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2024
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[2024] ZAFSHC 53
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South African Legal Practice Council v De Lange and Others (4514/2023) [2024] ZAFSHC 53 (20 February 2024)
IN
THE HIGH COURT OF SOUTH AFRICA,
FREE
STATE DIVISION, BLOEMFONTEIN
Case
number: 4514/2023
Reportable:
YES/NO
Of
Interest to other Judges: YES/NO
Circulate
to Magistrates: YES/NO
In
the matter between:
THE
SOUTH AFRICAN LEGAL PRACTICE COUNCIL
Applicant
and
PAUL
DE LANGE
1
st
Respondent
SHARON
ANN DE LANGE
2
nd
Respondent
ROUX
BARRY CLOETE
3
rd
Respondent
MATSEPES
INCORPORATED
4
th
Respondent
CORAM:
LOUBSER, J et MOLITSOANE, J
HEARD
ON:
2 NOVEMBER
2023
JUDGEMENT
BY:
LOUBSER, J
DELIVERED
ON:
20 FEBRUARY 2024
[1]
This is an application for the suspension of the 1
st
and
2
nd
respondents from the roll and from the practice of
legal practitioners of the High Court of South Africa until such time
that a
valid Fidelity Fund Certificate has been issued to them,
alternatively for such period and on such conditions as the Court may
deem fit. The application was launched on an urgent basis and it came
before the Court on 13 September 2023 for the first time.
[2]
In the Notice of Motion, the usual ancillary relief is also sought
against the 1
st
and 2
nd
respondents. In
addition, an order is sought that the respondents, or any of their
employees, be prohibited with immediate effect
from operating and
dealing with any of the trust banking accounts of De Lange Attorneys
and the 4
th
respondent, the banking accounts of any
deceased estates in respect of which the respondents have been
appointed as executor/executrix
or Master’s representative and
any banking accounts of any insolvent estates in respect of which
he/she has been appointed
as a liquidator.
[3]
It transpires from the founding affidavit of the applicant that the
1
st
and 2
nd
respondents are both seasoned
attorneys of approximately three decades standing in the attorney’s
profession. They used to
practice as partners of De Lange Attorneys
until an alleged merger between their firm and the 4
th
respondent took place as from 1 March 2021. They then purported to
become joint proprietors of the 4
th
respondent, practicing
as attorneys for their own account under the name and style of
Matsepes Incorporated, that is the 4
th
respondent. The 3
rd
respondent is also cited as a joint proprietor of Matsepes and
because of his control of the firm.
[4]
It is further evident from the founding affidavit that the
application is founded on the fact
that all the respondents are
presently practicing without Fidelity Fund Certificates in
contravention of section 84 of the Legal
Practice Act.
[1]
It is also evident that the respondents were unable to obtain
Fidelity Fund Certificates because of complications arising
from the
purported merger of the two firms in 2021. The first complication was
that the merger was not done in proper compliance
with the Act and
its Rules, more specifically in that the 1
st
and 2
nd
respondents failed to give notice to the applicant of the merger in
contravention of section 84(5) of the Act. They also failed
to comply
with the applicant’s requirements in relation to the closure of
their trust account, the applicant states. These
requirements are
stipulated in Part XII of the Rules of the applicant, and pertain to
elaborate accounting rules and procedures
including the proper
process for closing firms.
[2]
The respondents also failed to comply with these rules.
[5]
The applicant apparently only became aware of this situation when the
2
nd
respondent informed the applicant under the letterhead
of Matsepes on 17 March 2021 that she, the 1
st
respondent
and the 3
rd
respondent were now the new directors of
Matsepes. In a later letter in March 2023, she informed the applicant
that the closing
of the De Lange Attorneys banking accounts caused
all monies still paid into the old De Lange accounts to be
transferred into Matsepes
accounts. She further mentioned that the
Matsepes accounts were in the process of being audited.
