Ronald Bobroff & Partners Inc v De La Guerre

Constitutional court developed the principle of legality and decided that the challenge to the constitutionality of the Contigency Fees Act was not clearly demarcated along the lines set out in an earlier passage of the judgment but on closer examination the attack on the constitutionality of the Act as a whole is founded on a rationality review and also specifically on reasonableness review.

Essence

Principle of legality developed and concepts of rationality and reasonableness and human dignity equality and freedom in a democratic society explained. 

Decision

(CCT 122/13 , CCT 123/13) [2014] ZACC 2; 2014 (3) SA 134 (CC); 2014 (4) BCLR 430 (CC) (20 February 2014)

Order:

Refused leave to appeal with costs

Judges

Moseneke ACJ, Skweyiya ADCJ, Cameron J, Dambuza AJ, Froneman J, Jafta J, Madlanga J, Van der Westhuizen J and Zondo J

Delivered: 20 February 2014

Reasons

The distinction between rationality and reasonableness review

“[6] The Constitution allows judicial review of legislation, but in a circumscribed manner. Underlying the caution is the recognition that courts should not unduly interfere with the formulation and implementation of policy. Courts do not prescribe to the legislative arm of government the subject-matter on which it may make laws. But the principle of legality that underlies the Constitution requires that, in general, the laws made by the Legislature must pass a legally defined test of ‘rationality’:

“The fact that rationality is an important requirement for the exercise of power in a constitutional state does not mean that a court may take over the function of government to formulate and implement policy. If more ways than one are available to deal with a problem or achieve an objective through legislation, any preference which a court has is immaterial. There must merely be a rationally objective basis justifying the conduct of the legislature.”

[7] A rationality enquiry is not grounded or based on the infringement of fundamental rights under the Constitution. It is a basic threshold enquiry, roughly to ensure that the means chosen in legislation are rationally connected to the ends sought to be achieved. It is a less stringent test than reasonableness, a standard that comes into play when the fundamental rights under the Bill of Rights are limited by legislation.

[8] In those cases the courts have a more active role in safeguarding rights. Once a litigant has shown that legislation limits her fundamental rights, the limitation may only be justified under section 36 of the Constitution. Section 36 expressly allows only limitations that are “reasonable and justifiable in an open and democratic society based on human dignity, equality and freedom”.”

Quotations from judgment

Note: Footnotes omitted and emphasis added

THE COURT:

Introduction

[1] These are two applications for leave to appeal that depend on the same issue, namely the constitutionality of the Contingency Fees Act (Act). The South African Association of Personal Injury Lawyers (Personal Injury Lawyers) sought an order in the North Gauteng High Court, Pretoria (High Court) declaring the Act unconstitutional as a whole or, in the alternative, certain sections of it.

Before us the applicant in a related matter, Ronald Bobroff & Partners Inc (Bobroff), a law firm, accepted that a declaration of constitutional invalidity was a prerequisite for its success in the proceedings brought against it by a former client (Ms De La Guerre).

[2] At issue are contingency fees. Under the common law, legal practitioners were not allowed to charge their clients a fee calculated as a percentage of the proceeds the clients might be awarded in litigation.

The Act changed this. It makes provision for these fees to be charged in regulated instances and at set percentages.

Certain Law Societies made rulings allowing their members to charge in excess of the percentages set in the Act. Uncertainty reigned in the attorneys’ profession about the correct legal position in relation to contingency fees. Could these fees be charged only under the Act, or also outside its provisions?

[3] Bobroff was one of the firms which charged more than allowed for in the Act, as the rules of its professional association allowed. Ms De La Guerre was charged 30 per cent as a contingency fee, instead of the maximum of 25 per cent allowed under the Act. After being awarded damages in litigation she challenged the excess charge in legal proceedings in the High Court.

The Personal Injury Lawyers also brought proceedings in the High Court, challenging the constitutionality of the Act. Both cases were heard by the same Full Bench of the High Court.

