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IN THE HIGH COURT OF SOUTH AFRICA

EASTERN CAPE DIVISION, GRAHAMSTOWN

CASE NO: 2946/2017

Date heard: 23 August 2018

Date delivered: 18 September 2018

In the matter between:

AVELA MABUTI MATHIMBA                                                                          First Applicant

AVELA MABUTI MATHIMBA N.O.                                                             Second Applicant

PHILIP THOMAS WEST N.O.                                                                        Third Applicant

and

ZUKO  MACK MICHAEL NONXUBA                                                         First Respondent

NONXUBA INCORPORATED                                                               Second Respondent

IAN TERRY DUTTON                                                                                Third Respondent

 

JUDGMENT

 

LOWE, J:

INTRODUCTION

[1] This comes before the Full Bench of this Court by way of an order in terms of Section 14(1)(b) of the Superior Courts Act but sitting as a Court of first instance.

[2] The matter had previously been argued, at least in part, before Msizi AJ she making the following order:

“1. THAT the application be and is hereby postponed sine die.

2. THAT the costs occasioned by the postponement be and are hereby reserved.”

I will return hereto in due course.

[3] The genesis of this entire matter comes from two actions for damages by the First Applicant against respectively the RAF and MEC for Health, Eastern Cape.  Second Respondent represented by First Respondent acted as attorneys of record for the First Applicant in both actions.  Third Respondent was First Applicant’s counsel in only the MEC matter.

[4] First Applicant was successful in both matters.  It is common cause that Second Respondent financed the entire cost of both actions.

[5] In his founding affidavit First Applicant sets out the background to the matter, he having been a victim of a road accident on 10 September 2004 in which he sustained serious injuries.  He explains how it came about, that he employed the services of First Respondent to pursue both claims.  As against the MEC he was awarded R6,977,105.84 in terms of the judgment of the Full Bench date 27 November 2013.  His claim against the RAF was settled on 5 June 2013 in the sum of R2,550,548.60.

[6] After receipt of the amounts awarded to the First Applicant in both matters, the Second Respondent deducted the fees and disbursements that it considered due to it.  First Applicant disputed that the fees and disbursements deducted were reasonable.

[7] First Applicant explained the difficulties experienced by him to obtain payment of the damages awarded to him, from First and Second Respondents, he alleging that it was during these attempts that it came to his knowledge that First and Second Respondents were claiming fees based on a contingency agreement.  He contended that the alleged contingency agreement concluded with Second Respondent in the RAF matter was clearly invalid and that concluded in the MEC matter was similarly invalid for want of compliance with the Contingency Fees Agreements Act 66 of 1997 (the Act).

[8] In due course, First and Second Respondents accepted that the RAF contingency agreement did not comply with the Act and was void.  They tendered to have a new bill taxed and allocated at the earliest opportunity to pay the amount due to the Trust, that had been created by order of Court for First Applicant.

[9] Again in summary eventually First and Second Respondents accepted that the alleged Contingency Fees Agreement in the MEC matter (AM15) did not apply to their fees and contended that this Contingency Fees Agreement governed the third Respondent’s entitlement to fees in the MEC matter.  They tendered to take all the necessary steps to have a new bill taxed at the earliest moment.

[10] It is Applicants’ case however that the MEC Contingency Agreement AM15 is either partially or wholly invalid for the reason set out in the affidavits.

[11] On the day of the order referred to in [2] above, and as appearing hereinafter in more detail, Applicants and First and Second Respondents purported to have reached a settlement agreement – this later however was disputed by Applicants claiming that interest should have been included therein.

[12] The matter thus raises three issues:

[12.1]  Whether a settlement agreement was concluded between Applicants and First and Second Respondents concerning all disputes between them;

[12.2]  If not, a resolution of the application is required as between Applicants and First and Second Respondents;

[12.3]  In any event the contingency fee issue raised between Applicants and Third Respondent (not implicated in the settlement agreement adverted to above).

[13] I will deal with this in the same order below.

 

THE SETTLEMENT AGREEMENT ISSUE (APPLICANTS AND FIRST AND SECOND RESPONDENTS)

[14] The matter was initially set down for hearing on the 09 November 2017.  According to the Notice in terms of Rule 15A of the Joint Rules of Practice Applicants were to seek relief in terms of the notice of motion.  The following are the prayers that Applicants sought in the Notice of Motion dated 22 June 2017:

“CLAIM A:

1. That the contingency fee agreement entered into between the 1^st Applicant and the First – Second Respondents in respect of fees payable by the Applicant to the First - Second Respondents in pursuance of the 1^st Applicant’s claim against the Road Accident Fund in respect of the 1^st Applicant’s claim arising from injuries sustained by him in a motor vehicle accident under case number 1807/10 in the High Court of South Africa (Mthatha Local Division), a copy of which is attached to the founding affidavit marked “AM37”, be declared invalid, void and of no force and effect.

2. That the taxation of the First – Second Respondents’ attorney and client bill of costs in the said matter be set down within fourteen (14) days of the date of the order of this Court.

3. That the First – Second Respondents be ordered to pay the 1^st Applicant, alternatively 2^nd – 3^rd Applicants, the sum of R2 555 548.60 (Two Million Five Hundred and Fifty Five Thousand Five Hundred & Forty Eight Rand  and Sixty Cents) which was awarded  to the 1^st Applicant as damages in case no: 1807/10 between the 1^st Applicant and the Road Accident Fund, less the amount of R1 181 478.15 (One Million One Hundred and Eighty One Thousand, Four Hundred and Seventy Eight Rand and Fifteen Cents) paid by First – Second Respondents to the 1^st Applicant on 7 October 2016, less the amount taxed and allocutured in the First – Second Respondents’ attorney and client bill of costs in that matter, such payment to be made on the day following the endorsement of the allocatur on the said bill of cost.

4. That the First-Second Respondents be ordered to pay the 1^st Applicant, alternatively 2^nd – 3^rd Applicants, interest on the amount of R2 555 548.60 (Two Million Five Hundred and Fifty Five Thousand Five Hundred and Forty Eight Rand and Sixty Cents) at the prevailing legal rate from a date fourteen (14) days after the order “AM2” up to and including 7 October 2016.

5. That the First –Second Respondents be ordered to pay the 1^st Applicant, alternatively 2^nd – 3^rd Applicants, interest on the amount of R1 374 070.45 (One Million Three Hundred and Seventy Four Thousand Seventy Rand and Forty Five Cents) at the prevailing legal rate from 8 October 2016 until the date of payment thereof.

6. That the First – Second Respondents be ordered to deliver to the 1^st Applicant, alternatively 2^nd – 3^rd Applicants, all files relating to case no. 1807/10 in the matter between the 1^st Applicant and the Road Accident Fund within five days of taxation.

7. That the First – Second Respondents be ordered to pay the costs of the application jointly and severally and, if opposed, on the scale as between attorney and client.

8. Further and/or alternative relief.

 

CLAIM B:

9. That the contingency fee agreement entered into between the 1^st Applicant and First – Third Respondents in respect of fees payable by the 1^st Applicant to them in pursuance of the 1^st Applicant’s claim against the Member of the Executive Council for Health, Eastern Cape, in the respect of the 1^st Applicant’s medical negligence claim arising from his treatment in hospitals of the MEC under case no. 2259/09 in the High Court of South Africa (Mthatha Local Division) and on appeal to the Full Bench of that Court, a copy of which is annexed to the founding affidavit marked “AM15” be declared invalid, void and of no force and effect.

10. In the alternative to the aforegoing, that the contingency fee agreement “AM15” be declared invalid with regard to the fees of First – Second Respondents in the trial and in the appeal in the case no. 2259/09 between the Applicant and the MEC for Health in the High Court of South Africa (Mthatha Local Division) and with regard to the fees of the Third Respondent in the said trial.

11. In the further alternative that the aforementioned contingency fee agreement be declared invalid with regard to the fees of First – Second Respondents in all the proceedings in case no. 2259/09.

12. In the alternative that the aforementioned contingency fee agreement be declared invalid with regard to all proceedings in case no. 2259/09 save for the appeal proceedings.

13. That the taxation of the First – Second Respondents’ attorney and client bill in case no. 2259/09 be set down within fourteen (14) days after the date of the order of this Court.

14. In the event that the above Honourable Court grants relief in terms of the above prayers 10-12, that the above Honourable Court declares that the total fees of the 1^st and 2^nd Respondent plus the success fee of the 3^rd Respondent may not exceed 25% of the capital amount awarded to the 1^st Applicant in case no. 2259/09.

15. That the First-Second Respondents be ordered to pay to the 1^st Applicant, alternatively 2^nd – 3^rd Applicants, the capital sum of R6 977 105.84 (Six Million Nine Hundred and Seventy Seven Thousand One Hundred and Five Rand and Eighty Four Cents) awarded to the Applicant as damages in case no. 2259/09 plus the amount of R1 237 472.85 (One Million Two Hundred and Thirty Seven Thousand Four Hundred and Seventy Two Rand and Eighty Five Cents)  and R106 580.69 (One Hundred and Six Thousand Five Hundred and Eighty Rand and Sixty Nine Cents) being the taxed and allocated (5 April 2016) party and party costs in respect of the trial and appeal in case no. 2259/09 less the capital amount of R2 211 657.14 (Two Million Two Hundred and Eleven Thousand Six Hundred and Fifty Seven Rand and Fourteen Cents) paid by the First – Second Respondents to the Applicant on 7 October 2016, less than amount taxed and allocated in the First – Second Respondents attorney and own client bill of costs in case no. 2259/09, such payment to be made and the day following the endorsement of the allocatur on the said bill of costs.

16. That the First-Second Respondents be ordered to pay to the 1^st Applicant, alternatively 2^nd – 3^rd Applicants, interest on the amount of R6 977 105.84 (Six Million Nine Hundred and Seventy Seven Thousand One Hundred and Five Rand and Eighty Four Cents) from a date fourteen (14) days after the date of the order of the Trial Court in case no. 2259/09, such interest to abate in accordance with the amounts paid as set out in paragraph 14 above.

17. That the First – Third Respondents be ordered to pay the costs of this application jointly and severally and in the case of the 1^st and 2^nd Respondents on the scale as between attorney and client.

18. Further and/or alternative relief.”

[15] In their answering affidavit First and Second Respondents indicated their intention to file a supplementary affidavit once bills of costs had been finalized by their costs consultants.  It appears from First and Second Respondents’ supplementary affidavit dated 02 November 2017 that although the bills of costs were received by them on the 18 October 2017 there were logistical difficulties regarding necessary consultations with the representative of the tax consultants and First and Second Respondents’ legal team.  Eventually consultations took place culminating in the final version of the bill of costs being produced on 01 November 2017, hence the supplementary affidavit could only be filed on the 03 November 2017, less than a week before the date on which the matter was to be heard.

[16] In the said supplementary affidavit First and Second Respondents made an unequivocal admission of liability in the following terms:

“14. In light of the above figures (calculations by the costs consultants) the respondents are liable to the first applicant for the following sums:

14.1 In relation to the RAF matter, the payment of the sum of R1,176,892.33 (R2,555,548.60 – R1,181,478.15 – R197,178.12), together with interest on this sum;

14.2 In relation to the MEC matter, the payment of the sum of R3,254,401.36 [R6,977,105.84 + R1,237,472.85 + R106,580.69] – R2,211,657.14 – R2,855,100.88] together with interest on this sum.