[6]
What emerged from these letters was that the trust accounts of De
Lange Attorneys were conflated
with the trust accounts of Matsepes
without a proper closing audit, the applicant says. In this process
the 3
rd
respondent has been complacent in the unlawful
conflation of the audit trail between De Lange Attorneys and
Matsepes, it is further
pointed out. Meanwhile, the 2
nd
respondent had applied to the applicant for an extension of time for
the lodgement of a final audit by their auditors in order
to obtain
the required Fidelity Fund Certificate. By 1 August 2023 the final
audit was still not ready, while the respondents were
still
continuing to practice as attorneys without valid Fidelity Fund
Certificates for the year 2023.
[7]
In their opposing papers, the respondents say that they take note of
the provisions relating to
the closure of a practice and the merger
of one practice with another, but they say they were not familiar
with those provisions.
As regards the events after the merger, they
state that their bookkeepers informed the auditors in January 2022
that one accounting
system was being used but that the erstwhile
firms were still operating separate trust accounts. The auditors were
satisfied with
that explanation and did not raise any queries about
the process that was being followed. The respondents say that
consequently
neither their bookkeepers nor they themselves had any
reason to suspect that they were “going about things the wrong
way”.
[8]
The respondents further say that in March
2023, their auditors informed them that they were following
the wrong
process. The auditors then had discussions with the applicant in May
2023 to seek guidance on what should be done. As
a result of these
discussions the auditors then requested the Matsepes bookkeepers to
redo all transactions from 1 March 2021 until
the end of February
2022. The auditors wanted all the transactions of De Lange Attorneys
to be separated from the transactions
of Matsepes and also wanted a
separate De Lange bookkeeping system to be created, so that it can be
closed in terms of the applicant’s
requirements.
[9]
The respondents point out that such process
entailed an enormous task of gigantic proportions. During
the process
certain accounts could not be reconciled, and it took time to do a
proper reconciliation. By Friday 29 September 2022
there was still a
discrepancy of R41 000.00, which turned out to have been caused
by deposits which were not posted in the
correct manner. There is no
money missing, the respondents say. No trust funds have been
misappropriated. The problem is simply
a bookkeeping issue, they say.
[10]
The respondents also point out that their
bookkeepers have worked more than 250 hours overtime to comply
with
the instructions of the auditors. The auditor’s report is
imminent, they state. If the relief sought by the applicant
is
granted, then the livelihood of thirty-four employees of Matsepes and
their families will be endangered.
[11]
In its replying affidavit, the applicant does not dispute the
allegations of the respondents that no money
had gone missing, and
that no trust funds have been misappropriated. However, the applicant
points out that the 3
rd
respondent is complicit and
directly responsible for the failure to submit the trust audits of
Matsepes for the financial year
ending February 2023. Because of this
failure, his Fidelity Fund Certificate has been withdrawn by the
applicant in accordance
with section 84(6) of the Act.
[12]
When the urgent application for suspension first came before Mhlambi,
J and Vele, AJ on 13 September 2023,
application was made on behalf
of the respondents for a postponement to accommodate the completion
of the audits by the auditors.
The application was granted and the
matter was postponed to 5 October 2023 “for the filing of the
Fidelity Fund Certificate”.
The respondents were ordered to pay
the costs of the Legal Practice Council on the attorney and client
scale.
[13]
On 5 October 2023 the respondents had
still not obtained their Fidelity Fund Certificates, and a
further application for a postponement was made on behalf of the
respondents.
The Court was informed that everything was now
reconciled by the bookkeepers and the auditors only need to do their
checks. After
hearing submissions from both sides on the application
for a further postponement, the Court made the following orders: The
main
application is heard as an urgent application, and it is
postponed to 2
nd
November 2023 for the purposes of
finalising the audit process and obtaining Fidelity Fund
Certificates. The Court further ordered
that it is a final
postponement and that no further postponements would be granted on 2
November 2023 for the purposes mentioned.
The respondents were
ordered to pay the costs occasioned by the postponement on the
attorney and client scale.
[14]
On 2
nd
November 2023 the respondents were still not in
possession of any Fidelity Fund Certificate, and this Court proceeded
to hear argument
on the application for suspension. Having heard
argument, the Court reserved its judgement, but also ordered that “if
there
are any further developments that could have an influence on
the judgement, such developments may be brought to the attention of
the Court by the filing of affidavits to such effect before the
judgement is handed down”. The Court made this order because
there appeared to be a reasonable prospect that the respondents could
be issued with Fidelity Fund Certificates before judgement
is handed
down. Such an eventuality would obviously have a direct influence on
the judgement in the application.
