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[2012] ZAGPJHC 150
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Mofokeng v Road Accident Fund, Makhuvele v Road Accident Fund, Mokatse v Road Accident Fund, Komme v Road Accident Fund (2009/22649, 2011/19509, 2010/24932, 2011/20268) [2012] ZAGPJHC 150 (22 August 2012)
Links to summary
REPORTABLE
SOUTH GAUTENG HIGH COURT, JOHANNESBURG
CASE NO
:
2009/22649
DATE:22/08/2012
SAFLII
Note:
Certain
personal/private details of parties or witnesses have been
redacted from this document in compliance with the law
and
SAFLII
Policy
In the matter between:
MOFOKENG,
MATHABO
FELICIA
.......................................................
Plaintiff
and
ROAD
ACCIDENT
FUND
…...................................................................
Defendant
AND
CASE NO: 2011/19509
In the matter between:
MAKHUVELE, MPHEPHU
LERISA
........................................................
Plaintiff
and
ROAD ACCIDENT
FUND
…...................................................................
Defendant
AND
CASE NO: 2010/24932
In the matter between:
MOKATSE KATLEGO
BRIDGET
….........................................................
Plaintiff
and
ROAD ACCIDENT
FUND
….....................................................................
Defendant
AND
CASE NO: 2011/20268
In the matter between:
KOMME MARGARET K. in his
personal
capacity and obo P T and
L S (MINORS)
….................................................................................
Plaintiffs
and
ROAD ACCIDENT
FUND
..................................................................
Defendant
J U D G M E N T
MOJAPELO, DJP
:
[1] This judgment deals with the
nature of proceedings before a court of law when an order is sought
to confirm the settlement
of a claim where one of the parties (in
this case the plaintiff) has entered into a contingency agreement in
relation to the proceedings.
[2] The matter arose in the following circumstances:
In making an offer of settlement
in Cases No. 2009/22649, 2011/19509, 2010/24932 and 2011/20268 the
defendant (Road Accident Fund)
incorporated the following term into
the offer:
“
In
the event of plaintiff having concluded a contingency fees agreement
with his/her attorney, such settlement shall be deemed to
denote that
the plaintiff and his/her attorney had complied with
section 4
of the
Contingency Fees Act, 66 of 1997
through having filed required
affidavits with either the court, if the matter is before court, or
with the relevant professional
controlling body, if the matter is not
before court.
”
In some cases the defendant is
understood to have insisted that a clause was to be included in the
court order recording that
a contingency fees agreement was
applicable and that the requisite affidavits had been filed. In
other matters it seemed to
this Court, that this was part of the
offer and that the deeming term of the settlement would not be part
of the court order.
Prior to that day neither the
defendant nor the plaintiffs had ever raised before this Court the
provisions of the contingency
fees agreement as part of the
settlement.
The defendant in all the four cases before this Court is the Road
Accident Fund.
In all the matters the plaintiff and the defendant had reached
agreement as to the quantum of the claim and costs.
The only outstanding issue in
all the matters was the conditionality of the offer imposed by the
defendant (Road Accident Fund).
The plaintiffs appear to have been
taken by surprise by the defendant’s attitude and requirement.
In some of the matters the
plaintiffs’ attorneys had filed no affidavits at all, but did
so only after the defendant had
raised the issue before court. In
another matter only the affidavit of the plaintiff (and not that of
the attorney) was filed.
The attorney’s affidavit was filed
after the matter had been called before court. In yet another
matter the affidavits
of both the plaintiff and the attorney had
been filed. Where the affidavits had been filed the contents were
varied. In at least
one matter the plaintiff filed both the
affidavits as well as a copy of the purported contingency fees
agreement.
It is common cause that in all
these matters, each of the plaintiffs had entered into some
contingency agreement with its legal
representatives. It is further
acknowledged by all the representatives, and it is common knowledge,
that contingency fees agreements
are entered into in almost all
claims against the Road Accident Fund and other personal injury
claims. The agreements are also
some times entered into in other
matters, not involving personal injuries.
[4] As the defendant and the
plaintiffs in the affected matters were not agreed on how the matters
were to proceed, this Court
directed that the matters should stand
down and that same would be argued at the same time. The parties
were required to file
heads of argument and the court is indebted to
those who complied. It appeared necessary for this Court to consider
the submissions
raised and give guidance to the parties in these and
similar matters that come before this Court.
[5] The need for compliance by
the plaintiffs with section 4 of the Contingency Fees Agreement Act,
66 of 1997 (the Act) was raised
at roll call on the first day of the
third term of 2012 on 23 July 2012. It had the potential of
affecting close to 70% of the
80 matters on the civil roll that day
and potentially on everyday thereafter. I considered it necessary for
the question to be
considered and decided upon fairly soon. An
alleged non-compliance with the law could not be allowed to continue.
The four matters
first stood down to be argued the following day on
24 July 2012. On that day the parties requested more time to prepare
and possibly
brief senior counsel to come and argue the matters. The
four cases were accordingly postponed, by agreement with all the
affected
parties, to 07 August 2012 for argument. On the latter day
the court refused further postponement on application by the
defendant
on the ground that the parties’ senior counsel was
not available to argue the matter. As a further ground for
postponement
the defendant argued that it would withdraw the point
that it had raised in three matters, and that those matters could be
disposed
of. The defendant would not raise the point in any other
matter until it had been argued and decided in the one matter that
was
to be postponed. This undertaking was not sufficient to justify
the postponement. Possible non-compliance with the law had been
raised and had to be considered. I indicated that even if the
defendant would not raise the issue this Court would consider and
decide the question raised without assistant of legal argument and
give appropriate guidance to the many litigants. The application
for
postponement was accordingly refused.
[6] The matter was accordingly
argued in the afternoon of 07 August 2012. Although the defendant did
not have heads of argument
at the beginning, Mr Opperman, who
appeared for the defendant in two of the matters, submitted abridged
heads of argument later
that afternoon.
