C&A Friedlander Attorneys

As a litigator or a private third party, we are aware of the vast differences between Civil litigation and Commercial litigation, these differences include the involvement of businesses rather than just individuals. However, they are both factually and legally complex and thus they give rise to one affinity, which is the high cost of litigation. This similarity has been a cause of great concern as The Constitution of the Republic of South Africa requires courts to be accessible to the general public at a reasonable cost. Consequently, this has led to the search for an equitable solution. 

One solution thereto is third party litigation funding agreements. These agreements are defined as agreements in terms of which a person (a non-lawyer funder or layman) provides a litigant with funds to prosecute an action in return for a share of the proceeds of the legal action if the litigation is successful. In South Africa, the known and regulated third party funding agreements are contingency fee agreements, between a practicing lawyer and a litigant. The Contingency Fees Act regulates all contingency fee agreements in South Africa and has placed certain restrictions on the application thereof. Contingency fee agreements are defined by the act as an agreement between an attorney and their client in which the parties agree that unless the client is successful to the extent described in the agreement, the attorney will not be entitled to any fees for services rendered. This requirement links with the Constitutional right to access to justice which is enshrined in section 34 of the Constitution. 

The essence of a contingency fee agreement is found in the following clause,

If the client is successful to the extent described in the agreement, the attorney will be entitled to fees for services rendered equal to, or higher than his normal fees, as specified in the agreement. Provided that the higher fee (the fee above the attorney’s normal fee) may not exceed the attorney’s normal fees by more than 100 per cent, and further providing that in the case of claims for money, the total of the higher fee, may not exceed 25 per cent of the total amount of money awarded to the client. Any costs awarded to the client are excluded from calculation the aforementioned 100 per cent and 25 per cent limits.”

This clause essentially forms the contingency agreement as it provides the legal practitioner with the prospect of earning either twofold their ordinary legal fees or claiming up to 25 percent of the litigant’s reward. This clause in addition to the one mentioned above provides the necessary incentive for legal practitioners to enter into such agreement and allows the litigant the opportunity to initiate a civil proceeding without the initial amount necessary for the commencement of such costly proceedings. In the case of Mfengwana v Road Accident Fund 2017, the court stated,

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’ and further stated at para 11: ‘Section 2 of the Act is the core of the Act. It makes provision for contingency fee agreements and for the higher-than-normal fee that an attorney may charge to “offset” the risk of earning no fee in the event of him or her not concluding a case successfully.”

Historically, contingency fee agreements were unlawful in South African law as they were perceived as contracts which are injurious to the administration of justice and as a result were regarded as against public policy. However, this position has changed over the years through case law and the enactment of the Contingency Fees Act. The case of Patz v Salzburg placed a condition on all third-party litigation funding agreements, stipulating that such an agreement remains lawful, provided that it was entered into in good faith and with the object of assisting the litigant in the exercising of his rights. The abovementioned condition has become the underlying value of the Contingency Fees Act and it provides litigants with the necessary protection needed when entering into such an agreement.

For all these reasons, it is clear that third party litigation funding agreements has recently become more acceptable in South African law due to the beneficial nature of such agreement by increasing the accessibility of South African courts. Thus, if you are a litigant wanting to commence litigation proceedings and in need of a legal practitioner it would be beneficial to consider contingency fee agreements. The principal is to ensure that such agreement is entered into in good faith and that the terms of such agreement are negotiated prior to the commencement of your litigation proceedings.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE).