Ruling brings clarity on contingency fees
Gauteng High Court (Johannesburg) Deputy Judge-President Phineas Mojapelo handed down a seminal contingency fees judgment this week, clarifying precisely how a legal practitioner’s success fee should be calculated and whether VAT was payable by the client or by the attorney, reports Tony Beamish for Moneyweb.
Masango Mlungisi Nelson, a road accident victim, had signed a flat rate – 25% of the capital amount paid by the Road Accident Fund (RAF) – contingency fee agreement with law firm Renier van Rensburg Inc Attorneys.
Although Nelson’s matter was settled with the RAF by agreement and came before Mojapelo to be made an order of court, the judge set the matter down for a full hearing to determine whether a flat rate of 25% of the capital amount paid by the RAF complied with the Contingency Fees Act (CFA) and whether VAT could be levied on top of this.
In his ruling the judge noted his concern that ‘the practice of attorneys simply charging 25% of their client’s capital award is widespread, especially in personal injury claims’. He added: ‘This court has seen many such agreements that were handed to it by counsel when seeking to obtain court orders to sanction settlements in such claims. The practice is not legal and needs to be weeded out.’
After analysing the VAT Act, Mojapelo came to the conclusion that VAT is a tax levied on the legal practitioner and not on the client. 'Both the liability to account for output tax and the right to deduct input tax vests in the legal practitioner. VAT is not a tax which the legal practitioner incurs on behalf of the client and therefore recovers from the client. It is a tax levied on the practitioner (on the supplier) and for which the practitioner is liable.’
The judgment referred to a number of decisions which held that contingency fees agreements that do not comply strictly with the terms of the CFA and prescribed form are invalid. Beamish notes the LSNP president Anthony Millar has consistently told Moneyweb over the past few years that the 25% is a cap and not a fee.
He added: ‘We welcome the court’s judgment on this important issue of the rights of both attorneys and their clients. It serves to enhance and promote the access to court for which the CFA was intended. With 280 000 road accident victims every year, it is an important issue which is likely to affect you or someone you know.’
Article disclaimer: While we have made every effort to ensure the accuracy of this article, it is not intended to provide final legal advice as facts and situations will differ from case to case, and therefore specific legal advice should be sought with a lawyer.