15. From these sums, the amount of R347,623.04 falls to be deducted.  This is the total of the sums advanced by the respondents to the first applicant and the medical costs paid for by the respondents on the first applicant’s behalf.

16. The respondents therefore admit liability to the first applicant for R4,083,670.65 together with interest thereon.

17. The respondents tender the immediate payment to the second and third applicants on behalf of the first applicant.

18. To the extent that the first applicant does not accept this tender and requires the revised bills of costs to be taxed, the respondents tender the taxation of these bills and the payment of any additional sums as may be found to be due to the first applicant.

19. The respondents also tender the applicants costs of this application on an attorney and client scale.”

[17] On 08 November 2017, a day before the hearing of the matter First and Second Respondents filed a further supplementary affidavit in which the following is stated:

“5. I attach hereto as “SA1” and “SA2” letters, dated 03 November 2017 and 06 November 2017 respectively and dressed by Ms Miko Louw of H van Dyke Attorneys (the cost consultant that prepared the bills of cost annexed to the supplementary affidavit).  I confirm that the contents of both letters are true and correct.

6. As appears from “SA1” there is an amount of R164 039.50 which falls to be deducted from the tender.  This amount represents the total deductible disbursements for the preparation of the party and party bills of costs and the attorney and client bills of costs as set out in “SA1”.

7. As appears from “SA2” there is a further amount totalling R301 723.81 which also falls to be deducted from the tender.  This amount is made up as follows:

7.1 an amount of R138 530.02 which I paid, on 1 April 2016, on behalf of the applicant, to Dr Ronel Gowar in respect of surgery undergone by the applicant to repair a pressure ulcer/bladder fistula.  I refer to the quote of Dr Ronel Gowar dated 29 March 2016, annexed to “SA2” which sets out further details of how the amount of R138 530.02 is made up;

7.2 an amount of R151 578.90 which I paid, on 1 April 2016, on behalf of the applicant, to the Association for Persons with Disabilities Nelson Mandela Bay, in respect of an electrical hospital bed, a Roho cushion and a stand up motorised wheel-chair.  I refer to the quote, dated 15 March 2016, from the Association for Persons with Disabilities, Nelson Mandela Bay which sets out further details as to how the amount of R151 578.90 is made up;

7.3 an amount of R11 614.89 that was taxed and allowed on 6 April 2017 in respect of the curator application that I brought on behalf of the applicant.  This amount represents the costs that are owing by the applicant, in respect of the curator application.

8. In the circumstances, the tender falls to be deducted by an amount of R465 763.31 (R164 039.50 + R301 723.81).

9. In the circumstances, I and the second respondent tender to make payment to the first applicant of an amount of R3 617 907.34 (R4 083 670.65 – R465 763.31).”

[18] On 9 November 2017 the parties were ready to argue the matter, in which the Applicants intended to seek the orders in terms of the Notice of Motion.  It appears from the papers that First and Second Respondents’ tender had been rejected.  With regard to the tender contained in the First and Second Respondents’ supplementary affidavit dated 2 November 2017 Applicants had rejected it in an email dated 7 November 2017 addressed by Applicants’ attorneys to First and Second Respondents’ attorneys in which Mr Phil West said:

“We have considered the matter, the contents of your client’s supplementary affidavit and heads of argument as well as that of the 3^rd respondent.  We have taken instructions from our clients.  We will proceed with argument on Thursday 9 November 2017.”

[19] There was no response from the Applicants’ attorneys to the First and Second Respondents’ reduced tender contained in their further supplementary affidavit dated 8 November 2017.  It is clear that this was also rejected.  It was, in any event, a correction of the first tender rather than a new tender.

[20] The matter did not proceed immediately on 9 November 2017 as the learned Judge who was going to hear the matter was still busy with another matter.  The unavailability of the Judge to immediately hear the matter became a catalyst for settlement negotiations between the Applicants and the First and Second Respondents through their legal representatives.

[21] Those negotiations underwent various stages of development taking the better part of the morning of 9 November 2017.  A hand written draft agreement was drafted by First and Second Respondents’ Junior Counsel.  This was followed by a typed draft order containing a number of corrections made in manuscript.  Ultimately on the same day a purported agreement was reached between the parties (Applicants and First and Second Respondents) in the form of a draft order (JA4) reading as follows:

“By agreement between the applicants and the first and second respondents, the following order is made:

1. the second respondent shall within 30 days of the date of this order pay the sum of R3 617 907.34 plus R75 000.00 to the applicants;

2. the payment referred to in paragraph 1 of this order is in full and final settlement of the application against the first and second respondents and of any claim or claims that any one or more or all of the applicants have against the first and/or the second respondents;

3. on payment of the amounts referred to in paragraph 1 of this order, the applicants shall withdraw the application against the first and second respondents;

4. the second respondent will pay the applicants’ costs of this application on the attorney and client scale either as taxed or as may be agreed up to and including 02 November 2017;

5. the second respondent will pay 50% of the applicants’ costs on the attorney and own client scale in respect of the hearing on 9 November 2017.”

[22] The above terms are not in dispute and none of the terms encapsulated above are being challenged by any of the parties.  The only dispute is whether these terms constituted an agreement reached in full and final settlement of the matter an agreement having been reached in the terms set out, or whether interest was to have been or should have been included therein. 

[23] Part of the genesis of this dispute is that after the “agreement” was reached on the above terms, the First and Second Respondents’ legal team was released by the Applicants’ legal team on the understanding that a local correspondent, Mr Nettleton, would together with the Applicants’ legal team approach the Judge to make the draft order (JA4) an order of Court.  Applicants’ attorney, Mr West apparently subsequently realized that interest on the payment sum was not provided for, this after Respondents’ team had left Grahamstown but before JA4 was in fact made an order of Court.  Mr West then declined his agreement previously given to the draft being made an order. 

 

INTEREST ON MONEY IN AN ATTORNEYS TRUST ACCOUNT

[24] The nature of the dispute around this “agreement” being interest claimed by the Applicants from the First and Second Respondents requires that the interest that is at the centre of the dispute be defined and properly contextualized. 

[25] In the contextualization the starting point is the Attorneys Act 53 of 1979 (the Act).  It is common cause that the money at the centre of the dispute was paid by the Road Accident Fund in the RAF matter and the Department of Health in the MEC matter into the trust account of the Second Respondent.  The Act defines a trust account as follows: trust account, in relation to a practising practitioner, means an account comprising –

“(a) that practitioner’s trust banking account referred to is section 78 (1); and

(b) any trust savings or other interest-bearing account referred to in section 78 (2) or (2A) opened by that practitioner.”

[26] Section 78 of the Act provides as follows:

“78 Trust accounts

(1) Any practising practitioner shall open and keep a separate trust banking account at a banking institution in the Republic and shall deposit therein the money held or received by him or her on account of any person.

(2) (a) Any practitioner may invest in a separate trust savings account or other interest-bearing account opened by him or her with any banking institution or building society any money deposited in his or her trust banking account which is not immediately required for any particular purpose.

(b) Any trust savings or other interest-bearing account referred to in paragraph (a) shall contain a reference to this subsection. 

(2A) Any separate trust savings or other interest-bearing account –

(a)   which is opened by a practitioner for the purpose of investing therein, on the instructions of any person, any money deposited in his trust  banking account; and

(b)   over which the practitioner exercises exclusive control as trustee, agent or stakeholder or in any other fiduciary capacity,

shall contain a reference to this subsection.

(3) The interest, if any, on money deposited in terms of subsection (1) and the interest on money invested in terms of subsection (2) shall be paid over to the fund by the practitioner concerned at the prescribed time and in the manner prescribed.

(4) Any practising practitioner shall keep proper accounting records containing particulars and information of any money received, held or paid by him or her for or on account of any person, of any money invested by him or her in a trust savings or other interest-bearing account referred to in subsection (2) or (2A) and of any interest on money so invested which is paid over or credited to him or her.”

[27] The Act envisages at least two situations in respect of interest on money that is in an attorney’s trust account.  The interest accruing thereto is either paid to the Attorney Fidelity Fund or the interest is for the attorney’s client’s account.  In Tollemache v Attorneys Fidelity Fund[1] Cleaver J explained the circumstances in which these two scenarios may arise in the following terms:

“• In terms of section 78 (1), any practising practitioner is obliged to open  and keep a separate trust banking account at a banking institution in the Republic and to deposit therein the money held or received by him on account of any person.  This is an attorney’s normal trust account and the interest earned on this account is paid to the Fund (section 78(3)).

• In terms of section 78(2)(a) a practitioner may invest in a separate trust savings or other interest-bearing account opened by him with any banking institution or building society any money deposited in his trust banking account which is not immediately required for any particular purpose.  Interest earned on any such account is paid to the Fund (section 78(3)) and since the attorney is dealing with trust funds which have been pooled in his trust account, no authority is required from any client to open such an account.  The section permits interest to be earned for the benefit of the Fund at a higher rate than would be earned on the normal trust account and attorneys have over the years been encouraged to make use of this section so as to build up the resources of the Fund.

• Section 78(2A) makes provision for specifically identified funds to be invested for the benefit of a client.  The section reads:

‘(2A) Any separate trust savings or other interest-bearing account –

(a) which is opened by a practitioner for the purpose of investing therein, on the instructions of any person, any money deposited in his trust banking account; and

(b) over which the practitioner exercises exclusive control as trustee, agent or stakeholder or in any other fiduciary capacity,

shall contain a reference to this subsection.’

If a client instructs his attorney to deposit monies to a section 78(2A) account, this would in ordinary parlance be an instruction to invest the money for the client’s benefit.”

[28] It is not clear on the papers into which category the balance of the capital that had not yet been paid to the First Applicant falls.  Clarity begins and ends with the fact that the money was in a trust banking account.  The nearest the First and Second Respondents come to clarifying this issue is in First Respondent’s affidavit deposed to on 27 August 2013 which was in support of an application for the appointment of a curator ad litem.  At paragraph 5 of that affidavit the First Respondent said:

“5. Accordingly, although currently only the damages from the Road Accident Fund have been received and are presently in an interest bearing trust account, and payment of the damages due and payable from the MEC are presently being awaited, the Respondent presently has an entitlement to significant financial resources.”

[29] As set out above, in terms of the Act two types of the interest bearing trust accounts are envisaged.  It is not clear which interest bearing trust account the First Respondent was referring to in his affidavit.  To add to the confusion, when the tender was made by the First and Second Respondents in the supplementary affidavit for payment of “R4 083 670.65 together with interest thereon” it is not clear what interest was referred to.  It is equally not clear on the papers whether or not the money was actually invested in a Section 78(2A) interest-bearing trust account.

[30] If the money was in fact invested in Section 78(2A) interest-bearing trust account, then, as a matter of law the interest would have accrued to the First Applicant, in the same way that the balance of the capital did.

[31] Section 78(4), (5) and (6) of the Act make it clear that proper accounting records in respect of that money must be kept and that money must be properly accounted for.   A general offer for payment of interest on the balance of the capital such as is contained in the First and Second Respondents’ supplementary affidavit does not alter this position.  Again it must be emphasised that it is not clear whether First and Second Respondents were tendering Section 78(2A) interest or ordinary mora interest.

