IN THE HIGH COURT OF SOUTH AFRICA
(WESTERN CAPE DIVISION, CAPE TOWN)
Case No: 10606/2023
In the matter between:
THE SOUTH AFRICAN LEGAL PRACTICE COUNCIL Applicant
and
ERIK LOUW Respondent
Coram: Justice A G Binns-Ward et Justice J Cloete
Heard: 8 February 2024, supplementary notes delivered on 16 and 21 February
2024
Delivered electronically: 20 March 2024
JUDGMENT
CLOETE J (BINNS-WARD J concurring):
Introduction
[1] The central issue in this matter is whether the respondent, an attorney (legal
practitioner), who has been cleared of dishonesty by an investigating
committee of the applicant (“LPC”), should nonetheless be suspended from
practice and prohibited from operating his firm’s trust account pending the
finalisation of certain disciplinary proceedings against him (which have not yet
been instituted) arising from the same facts. It is also common cause that the
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respondent no longer holds a fidelity fund certificate given the LPC’s failure to
renew it.
[2] The disciplinary proceedings in question pertain inter alia to the investigating
committee’s other “finding” that the respondent is guilty of contravening LPC
rule 54.14.191 ‘in that a firm shall ensure that no account of any trust creditor
is in debit’. It must immediately be stated however that an investigating
committee of the LPC is not authorised by the Legal Practice Act (“LPA”) 2 or
its rules to “find” a legal practitioner guilty of misconduct, despite the
investigating committee purporting to have done so in letters to the
respondent dated 25 April 2022 and 29 September 2022.
[3] Section 37(3) of the LPA provides inter alia that an investigating committee
must if satisfied that the legal practitioner concerned ‘…may, on the basis of
available prima facie evidence, be guilty of misconduct that, in terms of the
code of conduct, warrants misconduct proceedings, refer the matter to the
Council for adjudication by a disciplinary committee’. LPC rule 40.5 is to
almost identical effect. Not even LPC rule 40.4, which caters for the situation
where a legal practitioner admits guilt (which is not the case here) , authorises
an investigating committee to make such a finding. Be that as it may, there is
no challenge to this procedural irregularity before us.
[4] It must also be pointed out that the relief sought by the LPC includes
suspension and a prohibition on the respondent operating his firm’s trust
1 LPC rules published in GG 41781 of 20 July 2018.
2 No 28 of 2014.
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account, not only pending finalisation of disciplinary proceedings, but also any
subsequent internal appeal in terms of s 41 of the LPA. However s 41 of t he
LPA has not yet been brought into operation and accordingly , if the
respondent is found guilty by a disciplinary committee and disputes that
finding, his only remedy will be a review in the High Court.3
Relevant factual background
[5] The respondent was admitted as an attorney on 9 February 2001 and has
been practising as the sole director of Basson & Louw Inc., which he
describes as ‘a duly incorporated body doing business as a firm of attorneys’
since September 2008. For convenience I will refer to this entity as “the firm”.
A Ms Antoinette Aucamp (“Aucamp”) was employed as the firm’s bookkeeper
from 2001 until 2022 and also p erformed the duties of a conveyancing
secretary. Prior to this she worked for a business run by the respondent’s
erstwhile co -director, in a clerical/managerial capacity, including managing
administration orders. She thus dealt with funds of the business as part of her
duties. According to the respondent , Aucamp displayed great diligence and
trustworthiness over an extended period of time. This ultimately cemented his
trust in her until, in his words, it became almost absolute.
[6] The respondent’s undisputed evidence is that despite this he did not relax his
vigilance over the funds under the firm’s control. Only he and Aucamp could
pay disbursements from its accounts. If she wished to post a disbursement
3 Kellerman v Legal Practice Council Western Cape Office and Others (16305/22) [2024] ZAWCHC
81 (14 March 2024) at para [3] and [54].
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she had to requisition and submit it to him in writing. He would only authorise
the disbursement once they had, if necessary , discussed it and he approved
it.