[15]
Only a few days before the hearing on 2
nd
November 2023,
the long-awaited audit reports became available. Both the reports
concerning De Lange Attorneys and Matsepes were
qualified reports,
however. In terms of Rule 54.29 of the applicant, an audit must be
unqualified for acceptance by the applicant.
As a consequence, the
applicant then directed the respondents on 31 October 2023 to provide
it with a full explanation on each
point of qualification raised by
the auditors. More specifically, the applicant wanted the respondents
to provide information on
deficits that appeared in their respective
trust accounts, and raised by the auditors as one of the
qualifications. These deficits
are substantial. In the case of De
Langes there was a shortfall of some R61 000.00, and in the case
of Matsepes a shortfall
of more than R400 000.00.
[16]
In the period that followed, bundles of correspondence and affidavits
by the respective parties were filed
for the Court’s attention.
It is not necessary to deal with these papers in detail, save to
mention that the respondents
indeed went on to provide an explanation
on each point of qualification. For instance, in respect of the
shortfalls mentioned,
the respondents stated that the deficits were
immediately corrected when discovered, out of the respondents’
own pockets.
The deficits were caused by wrong postings of fees and
disbursements and the erroneous transfer of fees. The conflation of
the
trust accounts and the accounting system was the primary cause of
the problem, and no trust money of a trust creditor became endangered
in the process. As for the other qualifications in the audit reports,
the respondents informed that preventative measures were
put in place
to prevent a recurrence of the problem in future. It also transpired
that the 1
st
and 2
nd
respondents have meanwhile
resigned as directors of Matsepes, and that they are now only
practicing for their own account under
the name and style of
Matsepes.
[17]
On 4 December 2023 the applicant addressed letters to the respondents
informing them that the reasons provided
for the qualifications
cannot be accepted and that the applicant has resolved to appoint
independent auditors to conduct an audit
on the trust accounts. The
explanation provided for the shortfalls was found to be too vague.
The applicant has resolved not to
issue Fidelity Fund Certificates in
the premises, it was stated in the letter. The respondents were
further informed that their
failure to inform the applicant of the
deficits in the trust accounts at a point in time where they were
already aware of such,
would also be investigated.
[18]
In addition, we were also informed that on 19 January 2024, the
respondents launched an urgent application
in this Division against
the applicant for orders compelling the applicant to issue them with
Fidelity Fund Certificates. This
urgent application was heard towards
the end of last week, and judgement was reserved. Obviously, we are
not called upon to comment
on this application, save to say that at
the writing of this judgement, the respondents are still not issued
with the required
certificates and that an investigation has now been
launched into, inter alia, the trust accounts of the respondents to
determine
the cause of the shortfalls. These are the facts on which
the present application must be adjudicated.
[19]
Now in the first place, the Act makes it clear that an attorney may
not practice without a Fidelity Fund
Certificate. The 1
st
and 2
nd
respondents therefore stand to be suspended from
the roll and from the practice of legal practitioners in the present
circumstances
until such time that a valid Fidelity Fund Certificate
has been issued to them. Prayer 1 of the Notice of Motion must
therefore
be granted, as amended. It follows that the ancillary
relief in prayers 3 up to and including 14 must also be granted
against the
1
st
and 2
nd
respondents. The
applicant does not seek a suspension against the 3
rd
respondent. However, on the facts before the Court, the 3
rd
respondent finds himself in the very same boat as the 1
st
and 2
nd
respondent. In fact, the shortfall in his trust
account was found to be much higher than the shortfall in respect of
the 1
st
and 2
nd
respondents’ trust
account.
[20]
It is trite that applications of this nature constitute a
disciplinary enquiry by the Court into the conduct
of the
practitioners concerned. The applicant is
custos
morum
of the profession, which only places facts before the Court into the
officer’s fitness to remain on the roll of attorneys.
The
Council therefore fulfils the role of an
amicus
curiae
in cases like the present.
