Explanation of Calculation of Cost Recovery and Fees
The most common agreement as to fees in personal injury litigation is made in terms of the Contingency Fees Act. The option to agree on paying an attorney once a case is successfully finalised is also sometimes referred to as a Success fee agreement.
In most cases, the attorney will take on the investigation to determine the prospects of success of action on a contingency basis, and will cover the expenses of the investigation (In some instances, for example when the facts of the case aren’t clear, the attorney may ask the client to pay towards the cost of the investigation). Once the investigation shows that the prospects of success of the claim are good, the attorney will proceed with the claim.
It is essential that a case has good prospects of success, as although the client cannot be charged any fee for his own attorney if the claim is not successful it may be that the claimant will be liable to pay the defendant’s legal costs.
Other agreements, such as where a client pays their attorney as and when work is done are also possible (for example a criminal case, where there is no compensation awarded).
No matter the type of agreement entered into, it remains important for a client to read and understand any contract that you sign and ask any questions before committing yourself to an agreement.
Our example below illustrates how legal costs and recovery of costs are calculated in a matter based on a contingency fee agreement (with a maximum fee of 25% of capital award).
In the below example remember the following principles:
- Attorney and client fees (in terms of the fee agreement) only apply to the capital amount (amount of damages recovered) obtained by successful litigation.
- Attorney and client fees may be much higher, but for purposes of the example are limited to 25%. The calculation may look different if a matter settles quickly and the attorney or client fees were of a smaller amount, such as R50 000.00. This amount and how it is arrived at would be determined in an itemised bill of costs presented to the defendant’s legal team and to the court’s Taxing Master.
- Party & party (recovered legal) costs do not form part of the capital award or capital settlement figure.
- Recovered costs are only a cost contribution to assist the successful party in paying their attorney.
- Recovered costs do not form part of the calculation when the attorney’s fees are determined. The recovered costs are taken into account to determine what the balance or difference owed by the client. There is usually a difference as an agreed fees is higher than standard party and party tariffs allowed for recovery.
Example in contingency fee agreement where the percentage of 25% maximum has been reached:
| Capital Settlement amount: | R 1 000 000.00 |
| Less Attorney and Client fee: | R 250 000.00 (maximum 25% of settlement amount)
The actual bill and fee could be much higher, but the Contingency fees Act limits the fee to 25%) |
| Less Disbursements (expenses) | R 200 000.00 |
| Sub Total: | R 550 000.00 |
| Plus Party and Party costs and disbursements recovered: | R 300 000.00 |
| Total owed to the client: | R 850 000.00 (*the client in this example actually receives more than just 75% of the capital award after fees are deducted and recovered costs credited) |
Disclaimer: The above example serves only to illustrate the very basic principles of how legal cost recovery is factored into the equation when accounting for a client.