[7] In addition the firm employed (and still employs) the “Lexpro” computerised
bookkeeping system. This operates on a server separate from the server on
which the other programs used by the firm are housed. According to the
respondent this means that it is inaccessible to anyone but authorised
personnel who at the relevant time were Aucamp and himself. The system
also immediately logs all receipts and disbursements which , again according
to the respondent, means in theory that reconciliation can take place relatively
quickly between that which is held in the firm’s accounts according to the
books of account and that which is actually in the firm’s bank accounts.
[8] The respondent candidly states that during the course of a business day a
busy attorney’s practice with a number of employees will always be involved
in a large, diverse range of transactions, receiving payments from many
sources and making disbursements of many kinds, both large and small.
Although daily reconciliation is theoretically possible, it is not practical. He
states that it always takes time and effort to bring the accounts to an exact
balance. Like any firm of attorneys of which he has had experience, he had to
mostly satisfy himself with a monthly reconciliation.
[9] His evidence is also that the risk of loss through underhandedness which
might have been created by the difficulty of keeping the records of the firm in
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a continuous state of exact and complete balance was, to his mind, effectively
“combatted” by the firm’s independent auditors, who carried out spot -checks
on a regular (at least quarterly) basis, as well as by the firm having the books
audited thoroughly each year (as required by law) so that a clean audit
certificate could be timeously provided at the end of every year for submission
to the Western Cape office of the LPC.
[10] He states that a large amount of time was (and still is) spent on the
compulsory audit requirement of the LPC. He arranges consultations and
inspections with the auditors as early as May of each year. They commence
their work then and it is ongoing until the end of that year. Of course, in the
process the accounts are rigorously examined. In addition the respondent
made a habit, whenever he worked on a matter, of asking for a printout of the
account in the Lexpro records. According to him Lexpro is able to generate an
instant, up-to-date printout of each account in the system. This would enable
him to examine what was going on in the books of account with regard to that
specific client.
[11] The respondent’s evidence is further that the Covid -19 total lockdown at the
end of March 2020 meant that the normal business of the firm ceased. No
work whatsoever could be effected for a considerable time. This included
conveyancing and entries regarding it in the books and records of the firm,
save for what could be done at home. Work thus fell behind schedule and by
the time the lockdown was eased, the bookkeeping of the firm was
considerably behind. Aucamp also began to experience health problems and
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had to undergo major orthopaedic surgery during November 2020 from which
she took a period of about two months to recover, during which she could not
attend to her bookkeeping duties. It was felt that if someone else were to take
over from her during this period as much time would be lost as it would be if
she stayed on.
[12] It was thus agreed that she would retain her employment and others in the
firm would assist her as much as possible. She would continue in the role of
bookkeeper, but would work from home. The physical records she needed
would be ferried back and forth between the office and her home. She would
also have remote access on her computer to the Lexpro system and would
write and type one handed as best she could. A further loss of time was the
inevitable result. However the respondent believed he had successfully coped
with the problems caused by the lockdown and Aucamp’s inability to work at
her normal speed. He remained no less vigilant than before and, despite the
difficulties, had no cause to suspect that Aucamp was doing anything
improper, although it seemed that she never managed to bring the
bookkeeping up to date.
[13] The firm’s auditor too remained vigilant. He raised a number of queries and in
December 2020 informed the respondent that Aucamp had not been
responding to all the audit queries for that year which he had raised with her.
The res pondent then requested the account ing firm that attended to his
personal affairs to also become involved in assisting the firm to bring its books
up to date, and he believed that the situation was under control. Although the
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firm’s auditor spoke about the queries which he had raised, at no time did he
indicate to the respondent that he believed something was amiss. He too did
not have any suspicions.
[14] However Aucamp somehow managed over the period December 2020 to
December 2021 to steal funds from the firm’s trust account totalling
R4 133 056.78, predominantly, it would seem, in respect of conveyancing
transactions. This was discovered by the respondent during February 2022.