Argument and Submissions
[7] An examination of the
argument advanced by all the five counsel (four for each of the
plaintiffs and one for the defendant),
reveals that they are all
agreed that the affidavits had to be filed, one by the attorney and
the other by the client before accepting
an offer of settlement. If
not filed before accepting the offer of settlement, same had to be
filed before the court makes the
settlement an order of court. The
court would not make the settlement an order of court before such
affidavits are filed. This
concurrence of views appears to be
correct, as will appear later. The filing of the prescribed
affidavits is a prerequisite for
acceptance of the offer. Certainly
the court should not make a settlement an order of court unless the
prescribed affidavits have
been filed. A requirement of the law is
that they are to be filed before the offer is accepted. It is
questionable whether an acceptance
without filing the affidavit is
binding and enforceable.
[8] Argument was however
divergent on (a) the function of the court in relation to the
affidavits and the Act when making settlement
an order of court and
(b) whether the contingency agreement itself ought to be placed
before the court.
[9] Mr F A Saint, for the
plaintiff in Case No. 2009/22649, argued that all that the court had
to do before making the order was
to satisfy itself that the
affidavits had been “
filed
”.
The court did not have to consider the contents of the affidavits or
adjudicate thereon. The Act, he argued, places “
no
obligation on a court to look at, let alone consider, the contents of
the affidavits inasmuch as it merely required them to be
filed. Had
the legislature intended that the court considers the contents of the
affidavits to adjudicate on the validity, correctness
or otherwise of
same, it would have categorically done so
”.
He says the purpose of having the affidavits filed is to commit the
legal practitioner in the event of the client seeking
to have the
agreement on the fees reviewed as contemplated in section 5 of the
Act.
[10] It appears that he supports
the view that affidavits must be filed; the court must then consider
these affidavits to ensure
that same are filed together with any
settlement. He says the court need only satisfy itself that
prima
facie
the plaintiff
has complied by filing the affidavits and no more. He does not deal
with the nature of the power exercised by the
court in considering
the affidavits or what the power of the court is if the affidavits
are found to be non-compliant with the
provisions of the Act.
[11] Mr A P den Hartog, for the
plaintiff in Case No. 2010/24932, argues that section 4 imposes an
obligation on plaintiff’s
attorney to file an affidavit in
terms of section 4 in the event of a contingency agreement having
been entered into between the
plaintiff and his attorney. The
provisions are thus peremptory and, he submits, the court may not
make an order until the provisions
of section 4 have been complied
with. In other words, the filing of the affidavit with the court is a
prerequisite before the court
can make such offer of settlement an
order. He argues specifically that an order of settlement cannot be
made an order of court
subject to compliance of section 4 of the Act.
He argued further that the defendant’s requirement that a
clause be included
in the court order stating that section 4 is
deemed to have been complied with was incorrect in law. He argued
that at best for
the defendant the court order could incorporate a
statement in the preamble stating that the plaintiff has complied
with section
4. He did not argue that such a statement in the
preamble was a requirement of law.
[12] It is not clear to this
Court why this should be a requirement. The plaintiffs, and indeed
the parties, comply with a number
of laws (including the Road
Accident Fund Act), which do not need to be referred to in the
settlement agreement or court orders.
It seems to me that by
granting an order, the court signifies that it is satisfied that the
provisions of the relevant laws have
been complied with to the extent
necessary, without specifying the relevant laws. What is required, is
thus for the court to satisfy
itself, for present purposes, that the
Act has been complied with, where applicable, before making an order.
In order to determine
whether the Act is applicable to a particular
case, the court cannot establish this other than by requiring the
parties to disclose
whether any of them has entered into a
contingency agreement. The Act is not an issue between the parties
in the litigation but
applies only between clients and their legal
practitioners or representatives. Although there is nothing to
prevent a defendant
entering into such an agreement, in practice it
is the plaintiffs who often enter into such agreements.
[13] Mr Den Hartog argued
strongly that the Act did not provide that the contingency fees
agreement itself is to be presented to
the court. The analogy, he
said, is that it is not to be presented because it is a privileged
document as between the legal practitioner
and his or her client. He
argued that for the same reason the defendant should not have sight
of the document.
[14] In Case No. 2011/19509, Mr
L P Mathebula, counsel for the plaintiff, appears to support the
practice of handing in the prescribed
affidavits as well as the
contingency agreement itself. He argues that: “
It
is clear that this Act was designed to have legal assistance
available to would-be claimants who are not in a position to pay
for
their legal fees at the same time to protect the claimants against
unlawful conduct by legal practitioners who may take an
advantage out
(sic) of unsuspecting clients who may be illiterate or not familiar
with how the law operates and overcharge them
on the basis that they
have entered into a contingency agreement with them
.”
He reads the Act to mean that:
“
It requires
attorneys who have entered into contingency agreement with their
clients, to file same with the court if the matter
is before court.
”
He specifically states that he
has no “
problem
if the court would require that in all matters that are settled, the
draft order must be accompanied by the required affidavits
”.
In respect of his client he argued that “
the
affidavits together with the contingency agreement comply with the
defendant’s condition
”.
[15] He does not deal with the nature of the function that the court
has to perform in relation to the affidavits and the contingency
agreement. He concludes however that if the court notices any blatant
non-compliance, it should deal with same and, if necessary,
refuse to
confirm the settlement to the extent that the nature and degree of
non-compliance makes it necessary.
[16] I will deal later with the
document that the plaintiff in Case No. 2011/19509 submitted and
which purports to be the contingency
agreement in this case.
[17] Counsel for the plaintiff
in Case No. 2011/20268, Mr M I E Ismail, has submitted the most
comprehensive heads of argument.
He makes a strong call for judicial
monitoring of compliance by the practitioners with the provisions of
the Act not only where
matters before court are settled but also at
the time of judgment on quantum where the matter has proceeded to
trial. He submits
that the courts must exercise a monitoring function
by calling for and examining not only the prescribed affidavits but
the contingency
agreement as well. The court, he submits, needs not
examine the affidavit and contingency agreement in the same detail or
closeness
as it would, in the face of a formal complaint and in the
course of adjudicating on an application to review the agreement. He
argues that there is a clear intention on the part of the legislature
that contingency fees be carefully controlled. The court
should
intervene for this purpose. As a practical way, the court should
perform the monitoring function (a) by ensuring that the
attorneys
confirm under oath that the contingency agreements are indeed
compliant; and (b) by requiring that counsel affirms to
the court
that (i) he/she has read the contingency agreement and that (ii) same
is indeed compliant. He agrees with Mr Saint that
when exercising
its monitoring function the court needs only be satisfied that “
on
the face of it
”
there is compliance. This, he says, will assist the client in the
event of such client seeking to take the agreement and
the fees
charged on formal review. It is his contention that the overall
provisions of the Act, examined against the various decisions
of the
courts and the Constitution of the country, confer such powers on the
courts. He argues that the monitoring function is
necessary to
ensure compliance, to prevent abuse of legal process and to protect
vulnerable plaintiffs. I shall deal with these
submissions to the
extent necessary when examining the legal position later in this
judgment.
