By Thomas Harban

The answer to the question posed in the title of this article may, on the face of it, seem simple and straightforward, but it is hoped that a deeper consideration of the issue will focus the minds of practitioners on the potential risks associated with certain activities, which do not traditionally fall within the scope of ‘the conduct of the profession’.

The nature and extent of legal practice, as with many other aspects of commerce and general human life, have evolved over time. The services provided by attorneys today have, in numerous ways, evolved from what they were in the past. This evolution and progression has affected both the content and the scope of the services provided by attorneys and is attributable to many factors, including the changing needs of the consumers of legal services, as well as legal practitioners identifying new areas in which they could potentially generate work. However, it must be noted that not all the extended services currently offered to the public and provided by some practitioners are what would traditionally be considered as falling within the scope of ‘the conduct of the profession’ or ‘the scope of professional conduct’ of an attorney. Some practitioners have set themselves up as ‘one-stop shops’ providing a wide range of services to clients over and above the rendering of legal services. These additional or extended suite of services may be allied to the core legal services provided by the attorney or even offered on a stand-alone basis. Other practitioners may seek to provide services or act as multinational legal advisers to clients across national boundaries, including advising on questions of law relating to foreign jurisdictions.

The most common supplemented forms of service provided to clients by some practitioners include –

• investment advice;
• brokerage and intermediary services (for financial services products or general business services);
• to act as paymasters or recipients of funds without an existing underlying instruction to render legal services of any nature whatsoever in connection with the payment;
• services as appraisers, auctioneers or even as estate agents;
• bridging finance, structured finance or other services as creditor grantors or agents/ intermediaries for credit grantors;
• forensic investigation services; and
• legal advice and services on the law applicable in foreign jurisdictions.

It is important that the risks associated with the extended scope of services are properly assessed. In order to properly answer the question posed in the title of this article, each and every circumstance must be assessed on its own facts. For the purposes of this article, the focus will only be on selected activities listed above.

Practitioners must be aware that claims arising out of services not falling within the conduct of the profession and advice on foreign law (unless the practitioner is admitted in the respective jurisdiction) will not be covered under policy of the Attorneys Insurance Indemnity Fund NPC (the AIIF). Some of the services (eg, investment advice, acting as an intermediary, broker or estate agent) not only carry their own unique risks, but also fall within the regulatory authority of entities outside of the legal profession. Activities such investment and/or intermediary services fall within the ambit of the Financial Advisory and Intermediary Services Act 37 of 2002 (the FAIS Act) regulated by the Financial Services Board (the FSB) and are subject to specific licencing requirements, which include the placement of a level of professional indemnity (PI) cover specific to such activities. Acting as an estate agent is subject to the appropriate applicable legislation regulating the conduct of that profession.

The scope and extent of services provided to a client qua attorney must be discussed and agreed between the practitioner and the client. Best practice dictates that the agreement in this regard should be reduced to writing and signed by both parties. A well drafted letter of engagement may serve this purpose.

In the case of multi-disciplinary partnerships (MDP’s), the services carried out other than qua attorney will not be indemnified under the AIIF policy. Insofar as the future regulation of MDP’s is concerned, it must also be noted that s 34(9) of the Legal Practice Act 28 of 2014 prescribes that the Legal Practice Council must, within two years after the commencement of ch 2, investigate and make recommendations to the Minister of Justice and Constitutional Development on, inter alia, the creation of other forms of legal practice, including MDP’s taking into account best international practices, the public interest and the interests of the legal profession.

The AIIF

From time to time, the AIIF receives notification of claims from practitioners where the circumstances arise from conduct falling outside of the conduct of the profession. Unfortunately, some attorneys labour under the misapprehension that all activities conducted by them will be indemnified under the AIIF policy.

The AIIF Master Policy, on the basis set out therein, indemnifies attorneys for claims arising out of the conduct of the profession. Whether conduct falls within the conduct of the profession is a matter that must be assessed on the facts of each claim notified to the AIIF. Practitioners engaging in conduct or rendering services that are not ordinarily considered to be part of the conduct of the profession must be aware that, in the event of a claim arising out of such conduct, the claim will not be indemnified under the AIIF policy. Should a practitioner accept instructions or engage in business or other activities that fall outside of the conduct of the profession, such practitioners must ensure that appropriate cover for such activities is purchased in the open market and that appropriate measures are implemented to mitigate the attendant or associated risks. Those practitioners who have top up PI cover in place must have regard to the wording of their top up policies in order to ascertain whether or not their activities fall within the ambit of such policies.