He immediately suspended her, appointed his accountant and auditor to
conduct an internal investigation to establish the status of his trust accounts ,
and reported the theft to the LPC and SAPS on 15 March 2022, when he also
laid a criminal charge against Aucamp. From the respondent’s report to the
LPC dated 8 June 2022 it appears that the funds in question were stolen by
Aucamp from nine of the firm’s clients. To make matters worse for the
respondent, Aucamp had failed without his knowledge to renew the firm’s
private indemnity insurance.
[15] From March 2022 onwards the respondent co -operated fully with the LPC in
relation to what had occurred , also keeping it up to date on a regular basis
about what further investigation s revealed. In the LPC’s letter to the
respondent dated 25 April 2022, he was informed that no dishonesty could be
found on his part but that he was “guilty” of contravening rule 54.14.9 read
with rule 54.19. The latter provides that:
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‘Every partner of a firm, and every director of a juristic entity referred to
in section 34(7) of the Act… will be responsible for ensuring that the
provisions of the Act and of those rules relating to trust accounts of the
firm are complied with.’
[16] The respondent was further informed that he would be given: (a) an
opportunity of 30 days to regularise his trust account to the extent of the
shortfall; and (b) 14 days to advise the investigating committee of the status of
his firm and outstanding 2021 audit report, and provide a copy of the firm’s
trust account bank reconciliation as at 21 February 2022. By letter dated 24
June 2022 the LPC notified the respondent that since he was not in
possession of his 2022 fidelity fund certificate he should not be practising. He
was given another opportunity of 30 days ‘…to regularise your trust account to
the extent of the shortfall due to the theft of trust funds by your employee as
your failure to do so will result in the Investigating Committee [sic] proceeding
with urgent suspension proceedings’. On 21 July 2022 the respondent
submitted the firm’s qualified 2020/2021 audit report. The qualification of the
auditors concerned was that: ‘[i]n our opinion, except for the instances of non -
compliance listed in the preceding paragraph, the legal practitioner’s trust
accounts of Basson Louw Incorporated for the period from 1 March 2020 to
28 February 2021 were maintained, in all material respects, in compliance
with the Act and the Rules’. The non-compliance referred to pertains to the
funds stolen by Aucamp.
[17] By letter dated 5 August 2022 the LPC informed the respondent of the
investigating committee’s “direction” that he provide information ‘…as to the
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plans you had [this should presumably read ‘have’] set in place to regularise
your trust account’. This was followed by further letters to similar effect dated
7 and 29 September 2022.
[18] In an email dated 17 November 2022 the respondent explained that he had
been able to recover in excess of R809 000 of the stolen funds and was
confident that through civil process and the pending criminal prosecution he
would be able to recover most of them. By this time he had also informed all
affected clients of their right to submit claims to the Fidelity Fund. He had
previously (on 19 September 2022) informed the LPC that he did not have
funds at his personal disposal to settle the full shortfall on the firm’s trust
account. It is apparent that the LPC did not regard these factors as mitigating,
since on 30 November 2022 he was informed that, in addition to
contraventions of rule 54.14.19 and 54.19 , the investigating committee had
“directed” that further charges would also be put to him and that legal
proceedings against him were to commence should his firm’s trust account
not be regularised to the extent of the shortfall.
[19] On 5 January 2023 the respondent notified the LPC that he had now also
brought an application to sequestrate Aucamp’s estate and was hopeful to
recover more of the stolen funds within the next few months. On 23 February
2023 the LPC advised the respondent that his 2022 audit report remained
outstanding, which might result in his suspension from practice, and that ‘[w]e
look forward to confirmation of the regularization of the balance to your trust
account and outstanding audit requirements’. On 16 March 2023 the
10
respondent submitted the firm’s 2022 audit report and advised the LPC that
Aucamp’s estate had been finally sequestrated, with a first meeting of
creditors scheduled for 29 March 2023. He also reported on progress in the
criminal investigation.
