Contingency Fees Act

The Contingency Fees Act No. 66 of 1997 (The Act) came into operation in April 1999.

The Act did away with the common-law prohibition against lawyers (attorneys and advocates) taking matters on risk.

Prior to April 1999, lawyers could only work for their ordinary fee. The Act was enacted to legitimize contingency fee agreements between legal practitioners and their clients, which would otherwise be prohibited by the common law.

Any contingency fee agreement between such parties which is not covered by the Act is therefore illegal.

What is of significance is that the Act permits ‘no win, no fees’ agreements, by permitting such agreements the legislature has made more litigation possible, and by permitting increased fee agreements the legislature has made it possible for legal practitioners to receive part of the proceeds of the action.

It is settled law in South Africa that a contingency fee must be based on the ordinary fee charged by an attorney.

According to the Law Society of South Africa, the ordinary fee will vary from place to place and will also depend on several factors, such factors being but not limited to:

  • - The amount and importance of the work done;
  • - The complexity of the matter or the difficulty or novelty of the work or the questions raised;
  • - The skill, labour, specialized knowledge and responsibility on the part of the attorney;
  • - The number and importance of the documents prepared or perused, without necessarily having regard to length;
  • - The place where and circumstances in which the services or any part thereof were rendered;
  • - The time expended by the attorney;
  • - Where money or property is involved, its amount or value;
  • - The importance of the matter to the client;
  • - The quality of the work done;
  • - The experience or seniority of the attorney;
  • - Whether the fees and disbursements have been incurred or increased through over-caution, negligence or mistake on the part of the member.

The fee due by the client can then only be calculated regarding documents such as file notes and other proof of the time spent by the lawyer and support staff, the number of photocopies or phone calls made and will include the fees paid to advocates.

The fee calculation is undertaken by a legal cost consultant who looks at the attorney’s files on the matter and itemizes each attendance, phone call, photocopy or consultation with an advocate.

The legal cost consultant will then prepare a bill of costs for the attorney, who then presents it to the client.

If the client accepts the amount charged then that is the end of the matter. If the client is unhappy then the bill relating to litigation must be assessed by a court clerk called a Taxing Master. A Taxing Master (in many instances an admitted attorney or advocate) must, according to legal precedent, steer between “the Scylla of liberality and the Charybdis of niggardliness" i.e. "choose between two evils".

Non-litigious matters are taxed by the local Law Society.

The Act provides that when a success fee is charged, it may not exceed double the ordinary fee – as taxed or agreed – and that the statutory cap is 25% of the capital.

The reportable judgment of Tuchten J (delivered on 05 April 2017 in the Pretoria High Court) in the case of Simon John Nash and Another v Anton Louis Mostert and Others (case no. 43195/2013), confirms the basis on which an attorney may bill a client.

The application was brought by CEO Simon Nash and his company Midmacor Industries (Midmacor) against pension fund curator, Tony Mostert, his law firm AL Mostert & Co, Sable Industries Pension Fund, the Financial Services Board (FSB), and the Registrar of Pension Funds.

Mostert, a senior attorney practising in the financial services sector, is the curator of several pension funds whose surpluses had been stripped years ago using the eponymous Ghavalas Option. He has been successful in recovering nearly R1bn for these pension funds.

In August 2006 Mostert and the FSB entered into an agreement in which Mostert, as curator, would instruct his law firm, AL Mostert & Co, to do all the administrative work for a total ‘contingency fee’ of 33.3% (Mostert and his firm each receiving 16.66% excluding VAT).

According to a report on the Moneyweb site, Mostert has so far recovered R983m, of which (excluding VAT) at 33.3% is R327m and 25% is R245m – a difference of R82m.

Mostert reportedly told Moneyweb that he and his firm will appeal the judgment.

For now, it remains settled law in South Africa that a contingency fee must be based on the ordinary fee charged by an attorney, and that the statutory cap is 25% of such ordinary fee.