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Three High Court judges this week ruled in two separate cases that lawyers who work on a no-win, no-fee basis, commonly used in Road Accident Fund (RAF) cases, cannot charge more than the law allows.
The rulings are expected to clear the way for many accident victims with serious injuries to claim back fees in excess of those provided for by law.
RAF estimates suggest that some R2.23 billion may have been retained in illegal fees last year alone.
The Contingency Fees Act sets limits on the fees that lawyers can deduct from any award made to you if you claim from, for example, the RAF on a no-win, no-fee basis.
But many lawyers backed by the Law Society of the Northern Provinces and the Law Society of the Free State have been charging fees equal to a percentage of the payout that is greater than the Act allows. These lawyers claim they are entitled to do so in terms of the common law.
This week, Gauteng High Court Judge President Dunstan Mlambo and judges Fayeeza Kathree-Setloane and Hans Fabricius concurred that the common law outlaws contingency fee agreements, and the only agreements that lawyers may enter into with their clients are those that comply with the Contingency Fees Act.
The Act says lawyers acting on a no-win, no-fee basis can charge up to double their normal time-based fees or 25 percent of the settlement, whichever amount is lower.
Dr Eugene Watson, chief executive of the RAF, says the fund estimates that up to 50 percent of the compensation paid by the RAF during the 2012 financial year, or R4.47 billion, was retained by attorneys as contingency fees. Although this is only an estimate (because the RAF is not party to the fees that claimants pay their attorneys), if the estimate is correct, about half of these fees – or some R2.23 billion – may have been in excess of the 25 percent allowed by law.
In one of this week’s rulings, the North Gauteng High Court declared a contingency fee agreement entered into between accident victim Juanne de la Guerre and her attorneys, Bobroff & Partners, to be invalid. To express its disapproval of the law firm’s actions, the High Court ordered Bobroff & Partners to pay all of De la Guerre’s legal costs.
Bobroff & Partners is a leading personal injury law firm. Its founder, Ronald Bobroff, is a member of the council of the Law Society of the Northern Provinces and a former president of that law society.
He is also the president of the South African Association of Personal Injury Lawyers (Saapil).
Bobroff and his son, Darren, are facing another case in the Pretoria High Court relating to fees charged on a contingency basis in which a former client is asking for the pair to be struck off the roll of attorneys.
In the second judgment handed down this week, judges Mlambo, Kathree-Setloane and Fabricius in the North Gauteng High Court dismissed an application by Saapil that contended that the Contingency Fees Act did not take away lawyers’ common law rights to conclude contingency fee agreements.
It also dismissed Saapil’s alternative contention that the Contingency Fees Act is unconstitutional.
Bobroff told Personal Finance both judgments will be appealed, and that the matter will probably end up in the Constitutional Court.
In the De la Guerre case, Bobroff & Partners obtained R2.7 million in compensation and costs from the RAF for De la Guerre. She was paid R1.7 million after fees and costs were settled.
De la Guerre later consulted another attorney, Anthony Millar, who told her the fees she had paid exceeded the Contingency Fees Act and were illegal and unenforceable.
Bobroff did not file an answering affidavit in the De la Guerre case but applied for a stay of proceedings pending the determination of a test case, which was later filed in Saapil’s name against the Minister of Justice and Constitutional Development. The minister and the RAF opposed that application.
The two cases were heard together in November last year.
The court this week granted De la Guerre the relief she sought; namely, it declared her contingency fee agreement with Bobroff & Partners null and void and ordered the attorneys to give her a fully itemised and detailed account of reasonable legal fees.
De la Guerre’s lawyers estimated in court papers that the fees would be about R176 740, and this was not disputed by Bobroff & Partners.
The court also ordered Bobroff & Partners to pay De la Guerre the difference between the just over R1 million that Bobroff & Partners retained of her settlement and the itemised legal and other costs.
Bobroff told Personal Finance the public has overwhelming accepted contingency fee agreements. He says there have been hardly any complaints about these agreements when compared with complaints about other legal fees.
Bobroff says the Contingency Fees Act is unworkable, and the common law agreements that he and many thousands of other attorneys have been using have become the custom and will eventually be accepted in South Africa.
He says his firm’s agreement with De la Guerre was in accordance with the guidelines and recommendations laid down by the firm’s regulator, the Law Society of the Northern Provinces. He regards any imputation by the court of any misconduct in his firm’s use of this agreement as misconceived and unfair, Bobroff says.
