Handling of trust money – dealing with the obligations of a trust account legal practitioner

May 1st, 2019
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By Rampela Mokoena

The promulgation of the Legal Practice Act 28 of 2014 (the Act) and the subsequent South African Legal Practice Council Rules (the Rules) made under the authority of ss 95(1), 95(3) and 109(2) of the Act create requirements, whether expressly or by necessary implication, for a trust account legal practitioner. This article touches on those requirements expounded from ch 7 of the Act. While obligations relating to Inspections of accounting records in terms of r 50 and Accounting Rules in terms of r 54 equally form part of ch 7, these are not directly discussed in this article.

Discussion

The departure in relation to the obligations of a trust account legal practitioner is that a trust account legal practitioner must be in possession of a Fidelity Fund Certificate (FFC), which must indicate that the legal practitioner concerned is obliged to practice subject to the Act (s 84(1) and (4)). If a trust account legal practitioner is not in possession of an FFC, no legal practitioner or person employed by that legal practitioner may receive or hold funds or property belonging to any person, nor may they take a deposit on account of fees or disbursements in respect of legal services to be rendered (s 84(2) and (3)).

Trust account legal practitioners practising for the first time must complete a legal practice management course within the period and after payment of a fee determined by the Legal Practice Council (LPC) (s 85(1)(b) read with r 27(1)). In the case of a first time applicant who is required to be in possession of an FFC, proof is required to be submitted to the LPC that the applicant has completed the legal practice management course – referred to in s 85(1)(b) of the Act – and the proof of completion must accompany the application (r 47.7.1). If an applicant was in possession of an FFC in the previous year, the certificate of an auditor – in respect of an audit of the trust account legal practitioner’s trust bank accounts that was performed for the year ended immediately prior to the application – must have been submitted or proof of such submission must accompany the application (r 47.7.2). An FFC is valid until 31 December of the year in respect of which it was issued (s 85(8)).

An application to the LPC for an FFC is made by truly, accurately and completely setting out the information and particulars provided for in the form, and completing the application form in every respect, in the manner determined in the rules (r 47.3) – and simultaneously paying the contribution required, or by submitting proof of such payment.

Every legal practitioner referred to in s 84(1) must operate a trust account (s 86(1)), which trust account must be kept at a bank with which the Legal Practitioners’ Fidelity Fund (the Fund) has made an arrangement as provided for in s 63(1)(g). The legal practitioner must deposit, as soon as possible after receipt thereof, money held by such practice on behalf of any person. A trust account practice may, of its own accord, invest in a separate trust savings account or other interest-bearing account any money which is not immediately required for any particular purpose (s 86(3)). Additionally, and on the instructions of any person, a trust account practice may open a separate trust savings account or other interest-bearing account for the purpose of investing therein any money deposited in the trust account of that practice, on behalf of such person over which the practice exercises exclusive control as trustee, agent or stakeholder or in any other fiduciary capacity (s 86(4)).

In terms of interest accrued on trust bank accounts, trust account legal practitioners are obligated to pay over any and all interest generated or accruing on the separate trust savings or other interest-bearing account opened by the trust account legal practitioner in terms of s 86(2) and (3) of the Act to the Fund. Additionally, 5% of the interest generated on an investment account opened on the specific instructions of a client in terms of s 86(4) is payable to the Fund. The balance of this interest must be paid to the client.

Further obligations of trust account legal practitioners include a peremptory duty to immediately report, in writing, to the LPC the occurrence of the total amount in a trust account practice bank account and money held as trust cash being less than the total amount of credit balances of the trust creditors shown in its accounting records, together with a written explanation of the reason for the debit and proof of rectification (r 54.14.10). A trust account practitioner is required to immediately report, in writing, to the LPC should an account of any trust creditor be in debit, together with a written explanation of the reason for the debit and proof of the rectification (r 54.14.11). Equally, and unless prevented by law from doing so, every legal practitioner is required to report to the LPC any dishonest or irregular conduct on the part of a trust account legal practitioner in relation to the handling of or accounting for trust money on the part of that trust account legal practitioner (r 54.36).

In general, trust account legal practitioners are responsible for ensuring that the provisions of the Act and of those rules relating to trust accounts of the firm are complied with (r 54.19).

Compliance with obligations expounded in r 54.31 to 54.32 is necessary for trust account legal practitioners ceasing to practice or transferring from one practise to another.

Conclusion

Obligations attached to trust accounts, are the responsibility of each individual trust account legal practitioner, whether they are practising (or deemed to be practising) for their own account – either alone or as a partner, or as a member or director of a juristic entity, or as a s 34(2)(b) advocate. A trust account legal practitioner must always be aware of their duty to comply with the requirements of the Act and the rules. Reasonable measures and controls must be implemented by the legal practitioner to ensure compliance with such obligations.

Proper compliance with the obligations imposed on trust account legal practitioners enforces professionalism and ethical conduct and achieves proper management of the risk of theft or misappropriation of funds or property given to or held in trust by the trust account practice.

Rampela Mokoena BProc (University of Zululand) is a curatorship officer at the Legal Practitioners’ Fidelity Fund in Centurion.

This article was first published in De Rebus in 2019 (May) DR 6.

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