Theodosiou and Others v Schindlers Attorneys and Others

• Jurisdiction: South Africa
• Citation: 2022 (4) SA 617 (GJ)

Theodosiou and Others v Schindlers Attorneys and Others
2022 (4) SA 617 (GJ)

2022 (4) SA p617

Citation	2022 (4) SA 617 (GJ)
Case No	14038/2021
Court	Gauteng Local Division, Johannesburg
Judge	Booysen AJ
Heard	January 19, 2022
Judgment	January 19, 2022
Counsel	PF Louw SC (with JW Steyn) for the plaintiffs.; A Botha SC (with E Kromhout) for the second and third defendants.

Flynote : Sleutelwoorde

Legal practitioner — Attorney — Fees — Contingency fees — Contingency fee agreement — Settlement of litigation incorporating contingency fee agreement — Whether non-compliance with Contingency Fees Act requirement that affidavits by legal practitioner and client be filed with court, invalidating settlement agreement and court order incorporating same — Whether, if invalid, enrichment claims available for repayment of performance made in terms thereof — Contingency Fees Act 66 of 1997, ss 4 and 5.

Practice — Judgments and orders — Rescission — Orders incorporating setllement agreement — Effect of compromise — Rescission only available at common law and on limited basis of justus error or fraud — Parties to compromise unable to obtain rescission without bona fide defence of iustus error to merits of compromised claims — Such error must nullify or void consent, not relate to disputed merits.

Headnote : Kopnota

The plaintiffs, the Theodosiou brothers and related trusts and companies, had entered into an oral 'on risk contingency fee agreement' with the first respondent, Schindlers Attorneys, who represented them in litigation against, inter alia, the second and third respondents, Nedbank Ltd and Imperial Holdings. Some time thereafter, a written contingency fee agreement was concluded. Settlement of the litigation was reached some two and a half years later, and the resulting two settlement agreements (the Imperial and the Schindlers agreements), together with a consent to a money judgment (in favour of Nedbank), were made orders of court.

The plaintiffs subsequently instituted action in the High Court to have these orders declared invalid and set aside, alternatively rescinded in terms of the common law or as erroneously sought and granted under rule 42 of the Uniform Rules of Court. The plaintiffs also sought repayment — based on enrichment — of performance made to Schindlers and to Nedbank.

They claimed that —

•

the oral on risk contingency fee agreement was a nullity that could not be rectified by the subsequent written contingency fee agreement, so that the order in respect thereof was erroneously sought and granted; and

•

since there was no compliance with s 4 of the Contingency Fees Act 66 of 1997 (the CFA) [*] when the orders were made, all settlements and court orders based thereon were also invalid. (See [6] – [7] and [13].)

This case concerned an exception to the claim, raised by the second and third defendants, that it lacked the necessary averments to sustain a cause of

2022 (4) SA p618

action, alternatively that it was vague and embarrassing, in that, inter alia:

•

No basis was laid for an enrichment or restitution claim (see [8.32] – [8.38]).

•

A void contingency agreement and/or non-compliance with s 4 of the CFA did not render compromises and/or orders of the court invalid. In this regard the excipients submitted that the purpose of ss 4(1) and 4(2) of the CFA was to prevent overreaching by the client's own attorney, and that the client had remedies under s 5 of the Act to declare the contingency fee agreement void on application to the court, should it not comply with the provisions of s 3 of the Act (see [8.31] and [33]).

•

All disputes in respect of the contingency fee agreement that may be regulated by the CFA were compromised and replaced with the settlement agreement (see [8.26] – [8.30]).

Held

Non-compliance with s 3 of the Act rendered the contingency fee agreement invalid and void. Accordingly, the condictio ob turpem vel iniustam causam was an available cause of action against Schindlers for repayment. An invalid contingency fee agreement did, however, not invalidate any related settlement agreement made an order of court — without justus error, fraud or public policy considerations being established. Non-compliance with the Act did not alter the parties' cause of action, or contractual or statutory relationship. There was no question of any condictio regarding performance in terms of the agreement if the agreement were valid, despite the illegality. A client's remedies for non-compliance with the Act, or an invalid contingency fee agreement, were against their attorneys. (See [17], [28], [30], [56] and [79.2].)

Whether the invalidity of the contingency fee agreement or non-compliance with s 4 of the Act tainted the underlying settlement agreements, rendering them and the court orders illegal nullities and consequently unenforceable, depended on whether the CFA's effect was to void a contract entered into in contravention of its terms. Section 4(1) afforded the court the right or obligation to inquire into the merits of the settlement, to protect the client from extortion or concluding a compromise not in their best interest. The court had minimal discretion to enter the merits of the settlement. This discretion to enter the merits interferes with the parties' right to agree to their bargain freely. Accordingly, it must be restrictively interpreted and limited to prevent the plaintiff's extortion through an illegal contingency fee agreement or fraud upon the defendant. Given the remedies under s 5 of the CFA, the settlement agreements and court orders could not be challenged on the basis that they were illegal and void through non-compliance with the Act. (See [53] – [55], [57].)

