Legal costs: does your standard agreement protect you?
People conclude agreements every day, and mostly without any hiccups. However, it happens every so often, and sometimes too often, that the other party fails to fulfil its obligations in terms of the agreement. The client only pays half of the price, and refuses to pay the balance, even though the goods or services have been delivered. Your tenant stops making payment of monthly rental, but remains in the property, or the client hiring your goods causes damage and refuses to pay for the repairs.
As ‘self-help’ is prohibited in our law, the only way to enforce an agreement, is through the proper and correct legal process. The legal costs involved in the enforcement of an agreement can often very quickly outweigh the value of the right that is being enforced. It is therefore essential that you ensure that you are protected in the situation where the other party fails to fulfil its obligations in terms of the agreement.
How do you protect yourself?
Ensure that your standard agreement includes a clause that you are entitled to claim costs on an attorney and own client scale should you need to enforce the agreement.
What happens if you don’t have such a costs clause?
If you don’t have a clause regulating the legal costs that you will be entitled to, you may only be able to claim costs on a party and party scale.
There are basically three types of cost scales which are important here:
1. Party and party scale:
The party and party scale entitles you to only the necessary costs for the matter at hand, and only at the tariff prescribed by legislation. It is important to realise that this scale does not include all costs incurred, but only those which were reasonably necessary and which are provided for in the tariff. Furthermore, there are different tariffs for the Magistrate’s Court and the High Court, and although it has been increased at the end of 2013, the tariff scale is significantly lower than the rates at which most attorneys charge their clients.
If you are only entitled to costs on a party and party scale, you will still have to pay your attorney his full costs, but will only be able to recover your costs from the other party on the considerably lower tariff scale.
If your agreement is silent on legal costs, you will only be able to claim costs on the party and party scale.
2. Attorney and client scale:
Attorney and client scale is very similar to party and party scale, in the sense that you are still restricted to the prescribed tariffs. However, the scope is broader than party and party scale, and you will be entitled to recover fees not only for the most necessary attendances, but also for all other attendances by the attorney, at the prescribed tariff rates.
3. Attorney and own client scale:
In terms of the attorney and own client scale, a party may recover the full legal costs from the other party. This is only possible if there is an agreement between the parties providing therefor. It is only in terms of this scale that a person will be able to recover all or nearly all of the legal fees he has to pay to his attorney.
Regardless of the scale on which you will be able to recover legal costs, you are always liable for the payment of your own attorney’s fees. As previously mentioned, the fees charged by attorneys, although regulated by the guidelines of the law society, are much higher than the tariff fees provided for in terms of legislation. It is therefore essential to protect yourself against the costs of enforcing an agreement, by including a clause that entitles you to recover the legal costs on an attorney and own client scale.
Is there anything else that has to be included?
It is beneficial to not only provide for costs on an attorney and own client scale, but to expressly state that you will also be entitled to collection commission, tracing fees, VAT, and cost of counsel on the bar counsel tariff.
Furthermore, the interest prescribed by legislation that apply to judgments, is at the rate of 9% per annum. It is therefore beneficial to provide for a higher interest rate, to ensure that you do not lose in the end due to the amount of time it takes to recover the costs. The maximum interest rate prescribed by the National Credit Act, differs according to the type of debt or agreement, but incidental credit agreements can accumulate interest at the maximum rate of 2% per month.
How much will you recover, and how?
The party that ‘wins’ the case, usually also gets an order for costs in his favour, on one of the above scales, depending on what was claimed. But how is the amount of costs decided? This is done after the judgment is obtained, by way of what is called a taxation. A list of all attendances is compiled, with the cost of each item, according to the relevant scale. This is called a Bill of Costs, which is then taxed by the Taxing Master of the court, who will ensure that everything on the Bill of Costs is correct and in line with the relevant scale.
Once the Taxing Master has deducted all irrelevant costs or eliminated costs that the party is not entitled to, a summary of the costs, disbursements, and VAT is completed, and stamped by the Taxing Master. This is then called the allocatur, which, once again, can be used to enforce the payment of the costs.
Watch out for the Consumer Protection Act
One needs to be aware that the Consumer Protection Act provides that where an agreement provides for a right to the supplier, without providing the consumer a corresponding right, it is presumed to be an unfair term of the agreement, and can be found to be void. You will therefore either have to be able to substantiate why it is fair for the supplier to have such a right, without providing the consumer with the corresponding right, or you will have to provide the consumer with the same right. However, it is not advised that you amend your agreements to the extent that both parties are provided with the right to legal costs on an attorney and own client scale.
When in doubt…
It is always advisable to have an expert look at your standard agreements to ensure that you are properly protected. It is clear how important the right wording for the clause providing for legal costs is, never mind even the existence of such a clause. There are many such essential provisions in agreements, and for proper protection and peace of mind, one should always have an attorney draft the agreements.