[18] Although he had relatively
short time to prepare heads, Mr Opperman, who appeared for the
defendant in two of the four matters,
placed the motivation and
concerns of his client (the Road Accident Fund) before court in six
paragraphs which I quote below.
I do not follow his numbering as I
do not quote everything he said. He states:
“
(a)
This matter concerns the legality and enforceability of contingency
fees agreements which are concluded in terms of the Contingency
Fees
Act 66 of 1997 (the Act).
The Road Accident Fund has raised this issue and believes that it
is entitled to do so in order to ensure that legal practitioners
comply with this Act.
It appears to be the case that a significant number of personal
injury lawyers make use of contingency fees agreements without
complying with the procedural or substantive requirements of the
Act.
The RAF is of the view that this is an issue of considerable
importance and acute concern for both the RAF itself and members of
the public.
It prevents the checks and
balances in the Act and plays a critical role in preventing the
abuse of contingency fees agreements.
Moreover, while the abuse of
contingency fees is a concern in all areas of law, it is a
particular concern in the present context.
This is because the
present context involves public funds which ought to be received by
the road accident victims concerned
but which are instead being
received by personal injury lawyers, above and beyond what the Act
permits.
”
[19] He supports the submission
of Mr Ismail that the court must require not only submission of the
affidavits, as required in
section 4, but it must also call for and
examine the contingency fees agreement itself in order to render an
effective monitoring
function.
[20] He referred the court to
the case of
Fikile
Manyeu Mnisi v Road Accident Fund
,
Case No. 2009/37233 (unreported), delivered in the North Gauteng High
Court on 18 May 2010, per Southwood J, where the court on
noting an
apparent non-compliance, demanded to see the contingency fees
agreement and subsequently directed the Law Society to
investigate
the contingency fees agreement entered into by the attorney in
question for compliance with the Act as it appeared
to the court that
the agreement did not comply.
Legal Position
[21] I proceed to examine the nature of the proceedings and the
appropriate practice against the legal position.
[22] The current legal position
regarding contingency fees is set out in the
Contingency Fees Act No.
66 of 1997
(“
the
Act
”). It is a
fairly short Act, comprising of six sections including sections that
deal with definitions (s 1), a provision
for rule making by
controlling professional bodies (s 6), regulations (s 7) and the
short title (s 8). It therefore has only four
operative sections (ss
2 to 5). It is not necessary to reproduce its provisions and I will
do so only where necessary.
[23] The legal position as set out in the Act must be understood
against the history of the contingency fees and the relevant
case
law.
[24] A fairly comprehensive
history of the legislation is set out in
Price
Waterhouse Coopers Inc and Others v National Potato Co-Operative Ltd
2004 (6) SA 66
(SCA) paras [26] to [46]. The history stretches from
the old English law of maintenance and champerty, the various reforms
in the
United Kingdom, which were mirrored in South Africa, up to the
promulgation of the Act, following a report of the South African
Law
Commission. Its constitutionality has also been considered and
endorsed. In this judgment I abridge and set out the historical
position only briefly.
[25] In line with English law, a
number of cases decided in South Africa in the last years of the 19
th
and early part of the 20
th
century show that the courts took an uncompromising view of
agreements which are referred to as champertous (that is, any
agreement
whereby an outsider provided finance to enable a party to
litigate in return for a share of the proceeds of the action if that
party was successful or any agreement whereby a party was said to
traffic, gamble or speculate in litigation), and refused to entertain
litigation following on such agreements or to enforce them.
[26] However, the law, in both
countries acknowledged one exception. It was accepted that if
anyone, in good faith, gave financial
assistance to a poor suitor and
thereby helped him to prosecute an action in return for a reasonable
recompense or interests in
the suit, the agreement would not be
unlawful or void.
[27] An important qualification
for these exceptions was founded on the statement made by the Privy
Council in
Ram Coomar
Coondoo and Another v Chunder Canto Mookerjee
[1876] 2 APP CAS 186
at 210. In that case the Privy Council issued
an important warning, stating:
“
that
agreements of this kind ought to be
carefully watched
,
when found to be extortionate and unconscionable, so as to be
inequitable against the party; … – so as to be contrary
to public policy – effect ought not to be given to them.
”
(my emphasis)
[28] So, from the onset, the
rule that recognised exceptions from the illegality of champertous
agreements required that the exempt
agreements be
‘carefully watched
’”.
They were not to be “
extortionate
and unconscionable, so as to be inequitable against the party
”.
When, within the exception, such agreements were found to be
“
extortionable
and unconscionable, so as to be inequitable
”
against the client, effect were not given to such agreements. The
move from the unenforceability of champertous agreements
was from the
onset accompanied by a need for careful and close monitoring, with
courts not hesitating to refuse to enforce agreements
that appeared
to cross the threshold.
[29] In the United Kingdom,
after much deliberation, developments resulted in the enactment of
section 58 of the United Kingdom
Courts and Legal Services Act 1990
which permitted speculative actions in accordance with the Scottish
practice and rendered enforceable,
subject to certain conditions, a
conditional fees agreement. The most important condition was the
strict regulation of the percentage
whereby the fee was to be
increased. The Lord Chancellor was to be given the power to regulate
the increase.
[30] The importance of this
change was emphasised by Steyn LJ in
Giles
v Thompson
and Related
Appeals
[1993] UKHL 2
;
[1993] 3 All ER 321
(CA and HL) at 331. He pointed out at
321d-j that the ability to recover fees beyond what was otherwise
reasonable or intended
to be an incentive to lawyers to undertake
speculative action. Such agreements were still unlawful in the
absence of Lord Chancellor’s
order (See
Price
Waterhouse
at 77f).
[31] These developments in
English law are mirrored in South African law. The judiciary is
independent, which independence is
guaranteed by the Constitution.