[32] The legislature created a monitoring mechanism over all money in an attorney’s trust account whether that money is held in a Section 78(1)(2) or (2A).  Therefore the First and Second Respondents, even by agreement with the First Applicant, are bound by the Act and cannot avoid accounting for that interest on the money.  All that is required is for the First and Second Respondents to comply with Section 78 of the Act by accounting in full to the First Applicant in respect of the capital amounts received from the Road Accident Fund and from the Department of Health.  They must also fully account in respect of the interest so earned.  This, as I understand Mr Subel SC’s argument when this was raised by the Court, was conceded in principle and it was accepted that any interest which had accrued in terms of Section 78(2A) must be paid to Applicants whether referred to in a settlement agreement or not.

[33] Insofar as interest is concerned an accounting would entail First and Second Respondents providing First Applicant with all the accounting records that would show that the money was either in an ordinary trust account or an interest-bearing trust account and therefore the interest thereon paid to the Attorneys Fidelity Fund.  Those accounting records would show if the money was invested in a Section 78(2A) interest-bearing trust account in which case the interest became part of the money due to Applicants together with balance of the capital.

 

IS THE “AGREEMENT” A BINDING AGREEMENT?

[34] I now turn to deal with the dispute about whether the negotiations between the parties on the 9 November 2017, (between the Applicants and First and Second Respondents legal representatives) resulted in the matter being settled in the terms set out in JA4.  In their heads of argument filed on the 3 August 2018 Applicants significantly made the following submission:

“8 The application was settled between applicants and first and second respondents on the date of the hearing, 9 November 2017 (Record 669 – 670)”

[35] Pages 669-670 contains annexure “JA4” being the draft order that was agreed to by the parties which is silent on the issue of the interest.

[36] The First and Second Respondents also filed supplementary heads of argument on the 7 August 2018.  With reference to “JA4” the following submission is made:

“7.8 The final version of the typed-up draft order was then given by Attorney Antunes to Attorney West.  After scrutinizing it, Mr West confirmed his agreement to the contents thereof.

7.9 Attorney Antunes and West then agreed that the first and second respondents’ counsel and Attorney Antunes could return to Port Elizabeth to catch their flights, which they did

7.10 Significantly, not once during the protracted negotiations over the terms of the agreement did Attorney West mention the second respondent being liable for interest in addition to the amounts referred to in the draft order.  This included during Attorney West’s scrutiny of the manuscript note containing the additional paragraphs 4 and 5 requested by him; and Attorney West’s scrutiny of the final version of the typed draft order.”

[37] On both submissions there was agreement on the fact that the matter had been settled and that agreement is recorded in “JA4”.  That is not being disputed, at least not on any cogent basis by Mr West.  His contention is that firstly the background of the matter, and more specifically the tender of the First and Second Respondents in their supplementary affidavit, contained specific reference to interest as being part of the tender.  The second reason is contained in Mr West’s email dated 10 November 2017 annexed to Mr Antunes supplementary affidavit as “JA8”.  At paragraph 6 of the said email it is said:

“During the abovementioned process, we specifically reminded you of your clients’ tender in relation to the interest and costs.”

[38] Put otherwise Mr West appears to rely mainly on the tenders, and his disputed reference to same during the negotiations, for his assertion that this must be or should have been included in the agreement.  On a careful reading of his affidavit one seeks in vain for any explanation as to why this was not included in the agreement in fact.  This is denied by Mr Antunes.  Both of these grounds are irrelevant for the determination of whether agreement was reached or not.  Even if it is accepted that the negotiations took place on the basis of the tender that the First and Second Respondents had made which the Applicants had rejected and even if the interest had been mentioned, during the negotiations, as Mr West contends, all of that does not change the fact that an agreement was in fact reached which specifically omitted to mention interest.

[39] Negotiations, by their very nature, take place not in a vacuum but in light of the history of the matter up to the point at which parties decide to negotiate.  The real question is what is the legal position in relation to a situation where parties enter into negotiations culminating in agreement being reached, but thereafter one of the parties claim to have omitted a term that is important to him or her.  Does that mean that agreement was not reached?

[40] In his heads of argument Mr Van der Linde SC, counsel for Applicants contends that in such circumstances the First and Second Respondents are precluded from relying on the “oversight” as follows: 

“13. The negotiations proceeded on the basis of First and Second Respondents’ tender aforesaid.  Their attorney was aware thereof.

14. Their attorney was aware of the background to the matter and the delay in payment of the capital and both the RAF and MEC matters.  He would have been aware that interest on the capital was substantial.

15. In these circumstances First and Second Respondents’ attorney knew that the non-inclusion of the interest was an oversight.  He is in law therefore not entitled to rely thereon.  See: Slavin’s Packaging LTD v Anglo African Shipping 1989 (1) SA 337 (W) and Hartog v Colin & Shields 1939 (3) ALL ER 556.” 

[41] This is the only paragraph on the legal basis for which Applicants contend and no other basis is suggested.

[42] On the papers on the Plascon-Evans test it is clear that it must be accepted that interest was never discussed during the negotiations that day.  The attempt by Mr West to rely on the tender which included interest ignores the fact that the tender had been rejected by the Applicant.  The assertion by Mr West that during the negotiations process Mr Antunes was specifically reminded about the First and Second Respondents’ tender in relation to interest is denied in unequivocal terms by Mr Antunes and had this been so it is extraordinary that it was not included therein but was omitted for some reason not explained.  On the Plascon-Evans test Mr West’s version herein must be rejected.

[43] To the extent that there are in fact issues in dispute as to what passed between Mr Antunes and Mr West leading up to JA4 this must be dealt with in the usual way.  In Rhodes University v Student Representative Council of Rhodes University and Others[2], I said the following:

“[68] It should be emphasized that whilst generally undesirable to attempt to decide an application on affidavit where there are material facts in dispute, it is equally undesirable for a court to take all disputes of fact at face value which would enable a Respondent to raise fictitious issues of fact in avoidance. It is necessary then to examine the alleged disputes and determine whether they are real or can be satisfactorily resolved without the aid of oral evidence.

[69] In Wightman t/a JW Construction v Headfour (Pty) Ltd and Another [2008] ZASCA 6; 2008 (3) SA 371 (SCA) [13] the following was said: “A real genuine and bona fide  dispute of fact can exist only where the court is satisfied that the party who purports to raise the dispute has in his affidavit seriously and unambiguously addressed the fact said to be disputed. There will of course be instances where a bare denial meets the requirement because there is no other way open to the disputing party and nothing more can be expected of him.  But even that may not be sufficient if the fact averred lies purely within the knowledge of the averring party and no basis is laid for disputing the veracity or accuracy of the averment. When the facts averred are such that the disputing party must necessarily possess knowledge of them and be able to provide an answer (or countervailing evidence) if they be not true or accurate but, instead of doing so, rests his case on a bare or ambiguous denial, the court would generally have difficulty in finding that the test is satisfied.  I say generally because factual averments seldom stand apart from a broader matrix of circumstances, all of which need to be borne in mind when arriving at a decision. A litigant may not necessarily recognize or understand the nuances of a bare or general denial as against a real attempt to grapple with all relevant factual allegations made by the other party. But when he signs the answering affidavit, he commits himself to its contents, inadequate as they may be, and will only in exceptional circumstances be permitted to disavow them.”

[70] As in this matter neither party sought the referral of disputes to oral evidence.  I am entitled to deal with the application on the undisputed facts. Thus if notwithstanding that there are facts in dispute, I am satisfied that Applicant is entitled to relief in view of the facts stated by Respondents together with the facts in Applicants’ affidavits, which are admitted or have not been denied, I am entitled to make an order giving effect to such finding.  The onus plays no role in this. In so doing a robust approach may be taken in certain circumstances to decide the issues on the affidavits.  This must be cautiously adopted as the disputes on affidavit in an application should not be settled on the probabilities solely.  In practice a robust approach is adopted only where the allegations on one or other side, are so clearly false or intrinsically improbable that a court could say that an oral hearing would not disturb the balance of probabilities. Civil Procedure in the Supreme Court:  Harms  B56-B-64”.

This matter is no different and must be dealt with as set out above. 

[44] Further and as pointed out in National Scrap Metal (Cape Town) v Murray & Roberts[3] Leach JA said the following:

“[21] These factors, particularly collectively, do cast a measure of doubt on the appellants’ version, which is certainly improbable in a number of respects. However, as the high court was called on to decide the matter without the benefit of oral evidence, it had to accept the facts alleged by the appellants (as respondents below) unless they were ‘so far-fetched or clearly untenable that the court is justified in rejecting them merely on the papers.  An attempt to evaluate the competing versions of either side is thus both inadvisable and unnecessary as the issue is not which version is the more probable but whether that of the appellants is so far-fetched and improbable that it can be rejected without evidence.

[22] As was recently remarked in this court, the test in that regard is ‘a stringent one not easily satisfied’.  In considering whether it has been satisfied in this case, it is necessary to bear in mind that, all too often, after evidence has been led and tested by cross examination, things turn out differently from the way they might have appeared at first blush.  As Megarry J observed in a well-known dictum in John v Rees and Others; Martin and Another v Davis and Others; Rees and Another v John [1970] 1 Ch 345 ([1969] 2 All ER 274 (Ch)) at 402 (Ch) and 309F (All ER):

‘As everybody who has anything to do with the law well knows, the path of the law is strewn with examples of open and shut cases which, somehow, were not; of unanswerable charges which, in the event, were completely answered; of inexplicable conduct which was fully explained; of fixed and unalterable determinations that, by discussion, suffered a change.’ “

[45] If interest had been thought of, discussed or even mentioned, it would have led to the obvious issues like the rate of interest which would have had to be discussed.  It would have led to discussions about the date on which such interest was to be reckoned.  All of this would surely have resulted in the agreement about those issues being reflected on the terms of the agreement.  Mr West accepts that these, pivotal to interest as they are, were not discussed and provides no reason as to why these were not included.

[46] During argument, Mr Subel SC who appeared for the First and Second Respondents submitted that:

[46.1] There is nothing in this affidavit that it is factually such as to satisfy Court that what is in the draft order was incomplete and that one must commence on the basis of the common cause version of both parties that the order evolves from FA2, FA3, FA4 and that the Applicants’ representatives had left Court on the basis of FA4.

[46.2] The only debate that could arise, if there were facts supporting the Applicants, is whether that is the whole story, or whether there was by error or omission something that was further in addition agreed to, but omitted. 

[46.3] Mr Subel SC summarised as follows:

(a) The common cause version is that there was an agreement reached.

(b) There was agreement on the terms set out in FA4.

(c) There are no facts to demonstrate that FA4 was incomplete, or that there had been an error in not recording something that had been agreed upon.

[47] The version on affidavit which I consider is correctly set out in Mr Subel SC’s heads of argument in summary is as follows:

“6. Attorney Antunes has cogently and comprehensively set out the first and second respondents’ version explaining why the application between the applicants and the first and second respondents has been settled.

7. Attorney Antunes’ version is as follows:

7.1 The first and second respondents made a tender to settle the application in its supplementary affidavits filed on 2 and 8 November 2017.  The tender was to make payment of the sum of R3,617,907.34, together with interest thereon.