[3]
[21]
It follows that this Court is not bound by the relief sought in the
Notice of Motion. The 3
rd
respondent should also be
suspended on the same terms as the 1
st
and 2
nd
respondents, having regard to the circumstances he finds himself in.
[22]
Prayers 3 and 4 seek to prohibit all the respondents from operating
and dealing with any of the trust banking
accounts of the De Lange
Attorneys and Matsepes, and to place the practices in curatorship. As
we have seen, the applicant has
already resolved to appoint
independent auditors to investigate the cause of the shortfalls that
occurred in the trust accounts.
The relief sought in prayers 3 and 4
would serve to accommodate this process, and should therefore be
granted.
[23]
In the premises, the following order is made:
1.
The First, Second and Third Respondents are suspended from the roll
and from the practice of legal practitioners
of the High Court of
South Africa until such time that a valid Fidelity Fund Certificate
has been issued to them.
2.
The Respondents or any of their employees are prohibited, with
immediate effect from operating and dealing
with any of the trust
banking accounts of De Lange Attorneys’ and the Fourth
Respondent, the banking accounts of any deceased
estates in respect
of which the Respondents have been appointed as executor/executrix or
Master’s representative and any
banking accounts of any
insolvent estates in respect of which he has been appointed as a
liquidator.
2.1 The First, Second and
Third Respondents shall immediately surrender and deliver to the
Registrar of the Honourable Court their
certificates of admission as
legal practitioners of the Honourable Court.
2.2
In the event of any of the Respondents failing to comply with
paragraph 2.1 of this order within two (2) days from the date of
service
of this order on him/her, the sheriff is authorised and
directed to take possession of the certificate and to hand it to the
Registrar
of the Honourable Court
.
2.3 The First, Second and
Third Respondents shall not be entitled to any fee, reward or
reimbursement in respect of legal services
rendered during their
period of suspension in terms of section 93(8)(c) of the Legal
Practice Act No. 28 of 2014 (“the Act”).
3.
Margarette Kwayke and her successor(s) in-title or a Nominee of the
Applicant is appointed as
curator bonis
(“the Curator”)
of the Legal Practice of the First, Second and Third Respondent and
to administer and control the trust
account of those Respondents, and
any accounts relating to insolvent and deceased estates and any
deceased estate and any estate
under Curatorship connected with
Respondent’s practice as an attorney and including the separate
banking accounts opened
and kept by Respondent at a bank in the
Republic of South Africa in terms of section 86(1) of the Act and/or
any separate saving
or interest-bearing accounts as contemplated by
section 86(3) and/or 86(4) of the Act, in which monies from such
trust banking
accounts have been invested by virtue of the provisions
of the said sub-sections or in which monies in any manner have been
deposited
or credited as set out in paragraph 7 hereunder. The
curatorship will terminate upon the issue of an unqualified audit
report by
the auditors appointed by the Applicant or upon the
discharge of the Curator by the applicant, whichever event happens
first.
4.
The Applicant is exempted from furnishing security of the performance
of her obligations as
curator bonis
.
5.
The Respondents are ordered to deliver all of the records relating to
the legal practice of the Respondents
(“First; Second and
Fourth”), which for all the purposes of this order, but without
limitations, will include all accompanying
records, files
correspondence and documents which are directly or indirectly
relevant to or which contains particulars of information
to:
(a) Any monies
received, held or paid by the First, Second and Third Respondents for
or on account of any person;
(b) Any monies
invested by the First, Second and Third Respondents in terms of any
provisions of section 86 of the Act;
(c) Any
interest on monies so invested in terms of section 86(3) or section
86(4) of the Act;
(d) Any estate of a
deceased person administered by the First, Second and Third
Respondents whether as executor or on behalf
of the executor, in
terms of the provisions of the Administration of Estate Act, Act 66
of 1965;
(e) Any estate in
which the First, Second and Third Respondents acted as or on behalf
of the Curator to administer the property
of a minor child or any
other person in terms of section 72 of the Administration Estate Act,
Act 66 of 1965;
(f) Any
insolvent estate administered by the First, Second and Third
Respondents as trustee of on behalf of the
trustee in a trust in
terms of the Insolvency Act, Act 24 of 1936;
(g) Any trust
administered by the First, Second and Third Respondents as trustee,
or on behalf of the trustee in terms of
the Trust Property Act, Act
57 of 1988;
(h) Any company
liquidated in terms of the Companies Act, Act 61 of 1973,
administered by the First, Second and Third Respondents
as
Liquidators or on behalf of the liquidator;
(i) Any
Close Corporation liquidated in terms of the Close Corporation Act,
Act 69 of 1984, administered by the
First, Second and Third
Respondents as liquidators or on behalf of the liquidator;
(j) The
First, Second and Third Respondents’ related files of any
Client.