The civil justice is regulated by the State and has the necessary
mechanisms to withstand the
abuses perceived to flow from champertous
agreements.
[32] In South Africa the general
view regarding unenforceability of pure champertous agreements in
pursuing litigation is also
based on the Roman-Dutch rule that
frowned upon agreements to speculate in litigation (
pactum
de quota litis
). A
recent demonstration of that principle is to be found in
Tecmed
(Pty) Ltd v Hunter and Another
[2008] ZAGPHC 41
;
2008 (6) SA 210
(W). In that case the first respondent, an attorney,
had concluded an agreement with the applicant in terms of which the
first
respondent would receive a “
merit
bonus
” or a
“
performance
bonus
” on the
outcome of certain litigation which a company, M, had launched
against the applicant. The first respondent had misled
the applicant
into believing that the events which would have made the “
bonus
”
payable had indeed occurred. The applicant had accordingly paid the
bonus to the first respondent. The terms of the agreement
had been
agreed upon orally. Upon discovering that the events upon which
payment of the bonus were conditional had not occurred,
the applicant
applied in a local division for an order claiming,
inter
alia
, repayment of the
amount of the bonus paid to the first respondent. It was held, that
in essence the agreement to pay a bonus
was a
pactum
de couta litis
. It
was held, further, that to be valid, such an agreement has to comply
with the Contingency Fees Agreement Act 66 of 1997.
Pactum
de quota litis
was,
accordingly, unlawful and void. It was held, further, that given the
position of a lay client
vis-à-vis
an attorney, there could be no doubt that public policy dictated an
exception to the rule in
pari
delicto potior est conditio defendentis.
[33] After the South African Law
Commission had investigated and reported on the question (SA Law
Commission Projects 93: Speculative
and Contingency Fees, November
1996), the Commission recommended that contingency fees agreements
should be legalised in South
African law and that common law
prohibitions on such fees should be removed, our legislature followed
the English example of permitting
contingency fees agreements –
“
no win no fees
”,
and increased fees in case of success – but subject to strict
control. As in England this represented a watershed
in public policy
and was brought about by the view that “
it
is in the public interest that litigants be able to take their
justiciable disputes to court for adjudication
”;
and that a system of contingency fees “
can
constitute significantly to promote access to courts and such a
system is desirable
”.
[34] The
Contingency Fees Act 66
of 1997
encourages legal practitioners to undertake speculative
actions for their clients. This is in keeping with the right,
enshrined
in section 34 of the Constitution of the Republic of South
Africa Act 108 of 1996, to have any dispute that can be resolved by
the application of law decided in a fair public hearing before a
court. Another factor favouring the upholding of champertous
agreements
is freedom of contract.
Provisions of the Act
[35] The Act, which came into
operation on 23 April 1999, provides for two forms of contingency
fees agreements which attorneys
and advocates may enter into with
their clients. The first, is a “
no
win, no fees
”
agreement (s 2(1) (a)) and the second is an agreement in terms of
which the legal practitioner is entitled to fees higher
than the
normal fee if the client is successful (s 2(1) (b)). The second type
of agreement is subject to limitations. Higher fees
may not exceed
the normal fees of the legal practitioner by more than 100%, and in
the case of claims sounding in money, this fee
may not exceed 25% of
the total amount awarded or any amount obtained by the client in
consequence of the proceedings, excluding
costs (s 2(2)). There is
however no reason why the two types of agreements may not, in
practice, be clauses (or concepts) in the
same agreement. This is in
fact often the case. The agreement would thus provide that in return
for the legal practitioner not
charging fees on failure of litigation
(no win no fees) the attorney shall be entitled to a higher fee
(success fee) if the client
is successful.
[36] The Act further regulates
the form and content of a contingency fees agreement (s 3(1)). The
form is one prescribed by the
Minister in a Gazette (s 3(1) (a))
after taking same before Parliament. The prescribed agreement was
published in Government Notice
No. 574 of 23 Apr 1999 (contained in
Government Gazette 20009).
[37] Section 3(2) deals first
with the signatories. The one signatory is the client and the other
is the client’s attorney.
Where and when an advocate is
involved such advocate shall also countersign the agreement. Once the
advocate has countersigned
the agreement, the advocate becomes party
to such agreement.
[38] The Act specifies what must
be contained in the agreement (s 3(3)). The Act is very specific as
to the contents and all matters
prescribed are inclusive, that is,
all the matters or provisions stated in paragraphs (a) up to (i)) of
the subsection have to
be included in the agreement. Similarly the
provisions in sub-paragraphs (i) to (iv) of paragraph (a) are all to
be included. It
is not some provisions or the others. It is all
prescribed provisions which have to be in the agreement. The
attorneys are not
at liberty to draw a contingency fees agreement in
any form as they like. The agreement has to be in accordance with the
provisions
of the Act and in the form prescribed by the Minister (s 3
(1)).
[39] It is obligatory for the
agreement to be delivered to a client. This has to be done on the
date on which the agreement is
signed (s 3(4)). This is a stringent
provision which could possibly affect the efficacy or enforceability
of the agreement.
[40] The Act further lays down
the procedure to be followed when a matter is settled (s 4) and gives
the client a right of review
(s 5). The professional controlling
bodies may make rules which they deem necessary to give effect to the
Act (s 6) and the Minister
of Justice may make regulations for
implementing and monitoring the provisions of the Act (s 7).
Intention of the Legislature
[41] The clear intention of the
legislature is that the contingency fees be carefully controlled. The
Act was enacted to legitimise
contingency fees agreements between
legal practitioners and their clients which would otherwise be
prohibited by the common law.
Any contingency fees agreement between
such parties which is not covered by the Act is therefore illegal and
unenforceable. What
is of significance, however, is that by
permitting “
no
win, no fees
”
agreements, the legislature has made speculative litigation possible,
and by permitting increased fee agreements, the legislature
has made
it possible for legal practitioners to recover or receive part of the
proceeds of the action.
