Attorneys are often asked to enter into contingency fee agreements by clients who cannot afford legal fees.
In terms of the Contingency Fees Act (“the Act”) of 1997, “normal fees” are those fees normally charges by an attorney/advocate to do legal work for a client.
Contingency fees on the other hand, are fixed fees by an attorney for legal work done for a client. The contingency fee will usually be 25% of the amount awarded to a client in a court case if the client is successful in his/her case. The basis of the agreement between the attorney and his/her client is on a “no-win-no-fee” basis.
An attorney may not simply agree with clients to charge contingency fees. There are strict requirements set down by the Act that must be followed before an attorney can charge contingency fees. If the requirements are not complied with, the agreement is not valid and a contingency fee arrangement cannot exist between the attorney and his/her client.
There must be an explicit agreement between the attorney and his/her client that the fees levied will in terms of a contingency fee agreement and not the fees prescribed by the Law Society.
The agreement must be in writing and signed by both parties.>
The attorney will only be entitled to any fees for services rendered if the matter that he/she is handling for a client is successful. We usually see these types of agreements in Third Party claims (when you were in an accident and claim from the Road Accident Fund.) If the matter is not successful, the attorney will not be paid and will then not be able to give the client a bill – the attorney will have worked for free (the client usually pays for expenses).
In the case of a contingency fee agreement: if the client wins his case, the attorney will be entitled to a portion of the amount that the client has won. Therefore, instead of fees, (sending a statement with itemised items), the attorney will receive a fixed amount and the fixed amount will be determined by the amount awarded to the client. This can have the result that an attorney can get higher fees than he/she is entitled to charge as prescribed by the Law Society.
The Act, therefore, prescribes that if the attorney is going to receive a higher fee (than what he/she is usually entitled to) as a result of the high amount awarded, then that higher fee may not exceed the normal fees that the attorney is entitled to charge by more than 100%.
The Act further prescribes that the attorney’s fee may not be higher than 25% of the total amount awarded to the client. Let’s use an example. If an attorney handles your third party claim and the court awards you R100 000. You and your attorney do NOT enter into a contingency agreement. The attorney delivers you his/her normal bill for work that was done. The attorney’s fee will depend on what work he/she has performed and you will be charged accordingly. However, if you and your attorney have entered into a contingency agreement, his/her fee will be R25 000. The attorney’s fee may not be more than R25000 (25% of the R100 000).
Further requirements for a valid contingency agreement are that the client must have been advised by the attorney that there are other ways to options to finance the legal fees for the litigation costs. An attorney must also have warned the client that, if the client loses and he/she does not have to pay his/her own attorney any legal fees, the client may get a court order against him/her to pay the taxed legal costs on a party and party basis of the winning party.
There is a grave duty on the attorney to also explain to the client that the client will have to pay the attorney 25% of the amount awarded to the client. The parties must be clear in the agreement about constitutes “winning” or “losing” a legal case. It is also very important that the attorney must carefully explain to his/her client the difference between expenses that the client must pay, regardless of whether the case is won or lost and what the difference between fees and expenses are. The attorney and his client must also clearly agree upon what the consequences will be if the client terminates litigation for any reason before its conclusion – what fees will be payable to the attorney.
Other requirements are that the parties must be clear in their agreement about when the client can withdraw from the contingency agreement. The client must understand clearly that notice must be given to the attorney in writing of his/her intention to withdraw from the contingency agreement. The client must especially understand that if he/she withdraws from the contingency agreement, the attorney shall be entitled to the fees and expenses to date of the withdrawal. In this case, the attorney will be entitled to fees on an attorney and client basis (in other words, full fees plus expenses). The client cannot enter into a contingency agreement with an attorney on the basis of “no win, no fee”, let the attorney do legal work and then withdraw from the agreement halfway through and expect to walk away without having to pay the attorney any legal costs. The contingency agreement would only apply (no win, no fee) if the legal case is concluded and the client loses the case.
The contingency fee agreement must be in writing and the client must receive a copy of the agreement on the same date it is signed.
If the legal case is settled between the parties, there are more requirements that the attorney must follow. Inter alia the attorney and the client must both file an affidavit at court, if the matter was before the court (sometimes matters get settled before the parties get to court) which must contain certain information. In summary, the attorney must state that the client was explained the contents of a settlement and how it will impact on the contingency fees. The client must, inter alia, state that he/she accepts and agrees with the settlement agreement and the fees that the attorney will charge. We will not discuss the other requirements here as settlement agreements are not the topic of this article.
Clients must understand that a contingency fee agreement is a carefully regulated agreement and must not allow an attorney or any other person that they enter into such an agreement to charge more than they would have been entitled. Nearly all contingency fee agreements are entered into between attorneys and their clients in claims against the Road Accident Fund, or medical negligence claims. The attorney will carry all the expenses and costs up to date of trial, or settlement before and then the attorney will take his/her fee from the client’s amount awarded. It has been all over the newspapers over the years of how some attorneys take more from their clients than they should. It doesn’t mean that the attorney must always get 25% of the client’s awarded fees. The court said very recently in Masango v Road Accident Fund 2016(6) SA 508(G), that the Contingency Fees Acct did not mean that an attorney can charge 25% at all times, as the 25% was merely set as the maximum the attorney can charge in a contingency fee agreement. The attorney must have delivered the services to make him/her entitled to the full 25% of the client’s awarded claim.
Clients are warned to approach contingency fee agreements with caution. Read the fine print carefully and take note of your rights to withdraw from the agreement (with consequences) at any time, as well as the other requirements that must be complied with for a contingency fee agreement to be valid.
