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The Road Accident Fund (RAF) welcomes the judgments handed down by the South Gauteng High Court in the matter of The South African Association of Personal Injury Lawyers (SAAPIL) versus the Minister of Justice and the RAF, and the North Gauteng High Court in the matter of De La Guerre versus Ronald Bobroff & Partners, Law Society of the Northern Provinces and the RAF earlier this week.

A contingency fee agreement refers to an agreement where an attorney agrees to provide professional services to a client on the basis that if the client is unsuccessful in the particular proceedings the attorney would not get a fee for his or her professional services, on the other hand, if the client is successful, to the degree agreed between the client and the attorney, the attorney would then be entitled to a "success fee" which could be up to double the attorney’s usual fee, or 25% of the amount recovered if the matter relates to a claim for money, whichever amount is lesser.

In the Fund's experience up to 90% of personal claims lodged are submitted by attorneys, many of whom charge contingency fees far in excess of what is lawful in terms of the Contingency Fees Act. Success fees (contingency fees) paid to attorneys during the 2012 financial year were estimated to be in the region of R4,5 billion, exacerbating the plight of the hardship victims of accidents suffer. 

SAAPIL’s case revolved around three issues:

• It contended that the Contingency Fees Act 66 of 1997 was not intended to be exhaustive, and that attorneys should be allowed to conclude “common law contingency fee agreements” outside the framework of the Contingency Fees Act; alternatively
• The entire Contingency Fees Act is unconstitutional on the grounds that it discriminates against lawyers and their clients; alternatively
• Sections 2 and 4 of the Contingency Fees Act are unconstitutional because they breach various rights contained in the Bill of Rights.

One of the major differences between the alleged “common law contingency fee agreements” and contingency fee agreements under the Contingency Fees Act is that compensation under common law contingency fee agreements would only need to be reasonable (as per the directives of the Law Societies of the Northern Provinces and the Free State), whereas compensation under contingency fee agreements under the Contingency Fees Act are limited to 25% of the capital amount.

RAF intervened in the matter, as part of our mandate is to ensure the greatest possible protection to persons who suffered as a result of motor vehicle accidents.  Success for SAAPIL would have meant that a significant portion of the funds earmarked for road accident victims would be claimed by their legal representatives instead − even beyond the very generous compensation already permitted by the Act.

The Court rejected SAAPIL’s first contention that the Contingency Fees Act is not exhaustive.  The Court considered the background to the development of the Contingency Fees Act and found that the common law in fact prohibited contingency fee agreements between attorneys and their clients, as these were seen to be exploitative and against public policy.

The Legislature had however identified the need to provide for strictly regulated contingency fee agreements.  This need gave rise to the Contingency Fees Act.  No contingency fee agreement could exist outside the ambit of the Contingency Fees Act.

The Court rejected SAAPIL’s second and third contentions that the Contingency Fees Act or portions thereof are unconstitutional. 

The Court found no grounds for the claim that the Contingency Fees Act discriminated against either attorneys or their clients, or that the claimants would suffer any prejudice based on the enforcement of the Contingency Fees Act, or that the Act restricted claimants’ access to justice.

The Court therefore dismissed SAAPIL’s application in its entirety.

In the matter of De La Guerre versus Bobroff, Law Society of the Northern Provinces and the RAF, De La Guerre instituted an application against Bobroff for the following relief:

• That the contingency fee agreement with Bobroff be declared null and void;
• That Bobroff taxes his bill for his professional services;
• That Bobroff refunds De La Guerre the difference between the amount of the contingency fee withheld by Bobroff, and the amount of the taxed bill; and
• That Bobroff pays the costs of the application.

De La Guerre’s claim against the RAF had previously been settled for an amount of R2 538 811.02.  The RAF also paid costs in the amount of R254 347.78 (total amount paid: R2 793 158.8).  Of this total amount paid, De La Guerre only received R1 729 451.11.  Bobroff retained R1 063 707.69.

The Court found that there is no provision for “common law contingency fee agreements”, and that the agreement between De La Guerre and Bobroff is unlawful, as it does not comply with the Contingency Fees Act.

The effect of this judgment is that Bobroff would have to repay a substantial amount to De La Guerre, an amount, according to De La Guerre’s calculations, of approximately R514 772.61.  In addition thereto, Bobroff has to pay punitive costs on the scale as between attorney and own-client.

The two judgments have re-affirmed that there is no “common law contingency fee agreement”, and that contingency fee agreements must conform to the standards contained in the Contingency Fees Act. It is possible that the either SAAPIL or Bobroff, or both may still appeal these judgments.

From a client perspective, all clients of attorneys who concluded "common law contingency fee agreements" would potentially have claims against the particular attorneys/firms. Such claims would be for recovery of the difference between the fee retained by the attorney/firm under the unlawful agreement and the fee that the attorney/ firm could otherwise have lawfully recovered in terms of the limitations imposed by the Contingency Fees Act.

It is also important to note that the judgments have implications not just in respect of third party matters (RAF claims), but apply equally to all other work performed by attorneys on the basis of so-called “common law contingency fee agreements”.

Clients of attorneys/firms who entered into such unlawful agreements are advised to seek legal advice.