[42] As in England, this Act is
designed to encourage legal practitioners to undertake speculative
actions for their clients. The
legislature was obviously of the view
that the conflict between the duty and the interest of legal
practitioners would not lead
to an abuse of legal procedure. This is
where monitoring by the courts is important. It is clearly considered
that it is better
that people be able to take their disputes to court
in this way rather than not at all. The learned judge (Southwood
AJA) in
Price
Waterhouse
states
thus:
“
In
my view this approach is consistent with the right enshrined in
section 34 of the Constitution: Everyone has the right to have
any
dispute that can be resolved by the application of law decided in a
fair public hearing before a court, or, where appropriate,
another
independent and impartial tribunal or forum. On a number of
occasions the Constitutional Court has emphasised the importance
of
the right:
It is of cardinal importance and requires
active protection and courts have a duty to protect bona fide
litigants
.
(my emphasis) (
Beinash
and Another v Ernest & Young and Others
1999
(2) SA 116
(CC) para [17]).
[43] The need for active
protection of needy litigants, such as one finds in
RAF
cases, once more came out strongly from even our highest court.
[44] A demonstration of the kind
of abuse that may occur if courts do not exercise their monitoring
role vigorously is to be found
in
Mnewaba
v Maharaj
[2001] 1 All
SA 265
(C). In that case the plaintiff sued his erstwhile attorney
for payment of sums which the latter appropriated to himself as fees
from monies he received on the plaintiff’s behalf from the
Multilateral Motor Vehicle Accidents Fund (“
the
MMF
”) in respect
of claims for damages and costs. The defendant had submitted the
plaintiff’s claim to the MMF which made
an offer of settlement
of R283 443,00 and tendered to pay the plaintiff’s party and
party costs as settled or taxed. The
plaintiff accepted the offer of
settlement. Thereafter the plaintiff and the defendant concluded a
fees agreement in terms of which
the plaintiff agreed to pay the
defendant fees of R135 000,00 which would be deducted from the
capital sum paid by the MMF. The
MMF also paid an amount of R13
078,30 to the defendant in respect of the plaintiff’s party and
party legal costs.
[45] The plaintiff issued
summons against the defendant, alleging that the agreed fee bore no
relation to a reasonable fee and
that the fees agreement was
therefore illegal, null and void. The court considered whether the
defendant’s defence that
the plaintiff had agreed to the fee
was an absolute defence to the claim. The court considered the
decided cases on this point
and concluded that the court is not bound
by fees agreements between attorneys and their clients.
[46] The approach is driven by
considerations of public policy. The most important and obvious
policy objective is to ensure that
the administration of justice does
not fall in disrepute, which objective is achieved,
inter
alia
, by protecting
lay litigants against statutory fee arrangements and
pacta
de quota litis
in
whatever form they occur. This is subject to the Act which did not
apply in the
Mnewaba v
Maharaj
case.
[47] In regard to the agreement
itself, the court in the
Mnewaba
case noted that the amount the defendant retained was a multiple of
nearly 15 times the fee claimed in the party and party bill
and more
than 20 times that allowed on taxation. The degree of difference
between the fees claimed in the bill and the fees agreement
was
startling and conclusive evidence of an abuse. The terms of the fees
agreement and the fact that it was concluded after the
MMF had made
its offer were further matters for serious concern. The fact that
the plaintiff agreed to the fee was not an absolute
defence to the
claim. The court accordingly declared the fee agreement null and
void.
Interpretation of section 2 of the Act
[48] A correct interpretation of
section 2 of the Act, particularly with reference to higher than
normal fees of the practitioner,
is set out by Morison AJ in
Thulo
v Road Accident Fund
2011 (5) SA 446
(GSJ) at 450G-451B. The interpretation reads:
“
[51]
The true function of a proviso is to qualify the principal matter to
which it stands as a proviso — as to which see,
for example,
Hira
and Another v Booysen and Another
1992
(4) SA 69
(A)
at 79F – J and the cases there cited. In other words, a proviso
taketh away, but it does not giveth. If there is a principal
matter (in this case the right to charge a success fee calculated at
double — 100% more than — the normal fee) it is
not the
function of a proviso to increase or enlarge that which it follows,
it is to reduce, qualify and limit that which goes
before it in the
text.
[52] As
this principle of interpretation is not always applied there is a
danger of a misinterpretation of this section by
legal practitioners.
Incorrectly interpreted it can be used to argue that the client has
to pay (i) double the normal fee
or
(ii) 25% of the total amount awarded in a claim sounding in money,
whichever
is the higher
.
That is completely wrong. The practitioner's fee is limited, on a
proper reading of the section, to (i) 25% of the amount awarded
in
the judgment, or (ii) double the normal fee of that
practitioner,
whichever
is the lower.
If double the normal fee results in the client having to pay a fee
higher than 25% of that which was awarded to the client
in a
money judgment (costs aside) the legislature has put a ceiling on
such fee and said, in effect, 25% of the money amount awarded
is the
maximum fee that can be raised. Where, however, double the normal fee
does not exceed 25% of the money amount awarded then
double the
normal fee is the maximum fee that can be raised. “
I am in total agreement with the
interpretation above as being correct and in accordance with the
wording of the section.
[49] The learned judge in the
Thulo
case however went on to state:
“
It
is to be noted that this excludes costs awards so it may be possible
for a legal practitioner to conclude an agreement with his
or her
client to the effect that on success in the matter the client will
pay an attorney client fee that is equivalent to the
sum of:
Double
the attorney's normal fee or 25% of the amount awarded, whichever
is the lower; and
the
taxed costs to be paid by the other side.”
This is the part that I have some
difficulties with. I do not share the view that an attorney may
legally enter into an agreement
with his client to charge the maximum
permissible under the
Contingency Fees Act
>plus
taxed costs to be paid by the other side. A maximum of the
attorney’s fees is what it says. It is the maximum and no fees
above that maximum may lawfully be recovered. What is recovered as
party and party costs are the costs recovered by the successful
party
from the unsuccessful party. It is what the client recovers and is
therefore due to the client. The attorney may recover
from party and
party costs, once he or she has recovered the full attorney and
client fees, only the reimbursement of his out-of-pocket
expenses and
not fees. The attorney does not recover additional fees (over and
above the maximum) from party and party costs. To
do so would deprive
the successful litigant of his/her recovered costs and thus overreach
the client. An increase of “
normal
fee
” chargeable
by a legal practitioner up to 100% is more than adequate compensation
for the legal practitioner. To add party
and party fees to the
already doubled fees of the legal practitioner would be extortionate
and unconscionable.
