Minister assures professional independence

February 1st, 2015

By Mapula Thebe – editor

The KwaZulu-Natal Law Society (KZNLS) held its annual general meeting (AGM) late last year in Durban. Speakers at the AGM included Minister of Justice and Correctional Services, Michael Masutha; Manager of the Attorneys Development Fund (ADF), Mackenzie Mukansi; General Manager of the Attorneys Insurance Indemnity Fund (AIIF), Thomas Harban; Vice-chairperson of the Attorneys Development Fund (AFF), Muke Kheswa and Co-chairperson of the Law Society of South Africa (LSSA), Ettienne Barnard.

ADF Progress

Mr Mukansi, the first speaker on the podium, began his address by saying that the theme of his speech was to review the progress the ADF has made since 2013. Following on what he reported on in 2013 he said that he made a plea to all in the organised law profession to ensure that the ADF stayed relevant and the KZNLS headed the call. ‘Through your development managers we were able to get people that were worthy of assistance. We are very grateful for that. I would also like to impress that we are steadily growing, [but] not as much as we would have liked to, in the number of applications that we get countrywide. The trend has changed, we no longer have only single practitioners approaching us for funding, we now have two practitioner firms and sometimes more that approach us in an interest of clubbing together for them to be better organised to serve the public,’ he said.

Speaking about the funds of the ADF, Mr Mukansi said: ‘In 2014, after having looked at the number of applications and applicants that we have assisted in 2013, 2012 going backward, we have noted that our fund reserves – if we were to conservatively assume that 750 applications would come through and we approve them at a capped amount of R 40 000 that would amount to wiping out our reserves as it stands at around R 32 million. This made us think that we should rather do various projects and engage with corporates and commercial banks, who in each of their organisations have corporate social responsibility funds, present the ADF as a project to them and tap into those funds. This will enable the ADF to not deplete its limited resources. We have had several promising engagements.’

Mr Mukansi said that the ADF has also come up with a customer relations management (CRM) tool, which is a practice management tool that allows applicants to be able to do their work electronically by capturing their files. He added that the ADF has noticed that a lot of firms fail not because of incapacity but because of the inability to bill for work done. ‘The CRM tool will be able to draw reports, those reports will be analysed by subject matter aspects. … In an agreement between the LSSA, the ADF and a group of charted accountants, in a bid to bring accounting and reporting to the profession, we have identified experts who will analyse the data from each and every firm in its uniqueness and be able to give them feedback and give them direction on what they need to do in order for them to be able to stay afloat. The modeling of the CRM is one of the projects that will need a lot of capital injection and the capital injection will not come from our reserves but will be funded by one commercial bank,’ he said.

Mr Mukansi said that there are attorneys that have been in practice for a number of years and would like to upgrade their computers; he added that the doors of the ADF are open to them and that the organisation has assisted a number of these firms. ‘We are also in discussion with the likes of Xerox to come up with a package deal that will be able to assist firms to be able to do their work efficiently and in a cost effective manner. We will be announcing these in our monthly reports.’

In conclusion, Mr Mukansi said that 2014 highlights will be comprehensively presented in the ADF’s annual report.

AIIF on claims

Mr Harban began his presentation by giving a brief background on the AIIF. ‘The AIIF is an insurance vehicle that was created by the AFF to provide a level of professional indemnity insurance to attorneys it also provides bonds of security at no cost to attorneys. As it has been noted in the last two years there has been an increase in claims. If we were to stop operating today we would need over R 200 million to run off the current claims and it would take us 16-and-a-half years to do that. The problem areas in terms of claims still remain conveyancing, prescribed MVA [motor vehicle accident] settlements as well as prescription in general. The reason for conveyancing claims relates to inadequate or lack of supervision of the staff in firms and the hangover from the property boom,’ he said.

