Brief Summary

Contingency Fees — Validity of contingency fee agreements — Plaintiffs instituted claims against the Road Accident Fund for damages from motor vehicle collisions; settlement offers accepted by attorneys without prior compliance with the Contingency Fees Act 66 of 1997 — Court found that requisite affidavits were not filed before draft orders were presented, raising concerns about compliance with the Act — Court issued orders while reserving judgment on the validity of the contingency fee agreements, inviting written submissions on compliance with the Act.

Comprehensive Summary

Summary of Judgment

1. Introduction

The judgment concerned two Road Accident Fund actions in which the court was required to determine the validity and enforceability of contingency fees agreements concluded between each plaintiff and their respective legal representatives. Although the merits of the RAF claims had been settled, the court’s monitoring function under the Contingency Fees Act 66 of 1997 became central once the existence of contingency fee arrangements emerged during the process of making the settlements orders of court.

The parties were Mawande Dyongo (plaintiff) and the Road Accident Fund (defendant) under case number 2465/2021, and Claudio Johnve Minnie (plaintiff) and the Road Accident Fund (defendant) under case number 2093/2021. The judgment was delivered by the Eastern Cape High Court, Makhanda (Tilana-Mabece AJ), following a consolidated consideration of both matters because they raised the same compliance issue under the Act.

Procedurally, both claims were settled after the RAF made settlement offers that were accepted by the plaintiffs’ attorneys. Draft orders embodying the settlements were placed before the court to be made orders of court. The court, however, identified that the case files did not contain the affidavits required by section 4 of the Contingency Fees Act at the time the settlements were accepted and presented, despite the existence of contingency fee agreements. In the Dyongo matter, affidavits and the agreement were only submitted after the settlement order had already been granted, resulting in the recall of that order so that the court could perform its statutory oversight function. The court issued a directive inviting written submissions on whether the agreements complied with sections 2, 3, and 4 of the Act and whether “substantive compliance” could suffice.

The general subject-matter of the dispute was therefore not the quantum or merits of the settled RAF claims, but whether the attorneys could rely on their contingency fee agreements (including any success fee) given the statutory requirements governing such agreements and settlements.

2. Material Facts

The court treated as common cause that each plaintiff instructed attorneys to pursue RAF claims for damages arising from motor vehicle collisions, and that settlement offers were made by the RAF and accepted by the attorneys on behalf of the plaintiffs. Draft settlement orders were then presented for confirmation as orders of court.

It was also material that, when the draft orders were presented, contingency fee agreements existed in both matters. The court’s concern was that, when the files initially served before a judge in chambers, the section 4 affidavits required for judicial oversight of a settlement were not in the files, and the attorneys’ practice was to alert the court to the contingency fee agreement only after presenting draft orders, rather than ensuring upfront compliance.

In the Dyongo matter, the court found that the contingency fee agreement was concluded between the plaintiff and Matyeshana Townley Incorporated (an incorporated law firm), rather than being concluded with a “legal practitioner” as contemplated by the Act. The agreement was also not in the prescribed form contemplated in the Act. In addition, the required section 4 affidavits were only provided after the draft settlement order had already been made an order of court, and the court recorded that the settlement offer had already been accepted without prior judicial oversight. The court further noted practical filing difficulties, including that the contingency fee documents did not bear court stamps indicating when they were filed.

In the Minnie matter, no written submissions were received from the plaintiff’s attorneys despite the court directive. After the directive, when the file returned from the registrar’s office, the contingency fee agreement initially presented to the judge was no longer in the file, and a different agreement appeared instead. Because the documents were not court-stamped, the court dealt with the new agreement placed before it. The court considered that the substituted agreement appeared to comply with sections 2 and 3 to some extent, but found that the same core difficulty remained: the section 4(1) and 4(3) affidavits were submitted only after the draft orders had been presented for court confirmation, by which stage the settlement offer had already been accepted.