7.2 That tender was not accepted either before or during the negotiations between the parties at the hearing on 9 November 2017.

7.3 Whilst the matter was standing down for hearing on 9 November 2017, detailed and lengthy without prejudice negotiations took place between Attorney West and Attorney Antunes.

7.4 Attorneys Antunes and West reached agreement.   The agreement was recorded in the first three paragraphs of a manuscript note.  In essence, the agreement was that:

7.4.1 Second respondent would pay the applicant the sum of R3,617,907.34 (the amount tendered in the supplementary affidavits), and the sum of R75,000 (a contribution to the applicants’ costs incurred in opposing the taxation of the second respondent’s bills of costs;

7.4.2 The above payment would be in full and final settlement of the matter;

7.4.3 On payment of the above sums, the application would be withdrawn.

7.5 After considering the manuscript notes, Attorney West said that in addition to the terms of the agreement contained in paragraphs 1 to 3 of the manuscript note, the applicants also required a contribution to their costs in this application.

7.6 Paragraphs 4 and 5 were then added to the manuscript to provide for the contribution to the applicants’ costs in this application. A debate ensured about the date to which the second respondent would be liable for the costs of the application.  The parties agreed that the date would remain 2 November 2017, which it did.

7.7 Attorney Antunes and West then agreed that the manuscript note (containing all 5 paragraphs) should be typed up as a draft order to be taken by agreement between the parties.  The manuscript note was typed up.  The typographical errors contained therein were corrected. 

7.8 The final version of the typed-up draft order was then given by Attorney Antunes to Attorney West.  After scrutinizing it, Mr West confirmed his agreement to the contents thereof.

7.9  Attorneys Antunes and West then agreed that the first and second respondents’ counsel and Attorney Antunes could return to Port Elizabeth to catch their flights, which they did.

7.10 Significantly, not once during the protracted negotiations over the terms of the agreement did Attorney West mention the second respondent being liable for interest in addition to the amounts referred to in the draft order.  This included during Attorney West’s scrutiny of the manuscript note containing the first 3 paragraphs;  Attorney West’ scrutiny of the manuscript note containing the additional paragraphs 4 and 5 requested by him;  and Attorney West’s scrutiny of the final version of the typed draft order.

8. Under a reservation of both parties’ rights as to whether the application has become settled, the second respondent has paid the applicants the sum of R3,617,907.34.”

[48] The Applicants’ version on the settlement agreement and its contents is obtuse.   It seems that Mr West initially accepts that the matter as between Applicants and First and Second Respondents was indeed settled but contends for a term that Second Respondent is liable for interest on the capital amount of R3,617,907.34.   As pointed out for First and Second Respondents in argument it appears on a reading of Mr West’s supplementary affidavit that somehow during the conclusion of the “agreement” the parties (through their attorneys) somehow agreed that interest was payable on the capital, as First and Second Respondents had previously tendered this on the capital in the earlier affidavits, and that the “real intention” of the parties was to include that tender in the draft order.    In argument Applicants advance the one short paragraph contention that there is a “dispute” as to whether the “minds of the parties meet” as settlement did not include the First and Second Respondents’ tender to pay interest on the capital, and that Respondents’ Attorney “would have been aware that interest on the capital was substantial”  and finally that:

“In these circumstances First and Second Respondents’ attorney knew that the non-inclusion of the interest was an oversight.  He is in law therefore not entitled to rely thereon.  See:  Slavin’s Packaging Ltd v Anglo African Shipping 1989 (1) SA 337 (W) and Hartog v Colin & Shields 1939 (3) All ER 556.”

[49] Applicants’ case is not that rectification is sought or that Applicants are entitled thereto but that the non-inclusion of interest was an “oversight” and cannot be relied on referring to Slavin’s Packaging (supra).  It would seem that Applicants thus accept that although Mr West set out the following as  appears below, that any entitlement to rectification is not established on the test applicable to application facts (as referred to above) and that the only arguable basis is that interest was omitted as an “oversight” (but not as an oversight in the failure to record the agreement reached thereon  (rectification)).

Mr West says:

“The contents therein are denied.  Mr Antunes specifically referred to the terms of the tender at Court on 9 November 2017 in discussing the settlement agreement, such tender forming the backbone of the consensus reached but not accurately recorded.  I respectfully emphasize that the terms of the tender were expressly discussed and imputed into the agreement by Mr Antunes himself when discussing the costs which he, contrary to agreement, restricted to 2 November 2017 for his reason being that that was the date on which the tender was made that had ultimately been agreed to on 9 November 2017 at Court.”

[50] The use of the word “imputed” is curious and Mr West does not advert to iustus error at all.  This contention of Mr West’s is forcefully denied by Mr Antunes in the context of the matter he pointing out that Mr West in his email of 9 November 2017 states “Just noticed that interest tendered is not included in the draft order”.  

[51] The question to be resolved then is whether on the proper approach to affidavit facts, as set out above, that somehow the parties had agreed that interest was payable and that the real intention was to include this in the agreement, alternatively, that there was not a meeting of the minds between the parties.

[52] There is, on the usual test, no real or genuine dispute between the parties in my view and on the proper approach to the facts it cannot be accepted that the parties intended to include the interest tender in the draft agreement – not only must it be accepted that interest was not mentioned during the negotiations prior the agreement to settle being reached – but also that Second Respondent agreed in reaching settlement to add R75,000.00 to the capital being a sum attributed to Applicants opposition to the taxation – something not previously part of any tender made.  It would seem that the parties reached a compromise – there was also no discussion as to when interest would commence to run or at what rate.

[53] Absent rectification the question is whether there is any merit, on the facts, in Applicants reliance on an argument as put by Applicants (such as it is) that Second Respondent’s Attorney Antunes knew that “the non-inclusion of interest was an oversight” and that this therefore cannot be relied on. 

[54] Contracts do not depend on a subjective meeting of the minds – but on an objective assessment. 

[55] In Sonap Petroleum (SA) (Pty) Ltd[4] v Pappadogianis[5] Harms AJA (as he then was) held that the decision in question is whether the party whose actual intention did not conform to the common intention expressed (i.e. the applicants), lead the other party (i.e. the first and second respondents), as a reasonable man, to believe that his declared intention represented his actual intention?   If the answer is yes, a contract comes into existence on the basis of reasonable reliance. 

[56] Mr Van der Linde SC submits that at the heart of the matter is “whether the attorney for the first and second respondents ought reasonably to have known that what had occurred was an oversight on the part of the applicants’ Attorneys.”  This is the basis for the reliance on the Slavin’s Packaging (supra) case as I understand it.

[57] That reliance is misplaced because in that case the learned Judge held on the facts before him that “The defendant, in my view, did no more than it was entitled to do in law, namely to obtain on option on the price quoted by the plaintiff in its telex in which the case marker, inter alia is offered for sale and to exercise the option within the prescribed time. Furthermore, it was entitled in the ethics of free enterprise society so to act.  It has not been shown that the defendant did anything unconscionable towards achieving it and by purchasing the case marker for R20 000.00”.

[58] I can think of no reason why it would be unconscionable for the parties to negotiate on the amount claimed, agree on the amount to be paid as well as costs and decide to exclude interest in the agreement.  If, during the negotiations Mr West had intended to raise interest, he would have done so and ensured that it formed part of the agreement.  The case of Hartog v Colin & Shields (supra) is clearly distinguishable and reliance on it is misplaced.

[59] That case is in any event distinguishable in that Singleton J, inter alia, said the following:

“I am satisfied that it was a mistake on the part of the defendants or their servants which caused the offer to go forward in that way, and I am satisfied that anyone with any knowledge of the trade must have realized that there was a mistake.  I find it difficult to understand why when Mr Caytan bought in this way at 113/4d per 16, he could not tell me what the total purchase price was, and I cannot help thinking that there was an arrangement of some sort, amounting rather to a division of the spoil.  That is the view I formed, having heard the witnesses.  I do not form it lightly.  I have seen the witnesses and heard them, and in this case can form no other view than that there was an accident.  The offer was wrongly expressed and the defendants by their evidence, and by the correspondence, have satisfied me that the plaintiff could not reasonably have supposed that offer contained the officer’s real intention.  Indeed I am satisfied to the contrary.  That means that there must be judgment for the defendants.”

[60] Therefore on the facts of this case it is clear that after negotiations that lasted for some hours the matter was settled on the basis of the terms contained in the draft order marked as “JA4”.  That settlement resulted in First and Second Respondents’ legal representatives leaving the court for the airport.

[61] For the sake of emphasis, it is not without significance that the first draft agreement in manuscript contained in annexure “JA2,” the second draft agreement contained in annexure “JA3” and the final version being “JA4” all contained paragraph 2 of the agreement.  Paragraph 2 reads as follows:

“The payment referred to in paragraph 1 of this order is in full and final settlement of the application against the first and second respondents and of any claim or claims that any one or more or all of the applicants have against the first and/or the second respondents,”

[62] As pointed out Applicants’ case as to interest in the agreement is difficult to clearly discern and seems at least initially to attempt to contend for rectification, not pursued however for obvious reasons having regard to Plascon-Evans – and then a half hearted attempt at operative mistake with reference to Slavin’s Packaging (supra). 

[63] As correctly set out in Lawsa[6] as to iustus error:

“On this approach, before a person is allowed to claim nullity of a contract on the ground of mistake, such person must show that he or she was labouring under a mistake which was both operative and reasonable (iustus).  A mistake is regarded as reasonable where it was induced by a misrepresentation made by the other party or where the other party appreciated, or ought as a reasonable person to have appreciated, that an offer was being made or accepted or that terms were being agreed to under a misapprehension.  Whether it could also be regarded as reasonable where there has been no misrepresentation or no appreciation that a mistake was being made, is not entirely clear.  There is case authority which seems to support the view that a mistake may be reasonable even in such circumstances.  Whether a mistake of law can give rise to a iustus error has not yet been settled by the courts, but there appears to be no reason in principle why it cannot.

On analysis the iustus error approach appears to represent the application of a form of reliance theory, that is, the theory that holds that the basis of a contract is not the agreement between parties nor the coinciding expressions of intention by the parties but the impression (belief) of his or her intention which one party then relies and acts.  With the reliance theory (and, therefore, with the iustus error approach) a person is thus held liable to fulfil the reasonable expectations that he or she has created in the mind of another by word or conduct.  What must be appreciated, however, is that with the iustus error approach the other party, that is, the one in whose mind the false impression was created, will be able, should he or she so wish, to rely on the nullity of the contract:  on his or her side there will have been a iustus error.

It must be stressed that the reliance theory as expressed in the iustus error approach is at most merely an additional basis for contract, applied only in exceptional circumstances.  It has not been substituted for the subjective or intention theory.”

[64] The locus classicus on this is Sonap Petroleum (SA) (supra)[7] as pointed out by Mr Subel SC.  I agree completely with the Lawsa summary[8] as quoted above.

[65] This, applied to the facts on the papers as per Plascon-Evans, immediately discloses Applicants’ problem on a iustus error approach.  It would have to be accepted – for Applicants to be successful – that Attorney Antunes created in Attorney West’s mind the reasonable expectation that interest would be included in the settlement sum and as an addition thereto, Mr West relying hereon and acting accordingly he acting in iustus error and Attorney Antunes being thus obliged to accept that the settlement agreement is a nullity.

