
to the running of prescription. This Court stated in
Gore
NO
para 17
[24]
that the period of
prescription begins to run against the creditor when it has minimum
facts that are necessary to institute action.
The running of
prescription is not postponed until it becomes aware of the full
extent of its rights nor until it has evidence
that would prove a
case ‘comfortably’. The ‘fact’ on which the
respondent relies for the contention that
the period of prescription
began to run in February 2014, is knowledge about the legal status of
the agreement, which is irrelevant
to the commencement of
prescription. It may be that before February 2014 the respondent did
not appreciate the legal consequences
which flowed from the facts,
but his failure to do so did not delay the date on which the
prescription began to run. Knowledge
of invalidity of the contingency
fee agreement or knowledge of its non-compliance with the provision
of the Act is one and the
same thing otherwise stated or expressed
differently. That the contingency fees agreements such as the present
one, which do not
comply with the Act, are invalid is a legal
position that obtained since the decision of this court in
Price
Waterhouse Coopers Inc
and is therefore not a fact which the respondent had to establish in
order to complete his cause of action.
Section 12(3)
of the
Prescription Act requires
knowledge only of the material facts from
which the prescriptive period begins to run – it does not
require knowledge of
the legal conclusion (that the known facts
constitute invalidity) (
Claasen
v Bester
[2011] ZASCA 197
;
2012 (2) SA 404
(SCA).
[43]
If the respondent’s claim had become prescribed in the interim
because of the lapse of the prescriptive period of three
years,
knowledge of invalidity of the common law contingency fees agreement
allegedly acquired thereafter following the Constitutional
Court
judgment in
Bobroff
cannot revive such a prescribed claim.
[44]
In my view, the respondent’s cause of action arose on 20 August
2008 when he paid fees to the appellant which he now
contends were
incorrectly calculated. The action should have been instituted in
August 2011 which is three years from the date
on which the cause of
action arose. When the respondent therefore instituted these
proceedings in July 2014 his claim had become
prescribed. The High
Court erred therefore by dismissing the appellant’s special
plea of prescription. The appeal must accordingly
succeed.
[45]
With regards to costs, the appellant’s counsel sought costs of
two counsel to be awarded as the matter, according to
him, involves a
consideration of legal issues of utmost importance. Counsel for the
respondent submitted that the matter does not
warrant the employment
of two counsel and that costs to be awarded should be limited to the
costs of one counsel. The issue for
determination, both in the High
Court and in this Court, was a narrow one, namely whether the
respondent’s claim had become
prescribed which in my view,
despite its importance, was not complex. The matter did not therefore
deserve the services of two
counsel and in the circumstance costs of
only one counsel should be awarded.
[46]
In the result, I make the following order:
1.
The appeal is upheld with costs.
2.
The order of the High Court is set aside and is replaced with the
following:
‘
The
respondent’s special plea of prescription is upheld with
costs.’
________________
D
H Zondi
Judge
of Appeal
APPEARANCES
For
the Appellant:
A Subel SC (with him
S Stein SC)
Instructed by:
Fluxmans Inc,
Johannesburg
Lovius Block,
Bloemfontein
For the Respondent
J J Bitter
Instructed by:
Norman Berger &
Partners Inc, Johannesburg
McIntyre &
van der Post, Bloemfontein
[1]
Paragraph 41.
[2]
In
Ronald
Bobroff & Partners Inc v De La Guerre
[2014] ZACC 2
;
2014 (3) SA 134
(CC) the Constitutional Court
dismissed an application for leave to appeal against the decision of
the North Gauteng High Court.
[3]
Paragraph 17 of
the judgment.
[4]
Gericke v Sacks
1978 (1) SA 821
(A) at 827H-828A;
Van
Staden v Fourie
1989 (3) SA 200
(A) at 216B;
Santam
Ltd v Ethwar
[1998] ZASCA 102
;
1999
(2) SA 244
(SCA) at 256G.
[5]
Per Van Heerden JA
para 16.
[6]
Paragraph 19,
quoting with approval from
McKenzie
v Farmers’ Co-operative Ltd
1922 AD 16
at 23. See also
Evins
v Shield Insurance Co Ltd
1980
(2) SA 814
(A) at 838D-H.
[7]
Paragraph 20.
[8]
Paragraph 17.
[9]
Footnote 4.
[10]
Paragraph 15.
[11]
Claasen
para
15 and
Yellow
Star Properties 1020 (Pty) Ltd v MEC, Department of Development
Planning and Local Government, Gauteng
[2009] ZASCA 25
;
2009 (3) SA 577
(SCA) para 37.
[12]
Van Staden
,
at 215B, where Grosskopf JA quotes with approval (see 215F) De Wet &
Yeats
Kontraktereg
en Handelsreg
4de
uitgawe 263.
[13]
The relevant part
of the section provides that ‘any purchaser or seller who has
performed partially or fully under a contract
for the acquisition of
a share which does not comply with the provisions of
section 16
or
17
, shall be entitled to reclaim from the other party what he has
performed under the contract . . . .’
[14]
Loosely translated
the court said: ‘The problem in the instant matter is the
application of the words “the facts from
which the debt
arises" in
s 12(3)
of the
Prescription Act. The
respondent was
plainly aware of the basic facts. He was aware of the nature and
content of the contract. Naturally, he was aware
that virtually none
of the particulars required by s 17 of the Act were contained
therein. He also knew that the documents referred
to in the section
did not accompany (or were not attached to) the contract. He was
therefore aware of the facts that indicated
that the provisions of s
17 of the Act were not complied with. In my view he was therefore
fully aware from the outset of all
the facts which lead (or give
rise) to the special remedies prescribed by s 18 of the Act. One can
accept that he became aware
of the requirements prescribed by s 17
only later and of what rights he acquired when the appellant failed
to comply with these
requirements.’
[15]
Links v Member
of the Executive Council, Department of Health, Northern Cape
Province
[2016] ZACC 10
;
2016 (4) SA 414
(CC) para 24.
[16]
Ibid
.
[17]
Section 3(2) of
which provides as follows:
‘
A
contingency fees agreement shall be signed by the client concerned
or, if the client is a juristic person, by its duly authorized
representative, and the attorney representing such client and, where
applicable, shall be countersigned by the advocate concerned,
who
shall thereby become a party to the agreement.’
[18]
Ronald Bobroff
& Partners Inc v De La Guerre
[2014] ZACC 2
;
2014 (3) SA 134
(CC) para 14, in which the two
applications for leave to were dismissed for having no prospect of
success on appeal.
[19]
Price
Waterhouse Coopers Inc and others v National Potato Co-Operative Ltd
[2004]
ZASCA 64
;
2004 (6) SA 66
(SCA) para 41.
[20]
Ronald Bobroff
& Partners Inc v De La Guerre
(above).
There the Constitutional Court was merely required to determine
whether the
Contingency Fees Act was
unconstitutional and the
questions of whether the common law contingency fees agreements were
invalid, did not arise.
[21]
African
Products (Pty) Ltd v Venter
[2007]
3 All SA 605
(C) 612d.
[22]
Benson &
another v Walters & others
1984
(1) 73 SA (A) at 82C, where Van Heerden JA quotes with approval the
dicta in
The
Master v I L Back and Co Ltd & others
1983
(1) SA 986
(A) at 1004.
[23]
Plascon-Evans
Paints Ltd v Van Riebeeck Paints (Pty) Ltd
[1984] ZASCA 51
;
1984 (3) SA 623
(A) at 634E-635C.
[24]
Minister of
Finance & others v Gore NO
[2006]
ZASCA 98
;
2007 (1) SA 111
(SCA).