[20] The 2022 audit report was qualified for the same reason as before. On 3 April
2023 the respondent notified the LPC (amongst other things) that he had
arranged a date with the firm’s auditors to commence the 2023 audit. He also
advised that ‘[f]rom March 2022 until current the Trust account has reconciled
and balanced completely. I am confident that the measures put in place is
sufficient to stop any future recurrence of theft of Trust funds by an employee’.
This was a reference to additional checks and balances implemented by the
respondent subsequent to discovery of the theft.
[21] There appears to have been no further interaction with the respondent until
29 June 2023 when the LPC launched the current application on an urgent
basis. The founding affidavit deposed to by one of its members set out,
seemingly for the first time, the further charges which the LPC intended
preferring against the respondent (without having given him any prior
notification of their nature or the opportunity to deal therewith as is required in
terms of the LPC rules in an investigating committee process). It is convenient
to quote directly from the founding affidavit:
‘52. Based on all of the above, and notwithstanding that the
respondent appears not to have been directly responsible for the
theft of moneys entrusted to him, the Investigating Committee
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and the LPC are of the opinion that the respondent is guilty of
gross misconduct for the following reasons:
52.1 Contravening Rule 18.3 in that the respondent had a duty
to exercise proper control over his staff. In the opinion of
the Investigating Committee, this failure is evident from
the fact of all the theft (which indicates a patent failure to
exercise proper control);
52.2 Contravening item 21.1 of the Code of Conduct for Legal
Practitioners in that the respondent has breached the
LPC Rules and has failed to remedy any breaches. This
breach is exacerbated by the fact that the respondent did
not maintain his private indemnity liability insurance policy
with AON.
52.3 Contravening Rule 54.14.7.1 and all its subrules, in that
he failed to maintain or have proper controls in place at
his place of work and to control his staff;
52.4 Contravening Rule 54.19 in that the respondent had a
responsibility to ensure compliance with the Rules and
failed to do so;
52.5 The respondent continues to practice without a valid
fidelity fund certificate, which is in contravention of
Section 84(1) of the LPA.
53. In summary, in the opinion of the Investigating Committee and
the LPC, the respondent’s conduct in failing to regularise his
trust accounts, despite being given numerous opportunities to
do so, constitutes gross misconduct in circumstances where the
respondent is solely responsible for his firm’s compliance with
the Rules referred to above. Furthermore, it is the opinion of the
Investigating Committee and the LPC that it is unacceptable for
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a legal practitioner in the position of the first respondent to defer
his responsibilities in respect of the regularisation of his trust
accounts to the criminal justice system and the resolution of a
dispute with his insurer. In this regard, it is also inexplicable that
the respondent allowed his private indemnity insurance policy to
become expired – all the more so in circumstances where he
should have known, had he exercised proper controls and
oversight, that his trust accounts were in deficit.
54. Accordingly, on 19 May 2023, having afforded the respondent
ample opportunities to regularise his trust accounts, the
Investigating Committee resolved that the matter be referred to
the Provincial Council, acting on delegated authority from the
LPC, for authorisation that an urgent application in terms of
section 43 of the LPA be brought to suspend the respondent
from practising as legal practitioner, inclusive of a curatorship
order, pending the finalisation of a disciplinary hearing into the
matter.’ (my emphasis)
[22] It is evident from the above that the LPC introduced 4 new charges without
following due process. It must also be pointed out that not once during the
period March 2022 (when the respondent reported the theft) until the date
upon which the application was launched at the end of June 2023 did the LPC
advise the respondent that it required a curator to take control of his firm’s
trust account while its investigating committee process unfolded . There is
nothing in the history of the matter to suggest that the respondent would not
willingly have given the LPC his full cooperation in any investigation it might
wish to conduct into the operation of his trust account or his firm’s accounting
system.
