By Prof Arthur van Coller
Swift, in Gulliver’s Travels, stated that a ‘lawyer must proceed with great caution, or else he will be reprimanded by the judges, and abhorred by his brethren, as one that would lessen the practice of the law’ (Jonathan Swift Gulliver’s Travels (London: Jones and Company 1826) at 138). As predicted by Swift, the judiciary has consistently voiced its disapproval of the numerous instances of harmful and unethical conduct by legal practitioners. Another such instance wherein the Limpopo Provincial Council of the Legal Practice Council (LPC) referred to legal practitioners implicated in misconduct as ‘thug-like practitioners, who continue to engage in subterfuge, whilst obfuscating and detracting everyone’s attention from the fact that they have grossly brought the profession into disrepute through their unlawful thieving conduct’ was recently reported in a judgment by the Supreme Court of Appeal (SCA) (Limpopo Provincial Council of the South African Legal Practice Council v Chueu Incorporated Attorneys and Others). The SCA was specifically requested to consider whether the financial misconduct allegedly committed by one director (the second respondent) of a law firm implicates the other directors (the directors) in their fiduciary duty towards the firm.
The Provincial Council of the LPC received and investigated several complaints against the firm and found evidence of non-payment of funds due to clients, dishonest and irregular conduct on the part of a trust practitioner concerning the handling of trust monies and the appropriation of an erroneous payment to the firm. The Investigating Committee of the LPC formulated 26 charges against all the firm’s directors and duly scheduled a disciplinary hearing. However, the directors were absent from the hearing. As a result, the LPC launched an urgent application in terms of s 43 of the Legal Practice Act 28 of 2014 (LPA) in the Limpopo Division of the High Court, Polokwane, for the suspension of the directors pending the conclusion of a disciplinary inquiry by the LPC. The directors, many of whom had resigned at this stage, opposed the application because their shareholding, if any, was minor, and the second respondent managed the firm’s finances. The directors further raised some points regarding the requirements of an interim interdict and the authority of the Limpopo LPC Chairperson to act.
The High Court, relying on Griffiths and Inglis (Pty) Ltd v Southern Cape Blasters (Pty) Ltd 1972 (4) SA 249 (C), found no evidence that the LPC Council authorised the institution of proceedings and upheld the point in limine. Nonetheless, the High Court proceeded to consider the merits of the matter as its finalisation was considered to be in the interests of justice. The High Court thus inquired whether the offending conduct was proven on a balance of probabilities, whether the directors were fit and proper persons and whether they should be suspended or struck from the roll. The High Court reasoned that the threshold of the factual inquiry had not been met as the suspension of the directors was basically sought just because they were directors at some point. Nonetheless, an order was granted by agreement, suspending the second director only. The LPC then sought leave to appeal the order as it related to the directors, and eventually, special leave to appeal was granted by the High Court.
The SCA referred to precedent on a challenge to the authority of a litigant to institute proceedings. A litigant who challenges a person’s authority to act must use rule 7(1) of the Uniform Rules of Court (Unlawful Occupiers, School Site v City of Johannesburg 2005 (4) SA 199 (SCA)). Any resolution or other document proving authority will thus suffice to prove the necessary authority to act. The SCA then considered the liability of the directors. Section 34(7)(c)(i)-(ii) of the LPA stipulates that directors are jointly and severally liable, together with the commercial juristic entity, for debts, liabilities and theft incurred or committed during their period of office. The SCA further commented that directors have a fiduciary duty towards the company, and ignorance of financial matters does not absolve a director. A legal practitioner who claims no involvement in the firm’s financial affairs when accused of misconduct has ‘no defence at all’ (Hepple and Others v Law Society of the Northern Provinces [2014] 3 All SA 408 (SCA) at para 21). Legal practitioners have a fundamental duty ‘to ensure that the books of the firm are properly kept, [and] that there are sufficient funds at all times to meet the trust account claims’ (Incorporated Law Society, Transvaal v K and Others [1959] 2 All SA 24 (T) at 29).
The SCA further reasoned that the inquiry whether a legal practitioner is ‘fit and proper’ should be undertaken only when final relief is sought. The initial question was whether sufficient facts existed to justify an interim suspension. The SCA found that the offending conduct concerning the firm’s financial affairs had been adequately established, and some directors were, on their own versions, in dereliction of their duties. The SCA thus, in a unanimous judgment, set aside the High Court order and suspended the directors from practicing for six months, pending the finalisation of investigations into their conduct. The SCA also ordered the appointment of a curator bonis to administer and control the trust accounts of the directors. The directors were held liable to, jointly and severally, pay the reasonable costs of the inspection of the accounting records, the reasonable fees and expenses of the auditor and curator engaged by the LPC and the expenses relating to the publication of the court order. In addition, the directors were ordered to pay the costs of the application, jointly and severally, the one paying the other to be absolved.
Professor Arthur van Coller BA (Law) LLB LLM HDipTax (UJ) PGDHET (UFH) LLD (UP) is an admitted legal practitioner and academic at the University of Fort Hare.
This article was first published in De Rebus in 2023 (Dec) DR 48.