[50] Subsection 2(2) of the Act,
which is the subject of interpretation reads:
“(2)
Any fees referred to in subsection (1)
(b)
which are higher than the normal fees of the legal practitioner
concerned (hereinafter referred F to as the success fee),
shall
not exceed normal fees by more than 100 per cent:
Provided
that, in the case of claims sounding in money, the total of any such
success fee payable by the client to the legal practitioner,
shall
not exceed 25 per cent of the total amount awarded or any amount
obtained by the client in consequence of the proceedings
concerned,
which amount shall not, for purposes of calculating such excess,
include any costs”
As I read Morison AJ, the portion
of his interpretation of section 2(2) with which I disagree arises
from the different ways in
which we interpret the last portion of the
proviso which reads:
“..., w
hich
amount shall not, for the purposes of calculating such excess,
include any costs.
”
As I read this portion of the
proviso the phrase “
which
amount
” refers
to and qualifies the phrase “
the
total amount awarded or any amount obtained by client
”.
The effect is that when one calculates the 25% limit of the
attorney’s fees, one is not to include any costs in
the total
amount (i.e. the 100% capital). The 25% limit is calculated on the
capital amount only and not on the capital plus costs.
To illustrate
this, if the total amount of capital awarded by the attorney was R100
000,00 and the costs awarded was R15 000,00,
the 25% limit would be
calculated on R100 000,00 and will thus be R25 000,00. What the last
portion of the proviso mean is that
one shall not calculate the 25%
limit on R115 000,00, which is the “
total
amount
” (R100
000,00) plus costs (R15 000,00). The effect of the way the
Thulo
case interprets the last proviso would be that the attorney could, in
the example given above, recover the maximum of 25% of capital,
i.e.
R25 000,00 (if this is less than double normal fee) plus R15 000,00,
thus a total of R40 000,00. I am in respectful disagreement
with
that part of the interpretation in
Thulo
and see it as a misreading of section 2(2) of the Act. I agree in
everything else in the
Thulo
judgment which is a laudable and welcome judgment on the Act and the
conduct of the defendant’s attorneys in RAF claims.
Settlement and the Affidavits (s 4
)
[51] With regard to the
settlement, the Act provides that an offer of settlement made to any
party who has entered into a contingency
fees agreement, may be
accepted
after
the legal
practitioner has filed an affidavit with the court, if the matter is
before court (s 4(1)). The purpose appears to me
to lay down
conditions under which an offer may be accepted. An offer may thus
not be accepted before the legal practitioner has
filed the
affidavit. If the matter is before court, the affidavit in question
must be filed with the court. If not, the affidavit
must then be
filed with the professional controlling body (that is the Law Society
in respect of attorneys and the Society of Advocates
in respect of
advocates). The subsection further specifies what the affidavit must
contain (s 4(1) (a) (ii) (g)).
[52] The attorney’s
affidavit is the main or primary one. It has to be accompanied by an
affidavit by the client (s 4(2));
and the Act specifies or prescribes
the contents of the affidavit of the client. On this point, I agree
with and accept the submission
by Mr Den Hartog that the provisions
are peremptory and the court may not make an order until the
provisions of the two subsections
have been complied with. In other
words the filing of the affidavits is a prerequisite before the court
can make the settlement
an order of court inasmuch as the acceptance
of the offer has to be preceded by the filing of the affidavits. At
the very least
the affidavits must be filed when the settlement is
sought to be made an order of court. Absent such filing of the
affidavits,
the court may not endorse the acceptance by making the
settlement an order of court.
[53] The critical provision is
in section 4(3). The section makes it obligatory for the settlement
to be made an order of court
once the matter, in respect of which a
contingency fees agreement has been signed, is before court. It
seems to me therefore that
there cannot be an out-of-court settlement
in a pending litigation where one of the parties is a party to a
contingency fees agreement
in respect of the proceedings before
court.
[54] The purpose must be to
ensure that the supervisory or monitoring process of the court is
present whenever matters litigated
under the Contingency Act are
settled or finalised.
Monitoring or Supervisory Function of the Court
[55] The question arises as to
what the supervisory functions of the court must entail. Firstly, it
appears that the court must
ensure that the prescribed affidavits are
signed and filed. The court must thus have sight of the affidavits.
I do not accept
the submissions that the court must only be advised
that the affidavits have been filed. The court must further ensure
that the
affidavits contain the matters which the Act stipulates to
be contained in such affidavits.
[56] The supervisory functions
of the court in relation to the contents of the affidavits must be
determined, in relation to each
affidavit, with reference to the
prescribed contents. The affidavit of the attorney must, in terms of
section 4 (1), state:
the full terms of the
settlement
-
Nothing must be withheld from the court.
an estimate of the amount or
other relief that may be obtained by taking the matter to trial
- The court must be placed in a position to see what is it that the
client abandons or compromises by settling in the specific
terms and
at the particular stage instead of proceeding to full trial.
an estimate of the chances of
success or failure at trial
- The court should satisfy itself that it is prudent to settle
having regard to the chances of success as seen by the professional
who is aware of the evidence and the relevant considerations. Here,
the practitioner may not simply state that the chances are
good or
bad. It seems to me that the practitioner must give his or her
reasons for holding the view that the chances are good
or bad with
reference to the available evidence and other relevant
considerations.
the outline of the legal
practitioner’s fees if the matter is settled as compared to
taking the matter to trial
- The Act here seems to require the practitioner to state what his
fees are at the stage of settlement – albeit an estimate
and
what his fees would be if the matter was to proceed to trial. The
court should be able to determine whether the legal practitioner
is
financially better or worse off with the settlement than he or she
would be with the trial option. Against this, one would
have to
consider whether the client is financially worse or better off than
would be the case at the end of the trial.
reasons for settlement
- This must no doubt be given having regard to the chances of
success and the financial implications that would appear from
paragraphs (a) to (d). It appears that the court has to be
satisfied that the client is better off with the settlement and that
the attorney’s financial or pecuniary interest in the capital
is not allowed to outweigh those of his or her client.
that the matters contemplated
in paragraphs (a) to (e) were explained to the client, and the steps
taken to ensure that the client
understands the explanation
- It will not be enough for the attorney simply to say that he
explained the steps or the matters contemplated in the subparagraphs
in question to the client. The attorney must convey to the court
and satisfy it that the client understood. It appears as if
the
attorney would amongst others have to satisfy the court that the
client understood the language used, and where the client,
for
instance, does not speak the same language as the attorney, the
court would require that some steps were taken to bridge
the gap of
understanding for instance by providing the interpretation services.
that the legal practitioner
was informed by the client that he or she understands and accepts
the terms of the settlement -
This provision is self-explanatory.