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Discussion
[23] Section 53 of the LPA provides that the Attorneys Fidelity Fund established by
s 25 of the erstwhile Attorneys Act 4 continues to exist as a juristic person
under the name “Legal Practitioners’ Fidelity Fund ”. Section 84 of the LPA
deals with the obligations of a legal practitioner relating to handling of trust
monies and reads in relevant part as follows:
‘84. (1) Every attorney… other than a legal practitioner in the full -
time employ of the South African Human Rights Commission or
the State… and who practises or is deemed to practise –
(a) for his or her own account either alone or in
partnership; or
(b) as a director of a practice which is a juristic entity,
must be in possession of a Fidelity Fund certificate.
(2) No legal practitioner referred to in subsection (1) or person
employed or supervised by that legal practitioner may receive or
hold funds or property belonging to any person unless the legal
practitioner concerned is in possession of a Fidelity Fund
certificate…’
[24] LPC rule 54.29 provides that:
‘In order to qualify for the issue of a Fidelity Fund certificate, a trust
account practitioner must ensure that an unqualified audit or
inspector’s report is issued in respect of any firm or firms of which he or
4 No 53 of 1979, repealed by s 119 of the LPA.
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she is or was a partner or director or sole practitioner during the
financial period under review, and is delivered timeously to the
Society.’
[25] Important for present purposes is rule 54.30 which reads as follows:
‘Where the audit or inspector’s report in respect of the trust account of
the firm is qualified by the auditor or inspector, as the case may be, the
firm shall provide the Council with such information as the Council may
require to satisfy itself that the firm’s trust account is in good order, that
the trust account practitioner remains fit and proper to continue to
practise and that Fidelity Fund certificates may be issued to the
members of the firm.’ (my emphasis)
[26] Accordingly, on a plain reading of LPC rule 54.29 together with rule 54.30, a
qualified audit report may nonetheless permit the issue of a fidelity fund
certificate, provided that the LPC is satisfied that the firm’s trust account is in
good order and that the trust account practitioner remains fit and proper to
continue to practise. On the undisputed evidence before us there is no
indication by the LPC that it requires any other information to satisfy itself on
this score since, were this the case, it would no doubt have requested it.
There is also no suggestion that the respondent ha d not faithfully and
diligently brought the theft of funds from his firm’s trust account to the
attention of the LPC at the earliest possible opportunity; taken all possible
reasonable steps to procure recovery of the full amount stolen; and done
everything reasonably within his power to obtain clean audits in 2022 and
2023, it being common cause that the only reason for qualified audits in these
15
years is the fact of the previous theft of trust monies by his erstwhile
bookkeeper, which theft came to an end in 2021.
[27] The LPC appears to interpret rule 54.14.9, namely that a firm shall ensure that
no account of any trust creditor is in debit, as some sort of overarching
requirement precluding: (a) the issue of a fidelity fund certificate; and (b) the
respondent from continuing to practise. This is in circumstances where the
LPC itself accepts there was no dishonesty on the respondent’s part and it
has failed to put up any persuasive evidence that he is otherwise not fit and
proper to continue practising , at least pending the finalisation of disciplinary
proceedings against him , which have yet to be instituted and in respect of
which some of the charges are being advanced without the LPC having
followed its own prescribed internal processes to ensure procedural fairness.
[28] The LPC relies inter alia on South African Legal Practice Council v Harper 5 in
persisting with the relief claimed in respect of the appointment of a curator
even if the respondent is not suspended from practising, submitting that such
an order was granted therein ‘in circumstances similar to the present’.
However the facts in that case are entirely distinguishable and for all the
reasons already given, we are not persuaded that good cause has been
shown at this stage to prohibit the respondent from operating on his firm’s
trust account, this being the statutory requirement for the appointment of such
a curator in terms of s 89 of the LPA. In the current case the only basis for
the appointment of a curator is the respondent’s lack of a fidelity fund
5 [2021] ZAGPJHC 829 (21 December 2021).