The court expressly approached the matter on the basis that, to avoid prejudice to the plaintiffs, settlement orders could be granted despite the non-compliance concern, while reserving judgment on the validity of the contingency fee agreements. This approach followed the court’s understanding (drawn from authority cited in the judgment) that claimants should not be delayed by their representatives’ non-compliance where the settlement itself appeared fair.

3. Legal Issues

The central legal questions were whether the contingency fee agreements in each matter were valid under the Contingency Fees Act 66 of 1997, and specifically whether the agreements complied with the statutory requirements in sections 2, 3, and 4.

The issues were primarily issues of law, and of the application of law to largely common-cause procedural facts. The questions included whether the statutory requirements were peremptory or merely enabling, whether “substantive compliance” could suffice, and what the consequences were where settlements were accepted without the mandatory affidavits and judicial oversight contemplated in section 4 when the matter is before court.

A further applied issue was the consequences of invalidity: namely, whether attorneys could charge the agreed contingency-based success fees, or whether they were confined to reasonable fees under the common law, to be assessed through taxation.

4. Court’s Reasoning

The court began from the statutory purpose of the Contingency Fees Act 66 of 1997, namely that contingency fee arrangements—otherwise prohibited by the common law—are only permitted within the strict framework created by the Act. The judgment adopted the proposition, supported by the authorities it cited, that the legislature intended contingency fee agreements to be carefully controlled, and that any agreement not covered by the Act is illegal and unenforceable.

In considering section 2, the court stressed that the Act authorises a contingency fee agreement to be concluded with a “legal practitioner”, defined as an advocate or attorney. In the Dyongo matter, the agreement on its face was concluded between the plaintiff and Matyeshana Townley Incorporated. The court reasoned that an incorporated law firm is a separate juristic person from the individual legal practitioners and is therefore not what the statute envisages when it refers to an agreement with a legal practitioner. On that basis, the agreement failed to meet the statutory requirement of section 2(1), rendering it non-compliant.

Turning to section 3, the court held that the Act requires the contingency fee agreement to be in writing and in the prescribed form. The judgment referred to the Minister’s prescribed form (by regulation identified in the judgment) and emphasised that the prescribed form and content must be adhered to for enforceability. The court concluded, again in the Dyongo matter, that the agreement was not in the prescribed form and therefore did not comply with section 3(1)(a).

The court characterised the language of sections 2 and 3 as peremptory, relying on the repeated use of the word “shall”, and aligned this conclusion with the authority it cited that any departure from the statutory requirements, whether of form or substance, invalidates the contingency fee agreement.

The court then addressed section 4, treating it as central to both matters. It held that where a matter is before court, section 4(1) makes it mandatory that the legal practitioner file the relevant affidavit(s) for judicial oversight before an offer of settlement may be accepted. The court reasoned that this is the mechanism by which the court performs its oversight function and ensures that settlements are properly explained and understood and that the attorney’s financial interest created by the success fee does not distort advice.

Applying those principles, the court found that in both matters the settlement offers were accepted without prior judicial approval, because the section 4 affidavits were only filed after the draft orders had been presented (and, in the Dyongo matter, after the order had already been granted). The court adopted and applied the Supreme Court of Appeal’s statement (in the authority cited) that legal practitioners have no discretion and are “undoubtedly obliged” to obtain judicial approval before accepting settlement offers where a contingency fee agreement exists and the matter is before court.

Having found non-compliance with section 4, the court concluded that the contingency fee agreements were invalid and unenforceable. The court then addressed the consequences for fees. It held, consistently with the authority it cited, that once the contingency fee agreement falls away as invalid, the position reverts to the common law, with the result that the attorney is entitled only to a reasonable fee for work performed, and that taxation is the mechanism to assess reasonableness. The judgment explicitly concluded that the attorneys were not entitled to charge the success fee contemplated by section 2(1)(b) because the agreements were invalid.

