This is the conclusion that was reached in Nash and Another v Mostert and Others 2017 (4) 80 SA (GP), where the court solidified the position regarding contingency fees in the attorneys profession.
Contingency fees, which are regulated by the Contingency Fees Act of 1997, allow an attorney to do work for clients, with the promise of being entitled to a maximum 25% of the funds eventually received on behalf of the client. This assists clients who do not necessarily have sufficient funds to pursue legal action, but who nevertheless are entitled to their day in court.
The question that has then arisen is whether attorneys are entitled to conclude contingency fee agreements when it comes to performing non-litigious work for their clients. Specifically, on the facts of the Nash case, an attorney had been appointed as a curator ad litem of a pension fund in order to help recoup funds that had been stripped from the fund. The court order which appointed him to this position allowed for “periodical remuneration in accordance with the norms of the attorneys profession”. Due to a lack of money in the pension fund, the attorney concluded a contingency fee agreement in terms of which he would be entitled to 33,3% of the recovered funds.
It is, of course, important to consider what non-litigious costs refer to in the first place. As the name suggests, these costs are generally for work done by an attorney that does not involve approaching the court. Examples of such non-litigious work can include:
- The transfer and registration of properties;
- Commercial work such as drafting of contracts and agreements of sale and lease;
- Setting up legal entities such as companies and trusts;
- The administration of deceased or insolvent estates.
The court in the Nash case took issue with the contingency fee agreement on two points. Firstly, the Contingency Fee Act, in section 2, has limited the ability of the parties to jointly agree on a rate for the contingency fee and such agreement is limited to a maximum of 25% of the total amount. Thus, even if the contingency fee agreement had been valid for non-litigious work, the agreement of 33,3% would not have been enforceable.
Secondly, despite the fact that South Africa has no case law that specifically deals with contingency fee agreements and non-litigious work, the court held that the attorney’s profession has not contemplated any provision for attorneys charging contingency fees for non-litigious work and such agreements do not fall in the scope of the profession’s norms and rules. Indeed, the court held that to allow such agreements would be against public policy given how easily they could lead to a conflict of interest where attorneys end up being partners with their clients instead of professional advisors.
The writing on the wall is thus clear. Attorneys should take care to charge their normal fees for non-litigious work and to only charge for work that has actually been completed for the client. Contingency fee agreements concluded for such work will no longer be upheld.