[4] The High Court dismissed the application seeking a declaration of unconstitutionality and found in Ms De La Guerre’s favour in her application. Leave to appeal was refused by the High Court. Further leave was also refused by the Supreme Court of Appeal on the basis that no reasonable prospects of success on appeal existed and that there was no other compelling reason why it should be heard.

As a final resort, this Court has now been approached by the Personal Injury Lawyers and Bobroff for leave to appeal. Written submissions were sought from the interested parties. Ms De La Guerre, the Minister of Justice and Constitutional Development and the Road Accident Fund all opposed the applications for leave.

Should leave be granted?

[5] We accept that the matter is of great public interest, but leave should nevertheless not be granted because there are no reasonable prospects of success. The judgment of the Full Bench is, in our view, correct.

It is not necessary to repeat its reasoning in any great detail in this judgment. We will only deal briefly with the two main arguments put forward in the written argument. For convenience we will refer to them as the rationality review argument and the reasonableness review argument.

The distinction between rationality and reasonableness review

[6] The Constitution allows judicial review of legislation, but in a circumscribed manner. Underlying the caution is the recognition that courts should not unduly interfere with the formulation and implementation of policy. Courts do not prescribe to the legislative arm of government the subject-matter on which it may make laws.

But the principle of legality that underlies the Constitution requires that, in general, the laws made by the Legislature must pass a legally defined test of ‘rationality’:

“The fact that rationality is an important requirement for the exercise of power in a constitutional state does not mean that a court may take over the function of government to formulate and implement policy. If more ways than one are available to deal with a problem or achieve an objective through legislation, any preference which a court has is immaterial. There must merely be a rationally objective basis justifying the conduct of the legislature.”

[7] A rationality enquiry is not grounded or based on the infringement of fundamental rights under the Constitution. It is a basic threshold enquiry, roughly to ensure that the means chosen in legislation are rationally connected to the ends sought to be achieved.

It is a less stringent test than reasonableness, a standard that comes into play when the fundamental rights under the Bill of Rights are limited by legislation.

[8] In those cases the courts have a more active role in safeguarding rights. Once a litigant has shown that legislation limits her fundamental rights, the limitation may only be justified under section 36 of the Constitution.

Section 36 expressly allows only limitations that are “reasonable and justifiable in an open and democratic society based on human dignity, equality and freedom”.

[9] The challenge to the constitutionality of the Act is not clearly demarcated along the lines set out above. However, closer consideration shows that the attack on the constitutionality of the Act as a whole is founded on rationality review, and the attack on sections 2 and 4 specifically on reasonableness review.

Rationality

[10] The Full Bench accepted that a rational distinction may be made between the regulation of contingency fees for attorneys and that of champertous agreements amongst lay persons:

  • “First, legal practitioners are responsible for conducting the litigation concerned. They run the case and are responsible for advising on and taking the litigation decisions. Lay persons who enter into champerty and maintenance agreements do not engage in any of these activities.
  • Second, legal practitioners have specialised knowledge and training which equip them to conduct litigation. They are perceived by their clients as being experts on the decisions to be taken. This puts lawyers in a powerful position to influence the actual conduct of litigation. Lay persons who enter into champerty and maintenance agreements do not possess any of these skills or characteristics.
  • Third, legal practitioners are bound by a range of ethical duties to their clients. These duties may well come into conflict with their own pecuniary interest in the litigation when contingency fee agreements are concluded. Lay persons who enter champerty and maintenance agreements have no such ethical or other duties. There is, therefore, no possibility of a conflict of interest in this regard.
  • Lastly, legal practitioners are bound by a range of ethical duties to the court. Again, these duties may well come into conflict with their own pecuniary interest in the litigation when contingency fee agreements are concluded. Lay persons who enter into champerty and maintenance agreements owe no such ethical duties to the court or to litigants. There is, therefore, no possibility of a conflict of interest in this regard.”