16
certificate. He only lacks such a certificate because the LPC has declined to
issue him with one until he has paid into trust the money stolen from some of
his trust account creditors by a dishonest employee. On the evidence before
us the LPC does not appear to be justified in its refusal to issue the
respondent with a fidelity fund certificate.
[29] That having been said, the respondent must clearly be in possession of a
fidelity fund certificate if he is to continue to practi se, since this too is a
statutory requirement, prescribed by s 84 of the LPA. The continuance of the
current impasse cannot be countenanced. It is accordingly incumbent on the
respondent to take swift steps to procure one, if necessary by approaching
court should the LPC persist in its failure to issue such a certificate. I must ,
however, immediately qualify what I have said by making it clear that it is not
for this court, at this stage, to direct the LPC to issue the respondent with that
certificate.
[30] There may be other information which the LPC requires, even though it has
not called upon the respondent to provide it to date, and we cannot usurp the
LPC’s function in this regard. It will be for another court to determine this issue
should the LPC refuse the respondent’s application for a fidelity fund
certificate. But on the facts before us, there would appear to be no valid
reason for the LPC to refuse to issue the respondent with a fidelity fund
certificate. Its refusal to do so because of the deficit in the respondent’s trust
account appears to be due to a failure to have regard to LPC rule 54.30 ,
properly construed. A trust account is in good order within the meaning of the
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subrule if the account correctly reflects the state of affairs in accordance with
the requirements of s 87(1) and (2) of the LPA.
[31] The rules do not have the effect of precluding an innocent practitioner whose
trust account is in deficit as a result of defalcations by an employee from
obtaining a certificate simply because he or she has been unable to make
good his trust creditors’ claims. A practitioner with a qualified audit is entitled
to be issued with a fidelity fund certificate provided he or she is able to give a
satisfactory explanation for the qualification and that the practitioner remains a
fit and proper person to continue in practice. The evidence suggests that the
respondent has met these requirements.
[32] In the peculiar circumstances of the matter, the order that falls to be made is
one directed at the expeditious regularisation of the respondent’s entitlement
to practise and providing a framework for the further conduct of proceedings if
that is for any reason not achieved.
[33] The following order is made:
1. The respondent is directed to make application , in terms of
section 85(1)(a) of the Legal Practice Act 28 of 20 14 (“LPA”) within
five days from date of this order , for a fidelity fund certificate as
required by s 84 of the LPA; and should he not be issued with such a
certificate within 15 days from the date of this order , to, within five
days of the expiry of the aforementioned 15-day period, institute an
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application, as a matter of urgency, for an order compelling the Legal
Practice Council to issue him with such a certificate.
2. In the event of the respondent failing to procure a fidelity certificate
within the period stated in par agraph 1 or failing thereafter to
institute an application to compel the Legal Practice Council to issue
him with such a certificate within the period stipulated in paragraph
1, the applicant is granted leave to re -enrol this application for the
respondent’s suspension from practice as a matter of urgency on
supplemented papers.
3. In the event of the Legal Practice Council opposing any application
by the respondent , as contemplated by paragraph 1 of this order, to
compel the Council to issue him with a fidelity fund certificate, it
shall have leave , on supplemented papers, to reinstate this
application for the respondent’s suspension from practice for
determination together with the respondent’s application to compel.
4. In the event that the Legal Practice Council issues the respondent
with a fidelity fund certificate upon application by him in terms of
paragraph 1 of this order, the application for his suspension from
practice and the appointment of a curator to his practice’s trust
account will thereupon be deemed to have been refused with no
order as to costs.
J I CLOETE
Judge of the High Court
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A G BINNS-WARD
Judge of the High Court
Applicant’s counsel: Adv A. Christians
Instructed by: Riley Inc.
Respondent’s counsel: Adv D. Uys SC
Instructed by: Basson & Louw Inc.