Contingency Fee Agreements
28 February 2021 | Yolandi Vosloo
Contingency fee agreements in personal injury claims can be a useful tool to assist clients who do not have the funds to govern a successful claim. Equally, such agreements can be advantageous to practitioners willing to carry the risk on behalf of their client.
To understand the essence of contingency fee agreements this article will focus on the factions upon which such agreements are based.
What is a contingency fee agreement?
Contingency fees generally imply that only if a claim is successful will fees be payable, possibly on a higher rate than normal and from the capital amount recovered in such claim. Such agreements are strictly regulated by the Contingency Fees Act (the “CFA”), 66 of 1997 which prescribes that only agreements included in the Regulations of the Act are lawful.
Different kind of contingency fee agreements
The CFA provides for two kinds of contingency fee agreements. The first is a “no win, no fee” agreement, and the second a “success fee” agreement whereby practitioners may charge fees higher than the normal fee if the claim is successful.
Formalities that must be complied with
In order for a contingency fee agreement to be valid such agreement must be in writing and an agreement prescribed within the Regulations of the CFA.
Generally, the agreement must state the following:
- The proceedings to which the agreement relates must be described in detail;
- That, before the agreement was entered into, the client:
- was advised of any other ways of financing the litigation and of their implication;
- was informed of the normal rule that in the event of him/her being unsuccessful in the proceeding, he/she may be liable to pay the taxed party and party costs of his/her opponent in the proceedings;
- was informed that he/she will also be liable to pay the success fee in the event of success; and
- understood the meaning of the agreement.
In the event that a contingency fee agreement does not comply the CFA such agreement will be rendered invalid and unlawful.
Formalities on the settlement of proceedings
The CFA provides that when an offer of settlement is made to a client who has entered into a contingency fee agreement, such settlement may only be accepted after the practitioner has filed an affidavit with court, if the matter is before court, or has filed an affidavit with the relevant legal practice counsel, if the matter is not before court.
The affidavit by such practitioner must state the following:
- The full terms of the settlement;
- An estimate of the amount or other relief that may be obtained by taking the matter on trial;
- An estimate of the chance of success or failure at trial;
- An outline of the practitioner’s fees if the matter is settled compared to taking the matter on trial;
- The reasons why the settlement is recommended;
- That the matters referred to above were explained to the client, and the steps taken to ensure that the client understands the explanation; and
- That the practitioner was informed by the client that he/she understands and accepts the terms of the settlement.
A practitioner’s affidavit must be accompanied by an affidavit by the client in which the client must state the following:
- That he/she was notified in writing of the terms of the settlement;
- That the terms of the settlement were explained to him/her and that he/she understands and agrees with them; and
- His/her attitude to the settlement.
Contingency fee agreement are thus not only beneficial incentives for both clients and practitioners but strictly supervised by courts with the primary aim of protecting the rights of clients in litigation.