[11] That there is a distinction is now accepted by the Personal Injury Lawyers. But they question the wisdom of this distinction made by the Legislature, regulating only legal practitioners and not lay persons. In doing so they ask us to venture beyond rationality into reasonableness, which courts cannot do under the guise of rationality review.

In addition, the fact that regulation for lay persons may also be wise does not mean that regulation of legal practitioners is unwise.

Thus, the rationality review bears no merit and should fail.

Limitation and reasonableness

[12] The Personal Injury Lawyers’ other attack is against sections 2 and 4 of the Act, based on the limitation of fundamental rights. But whose rights? It appears as if there is an underlying reliance on access to justice under section 34.

However, in the matter before us the right of access to justice is that of the legal practitioners’ clients, not the rights of the legal practitioners themselves.

The application was not brought as a representative one under section 38 of the Constitution, but as one where the Personal Injury Lawyers acted on their own behalf. And even if the practitioners sought to bring it on behalf of others there is no evidence that their clients’ rights have been limited.

[13] It is for these reasons that there are no reasonable prospects of success on appeal.

Order

[14] The applications for leave to appeal in matters CCT 122/13 and CCT 123/13 are dismissed with costs, including, where applicable, the costs of two counsel.

Court summary

“Contingency fees – Contingency Fees Act 66 of 1997 – constitutionality of the Act as a whole – constitutionality of sections 2 and 4 of the Act – not unconstitutional.”

Media summary

The following explanatory note is provided to assist the media in reporting this case and is not binding on the Constitutional Court or any member of the Court.

“Today the Constitutional Court delivered judgment in respect of two applications for leave to appeal that relate to the same issue, namely the constitutionality of the Contingency Fees Act (Act).

At issue was whether it is justifiable for legal practitioners to charge contingency fees outside of what the Act provides. Part of the debate related to whether the Legislature’s non-regulation of agreements concluded by lay persons, where one party undertakes to promote litigation financially or otherwise in return for a share in the proceeds, was rational.

At common law legal practitioners were not allowed to charge their clients a fee calculated as a percentage of the proceeds that the clients might be awarded in litigation. The Act changed this by regulating the percentage chargeable on a contingency basis and the circumstances in which these fees can be charged. Notwithstanding the provisions of the Act, certain Law Societies made provision, in their rules, for members to charge in excess of the percentages prescribed by the Act.

Bobroff and Partners (Bobroff) was one of the firms which charged more than the Act permitted in accordance with the rules of its professional association. In particular, Ms De La Guerre was charged 30% as a contingency fee, instead of the maximum of 25% allowed under the Act. After being awarded damages in litigation, Ms De La Guerre challenged the excess charge at the North Gauteng High Court, Pretoria (High Court). The South African Association of Personal Injury Lawyers (Personal Injury Lawyers) also brought an application challenging the constitutionality of the Act as a whole, in the alternative, certain sections of it. Both cases were heard simultaneously by the Full Bench of the High Court.

The High Court found in favour of Ms De La Guerre in her application and upheld the constitutionality of the Act. Both the High Court and the Supreme Court of Appeal refused to grant leave to appeal.

In the Constitutional Court, the Personal Injury Lawyers and Bobroff applied for leave to appeal along largely the same lines as they argued in the High Court. Ms De La Guerre, the Minister of Justice and Constitutional Development and the Road Accident Fund all opposed the applications for leave.

The Constitutional Court unanimously found that the Legislature’s decision to regulate contingency fee agreements in respect of only legal practitioners was not irrational. The Court held that the fact that regulation for lay persons may also be wise does not mean that the regulation of legal practitioners specifically should be regarded as unwise. Thus, the Court found no merit to the challenge as a whole.

In respect of the challenge to particular provisions of the Act, the Court held that this was a challenge based on a limitation to fundamental rights. The Court found that the matter concerns the right of access to justice by legal practitioners’ clients and not a right of the legal practitioners. Since there was no evidence showing that the rights of their clients had been infringed, this challenge was rejected.

The application for leave to appeal was dismissed with costs.”