[57] The affidavit of the client
essentially confirms that the attorney has complied with his or her
obligations
vis-à-vis
the client as appears or is prescribed in relation to the affidavit
of the attorney. The client must thus state in the affidavit
that he
or she was notified in writing of the terms of settlement (s
4(2)(a)), and that the terms of the settlement were explained
to him
or her and that he or she understands and agrees to them (s 4(2)(b)).
The client must not only have agreed to the terms
when explained to
him by the attorney but he or she must also still agree to those
terms in the affidavit before court. The final
provision is that the
client must disclose to the court what his or her attitude is to the
settlement (s 4(2)(c)). The client
should thus not only tell the
court that he or she has accepted the terms of the agreement after
understanding them but also whether
he or she is happy or unhappy
about (attitude towards) the settlement.
[58] An equally important
provision of the Act is the right created in section 5(1) of the Act
for the client who feels aggrieved
by any provision of the fees
agreement or the fees charged. Such client may refer the provision or
fees to the controlling professional
body of the practitioner (Law
Society in the case of attorneys and Society of Advocates or the Bar
Council in the case of advocates).
The professional body has the
powers to review and set aside the impugned provision or fees if it
is of the opinion that such provision
or fees are unreasonable or
unjust. This is an important power which introduces reasonableness
and justice between practitioner
and client as grounds of review. It
appears to me that in order to give full effect to this safeguard the
attorney must inform
his or her client of this important right. In
addition to all matters covered in section 4, the attorney must
accordingly state
specifically in the affidavit that he or she has
informed the client of the right to take the fees or the agreement on
review if
the client is unhappy therewith. Similarly, the client
must confirm this in the client’s affidavit. It should
further
be clear from the affidavit that the attorney has furnished
the client with the name of the controlling body, the address, the
telephone number, fax number, e-mail address and such other contact
details of the controlling body as the client might reasonably
require in the event of the client deciding to exercise the rights
conferred by section 5(1). The disclosure of the name and contact
details of the controlling body is necessary to make the right of
review meaningful to the client. It would accordingly be a good
practice to specify these in the contingency fees agreement itself as
client will be given a copy to retain.
Must the Contingency Fees Agreement be handed in?
[59] The Act does not expressly
provide for the agreement to be handed in to court. The court
however has a strong monitoring
function to perform and to balance
the interests of the legal practitioner against that of his or her
client. If the examination
of the agreement is necessary for the
court to perform its function, I cannot see any reason why the court
should not call for
and examine such agreement as Southwood J did in
Mnisi v RAF (supra)
.
I do not consider the law in regard to privilege to be operating to
take away the powers of the court in this case. One deals
here with
the regulation of the very relationship between the attorney and his
or her client. Of necessity the monitoring function
of the court
takes place in that area. The other party to the lawsuit (RAF) is
not a party to this relationship or its monitoring.
[60] The law of privilege
ordinarily operates to protect the rights of the client in his or her
relationship with a legal practitioner.
It operates against third
parties to that relationship. It cannot operate when the purpose of
the exercise is to examine that
relationship. In any event, the legal
practitioner is already obliged by section 4(2)(d) to disclose or
give an outline of his
or her fees. This in my view is a
demonstration of the fact that attorney and client privilege does not
operate against disclosure.
Even if it did, I would venture to state
that the dictates of public policy makes such disclosure necessary.
If I were to be
wrong in this view, the answer would be to disclose
the agreement to the court and not to any other party. In this way
the protection
would still be available to the client and no right
would be violated.
[61] I hold accordingly that the
court is entitled, if it deems it necessary, to call for and examine
the contingency fees agreement
in the monitoring of the application
of the Act between the legal practitioner and the client.
Monitoring of the
Contingency Fees Act at
the end of the trial
[62] If the contingency fees
agreement exists between the client and the legal practitioner, fees
in terms of such an agreement
would be chargeable not only in the
event of settlement. Fees would be chargeable on the same basis at
the end of a trial. In
the light of the historical power of a court
to control and monitor the unusual provisions such as contained in
the Contingency
Act, there is no reason why the court should not have
such powers even at the end of a trial. Public policy considerations
and
the same reasons which made it necessary for the monitoring at
the time of settlement would make it necessary at the conclusion
of
the trial. Considerations which apply only when the matter is settled
and but not when it is finalised by judgment will obviously
be
excluded. In the interests of protecting the rights of clients and
to prevent abuse of the legal processes all other considerations
should become applicable still at the end of the trial. I hold
accordingly that although not specifically provided for in the
Contingency Fees Act, the
courts have the power to monitor
compliance with the reasonable limits placed by the Act, not only at
the time of settlement but
also at the end of the trial.
Practice Directive
[63] Some practical directive
appears necessary and desirable in order to place the court in a
position to exercise its monitoring
function effectively as
contemplated in the
Contingency Fees Act, 1997
and in this judgment.
To that end the following practice directive shall apply in matters
before the South Gauteng High Court:
Whenever a court is required to
make a settlement agreement or a draft order an order of court,
before the court makes such
an order:
63.1.1 the affidavits referred
to in
section 4
of the
Contingency Fees Act, 1997
must be filed, if
a contingency fees agreement as defined in the Act, was entered into;
if no such contingency fees
agreement was entered into, the attorney and his or her client
must file affidavits confirming
that fact;
where a contingency fees
agreement was entered into, in addition:
63.1.3.1 counsel shall confirm
to the court that counsel has read such agreement and advise the
court whether same complies with
the Act or not;
the court may in its discretion call for the submission to it of
the contingency fees agreement for examination by the
court.
In addition to the matters contemplated in sections 4 (1) and 4
(2) of the Act: (a) the affidavit of the attorney must confirm
that the attorney has explained to the client the client’s
right to take the agreement and the fees charged in terms
thereof
for review as contemplated in section 5 of the Act; and (b) the
affidavit of the client must confirm the explanation
and that the
client has understood such explanation and further that the client
is in possession of the name, address and
contact details of the
relevant controlling professional body or bodies.