[66] On the facts in this matter, on application, it simply cannot be said that Applicants setup such a case on the Plascon-Evans approach – on the contrary their assertion that interest was in fact mentioned but then omitted in error – even if accepted (which is in itself problematic) – goes further to damage the case for iustus error as had this been so it is extraordinary that this was not then included in the draft agreement or even referred to – going at best to attempt to lay a rectification basis, but not on the basis of iustus error. 

[67] Put otherwise Attorney West would, if the facts satisfied the iustus error approach, be able to hold Attorney Antunes to include interest (not even mentioned) even though they reached no consensus hereon if Antunes by his conduct led West (as a reasonable person) to believe that he agreed that interest would be included in the capital, which West now seeks to uphold.

[68] The reliance principle set out above, and the iustus error approach, the first entitling the one party to hold the other liable, the second to entitle the one party to avoid liability, are in each case based on the same principle. 

[69] In either case Applicants must fail on the accepted facts. 

[70] It cannot be said on those facts that Attorney Antunes was alive to the real possibility of a mistake by Attorney West and had thereby a duty to speak and enquire[9] – but failed to do so snatching at the bargain.

[71] The position may have been otherwise had the matter been referred to oral evidence but in this regard Applicants failed (at any stage) to apply for this relief or even mention the possibility of same.  Applicants must therefore suffer the inevitable result.   The order however must nevertheless deal with interest earned in a Section 78(2A) account – as conceded by First and Second Respondents in argument. 

[72] In the result the agreement JA4 must be upheld as set out in the order at the end of this judgment.   As to costs having regard to the genesis of, and need to bring, this entire Application it would in my view be just and equitable if each party to the agreement dispute, each pay their own costs from 9 November 2017.

 

INTRODUCTION :  THE CONTINGENCY AGREEMENT ISSUE (APPLICANTS AND THIRD RESPONDENT)

[73] In essence, having regard to the concessions made by First and Second Respondents, and further the question of the settlement agreement concluded between Applicants and First and Second Respondents, the remaining issue is simply that as between Applicants and Third Respondent relevant to the contingency issue.  In summary the relief sought is that the Contingency Agreement “AM15”, concluded between Second Respondent as the attorney (represented by First Respondent) and First Applicant, and which refers to the “advocate” (Third Respondent) in respect of fees payable by First Applicant to the attorneys and advocate in respect of the MEC claim (including the appeal relevant to the Full Bench), be declared invalid, void and of no force or effect.

[74] In addition, it was sought that in the event that the Contingency Fees Agreement was declared invalid in regard inter alia to third Respondent’s fees, that this Court declare that the total fees of First and Second Respondents, together with the success fee of Third Respondent, may not exceed 25% of the capital amount awarded to First Applicant in the MEC matter.

[75] Again, in summary, Applicants contended that in respect of the Contingency Agreement AM15, (the impugned agreement) did not comply with the Contingency Fees Act 66 of 1997 (the Act) and prescribed regulations pertaining to contingency fee agreements for a number of reasons being primarily what was referred to as the failure to comply with or being in contravention of Regulations 5, 6 and 7 (presumably intended to be references to the pro forma contingency fees agreement as published in Government Notice R547 dated 23 April 2009) and that First Applicant was not given a copy of the said Contingency Fee Agreement on the day of entering same in contravention of Section 3 (2) and (4) of the Act.

[76] It must be said, that primarily the complaints concerning the Contingency Agreement AM15, of application to Third Respondent, are all in fact levelled against First and Second Respondents and only indirectly Third Respondent.  It was pointed out in argument by Third Respondent’s Senior Counsel (in the Heads of Argument) that it was not suggested that there was anything improper or noncompliant with the agreement insofar as it regulated the relationship between First Applicant and Third Respondent.

[77] It was argued further for Third Respondent that the Contingency Agreement AM15 was perfectly competent and compliant with the provisions of the Act, and was competently applicable to Third Respondent as Applicants’ Advocate in the MEC matter.  It was argued that the regulation of the relationship between First Applicant and First and Second Respondents was not relevant to the agreement with Third Respondent and the attempt to invalidate the agreement with Third Respondent was misdirected.

 

THE CONTINGENCY AGREEMENT AM15 : 2012

[78] The Contingency Fees Agreement AM15 signed on 20 October 2012 is set out below: 

“CONTINGENCY FEES AGREEMENT

IN TERMS OF THE CONTINGENCY FEES ACT, 1997 (ACT NO. 66 OF 1997)

1.

Done and entered into between

MABUTI MATHIMBA

hereinafter called “the Client”, and

NONXUBA INCORPORATED

23 Elizabeth St

Bloemfontein

(represented by ZUKO MICHAEL MACK NONXUBA)

hereinafter called “the Attorney”,

in terms of which the Client shall pay the fees agreed to herein to the Attorney for services rendered, whether performed before or after the signature of this agreement, if the Client is successful in such proceedings to the extent set out in this agreement. 

2.

It is recorded that in the opinion of the Advocate there are reasonable prospects that the Client may be successful in the proceedings mentioned hereunder and the Advocate therefore undertakes to recover no fees from the Client unless: –

2.1.1. the Client is successful in such proceedings; or

2.1.2. the Advocate, as set out hereunder, becomes entitled to a fee in the event of partial success in such proceedings or in the event of the premature termination of this agreement.

3.

It is further recorded that before the signing of this agreement and in terms of section 3(3) of the Contingency Fees Act, 1997 (Act No. 66 of 1997), the Client was: – 

3.1 advised of any other ways of financing the litigation and of their respective implications, namely raising the necessary cover for fees and disbursements from time to time and paying these amounts into the attorney’s bank account prior to work being performed or the disbursements incurred, in which event the normal amount would be charged for fees and disbursements;

3.2 informed of the normal rule that in the event of the Client being unsuccessful in the proceedings, he may be liable to pay the taxed party and party costs of his/her/its opponent in the proceedings; and

3.3 informed that he will be liable to pay the success fee in the event of success, by the Attorney.

4.

The Client acknowledges that he gave a written power of attorney to the Attorney to continue proceedings initiated in the High Court under case number 2259/09 in respect of an action for damages arising out of medical negligence on his behalf.  

5.

The parties agree that the Client: –

5.1 shall be deemed to be successful in the aforementioned proceedings if the Client obtains a judgment or order in his favour for any amount of money exceeding R5 million, or if the proceedings are settled on the basis that any party to the proceedings is obliged to pay the Client a sum of money exceeding R5 million;  and

5.2 shall be deemed to be partially successful in the aforementioned proceedings if any judgment or order is granted in the Client’s favour for any amount of against any other party below the sum of R5 million, or any costs order with or without any order that such other party pay any capital amount, whether such capital or costs order be obtained in any interlocutory proceedings, or in the main action. 

6.

The parties agree that if the Client is partially successful in the aforementioned proceedings, the following amounts shall become due, owing and payable –

Any amount owing in terms of the order (including the Advocate’s fees), in respect of the Attorney’s fees and disbursements as are allowed on taxation, in which event the fees shall become due on taxation;  alternatively, any amount agreed by any party to be owing in terms of the costs order in respect of the Attorney’s fees and disbursements, in which event the said fees and disbursements shall become due upon agreement with the said party.  Such amount shall be due, owing and payable forthwith.  It is specifically recorded that the Advocate’s entitlement to his success fee in the event of success shall not be affected by this provision.

7.

In the event of the premature termination of this agreement for any reason:-

7.1. The Advocate shall be entitled to charge double his normal fees incurred to the date of premature termination of this agreement, calculated on an attorney and client scale.  The Advocate’s normal fees shall be due upon the Advocate rendering a statement of account to the Client.  The remainder of the Attorney’s fees shall become due upon the Client being successful in the aforementioned proceedings and shall not exceed 25 per cent of the total amount awarded or any amount obtained by the Client in consequence of the proceedings (for purposes of calculating the success fee, costs are not included).

7.2 The following consequences will follow in terms of this agreement:  the Advocate shall exercise a debtor and creditor lien over all documents which are in the Advocate’s possession and in respect of which documents the Attorney is entitled to charge the client for fees or disbursements until the amount due as the result of the permanent termination of this agreement, has been paid. 

8.

8.1 The Client has a period of 14 days, calculated from the date of signing this agreement, during which he will have the right to withdraw from the agreement by giving notice to the Attorney in writing.

8.2 The Attorney shall, in the event of withdrawal by the Client during the said period, be entitled to the normal fees and disbursements in respect of any necessary or essential work done to protect the interests of the Client during such period, calculated on an attorney and client basis.

9.

If the Client feels aggrieved by any provision of this agreement or any fees chargeable in terms of this agreement, the agreement or the fees may be referred for review to the Law Society of which the Attorney is a member and, if an advocate has been appointed, also to the Bar Council in the area in which the Advocate practises. The professional controlling body concerned may set aside any provision of this agreement or any fees claimable in terms of this agreement if in its opinion such provision or fees are unreasonable or unjust.

10.

Any amendment or other agreements ancillary to this agreement (including any amendments to such agreements) shall be in writing and comply with the requirements laid down in the Contingency Fees Act, 1997 (Act No. 66 of 1997).   A copy of any such amendment or other agreements ancillary to this agreement shall be delivered to the Client upon the date on which such amendment or ancillary agreement is signed.

11.

On this 20^th day of April 2012, the Attorney briefed Advocate Ian Terry Dutton, 9^th Floor North, 6 Durban Club Place, Durban (hereinafter called “the Advocate”) to act as advocate in the proceedings mentioned in paragraph 5 above.

12.

By his signature hereto the Advocate warrants that in his opinion there are reasonable prospects that the Client may be successful in such proceedings and that he accepts the brief on the understanding that he will be entitled to the payment of fees only if the Client is successful or partially successful in the proceedings as agreed upon in paragraph 5 above, or in the event of the premature termination for any reason of this agreement.

13.

The parties agree that -

13.1 if the Client is successful in the aforementioned proceedings, an amount shall be payable by the Attorney as Advocates’ fees, to be calculated according to the following method:  The Advocate’s success fee shall be double the Advocate’s normal fees, which shall be calculated as being R15,000.00 per day or part thereof and R2,000.00 per hour or part thereof, and shall not exceed 25 per cent of the total amount awarded or any amount obtained by the Client in consequence of the proceedings (for purposes of calculating the success fee, costs are not included).

13.2 the Client is partially successful in the aforementioned proceedings, the following amounts shall become payable by the Attorney as advocate’s fees, any amount as is allowed on taxation of the relevant costs order in respect of the Advocate’s fees, in which event the amount shall become due on taxation.

13.3 in the event of the premature termination of this agreement for any reason, the Advocate shall be entitled to charge double his normal fees incurred to the date of premature termination of this agreement.  The Advocate’s normal fees shall be due upon the Advocate rendering a statement of account to the Client.  The remainder of the Advocate’s fees shall become due upon the Client being successful in the aforementioned proceedings and shall not exceed 25 per cent of the total amount awarded or any amount obtained by the Client in consequence of the proceedings (for purposes of calculating the success fee, costs are not included).

THE CLIENT HEREBY WARRANTS THAT HE UNDERSTANDS THE MEANING AND PURPOSE OF THIS AGREEMENT.

Signed at DURBAN this 26 day of OCTOBER 2012.

