Invalid Contingency Fees

In Theodosiou and Others v Schindlers Attorneys and Others [2022] 2 All SA 256 (GJ), effect of invalid contingency agreements on underlying settlement agreements and court’s discretion to inquire into the merits thereof.

By Merilyn Rowena Kader LLB (Unisa), Legal Editor at LexisNexis South Africa.

Contingency fee agreements - Effect on settlement agreements and court orders flowing from invalid contingency fee agreement: Schindlers Attorneys represented the plaintiffs in several litigious matters on a contingency basis. Settlement agreements in some of the matters were made orders of court. The plaintiffs in Theodosiou and Others v Schindlers Attorneys and Others [2022] 2 All SA 256 (GJ) sought the setting aside of two court orders, one incorporating the two settlement agreements and the other a consent to a money judgment, due to non-compliance with the Contingency Fees Act 66 of 1997. They contended that as the contingency fee agreement was illegal and void due to the said non-compliance, all agreements and orders flowing from that agreement were also void. That led to the second and third defendants raising an exception to the claim on the basis that it lacked the necessary averments to sustain a cause of action.

Referring to the general principles of pleading in the context of exceptions, the court turned to consider the effect the invalid contingency fee agreement had on the underlying settlement agreements. Non-compliance with the Act rendered the contingency fee agreement invalid and void, and the condictio ob turpem vel iniustam causam was an available cause of action to pursue against Schindlers Attorneys. Section 4(1) of the Act gives the court a discretion to inquire into the merits of the settlement agreement and make it an order of court. However, its power to enter the merits of the settlement interferes with the parties’ right to agree to their bargain freely and is, therefore, limited to prevent extortion of a plaintiff through an illegal contingency fee agreement or fraud on a defendant. Concluding that particulars of claim failed to disclose a cause of action for the relief sought in six of the prayers, the court upheld the exception and struck out the offending paragraphs.

Merilyn Rowena Kader
Legal Editor at LexisNexis