63.2 The court may require
compliance with the directive set out in paragraph 63.1 above at the
end of the trial and whenever the
court is required to make an order
for payment of capital or part thereof in favour of the client.
Particular Matters before Court
Mofokeng v RAF, Case No. 2009/22649
[64] At the hearing of this
matter on 23 July 2012 the plaintiff placed before court a draft
order. There was no affidavit or agreement
placed before court.
There has subsequently been placed in the court file, with the leave
of the court, an affidavit of the attorney
dated 07 August 2012.
There is also an unsigned affidavit of the client which this Court
shall ignore.
[65] In the affidavit of the
attorney it is stated that: “
The
amount to be obtained by taking the matter to trial would exceed the
offer.
” The
amount that would be obtained at the trial is not dated nor
estimated. Section 4(1)(b) is not complied with. It is
further
stated that the prospects of success at the trial are fair but trial
costs are a deterrent. No indication whatsoever is
given of the legal
practitioner’s fees upon settlement. The trial fees are stated
to run at R30 000,00 per day (including
counsel’s fees). There
is no indication that such trial fees would not be recoverable at the
end of the trial. Sections
4(1)(c) and (d) are not complied with.
The instances of non-compliance must be rectified before the court
grants the order sought.
The observations made with regard to the
attorney’s affidavit will only be relevant when the client’s
affidavit has
been filed.
[66] As there is no signed
affidavit of the client section 4(2) of the Act has not been
complied.
[67] The draft order in the
Mofokeng
matter shall not be made an order of court until section 4 has been
complied with.
Mokatse v RAF
,
Case No. 2020/24932
[68] The affidavits of the
attorney and that of the client dated 23 July 2012 are on file. On
the face of these affidavits they
are compliant.
[69] What remains is for counsel
to confirm that he has read the contingency fees agreement and that
same is compliant. Once that
has been done, the draft order in the
Mokatse
matter may be made an order of court.
Makhuvele v RAF
,
Case No. 2011/19509
[70] Two affidavits had been
filed, one by the attorney and the other by the client. The
purported contingency fees agreement
which has been filed is short.
It comprises of three sentences and reads in its totality as follows:
“
1.
Legal fees: The client hereby instructs the attorney to assist
him/her in the RAF matter which occurred on the 5
th
September 2009.
Legal fees: The client
hereby undertakes to pay the attorney 25% of the capital received in
the said claim in respect of his/her
legal fees exclusive of VAT.
Manner of payment: The
client hereby agrees that the attorney shall deduct the said fee
from the capital held in the said sum
.”
The agreement is then signed and
witnessed. The above agreement neither complies with the express
provisions of the Act (ss 2 and
3), nor is it in the form prescribed
by the Minister in the Government Gazette. The agreement is
accordingly invalid and of no
force and effect. The plaintiff’s
attorney in this matter is therefore not entitled to any fees other
than the normal attorney
and client fees.
[71] In the premises I propose
to an order declaring the particular contingency fees agreement
invalid.
Komme v RAF
,
Case No. 2011/20268
[72] On 23 July 2012 the draft
was handed in. No affidavits were handed in. This is a matter in
which the Road Accident Fund had
not imposed the condition relative
to the Act and did not demand anything of the plaintiff’s
attorney.
[73] Counsel for the plaintiff
however indicated that the plaintiff’s attorney had signed a
Contingency Fees Agreement with
his client.
[74] On 23 July 2012 when the matter was called the defendant
apparently did not impose a condition with reference to the
Contingency Fees Act in
the agreement or its offer.
[75] Counsel however informed
the court, as he was obliged to, that a contingency fees agreement
had been entered into in the matter
and enquired as to whether his
attorney should file affidavits and prepare for argument. It was
upon my specific directions that
Mr Ismail subsequently filed the
affidavits dated 25 July 2012, one by the attorney and the other by
client which have been filed.
[76] On the face of these
affidavits they are compliant.
[77] All that remains is that
counsel should confirm to this Court that he has read the contingency
fees agreement and that same
complies with the Act. Upon this
confirmation the draft may be made an order of court.
Orders:
I accordingly make the following orders:
The matter of Mofokeng, M F v RA
F, Case No. 2009/22649 shall stand down. Counsel in the matter may
approach this court, in chambers
if needs be, to obtain an order
once the defects pointed out in this judgment have been rectified.
Counsel would further need
to confirm that he has read the
contingency fees agreement and that same complies.
The matters of Mokatse, K B v
RAF, Case No. 2010/24932 and of Komme, M K v RAF, Case No.
2011/20268 shall also stand down. Counsel
in both matters may
approach this court, if needs be in chambers, to obtain the
appropriate orders, once counsel have read the
relevant contingency
fees agreements and are able to confirm to the court that the
agreements comply.
In Makhuvele, M L v RAF, Case
No. 2011/19509, the following orders are made:
A draft order, which shall be initialled and dated on delivery of
this judgment, is made an order of court.
The contingency fees agreement between plaintiff and its attorney is
declared invalid.
Costs orders in all the matters,
when granted, shall include costs up to 07 August 2012, for noting
this judgment and for complying
with any directive issued in this
judgment.
..........................................................
P M MOJAPELO
JUDGE OF HIGH COURT
ALL CASES HEARD ON: 07 August
2012
JUDGMENT DELIVERED ON: 22
August 2012
For Plaintiff in Case No.
2009/22649: Mr F A Saint
Instructed by: Wim Krynauw
Attorneys
For Plaintiff in Case
No.2010/24932: Mr A P den Hartog
Instructed by: Renier van
Rensburg Inc
For Plaintiff in Case No.
2011/19509: Mr L P Mathebula
Instructed by: Risaba
Attorneys
For the Plaintiff in Case No.
2011/20268: Mr M I E Ismail
Instructed by: R T Tshifura
Attorneys
For the Defendant in Cases No.
2009/22649 and 2011/19505:
Mr F F Opperman
Instructed
in Case No. 2009/22649 by: Mayat,
Nurick & Associates, and
in Case No. 2011/19505 by: M F
Jassat Dhlamini Inc