A court's interference with the terms of compromises, absent a dispute as to its respective obligations or validity, would interfere with the parties' contractual freedom to regulate their affairs. Public policy required that parties comply with contractual obligations, including settlements. The court's function was to adjudicate disputes between the parties. If the parties settled their differences by consent through a compromise, then the disputes no longer existed. Once settled, a court had no residual jurisdiction over the compromised claim, even an enrolled action. The validity or enforceability of a settlement agreement was not dependent on the relative strengths and weaknesses of the original cause of action; instead, it created contractual obligations freely and voluntarily. A compromised claim could be challenged on the strength of the common law and only on the limited basis of justus error or fraud. The error must rescind, nullify or void consent; it could not relate to the disputed merits or the reason for the

2022 (4) SA p619

settlement, ie the purpose of compromise. Parties to a compromise could not obtain a rescission without a bona fide defence to the merits of the compromised claims. Accordingly, the exception would be upheld (See [41], [43], [47] – [48], [71], [75], [78], [79.3] and [80].)

Cases cited

Absa Bank Bpk v CL von Abo Farms BK en Andere1999 (3) SA 262 (O): dictum at 274D applied

Airports Company of South Africa v Big Five Duty-Free (Pty) Ltd and Others2019 (5) SA 1 (CC) (2019 (2) BCLR 16; [2018] ZACC 33): dictum in para [1] applied

Barkhuizen v Napier2007 (5) SA 323 (CC) (2007 (7) BCLR 691; [2007] ZACC 5): dictum in para [57] applied

Beadica 231 CC and Others v Trustees, Oregon Trust and Others2020 (5) SA 247 (CC) (2020 (9) BCLR 1098; [2020] ZACC 13): dictum in para [82] applied

Biowatch Trust v Registrar, Genetic Resources, and Others2009 (6) SA 232 (CC) (2009 (10) BCLR 1014; [2009] ZACC 14): dictum in para [17] applied

Botha v Road Accident Fund2017 (2) SA 50 (SCA): dictum in para [13] applied

Colonial Industries Ltd v Provincial Insurance Co Ltd 1920 CPD 627: dictum at 630 applied

Colyn v Tiger Food Industries Ltd t/a Meadow Feed Mills (Cape)2003 (6) SA 1 (SCA) ([2003] 2 All SA 113; [2003] ZASCA 36): dictum in para [4] applied

Dabner v South African Railways and Harbours1920 AD 583: dictum at 594 applied

Dharumpal Transport (Pty) Ltd v Dharumpal1956 (1) SA 700 (A): dictum at 706C applied

Eke v Parsons2016 (3) SA 37 (CC) (2015 (11) BCLR 1319; [2015] ZACC 30): applied

Eland Boerdery (Edms) Bpk v Anderson1966 (4) SA 400 (T): referred to

First National Bank of Southern Africa Ltd v Perry NO and Others2001 (3) SA 960 (SCA) ([2001] 3 All SA 331; 2001 CLR 196; [2001] ZASCA 37): dicta at 968 – 971 applied

Gollach & Gomperts (1967) (Pty) Ltd v Universal Mills & Produce Co (Pty) Ltd and Others1978 (1) SA 914 (A): dictum at 921C and 922C applied

Government of the Republic of South Africa and Others v Von Abo2011 (5) SA 262 (SCA) ([2011] 3 All SA 261): referred to

Headermans (Vryburg) (Pty) Ltd v Ping Bai1997 (3) SA 1004 (SCA) ([1997] 2 All SA 371): dictum at 1010D applied

Hubbard v Cool Ideas 1186 CC2013 (5) SA 112 (SCA) ([2013] ZASCA 71): applied

Jowell v Bramwell-Jones and Others1998 (1) SA 836 (W) ([2000] 2 All SA 161): referred to

Kudu Granite Operations (Pty) Ltd v Caterna Ltd2003 (5) SA 193 (SCA) ([2003] 3 All SA 1): dictum in para [15] applied

Laco Parts (Pty) Ltd t/a ACA Clutch v Turners Shipping (Pty) Ltd2008 (1) SA 279 (W): dictum in para [22] applied

Mathimba and Others v Nonxuba and Others2019 (1) SA 550 (ECG): compared

Maujean t/a Audio Video Agencies v Standard Bank of SA Ltd1994 (3) SA 801 (C): compared

Metro Western Cape (Pty) Ltd v Ross1986 (3) SA 181 (A): compared

2022 (4) SA p620

Mfengwana v Road Accident Fund2017 (5) SA 445 (ECG): distinguished

Minister of Defence and Others v South African National Defence Force Union and Another [2012] ZASCA 110: referred to

Moraitis Investments (Pty) Ltd and Others v Montic Dairy (Pty) Ltd2017 (5) SA 508 (SCA) ([2017] 3 All SA 485)...