The judgment does not refer to an affidavit from the Law Society that states that the agreement was in line with its guidelines, he says.
This week’s cases are likely to affect the case lodged in the Pretoria High Court in October last year in which one of Bobroff & Partners’ clients is seeking to have Ronald and Darren Bobroff struck off the roll of attorneys for overcharging.
In that case, Jennifer Graham says her husband, Matthew, suffered brain injuries after an accident in 2006, and Bobroff & Partners obtained a settlement of R1.9 million and costs of R300 000 from the RAF on his behalf.
She says her husband received only R1.1 million of the R2.2 million that the RAF paid out.
She complained to the Law Society of the Northern Provinces in June last year that Bobroff & Partners had massively overcharged her husband, but a disciplinary hearing has yet to be held. As a result, the Grahams are seeking to have Ronald and Darren Bobroff struck off the roll of attorneys.
Bobroff told Personal Finance he is not concerned about the case and has filed papers asking the court to dismiss the application.
Discovery Holdings is paying the Grahams’ legal fees. The Grahams belong to Discovery Health Medical Scheme, which sought to recoup the medical expenses that Graham’s husband recovered from the RAF.
Discovery has concerns about the Bobroffs’ practices in this case and other similar cases.
Bobroff told Personal Finance that De la Guerre’s concern over the fees she paid arose only after Dis-covery Health Medical Scheme approached her to pay over to the scheme the medical costs she had recovered from the RAF.
CLAIMANTS WHO GOT OVER R750 000 MAY HAVE BEEN OVERCHARGED
Accident victims who received payouts of more than about R750 000 from the Road Accident Fund (RAF) in cases taken on a no-win, no-fee basis should check the legal fees they paid to see if they were overcharged.
This is according to Anthony Millar, the attorney acting for Juanne de la Guerre, the accident victim who this week won her High Court case against Ronald Bobroff & Partners.
The court set aside the contingency fee agreement that De la Guerre had with Bobroff & Partners, because it exceeded what the Contingency Fees Act allows attorneys to charge.
Millar, of Norman Berger & Partners, says that, at payouts of less than R500 000, the fees paid are likely to be in line with the limits in the Act.
RAF claimants who received payouts of between R500 000 and R750 000 – the top one percent of claims paid by the RAF – should check to see what they paid. Claimants who received payouts exceeding R750 000 may well find it is worth their while to consult an attorney, Millar says.
Not all attorneys charged in excess of the Contingency Fees Act, so many people may have been charged correctly, he says.
If you no longer have the documents relating to your claim and payout from the RAF, the fund will have records of what you were paid, Millar says.
If you overpaid, your first step is to try to claim the excessive fees from the relevant attorney. If he or she has spent the money or is no longer in the country, you may have recourse to the Attorney’s Fidelity Fund, Millar says.
However, Motlatsi Molefe, chief executive officer of the Attorney’s Fidelity Fund, says the fund will pay out only if the money has been stolen.
To prove theft, you need to prove intention, and in all likelihood the attorneys involved will claim it was never their intention to steal, he says. They will claim they believed they had a right in terms of the common law to charge fees in excess of the Contingency Fees Act, Molefe says.
Millar says he has already filed other cases against Bobroff & Partners, and he will inform the Law Society of the Northern Provinces that he intends to lodge claims against the Law Society for its role in permitting its members to charge contingency fees above those set by the Act.
Dr Eugene Watson, chief executive officer of the RAF, says all clients of attorneys who concluded “common law contingency fee agreements” could potentially have claims against those attorneys or their law firms.
Such claims would be for the recovery of the difference between the fee retained by the attorney or firm of attorneys under the unlawful agreement and the fee that the attorney or firm of attorneys could otherwise have lawfully recovered in terms of the limitations imposed by the Contingency Fees Act.
Watson says this week’s judgments have implications not only for RAF claimants, but apply equally to all other work performed by attorneys on the basis of so-called “common law contingency fee agreements”.
Clients of attorneys or law firms who entered into such unlawful agreements are advised to seek legal advice, he says.
FEES FOR NO-WIN, NO-FEE CASES MUST BE WITHIN LIMITS SET BY ACT
The Contingency Fees Act provides that the only legal contingency fee agreements are those that fall within the ambit of the law, three High Court judges ruled this week.