(SIGNED)

(Signature of the Client)

(SIGNED)

(Signature of the Attorney)

(SIGNED)

(Signature of the Advocate)”

[79] It is contended by Third Respondent that there is no impediment in a Contingency Agreement to dealing with the fees only of counsel and not also of the attorneys as is, so it is argued, manifestly the case with this Contingency Fee Agreement.

[80] In point of fact in reply, First Applicant contends that the impugned Contingency Agreement does not pertain only to Third Respondent’s fees but it is apparent, as he puts it, that the attorney is a party to the agreement.  This is certainly correct and as appears for example at paragraphs 6 and 8.2 thereof.

[81] It should be mentioned that whilst it is contended that the Contingency Agreement AM15 was signed in October 2012, Third Respondent’s evidence is that this was in fact 29 October 2012, at a Durban beachfront hotel.  First Applicant contends that he was not in Durban in October or September 2012.  For the purposes of this application it would seem that the overwhelming probabilities on the evidence are that in fact the agreement was signed by First Applicant in late October 2012 in Durban (or in any event for the purposes of application proceedings).   On the usual test this falls to be accepted.  As to First Applicant having been given a copy of the agreement, Second Respondent does not recall when this was so provided but is adamant that it was.  Third Respondent does not deal with the date in which the Contingency Fee Agreement was given to First Applicant.  Again it seems to me that for the purposes of this application, on the evidence and appropriate test, it must be accepted that First Applicant was sufficiently furnished with a copy of the agreement timeously.  I do not understand the papers to set out that First Applicant denies that he in fact received a copy of the agreement.

[82] It should be mentioned, for both context and the issues which later arise, that First Applicant alleged that First and Second Respondents relied upon a further Contingency Agreement, the 2008 Contingency Agreement, signed on 8 June 2008 at Mthatha, which was referred to in the papers as AM37.  It would appear that originally at least First and Second Respondents relied on this agreement, also in the MEC matter, when drafting the original bills.  That agreement, amongst other things, was in contravention of the Act as the attorney was held to be entitled to 25% of the value of the claim as it was put.  In due course, and in the application papers Respondents accepted that the 2008 Contingency Fees Agreement did not comply with the Act and was therefore void.  The importance of this is, however, that it is clear that at least originally and certainly at the time that Contingency Fees Agreement AM15 was concluded there was purportedly a further Contingency Agreement in place, both of which referred to the fees in the Contingency Agreements having a cap of 25% (at best) of the sum awarded.  There was also a reference to a Mandate and contingency fee agreement dated 5 January 2011, concluded between First Respondent and First Applicant.

[83] It is in this context that the issues relevant to contingency fees must be considered.

[84] Second Respondent contends that Contingency Agreement AM15 follows the prescribed form published in GNR. 547 of 23 April 1999.  It is alleged that the proceedings were defined; First Applicant was advised of his options and warned of his rights; the method of calculating the Third Respondent’s fees was stipulated in a manner compliant with the Act and it is averred that the said Fee Agreement is therefore compliant with the Act.

[85] It was argued that the Applicants’ case hinges on the contention that the said fees agreement contravened Section 3(4) of the Act on the basis that the First Applicant was not furnished with a copy on the date on which it was signed.

[86] It is further pointed out as to the date of signature, that the evidence was contradictory on the affidavits.  There is merit in the submission, and I accept, that the overwhelming probabilities on the evidence are that the Contingency Agreement AM15 was signed in late October 2012 in Durban, alternatively that this is the approach that must be adopted on the usual test.  At the end of the day, it seems that it must also be accepted that First Applicant does not deny that he received a copy thereof and may well in fact been given one on the same day as he signed.  It would be extremely technical to hold otherwise, and in any event it is unnecessary to consider this in any greater depth as to non-compliance with the act, having regard to what follows.

[87] It must be remembered that in the relief sought, in this matter First Applicant’s main claim was that the said contingency agreement AM15 be declared invalid, void and of no force and effect.  Further in the event that this relief were granted that the total fees of First and Second Respondent together with the fee of Third Respondent (referred to as “the success fee of the Third Respondent”) may not exceed 25% of the capital amount awarded to First Applicant in the MEC case. This was recognised in Applicants’ Practice Note as follows:

“2. In the event that the answers to issue 1 above is in the affirmative, whether the sum of all attorney’s/attorneys’ fees and/or success fees and counsel’s and/or counsels’ fees and/or success fees are limited to the statutory cap of 25% of the capital award.”

[88] Whilst the 25% statutory cap issue was not raised directly in the affidavits as to invalidity, in reply First Applicant persisted in what he had submitted in the founding affidavit in this regard and denies that the impugned agreement complies with the provisions of the Act and Regulations.  The Third Respondent’s 25% statutory cap and the validity accordingly was transversed during argument.  In any event, the 25% issue was raised at least obliquely in the relief sought, and in any event should the Contingency Fee agreement fail to comply with the provisions of the Act, it is void, and this Court is mero motu entitled and indeed in the interests of justice obliged to set same aside with consequent relief.

 

CONTINGENCY AGREEMENTS

[89] The Act which came into operation on 23 April 1999 was promulgated to facilitate access to Court, this being a fundamental right in terms of Section 34 of the Constitution, this applying particularly to the large number of people who cannot afford the considerable cost of legal services.

[90] There are two forms of Contingency Fees Agreements which attorneys and advocates (Legal Practitioners) may enter into with clients.  I will revert to the definition of “legal practitioner” in the Act.

[91] There is the “no-win, no fees” agreement (Section 2(1)(a)), as also an agreement in terms of which the legal practitioner is entitled to fees higher than the normal fee, if the client is successful (Section 2(1)(b)).  The second type of agreement referred to above has certain restrictions, as the higher fees contemplated may not exceed the normal fees of the legal practitioner by more than 100%, and in the case of a claim 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 (Section 2(2)).  Both these alternatives can be included in the same agreement, and often are, essentially it being provided that if a legal practitioner agrees to charge no fees on failure of the litigation that legal practitioner will be entitled to a higher fee – a success fee – if the client is successful – that success fee however being strictly limited as set out above.  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);  Mfengwana v Road Accident Fund 2017 (5) SA 445 (ECG);  Price Waterhouse Coopers Inc and Others v National Potato Co-operative Ltd 2004 (6) SA 66 (SCA)

[92] The Act regulates the form and content of the contemplated agreement (Section 3(1)) together with the Schedule as prescribed by the Minister in Government Notice 574.

[93] Section 3(2) of the Act provides for signature of the agreement by the client, and the attorney representing such client and where applicable “shall be countersigned by the advocate concerned, who shall thereby become a party to the agreement”.

[94] Section 3(3) of the Act prescribes in detail what the Contingency Fees Agreement shall state, and all the matters or provisions referred to must necessarily be included in the agreement.  As was pointed out in Mofokeng (supra)[10] legal practitioners are not at liberty to draw a contingency fee agreement in any form they like, it must be in accordance with the provisions of the Act and in the form prescribed by the Minister as set out in Section 3(1).  The agreement must be delivered to the client on the date on which the agreement is signed (Section 3(4)), a failure to do so possibly affecting the efficacy or enforceability of the agreement.

[95] The Act sets out the procedure to be followed when a matter is settled (Section 4) and there is a right of review (Section 5).

[96] As pointed out inter alia in Mfengwana (supra) the basic idea behind a Contingency Fee Agreement is that the attorney takes on the risk of financing his or her client’s litigation in the hope – or anticipation – of succeeding.  If the litigation is not successful, the attorney will not be paid.  If the litigation is successful, the attorney will be entitled to a success fee that is higher than his or her normal fee, if so set out in the agreement in the terms required and within the limitations of the Act.

[97] The context and background of the Act was considered in Price Waterhouse (supra) in which Southwood  AJA stated:

“The Contingency Fees Act 66 of 1997 (which came into operation on 23 April 1999) provides for two forms of contingency fee 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)). The Act has detailed requirements for the agreement (s 3), 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). The clear intention is that contingency fees be carefully controlled. The Act was enacted to legitimise 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, 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 receive part of the proceeds of the action.”

[98] The crucial provision set out in the Act, being the core thereof, is that in Section 2 which reads as follows:

“(1) Notwithstanding anything to the contrary in any law or the common law, a legal practitioner may, if in his or her opinion there are reasonable prospects that his or her client may be successful in any proceedings, enter into an agreement with such client in which it is agreed-

(a) that the legal practitioner shall not be entitled to any fees for services rendered in respect of such proceedings unless such client is successful in such proceedings to the extent set out in such agreement;

(b) that the legal practitioner shall be entitled to fees equal to or, subject to subsection (2), higher than his or her normal fees, set out in such agreement, for any such services rendered, if such client is successful in such proceedings to the extent set out in such agreement.

(2) Any fees referred to in subsection (1) (b) which are higher than the normal fees of the legal practitioner concerned (hereinafter referred to as the 'success fee'), shall not exceed such 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.”

[99] The relevant case law points out that Contingency Fee Agreements that do not comply with the provisions of the Act are void[11].   See Tjatji (supra)[12] where Boruchowitz J dealt with it as follows:

“[21] Although the Act does not state in express terms that a failure to fulfil the statutory requirements will render the contingency fee agreement null and void, there are clear indications that this was indeed the legislature's intention. The primary object of the Act was to legitimise contingency fee agreements which were otherwise prohibited by the common law. The purpose was also to encourage legal practitioners to undertake speculative actions for their clients in order to promote access to the courts, but subject to strict control so as to minimise the disadvantages inherent in the contingency fee system, and to guard against its abuse (see the report of the South African Law Commission, chs 2, 3 and 4; KG Druker op cit, chs 6 and 7). The safeguards introduced to prevent such abuses include ss 2 and 3 of the Act. As these sections are not enabling but prescriptive in nature, it would undoubtedly have been the intention of the legislature to visit nullity on any agreement that did not comply with these provisions.

[22] A further indication that non-compliance would be visited with invalidity arises from the fact that ss 2 and 3 are couched in peremptory language. The word “shall” is used extensively in s 3 (see ss (3)(1)(a), (3)(2), (3)(3) and (3)(4)). The word “shall”, when used in a statute, is generally an indication that the provision is peremptory rather than directory.”

[100] In Thulo v RAF [13] the Court commented on the limitations or provisos, in summary that the fee may not exceed twice the legal practitioner’s usual fee; and secondly that the fee may not exceed 25% of the damages awarded to the client (costs excluded) as follows:

“[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.”

[101] In eloquent terms, in Erasmus v Williams[14], Plasket J said the following of the meaning of Section 2(2) in circumstances in which an attorney had claimed to be entitled to 25% of the damages awarded to his client:

“It is clear that the respondent’s understanding of s 2 of the Act is erroneous. It is not intended to be a licence to plunder up to 25 percent of any award paid to a client who has entered a contingency fee agreement (and who is usually indigent). All that s 2 does is to allow an attorney who is party to a contingency fee agreement to recover from an award to his or her client a success fee based on the work done at a maximum of twice his or her usual fee. That amount may not, however, exceed 25 percent of the award, no matter how much work the attorney has done. What an attorney is certainly not entitled to is 25 percent of the client’s award.”