6.
Should the Respondents fail to comply with the provisions of the
preceding paragraph 5 of this order
on service thereof upon them the
sheriff for the district in which such accounting records, records,
files and documents are, be
empowered and directed to search for and
to take possession thereof wherever they may be and to deliver them
to such Curator.
7.
The said Curator shall have the following powers:
(a) To hand over
said records to any person entitled thereto, as soon as she has
satisfied herself that the fees and disbursements
in connection
thereof have been paid or satisfactorily secured, or that same are no
longer required
(b) To accept a
written undertaking by a trust creditor to pay such amount as may be
due to the Respondent, either on taxation,
assessment or by
agreement, as satisfactory security for the purpose of paragraph 7(a)
above, provided that such written undertaking
incorporated a
domicilium citandi et executandi
of such creditor;
(c) To
require that any record so handed over, be delivered back to her if
in her sole and absolute opinion, she considers
them to be relevant;
(d) To administer
and control all Respondents’ trust account which for the
purpose of this Order shall include:
(i)
The accounts relating to any estate, curatorship,
trust or company;
(ii)
Any and all banking accounts opened and kept by the
Respondent (or on
the Respondent’s behalf) in terms of any provision contained in
the Act or any Acts.
(e) Subject to the
approval of the Board of Control of the Fund (“the Board”),
to sign and endorse cheques, and/or
withdrawal forms and generally to
operate upon the said trust accounts, but only to such extent and for
such purposes as may be
necessary to bring completion to current
instructions in which the Respondent was acting as at the date of his
suspension;
(f)
Subject to the approval of the Board, to recover and receive and, if
necessary in the interest of persons
having lawful claims upon the
said trust accounts and/or invested by the Respondent in respect of
monies held, received and/or
invested by the Respondent in terms of
section 86(2) and 86(3) of the Act (“trust monies”) to
take any legal proceedings
which may be necessary for the recovery of
money which may be due to such persons in respect of incomplete
transactions in which
the Respondent may have been concerned and
which may have been wrongfully and unlawfully paid from the said
trust accounts and
to receive such monies and to pay same to the
credit of the said trust accounts;
(g) To ascertain
from the Respondents’ records the names of all persons on whose
account the Respondent appears to hold
or to have received trust
monies (“trust creditors”);
(h) To call upon
such trust creditors to furnish proof, information and/or affidavits
as she may require to enable her, acting
in consultation with and
subject to the requirements of the board, to determine whether any
such trust creditors have a claim in
respect of money in the said
accounts, and if so, the amount of such claim;
(i)
Subject to the approval of the Board, to admit or reject in whole or
in part, the claims of any such trust
creditors without prejudice to
such trusts creditor’s right to access to the civil courts;
(j)
Subject to the approval of the Board, to pay such claim as she may
consider lawfully due;
(k) In the
event of there being any surplus in the said trust accounts after
payment of such claims, to utilise such
surplus to settle or reduce
as the case may be, firstly any claim of the fund in terms of section
86(5) of the Act in respect of
any interest therein referred to and,
secondly without prejudice to the rights of the Respondents’
creditors, the costs,
fees and expenses, or such portion thereof as
has not already been separately paid by the Respondent to the
Applicant and, if there
is any balance left after payment in full of
all claims, costs fees, and expenses, to pay such balance to the
fund;
(l) In
the event of there being insufficient trust monies in the said
accounts to pay in full the claims the claims
of the trust creditors
as reflected in the records of the Respondent:
(i)
Subject to the approval of the Board, to close
the said accounts and
to pay the credit balances therein to the Fund and to require such
credit balances therein to be placed to
the credit of a special
suspense account in the name of the Respondent in the Fund’s
books;
(ii)
To refer the claims of all trust creditors to the Board
to be dealt
with in terms of the provisions of the Act;
(iii)
To authorise the Board to credit the credit balances referred to
above to its “paid claims account” when the Fund has
paid, in terms of Section 55 of the Act, admitted claims of the
trust
creditors of the Respondent in excess of such credit balances,
provided that, notwithstanding the foregoing, the Board in
its
discretion shall be entitled to transfer to its “
paid claims
accounts
” the amounts of any claims as and when admitted
and paid by it.