‘Legal Services’ are defined in the AIIF policy as:

‘Work reasonably done or advice given in the ordinary course of carrying on the business of a Legal Practice in the Republic of South Africa. Work done or advice given on the law applicable in jurisdictions other than the Republic of South Africa are specifically excluded, unless provided by a person admitted to practice in the applicable jurisdiction.’

The definition of a legal practice in the policy includes sole practitioners, partnerships of practitioners and incorporated legal practices. (A practitioner is defined as ‘[any] attorney, notary or conveyancer as defined in the [Attorneys Act 53 of 1979]’.)

Practitioners working on matters involving the law of another country should note that, if they are not admitted to practice in the applicable jurisdiction(s), the AIIF policy will not respond to claims arising out of the work done or advice given on the law of the foreign jurisdiction. Similarly, as pointed out below, the AIIF policy will not respond to claims arising out of a judgment of a foreign court.

Comparing the examples of extended services listed above to the provisions of the AIIF policy, it will be noted that the policy (clause 16) specifically excludes claims arising out of or in connection with:

• Trading debts or those of the legal practice or business managed by the practitioner.
• Misappropriation or unauthorised borrowing of trust funds.
• Any judgment or order of a court other that of a South African court with competent jurisdiction.
• The provision of investment advice, the administration of any funds or taking of any steps as contemplated in:

– The Banks Act 94 of 1990;

– The FAIS Act;

– The Agricultural Credit Act 28 of 1966;

– Any law administered by the FSB or the South African Reserve Bank and any regulations issued thereunder;

– The Medical Schemes Act 131 of 1998 as amended or replaced.

• An instruction to invest money, except if relating to an instruction to invest in an interest-bearing account in terms of
  s 78(2A) of the Attorneys Act, and if such investment is done pending the conclusion or implementation of a particular matter or transaction which is already in existence or about to come into existence at the time that the investment is made.
• A direct or indirect consequence of the provision of bridging finance in respect of a conveyancing transaction. This exclusion does not apply to bridging finance provided for the payment of:

– Transfer duty and costs.

– Municipal or other rates and taxes relating to the immovable property, which is to be transferred.

– Levies relating to the body corporate or home owners association relating to the immovable property to be transferred.

• A breach of contract unless such breach is a breach of a professional duty by the insured practitioner.
• Payments, which are unrelated to or connected with a particular transaction or matter which is already in existence or about to come into existence, at the time of receipt or payment and respect of which the insured attorney has received a mandate.
• Claims brought by an entity in which the insured attorney or an interrelated person has a material interest and/or holds a position of influence or control.

The Attorneys Fidelity Fund

It will be remembered that the AIIF is an insurance vehicle established by the Attorneys Fidelity Fund (the Fund) acting in terms of ss 40A and 40B of the Attorneys Act. The relevant sections of the Act empowering the Fund to establish the AIIF refer to insurance cover provided to practitioners in respect of claims arising out of the professional conduct of such practitioners. ‘Professional conduct’ is not defined in the Attorneys Act, but ‘profession’ is defined in s 1 as meaning ‘…the profession of attorney, notary or conveyancer… .’ Subject to the provisions of the Attorneys Act, the Fund will only indemnify claimants in respect of claims arising out of the theft of trust money or property entrusted to a practising attorney, candidate attorney or his or her employee ‘in the course of his or her practice’ (s 26). The limitations of liability of the Fund (s 47) include investment instructions. Insofar as the investment instruction limitation (s 47(1)(g)) is concerned, it must also be noted that s 47(5) sets out specific requirements which practitioners are encouraged to consider carefully.

Conclusion

The risks related to investments need to considered in relation to Ponzi, Pyramid and other similar schemes which, unfortunately, many practitioners have participated in or promoted to their peril. A number of statutes (including ss 42 and 43 of the Consumer Protection Act 68 of 2008) outlaw the participation in such schemes. It is hoped that the exposition above will be taken into account by practitioners in assessing the potential risks to themselves and third parties insofar as accepting instructions, the performance of which will fall outside the conduct of the profession, are concerned. The potential risks are dual in nature in that claims arising out of the provision of those services may fall outside of the ambit of the AIIF policy and third parties may not have recourse against the Fund in the unfortunate event of a misappropriation of funds. It is thus also important that the expectations of clients are appropriately managed in so far as requests to perform services outside of the conduct of the profession are concerned and that clients and other practitioners are warned of the attendant risks.

Thomas Harban BA LLB (Wits) is the General Manager of the Attorneys Insurance Indemnity Fund NPC in Centurion.

This article was first published in De Rebus in 2017 (May) DR 24.