Finally, the court considered that the identified shortcomings were not capable of being cured in the current matters through further oral submissions, and the court regarded the opportunity to make written submissions as satisfying procedural fairness in the circumstances described.

5. Outcome and Relief

The court declared the contingency fee agreement in the Dyongo matter (case number 2465/2021) invalid, and directed Matyeshana Townley Incorporated to submit a bill of costs for attorney and own client fees to the Taxing Master within 15 days. The Registrar was directed to contact the plaintiff and explain the import of the judgment and the rights it accords him.

The court declared the contingency fee agreement in the Minnie matter (case number 2093/2021) invalid, and directed Ketse Nonkwelo Incorporated to submit a bill of costs for attorney and client fees to the Taxing Master within 15 days. The Registrar was similarly directed to contact the plaintiff to explain the import of the judgment and the rights accorded by it.

The judgment, as provided, did not record a distinct order as to costs of the proceedings determining the validity of the contingency fee agreements beyond the directives concerning taxation of the attorneys’ fees.

Cases Cited

Mfengwana v Road Accident Fund [2016] ZAECGHC 159; 2017 (SA) 445 (ECG).

Price Waterhouse Coopers Inc and Others v National Potato Co-operative Ltd and Another [2015] ZASCA 2; [2015] 2 All SA 403 (SCA).

Mofokeng v Road Accident Fund, Makhuvele v Road Accident Fund, Mokatse v Road Accident Fund, Komme v Road Accident Fund [2012] ZAGPJHC 150.

Mostert and Others v Nash and Another [2018] ZASCA 62; [2018] 3 All SA 1 (SCA); 2018 (5) SA 409 (SCA).

Road Accident Fund v MKM obo KM and Another; Road Accident Fund v NM obo CM and Another [2023] ZASCA 50.

Tjatji and Others v Road Accident Fund [2012] ZAGPJHC 198; 2013 (2) SA 632 (GSJ).

Legislation Cited

Contingency Fees Act 66 of 1997.

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The court held that the contingency fee agreements in both matters were invalid and unenforceable due to non-compliance with the peremptory requirements of the Contingency Fees Act 66 of 1997.

In the Dyongo matter, invalidity flowed in particular from the agreement being concluded with an incorporated entity rather than a “legal practitioner” as required by section 2(1), from failure to use the prescribed form as required by section 3(1), and from failure to comply with section 4 by accepting a settlement without first filing the mandatory affidavits for judicial oversight.

In both matters, the acceptance of settlement offers without prior compliance with section 4(1) (and the requirement that the settlement be made an order of court under section 4(3) when the matter is before court) meant the attorneys were not entitled to charge contingency-based success fees. The attorneys were limited to charging reasonable fees subject to taxation.

LEGAL PRINCIPLES

The judgment applied the principle that the Contingency Fees Act 66 of 1997 creates a statutory exception to the common-law prohibition on contingency fee arrangements, and that contingency fee agreements are therefore only lawful and enforceable if they fall squarely within the Act’s requirements. An agreement not compliant with the Act is illegal and unenforceable.

The judgment applied the principle that the statutory requirements in sections 2 and 3 concerning who may contract (a legal practitioner) and the prescribed form of the agreement are peremptory, and that non-compliance in substance or form renders the contingency fee agreement invalid.

The judgment further applied the principle that, where a matter is before court and a contingency fee agreement exists, section 4(1) requires the legal practitioner to file the prescribed affidavit(s) and obtain judicial approval before accepting a settlement offer, and that the legal practitioner has no discretion to bypass this requirement. Non-compliance results in invalidity and the loss of entitlement to any agreed success fee.

Finally, the judgment applied the principle that when a contingency fee agreement is invalid, the attorney’s remuneration is governed by the common law, entitling the attorney to reasonable fees for work performed, with taxation serving as the mechanism to assess reasonableness.

Dyongo v Road Accident Fund (2465/2021) [2023] ZAECMKHC 56 (4 May 2023)