[102] In Van Der Merwe & Another v The Law Society of the Northern Provinces & Others [15] and in this regard the following was said:  

“I now turn to the question whether the 25% capping relates to a total amount awarded or whether each legal practitioner involved in the matter is entitled to 25% of the total awarded. I have already alluded to the fact that the legislature was concerned with the adequate protection of the needy public when concluding contingency fees agreements. One of the concerns was to prevent a situation where most if not all of the proceeds of the award are absorbed in legal costs with the result that the litigant, the very person that was meant to benefit from the litigation, is left with little or nothing at the end. The relevant provisions Section (2) of the contingency Act read as follows:

“any fees referred to in subsection (1) (b) which are higher than the normal fees of ·the legal practitioner concerned (hereinafter referred to as the 'success fee'), shall not exceed such 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% 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”. The provision relating to 25% clearly states that the total of any such success fees shall not exceed 25% of the total amount awarded. It is not without reason that the legislature has made reference to the word total, this is an indication of the total sum of success fees payable by client In relation to the total amount awarded. I thus find that the 25% capping relates to the total amount of success fees as against the total amount awarded irrespective of the number of legal practitioners involved. See the Law of Contingency Fee in South Africa by K G Druker at page 10 referring to the opinion of Adv M. Wallis SC said the following:

‘Wallis has no hesitation in expressing the view that the 25% cap is a global limitation on the fees recoverable by all legal practitioners involved in a case. Counsel's fees will be treated as a disbursement by attorneys when drafting a bill of costs'.”

[103] I agree entirely herewith.

[104] It is also clear in my view on the authorities and correctly so, that the maximum of the legal practitioner’s fees referred to in the Act is what it says, that is the maximum, and  no fees above that maximum may lawfully be recovered.  What is recovered by the client as party and party costs in the successful litigation are those recovered by the successful party from the unsuccessful party.  This is what the client recovers and it is due to the client.  All that the legal practitioner concerned may recover from party and party costs is the reimbursement of his out – of – pocket expenses and fees.  In Mofokeng (supra) the following is said:

“[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:

“..., which 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 R15000,00, 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.”

[105] Again I agree with this entirely.

[106] We were handed an opinion by M J D Wallis SC and Others given in 2003 – It is highly relevant to the issues raised in this matter as appears below and is in my view an insightful and correct exposition of the issues raised (I have omitted portions of the opinion for sake of brevity):

“At least three contentious issues have arisen in the interpretation of the above section (Section 2), namely:

(a) whether the cap of 25% of the amount awarded in sub-section (2) is a global cap applicable to all the lawyers involved in a case so that jointly their fees cannot amount to more than 25% of the amount awarded or an individual cap applicable to each lawyer involved in the case, so that notionally if  there are four lawyers involved their fees could cumulatively consume the entire award;

(b) whether  the success fee that is subject to the statutory cap (double the normal fee or 25% of the award whichever is the lesser), applies in respect of the total fees or only in respect of that portion that exceeds what would be the normal fees of the practitioners concerned;

(c) whether costs must be included in the determination of the “total amount awarded” when assessing the application of the statutory caps.

...

The proper starting point in sub-section (1).  The subsection makes it plain that the common law position has been altered and that contingency fee agreements are permissible.   Sub-section 1(a) defines such an agreement as being one in terms of which the legal practitioner is only entitled to recover fees from the client if the client is successful in the litigation.  Success is something that the sub-section requires should be spelled out in the agreement.

...

For those reasons we have concluded that the proper approach to sub-section (2) is that it refers to and qualifies a higher fee where the contingency fee agreement is one under which the legal practitioner charges fees higher than normal fees.  It imposes limitations on the whole of such an agreement.  In other words sub-section (2) refers to the whole of the fees chargeable under an agreement not simply to the difference between normal fees and higher fees.

...

For those reasons we are satisfied that the proper interpretation of section 2 of the Act is as follows:  An agreement must be concluded at the outset between the legal practitioner and the client.   That agreement must define what will constitute success and provided that, if success is not achieved, no fee at all will be payable.  (We leave aside the question of disbursements as that is not an issue raised for our consideration but prima facie we do not see why disbursements cannot be dealt with separately and provision be made for those to be paid by the client.   See in this regard section 3(3)(g) of the Act.)  The agreement must then go on to state what fees will be payable if success is achieved.  If it provides that in that event the legal practitioner will receive normal fees then the statutory caps in sub-section (2) do not apply and, in the absence of professional regulation under section 6, it is notionally feasible that costs may be recovered in excess of 25% of any award or even to an extent that would consume the entire award.  If the agreement provides that the legal practitioner is to be paid fees higher than normal fees then that agreement is subject to two limitations.  The legal practitioner may not charge more than double his or her normal fees, that is, the success fee may not exceed normal fees by more than 100%.  Secondly the total fees charged may not exceed 25% of the amount awarded.  The result of this latter restriction is that the legal practitioner may only be entitled to recover an amount that is less than his or her normal fees would have been but that is the plain meaning of these provisions.  Because the “success fee” as defined is a global fee higher than normal fees, not normal fees plus a percentage to cater for success, there is no entitlement in those circumstances to recover normal fees.   There is a possibility that the agreement could provide for a hybrid situation along the lines sketched out above. 

...

In a circular issued by the Kwa-Zulu-Natal Law Society it is suggested (paragraph 9) that the 25% limitation in section 2(2) is a limitation applicable to each legal practitioner involved in a case on a contingency fee basis.   We infer this from the example given in that paragraph of an attorney and an advocate being involved in a case in which event it is said that “the client should receive at least 50% of the claim recovered”.

...

With respect we do not agree with this approach.  In our view the 25% cap is a global limitation on the fees recoverable by all legal practitioners involved in a case.  We say so for the following reasons.

A “legal practitioner” is defined as “as attorney or an advocate”.  (Section 1 of the Act).  That cannot however provide a solution to this problem.  Section 2(1) is then the critical provision in that it provides that a legal practitioner may “enter into an agreement” with the client to act on a contingency basis.  It is that agreement that is subject to the limitations that follow in sub-section (2).   The answer to the question of whether the statutory cap applies to attorney and counsel separately and hence notionally to attorney, correspondent attorney, junior and leading counsel separately, must therefore lie in whether the legislation contemplates a single contingency fee agreement in respect of particular litigation or a number of separate agreements between the client and each of the legal practitioners involved in the matter.

We appreciate that under the Interpretation Act 33 of 1957 the singular includes the plural.   Accordingly the reference in section 2(1) to “legal practitioner” is capable of being construed as referring to legal practitioners, that is, all the legal practitioners involved in a case.  In that event the cap would apply to their fees globally.  However the same principle could equally be applied to the word “agreement” in which event one would construe section 2(1) as applying to each of the separate agreements with each legal practitioner.  It is necessary to examine the Act more closely to determine which is intended. 

In our view the intention of the legislature is made clear when one considers Section 3(2) of the Act which states: –

“A contingency fee arrangement shall be signed by the client concerned or, if the client is a juristic person, by its duly authorised representative, and the attorney representing such client and, where applicable, shall be counter-signed by the advocate concerned, who shall become a party to the agreement.”  (our emphasis)

By requiring the advocate to counter-sign a contingency fee agreement, the legislature has recognised that the advocates profession is a referral one as laid down in De Freitas v Society of Advocates of Natal 2001 (3) SA 750 (SCA).   Where the advocate, as well as the attorney, is acting on a contingency basis it is necessary to bind the advocate to the contingency fee agreement and this is what section 3(2) provides for.  Of course if the advocate is not acting on contingency there is no need for this at all.  The advocate’s fees will be paid by the attorney in the usual way and treated as a disbursement in terms of the arrangements made with the client for disbursements in terms of section 3(3)(g) of the Act.  Accordingly section 3(2) says that the advocate signs the agreement “where applicable”.

There is no provision for the advocate to sign a contingency fee agreement separately from the attorney.  It would not in our view be professionally permissible for the advocate to do so.   An advocate can only act in a matter where he or she is briefed by an attorney and the advocate is not entitled to accept payment directly from the client (Rule 7.9.1).   Everything that an advocate does on behalf of a lay client is mediated through the attorney.  The advocate alone is not entitled to enter into a contingency agreement or any other fee agreement directly with the client.  It is only because of the statutory requirement that he or she should do so when that agreement is applicable to him or her that it becomes permissible to do so.  In that even the Act is clear that the attorney must also be a party to the agreement. 

The provision of the Act would not be workable insofar as advocates are concerned on the basis that they are required to enter into contingency fee agreements with the litigant separately from their attorneys.   That would require far clearer language than is to be found in the Act in order to overcome the professional prohibition, upheld by the courts, on the advocate entering into direct dealings with the client as opposed to being instructed by an attorney to act on behalf of a client.   What the Act does provide is that where a contingency fee agreement applies to an advocate the advocate must “countersign” it.   That language presupposes that the attorney has already signed the agreement.  It follows in our view that the Act contemplates that where an advocate is instructed, which is the quintessential case of more than one legal practitioner being involved in a case, one contingency fee agreement should be signed by the client and the attorney and countersigned by the advocate.  Where two counsel are instructed both would countersign the one agreement. 

It also follows that what is contemplated by section 2 is a single contingency fee agreement for a single matter to which all the relevant legal practitioners will be parties, not separate agreements for each legal practitioner.  In other words where more than one legal practitioner is engaged in the matter and is party to the contingency fee agreement one reads the expression “legal practitioner” in section 2(1) as “legal practitioners”.   It is the agreement with all the legal practitioners involved that is subject to the constraints set out in section 2 and particularly the limitation that the amount of the success fee, as defined, in a case where one or more of the practitioners proposes to charge more than his or her normal fees, shall not exceed 25% of the total amount awarded.  In our view that is a global limitation applied to the entire body of costs that the client will be liable for in the event of the claim succeeding. 

This interpretation is we think supported by the overall purpose of these provisions, which it to protect the client against exploitation by the lawyers who act for him, her or it on a contingency basis.   We have already noted that the purpose of this legislation is to enhance access to justice.  It is not intended as it has become in the USA as a means of ensuring colossal wealth to lawyers who very often in effect run cases for their own rather than the litigants’ benefit.  All that this Act aimed at doing was enabling litigants to make use of such agreements where they would not otherwise be able to afford a lawyer to handle a case on their behalf and to provide some incentive to lawyers to take such cases.   Section 2(2) aims to prevent this from being abused by excessive claims by the lawyers in respect of contingency fees.   That being so we cannot think that in setting a limit on the fees recoverable and saying that it would not in total exceed 25% of the amount awarded the legislature meant that in some cases it could be 50% and in others 75%.  That is inconsistent with the language of section 2(2).  We lay stress on the reference in sub-section (2) to the reference to “total of such success fee”.  That seems to support the interpretation we favour that one is concerned so far as this cap is concerned with the overall impact of all the fees chargeable to the client. 

For those reasons we think that it must be accepted that the intention of the legislature was to provide that higher fees in terms of Section 2 of the Act, be consolidated between counsel and the attorney and then assessed to see whether they comply with the statutory cap.   The fees payable by the client, and subject to the statutory limitations would be the total fees payable to both the attorney and the advocate.  Accordingly in our view the circular issued by the KwaZulu-Natal Law Society is incorrect and this needs to be discussed and resolved at the liaison committee meeting between Consultant and the Law Society.” 

