Judge Neil Tuchten, sitting in the Pretoria High Court, last week handed down a particularly important judgment confirming the only basis on which an attorney may bill a client.
The case was brought by Cadac CEO Simon Nash (Nash) and his company Midmacor Industries (Midmacor) against pension fund curator, Tony Mostert, his law firm AL Mostert & Co, the Financial Services Board (FSB), and the Registrar of Pension Funds.
Mostert, a senior attorney practising in the financial services sector, is the curator of several pension funds whose surpluses had been stripped years ago using the eponymous Ghavalas Option.
He has been successful in recovering nearly R1 billion for these pension funds.
SB contingency fee agreement
In August 2006 Mostert and the FSB entered into an agreement whereby Mostert would use his best efforts to recover the stripped surpluses. Mostert, as curator, would instruct his law firm, AL Mostert & Co, to do all the administrative work for a total “contingency fee” of 33.3%. (Mostert and his firm both receiving 16.66%, excluding VAT.) The agreement contemplated that Mostert and his firm would be liable for all the expenses incurred in recovering the surpluses.
Contingency Fees Act
The Contingency Fees Act (CFA) came into operation in 1999. It did away with the common-law prohibition against lawyers (attorneys and advocates) taking matters on risk. Prior to this time, lawyers could only work for their ordinary fee. The CFA came under the legal spotlight in 2003 when the Supreme Court of Appeal ruled on it in the PwC case:
“The clear intention is that contingency fees be carefully controlled. The Act was enacted to legitimise contingency fee agreements between legal practitioners and their clients, which would otherwise be prohibited by the common law. Any contingency fee agreement between such parties which is not covered by the Act is therefore illegal. What is of significance, however, is that by permitting ‘no win, no fees’ agreements the legislature has made speculative litigation possible. And by permitting increased fee agreements the legislature has made it possible for legal practitioners to receive part of the proceeds of the action.”
It is settled law in South Africa that a contingency fee must be based on the ordinary fee charged by an attorney. According to the Law Society of South Africa website, the ordinary fee will vary from place to place and will also depend on several factors:
- The amount and importance of the work done;
- The complexity of the matter or the difficulty or novelty of the work or the questions raised;
- The skill, labour, specialised knowledge and responsibility on the part of the attorney;
- The number and importance of the documents prepared or perused, without necessarily having regard to length;
- The place where and circumstances in which the services or any part thereof were rendered;
- The time expended by the attorney; where money or property is involved, its amount or value;
- The importance of the matter to the client;
- The quality of the work done;
- The experience or seniority of the attorney;
- Whether the fees and disbursements have been incurred or increased through over-caution, negligence or mistake on the part of the member.
The fee due by the client can then only be calculated regarding documents such as file notes and other proof of the time spent by the lawyer and support staff, the number of photocopies or phone calls made. It will include the fees paid to advocates.
The fee calculation is undertaken by a legal cost consultant who looks at the lawyer’s files on the matter and itemises each attendance, phone call, photocopy or consultation with an advocate.
The legal cost consultant will then prepare a bill of costs for the attorney, who then presents it to the client. If the client accepts the amount charged then that is the end of the matter. If the client is unhappy then a bill relating to litigation must be assessed by a court clerk called a Taxing Master.
Non-litigious matters are taxed by the local Law Society.
A Taxing Master – in many instances an admitted attorney or advocate – must, according to legal precedent, “steer his difficult course between the Scylla of liberality and the Charybdis of niggardliness“.
The CFA provides that when a success fee is charged it may not exceed double the ordinary fee – as taxed or agreed – and that the statutory cap is 25% of the capital (including VAT).
Mostert has so far recovered R983 million, of which (excluding VAT) at 33.3% is R327 million and 25% is R245 million – a difference of R82 million.
What does all of this mean for Tony Mostert?
Mostert told Moneyweb that he and his firm will appeal the judgment of Judge Tuchten. The original court order granted by Pretoria High Court Judge Ntsikelelo Poswa stated that, “The curator (Mostert) shall be entitled to periodical remuneration in accordance with the norms of the attorneys’ profession, as agreed with the FSB”.
Legal experts consulted by Moneyweb agreed that the norms of the attorneys’ profession meant that Mostert and his firm would first have to prepare a bill of costs to quantify their ordinary fee. Only then, if the agreement with the FSB was held to be a valid agreement in terms of the CFA, could a success fee be claimed.
Mostert disagrees with this and told Moneyweb that there had been an identical remuneration provision in the court order relating to the Datakor Pension Fund and that the FSB had been successful in having the order varied and that the court had “approved the contingency arrangement”.
He accused Nash of exploiting a legal technicality.
Nash told Moneyweb: “I am pleased that the court has intervened and that the rights of the pensioners and employers not to be charged illegal and exorbitant fees by Mr Mostert and his law firm stopped in its tracks. There are several other funds affected by this and action is going to be taken shortly regarding these.”
The FSB has not indicated whether it would support Mostert by appealing the decision.