(m) Subject to the
approval of the chairperson of the Fund, to appoint nominees or
representatives and/or consult with and/or engage
the services of
attorneys, counsel, accountants and/or any such other person where
considered necessary to assist her in carrying
out of her duties as
curator bonis;
(n) To render from
time to time returns to the Board showing how the said accounts have
been dealt with until such time as
the Board notifies her that she
may regard her duties as curator bonis as discharged.
8.
The Respondents shall within 6 (six) months after having been
requested to do so by the Curator, or within
such longer period as
the Curator may agree to in writing, satisfy the Curator, by means of
the submission of taxed bills of costs
or otherwise, of the amount of
the fees and disbursements due to him (Respondent) in respect of his
former practice, and should
he fail to do so, he shall not be
entitled to recover such fees and disbursements from the Curator
without prejudice, however,
to such rights (if any) as he may have
against the trust creditor(s) concerned for payment or recovery
thereof;
9.
A bill of costs drawn on the High Court scale of attorney and client
costs taxed by the Registrar of
this Court (who is authorised to do
so)
mutatis
mutandis
as if the Curator and the
responsible officials of the Applicant in discharging their duties as
contemplated in this order had
acted as attorneys, shall constitute
proof of their reasonable fees and disbursements (“the
Curatorship fees and disbursements”)
and that the Registrar be
authorised to issue a writ of execution for payment thereof by the
First, Second and Third Respondents;
10. The Respondents are
hereby directed:
(a) to pay, in
terms of 87(2) of the Act, the reasonable costs of the inspection of
the accounting records of the Respondents;
(b) to pay the
Curatorship fees and disbursement;
(c) to pay
the expenses relating to the publication of this order or an
abbreviated version thereof.
11. The First, Second and
Third Respondents are hereby removed from the office as –
(a)
Executor/executrix of any estate of which they have been appointed in
terms of section 14(1) read with
section 54(1)(a)(v)
of the
Administration of Estates Act, No. 66 of 1965
or the estate of any
other person referred to in
section 72(1)
thereof;
(b) Curator or
guardian of any minor or other person’s property in terms of
Section 72(1)
read with
section 54(1)(a)(v)
and section 85 of the
Administration of Estates Act, No. 66 of 1965;
(c) Trustee
of any insolvent estate in terms of section 59 of the Insolvency Act
No. 24 of 1936;
(d) Liquidator of
any company in terms of section 379(2) read with 379(e) of the
Companies Act, N0 71 of 2028;
(e) Trustee of any
trust in terms of section 20(1) of the Trust Property Control Act,
No. 57 of 1988;
(f)
Administrator appointed in terms of section 74 of the Magistrates’
Court Act, No. 32 of 1944.
12. The First, Second,
Third and Fourt Respondents are ordered to pay the costs of this
application on an attorney and own client
scale, including the costs
occasioned for the employment of two Counsel, where applicable, the
one paying the other to be absolved.
P.
J. LOUBSER, J
I
agree:
P.
MOLITSOANE
, J
For
the applicant:
Adv.
M. S. Mazibuko
Instructed
by:
Amade
and Company Inc.
Bloemfontein
For
the respondents:
Adv.
M. D. J. Steenkamp
Instructed
by:
E.G.
Cooper Majiedt Inc.
Bloemfontein
/roosthuizen
[1]
Act 28
of 2014
[2]
Rule
54.31
[3]
South
African Legal Practice Council v Dladla [2022] ZAGPPHC 920 par 21.