The judges had been asked by the South African Association of Personal Injury Lawyers (Saapil) to rule on the legality of contingency fee agreements that did not comply with the law but were drawn up in terms of what Saapil said was the common law.
Saapil argued that the legislature could not have intended the Contingency Fees Act to be exhaustive in the agreements it allowed or to take away the common law right lawyers have to draw up agreements that did not abide by the Act.
But the judges, Dunstan Mlambo, Fayeeza Kathree-Setloane and Hans Fabricius, state in their ruling that the common law had always prohibited, and still prohibits, lawyers from entering into contingency fee agreements.
These agreements were considered to encourage speculative litigation, compromise lawyers’ relationships with their clients by introducing conflicts of interest, adversely affect a lawyer’s ability to provide unbiased advice, give lawyers a material financial interest in the outcome of a case and tempt them to compromise their duties to the court, and have a high risk of abuse.
The Contingency Fees Act was introduced to strike a balance between the vices and virtues of contingency fee agreements and make justice accessible to poor people who might otherwise not have access to it.
Without abolishing the common law, the Act created an exception to the common law prohibition on contingency fee agreements but imposed limits on these agreements.
Justice Kathree-Setloane, with judges Mlambo and Fabricius concurring, says the Contingency Fees Act “leaves no room for lawful contingency fee agreements [that] do not comply with the limitation and requirements” of its sections.
She says Saapil argued that the Act did not intend to oust the legitimacy of the common law agreements if they could be recognised by the law, or recognised in future as the common law develops.
But Justice Kathree-Setloane says if Parliament has enacted a law such as the Contingency Fees Act, the responsibility for reforming that law lies with the legislature, and the judiciary cannot develop the common law relating to agreements controlled by that Act.
The judge says Saapil’s argument is “manifestly unfounded and completely irreconcilable with seven judicial decisions”, including one by the Supreme Court of Appeal in a 2004 matter between Pricewaterhouse Coopers and the National Potato Co-operative.
Justice Kathree-Setloane says the judicial decisions and the language, history and purpose of the Contingency Fees Act all indicate that Parliament’s intention was “to cover the field” and to provide that a contingency fee agreement would be lawful only when it complied with the Act.
In their alternative argument, Saapil said that if the court found, as it did, that the Contingency Fees Act provides for the only legal contingency fee agreements, the Act is unconstitutional, because it discriminates against lawyers and their clients.
Justice Kathree-Setloane says there is a rational reason for treating lawyers differently when it comes to contingency fee agreements.
The judge says Saapil confuses rational reasons for differentiating with unfairness and unreasonableness.
Lawyers need to be treated differently when it comes to contingency fee agreements because they are responsible for running legal cases and have specialised knowledge that equips them to conduct litigation, Justice Kathree-Setloane says.
Furthermore, she says, lawyers have ethical duties to their clients and the court that ordinary people do not. These duties may come into conflict with their financial interest in a contingency fee case, she says.
Justice Kathree-Setloane says the Law Commission was particularly concerned about these conflicts when it proposed the Contingency Fees Act.
She says the commission cited the example of a lawyer advising a client to settle in order to secure the lawyer’s fees when the client could get greater compensation by proceeding to trial.
The Law Commission also warned that contingency fee agreements could result in fees that were out of proportion to the work actually done by lawyers on behalf of their clients.
Justice Kathree-Setloane says Parliament made a rational decision to put safeguards in place for the benefit of the public when contingency fee agreements are drawn up.
Proper regulation is “starkly absent” from the Law Society of the Northern Provinces’ ruling that permitted its members to enter into contingency fee agreements outside of the law, Justice Kathree-Setloane says.
The Law Society of the Northern Provinces has not put in place any rules to address the risk of its members overcharging clients; it has said only that their remuneration must be fair.
Dealing with Saapil’s argument that the limits on fees set in the Contingency Fees Act are too low and inflexible and leave lawyers with no choice but to turn away prospective clients or enter into agreements beyond the law, Justice Kathree-Setloane says Saapil provided no evidence to support these contentions.
She says the argument that the limits in the Act are unfair and unconstitutional are “entirely speculative and unfounded”.
Justice Kathree-Setloane says the limit of 25 percent of an award set in the Contingency Fees Act is a safeguard to prevent all the proceeds being “swallowed up in legal fees”.
Without these limits, your right to take a case to court would be meaningless, because even if you get to court and succeed, you would derive little or no financial benefit from the court proceedings.