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Legal Costs Explained

Legal Matters

Whenever a client approaches an attorney for legal advice, or for legal services, he or she does so with two issues foremost in their minds: What can be done for me, and How much is it going to cost? At a first consultation, most of the time is spent discussing the scenario and facts, and the question of the costs arising in respect of the attorneys’ services are reduced to something of an afterthought (if they are discussed at all!).

 

This article seeks to clarify the sometimes cloudy and often contentious issue of legal costs. If a new client is equipped with this information, there will be no dispute as to the question of the extent and liability for their legal costs and the attorney / client relationship will flourish to its most mutually beneficial extent.

 

Legal costs are grouped into three categories, with some degree of overlap. These are:

  • Party and Party Costs
  • Attorney and Client Costs
  • Attorney and Own Client Costs

This article will shed some light on all three of these categories, and also briefly discuss the nature of a deposit and the not-so-common “Contingency Fee” (no win, no fee) Agreement.

Party and Party Costs

Almost everyone who has ever watched a court-room drama on TV is aware of the maxim that the “losing side” has to pay the “winning side’s” legal costs. Whilst this is certainly the case, the concept often requires some clarification. Translated into more contemporary legal-speak, it can be stated that the successful litigant, in most circumstances, is entitled to recover his legal fees from the unsuccessful litigant.

What exactly constitutes success can, in certain instances, be open to debate. In most instances, success will involve a Court Order in your favour. The Court Order set out who is liable for the costs of the suit. These costs are, in the absence of a further directive from the Court, Party and Party Costs.

Party and Party Costs are those costs which were necessarily incurred in the course of prosecuting or defending a claim.

They refer only to the fees and disbursements reasonably incurred by the party’s Attorney, and only in respect of the matter at hand. They are indeed recoverable from the unsuccessful litigant – the logic being that the successful litigant should be indemnified against the necessary expense of having to defend or uphold his or her rights in law.
The amount of these costs, (the scale), is governed by a tariff which is set by the Legislature. There is a separate scale for Magistrates’ Court matters and for High Court matters. Recently, the tariffs were amended and increased significantly, which is perhaps good news for those intending to enter into litigation because it means they will be able to recover a greater amount from their opponent than in the past!

It is also important to note that these costs belong to the client, and not to the Attorney.

Attorney and Client Costs

Attorney and client costs are largely the same as Party and Party costs. They are governed by the same tariff (i.e. the amounts are the same). However, they differ in one material respect, and that is their scope. Attorney and client costs refer broadly to those fees and disbursements incurred by a litigant in the performance of a mandate. They need not be specifically limited to a matter at hand. As such, they can refer to a wider range of services. Party and Party costs, on the other hand, are limited only to those necessarycosts, while Attorney and Client costs are allcosts incurred by the litigant.
An example highlighting the difference between the two types of costs would be in letters sent to the client by the Attorney, in which the attorney reports on the progress of the matter to the client. The letter is not necessary to the suit, and does not take the litigant any closer to success. The resultant fee is therefore not recoverable from the other side in the event of success. However, on the Attorney and Client scale, the fee for this letter would be recoverable.
Attorney and Client costs are only recoverable from the other side where there is a Court Order to this effect. They have to be in the “prayer” to the pleadings, and are usually awarded as a form of penalty to the other side. Like Party and Party Costs, they belong to the client, not the attorney.

Attorney and Own Client Costs

Attorney and Own Client Costs differ fundamentally from the other types of costs already discussed above. These are the costs for which the client is liable to his attorney, for services rendered or disbursements incurred on his behalf. They belong to the attorney, and not the client.

These costs are governed by a private agreement or contract entered into between the attorney and his client at the outset of the mandate (sometimes referred to as a “Legal Services Contract”). Such an agreement will govern all aspects of the attorney / client relationship, but undoubtedly the section relating to fees is the most important aspect thereof. All clients are strongly advised to discuss their liability for Attorney and own client fees with the attorney before commencing with the mandate, as they will always be liable for these costs. If there is no agreement between the attorney and his or her client regarding fees, then the scale set out in the party and party tariff will apply.

The scale of Attorney and Own Client Costs is not governed by any tariff, although the Cape Law Society has been so kind as to publish guidelines as to what should be charged by attorneys. It is important to remember that these are guidelines only. There are numerous factors which are taken into account when determining an appropriate fee to charge for a specific service.

The astute reader will pick up on the fact that the Attorney and Own Client scale of costs is far greater than the Party and Party scale. How then, does a litigant expect to be indemnified against the necessary costs of prosecuting or defending a claim in support of their legal rights? The unfortunate answer is that inflation has overtaken the tariff, which is perpetually playing catch-up. The recent increase in tariff went some way towards closing this regrettable gap, but certainly not far enough to allow the public to engage attorneys with impunity.

Deposits

Most attorneys will require a deposit at the outset of an instruction, and all prospective clients should be prepared to pay one. A deposit indemnifies the attorney against non-payment of their fees by a defaulting client. After a deposit has been paid, the attorney will certainly feel more comfortable with the attorney / client relationship, and will be more willing to commence with the performance of the mandate. By law, the deposit must be paid into a separate trust account, and the attorney’s fees and charges are only deducted as and when the services are rendered. At the conclusion of the mandate, the balance remaining in the trust account is repaid to the client.

It is customary for attorneys to require deposits prior to performing any legal services. They may also request further deposits to “top up” the trust account as the matter progresses. Prospective clients should be made aware of this practice at the outset of the relationship with their attorney, as this will certainly remove the possibility of any tensions arising later on regarding unpaid fees. At any time during the mandate, the client should be able to request a copy of their account.

Contingency Fee Agreements

So called “contingency fee agreements” (also known as “no win, no fee” agreements) used to be illegal, and were considered a highly unethical form of touting for new clients. However, the ban has been lifted, and it is now possible in some instances to enter into such an agreement with your attorney. These agreements are useful where the client has no money to pay for the attorney’s charges, but expects to be successful in a matter where there is a claim for a sum of money from a third party who can afford to pay.

The overwhelming majority of these types of contracts occurred, in my experience, in Road Accident Fund matters where indigent claimants agreed to give a portion of the proceeds of their claim to their attorneys in the event of their success. The portion payable is limited by statute to a maximum of either 25% of the client’s award, or double the usual fee of the attorney. It’s not difficult to see how this situation benefitted everyone concerned, but sadly with the Road Accident Fund currently in the throes of some serious legislative and administrative disarray, these types of agreements are no longer so common.

In conclusion, always remember that legal costs are just as important to the attorney as they are to the client, and they should be discussed with all of the patience, importance, and care that they deserve.

By Richard English of ER Attorneys
Courtecy of  Law24.com

 

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