[107] I find myself in complete agreement with the reasoning and conclusions drawn above.

 

IN SUMMARY

[108] Applicant in their Supplementary Heads of Argument contend that the total fee of the Respondents in the MEC case could not, as they put it, in any event exceed 25% of the capital of R6,977,105.84.  They contend that Third Respondent does not disclose his fee in his affidavit, whilst First and Second Respondents’ fee in MEC case was R840,730.85.  According to First and Second Respondents, Third Respondent’s fee in the matter was R1, 212,000.00.  These fees taken together exceed the statutory 25% cap on fees as discussed above, viewed as a globular sum.

[109] First and Second Respondents accept that the alleged Contingency Fees Agreement AM15 in the MEC matter does not apply to their fees, they contending that this governs Third Respondent’s entitlement to fees in the MEC matter, as does the Third Respondent.  In this context Applicants persist that the Contingency Agreement AM15 in respect of MEC matter is either partially or wholly invalid.

[110] This matter cannot be divorced from its background being that:

[110.1] On a June 2008 First Applicant and First Respondent concluded a signed Contingency Agreement which failed to specify the specific work to be undertaken, but upon which it would seem First Respondent relied in both categories of litigation referred to above, this providing for the attorney’s fee being 25% of the value of the claim, (clearly invalid) and not contemplating that an advocate would be utilized on contingency (reliance hereupon has now been abandoned);

[110.2] A so-called “mandate and fee agreement” date in January 2011 signed by First Applicant nominating, constituting and appointing Second Respondent to institute and/or defend action on his behalf and setting Second Respondent’s entitlement to fees at a specified rate (this in all probability intended to relate to the RAF matters);

[110.3] Contingency Agreement AM15 signed on 29 October 2012, between First Applicant and Second Respondent signed by both and countersigned by Third Respondent as advocate, in the terms set out above applicable to the MEC matter.

[111] In the result, from the agreements that were in place by the time Contingency Fees Agreement AM15 was concluded and from that agreement itself, it was more than apparent that First Applicant was to be represented by his attorney Second Respondent, and by counsel being Third Respondent – both purportedly on contingency.

[112] At that time, Second Respondent sought to obtain a fee being 25% of the award achieved in the litigation (the 2008 agreement), whilst Third Respondent, in the Contingency Fees Agreement AM15, sought a fee at the rate of R15,000.00 per day and at R2,000.00 per hour, and in the event of partial success (an award below R5 million) and complete success, double his normal fee, but not being more than 25% of the total amount awarded to the client (in respect of the calculation of the success fee costs not being included).

[113] The agreement AM15 is in places poorly drafted and confusing.  A good example of this is paragraph 6 which applies to partial success, both the advocates fee’s and attorney’s fees becoming payable, although the attorney’s fee structure is not set out, nor does the success component apply to the attorney, the cap applying apparently only to the advocate’s fee, 25% of the  total award excluding costs.  It was most certainly not agreed or envisaged, that the attorney’s component would be included in the 25% cap and all fees treated as a globular sum for the purpose of the calculation.

[114] It should also be mentioned that it is clear from the papers, that in preparing the bills of costs in respect to the MEC matter, Second Respondent relied on the Contingency Agreement of 8 June 2008.

[115] Third Respondent sets out that in his view the Contingency Agreement AM15 applies only to his fees, that the agreement complies with the Contingency Fees Act and is valid, he being entitled then, so it goes, to be paid fees in accordance, therewith.  It is apparent that he has received payment accordingly and in this case incorporating the success component.

[116] He says that he informed first applicant of the structure and requirements of the Act and that he required a written agreement.  He says that he personally prepared the agreement for signature and that this was prepared by his secretary on his instructions.  He maintains that this accorded with the Act he using the schedule to the Act (as he puts it) which contains a specimen agreement.  He then made what he considered appropriate additions or alterations.  He says that he added an important clause which deals with the Contingency Agreement applying to all fees incurred whether before or after signature of the agreement – this in itself objectionable.

[117] He deposes to signature of the agreement in Durban by First Applicant, himself and the attorney, he says he went through the entire written agreement with First Applicant and maintains that the agreement deals only with counsel’s fees.

[118] From what has been said above, and in sum, and for the purposes of this matter the following is the position in respect of the relevant law on Contingency Fee Agreements on the issues raised in this matter (there are others upon which I need not comment):

[118.1] Absent compliance with the Act, a Contingency Agreement is void;

[118.2] The basic idea behind such an agreement is to place the risk of financing the litigation in the hands of practitioners in anticipation of succeeding;

[118.3] There is no provision for the advocate to sign the Contingency Fee Agreement separately from the attorney; and not proper for an advocate (in terms of the Act) to conclude a Contingency Agreement directly with a client;

[118.4] What is contemplated by Section 2 of the Act is a single Contingency Agreement for a single matter to which all the relevant legal practitioners (attorneys and advocates) are party, and not separate agreements for each practitioner (such as each is, or is not, on contingency);

[118.5] It is only one agreement with all legal practitioners involved on contingency that is contemplated in the Act, but subject to the provisions of the Act and the constraints as set out in Section 2 thereof, particularly the limitation as to the amount of the success.  There is a globular limitation applying to the entire body of costs to which the client is liable, the 25% statutory cap in respect of legal practitioners on contingency;

[118.6] That in a. matter with an attorney and counsel on contingency the globular fee must be assessed to see whether it complies with the statutory 25% cap;

[118.7] This remains so even where an attorney acts on contingency charging his normal fee as defined in Section 1 of the Act and the advocate charges  a higher fee than is normal (a success fee), the fees all still to be recorded as a globular amount as to all fees  which must fall within the 25% cap;

[118.8] As to whether if the attorney has a Contingency Agreement, in place, there is no reason why an advocate should not be involved in the matter other than on a contingency basis, his or her fee treated as a disbursement, I do not consider as it is not relevant hereto;

[118.9] To qualify, the agreement must be in writing and comply with the provisions of the Act and its required inclusions;

[118.10] A copy of the agreement must be handed to the client on the date in which such agreement is signed;

[118.11] Section 2 is the core provision in the Act providing for Contingency Fee Agreements and for the higher than normal fee that practitioners may charge to offset the risk to earnings if the case is unsuccessful;

[118.12] The legal practitioners may not charge the maximum permissible under the Act plus taxed cost to be paid by the other side;

[118.13] A maximum of the legal practitioner’s fees is what the Act says, it is a maximum above which no fees may lawfully be recovered; the party and party costs recovered by the successful party from the unsuccessful party are what the client recovers and are due to the client;

[118.14] An 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;

[118.15] The 25% limit is calculated on the capital amount only and not on the capital plus costs; 25% of the amount awarded in Section 2(2) is a globular sum applicable to all those on contingency involved in the case taken together.

[118.16] For clarity I set out that the success fee that is subject to statutory cap (double normal fee or 25% of the award whichever is the lesser) applies in respect of all the fees charged by all the practitioners (on contingency) – not merely the difference between normal and a higher fee – and may not exceed 25% of the total amount awarded or any amount received by the client in consequence of the proceedings concerned, and which amount shall not for the purpose of calculating such excess include any costs.

 

RESULT

[119] In this matter there were two Contingency Agreements as set out above.  This for a start is impermissible in respect of the legal practitioners on contingency – Attorneys and Counsel. In any event and even if this were not the case the Contingency Fees Agreement AM15 itself is not in compliance with the Act and certain of the principles set out above, most importantly as it purports to deal only with the Advocate’s fee in the MEC matter as to a success limit of 25% of the globular sum awarded. 

[120] Whilst the Attorney is referred to, and it is disavowed that his or its fees are included therein, this is not in fact so as paragraph 8.2, as an example, giving the attorney a fees entitlement on withdrawal by client (see also paragraph 9).

[121] In essence then the agreement, as one composite agreement for the MEC matter, was required to deal with both attorney and counsel in one and the same agreement (they both on contingency) – wherein the attorney (and counsel) herein were on a no win no fee basis and a success fee basis. 

[122] The agreement should have set out the attorney’s fee structure as per paragraph 5 of the Schedule agreement.

[123] Paragraphs 6 and 8.2 of the AM15 agreement are confusing appearing to refer to the advocate’s and attorney’s fees on partial success, but preserve the advocate’s entitlement to a success fee.

[124] The arrangement as to how disbursements are to be paid (Schedule paragraph 8) is omitted.

[125] Paragraphs 7.1 and 13 carefully set out that it is the advocate’s fee that may not exceed 25% of the total award (excluding costs) and not the globular fee of both attorney and advocate, these both acting on contingency in one way or another – this being objectionable accordingly.

[126] This alone renders the entire agreement illegal and void but this is also objectionable on the further grounds set out above.  It falls accordingly to be set aside.   

[127] A costs order on the scale as between attorney and client was sought only against First and Second Respondents and against Third Respondent on the usual scale.  I am not persuaded that a punitive scale on this part of the Application is justified.   

 

THE ORDERS:

 

A         THE AGREEMENT DISPUTE

In the result the following order will issue on the question of whether a settlement agreement was concluded in its terms:

1. The draft order attached to attorney Antunes supplementary affidavit as “JA4” (page 669-670) of the record be and is hereby made an order of this court.

2. The Application against First and Second respondent is refused.

3. Applicants and First and Second Respondents are each to pay their own costs of the Application from 9 November 2017.

4. First and Second Respondents are to account to Applicants as envisaged in Section 78 of the Attorneys Act in respect of money held in Trust in terms of Section 78(2A) within 14 days hereof with vouchers supporting same and to pay such interest as was earned thereon within 7 days of that accounting – this in respect of the RAF and MEC matters. 

 

B         CONTINGENCY

In the result the following order will issue on the Contingency Fee Agreement question:

1. The contingency agreement AM15 between First Applicant and First, Second and Third Respondents dated 29 October 2012 in respect of Case No.:  2259/2009 in the High Court South Africa (Mthatha) is declared to be in conflict with the Contingency Fees Act 66 of 1997 and is declared invalid and is set aside. 

2. The Third Respondent may only recover such fees as may be allowed on a party and party scale relevant to Case No.  2259/2009 subject to paragraph 3 below.

3. It is declared that the maximum limit of 25% of the sum awarded (as contemplated in Section 2(2) of the Contingency Fees Act applies collectively to the fees of all legal practitioners involved in Case No. 2259/2009 (the MEC matter) viewed as a globular sum.

4. First, Second and Third Respondents are jointly and severally to pay First Applicant’s costs on a party and party scale as relevant to the Contingency Agreement issue, including the costs reserved by Msizi AJ.

 

 

__________________________

M.J. LOWE

JUDGE OF THE HIGH COURT

 

 

MALUSI, J

I agree.

 

 

__________________________

T MALUSI

JUDGE OF THE HIGH COURT

 

 

JOLWANA, J

I agree.

 

 

__________________________

M JOLWANA

JUDGE OF THE HIGH COURT

 

Appearances:

Obo the Applicants:

Adv H J van der Linde SC

Instructed by: 

Wheeldon Rushmere & Cole Inc., Grahamstown

 

Obo the First and Second Respondents:

Adv A Subel SC

Adv S Miller

Instructed by:

Netteltons, Grahamstown

 

Obo the Third Respondent

Adv I Smuts SC

Instructed by:

Borman & Botha, Grahamstown

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