Mr Harban added that: ‘Another reason for the increase in claims is that the public has become more aware of their rights and people are questioning attorneys. So far as court bonds are concerned, these are the bonds issued to executors; our exposure still sits at R 9 billion with bonds still open from the year 2000. We still have a problem with practitioners not notifying us when estates have been finalised the result is that we sit with that exposure on our books … . So far as the way forward for the AIIF, currently the AIIF is funded by a single premium from the AFF, that premium is used to pay claims and pay for operations. The current model in reality is unsustainable and we are working on relooking at the funding and the underwriting of the AIIF, there will be engagement with the profession in this regard as the process is taken forward. But the reality is that we have reached a point where practitioners will be asked to make a contribution to the cover provided by the AFF. … We are aware of the economic environment we are operating in and that other costs are escalating for attorneys, we will be sensitive to that.’

In conclusion, Mr Harban said that the AIIF is not going to go bankrupt immediately because part of the premium they receive from the AFF is invested and the insurance has built up some reserves.

Financial situation of the AFF

Ms Kheswa delivered a report on behalf of the chairperson of the AFF, CP Fourie. She said that the AFF is a fund that serves both the profession and the public given its mandate of providing fidelity as well as professional indemnity cover to members of the public. Adding that, as an institution the AFF has had the benefit of growth as a result of both the interest rate increase as well as good returns that it has had from its investments.

Speaking on the financial situation of the AFF, Ms Kheswa said ‘as of 31 August 2014 the total value of the fund assets stood at R 4,3 billion. The value added by capital appreciation, dividends and interest during the first eight months [of 2014] is a total of R 355,1 million [with] budgeted withdrawals for the payment of professional indemnity claims in the amount of R 150 million. The abovementioned withdrawals have been necessitated by decreasing trust interest received over the past five years coupled with a significant increase in claims paid by the fund. The net growth of investment asset for the eight months in the period that is ending August 2014 is R 205 million.’

The picture regarding the claims lodged against the fund still remains an area of concern to it. Ms Kheswa said that as of 31 August 2014 there were 956 claims on record with a combined value of over R 432 million. ‘The bulk of the claims, that is, 53% is in respect of conveyancing related matters, followed by estates at 14%, commercial at 12% and Road Accident Fund at 10%,’ she said.

Highlighting aspects of a report that was circulated at the AGM, Mr Barnard said that it was a privilege to serve the profession during the time of the enactment Legal Practice Act. He added that the LSSA has embraced the Legal Practice Act and held a strategic planning session to understand what its full role in the Act will be. ‘We want to ensure that the transition into the new structure will take place smoothly,’ he said.

Minister’s thoughts on the Legal Practice Act

Delivering his keynote address, Mr Masutha said that the legal profession has always been a tightly regulated profession because it operates in a much regulated space. ‘Different role players including government will have a right to say how people who conduct business in our courts and who conduct their profession in a public space such as yourselves, in the pursuit of access to justice, operate,’ he said.

Speaking on the Legal Practice Act, Mr Masutha said: ‘As you are aware the Legal Practice Act was signed by the President. The constructive deliberation by the organised profession that led to the Act is mostly appreciated. It is also heartwarming that the Law Society of South Africa released a press release when the Act was promulgated in September … it reiterated its intention to actively cooperate in the implementation thereof. The first phase of the implementation will be putting into operation chapter 10 to establish the National Forum on the Legal Profession. It is important that the National Forum commences its activities as soon as possible, its functions will lay the foundation for the broader transformation of the profession contemplated in the Act. One of the first steps would be the designation of persons for purposes of constituting the National Forum.’

Mr Masutha added that while the legal profession is given the opportunity to transform and rationalise itself, during deliberations of the National Forum, government has a legitimate interest in overseeing that the profession is transformed in line with constitutional imperatives. However, he assured delegates at the AGM that government has no desire to take over or control the legal profession.

Mr Masutha said that there has been criticism on the issue of the ministerial designates to the National Forum and ultimately s 14 of the Legal Practice Act dealing with the dissolution of the Council. He said that others are of the view that the power of the minister to dissolve the Council impacts negatively on the independence of the Legal Practice Council. ‘It is also argued that the legislator must have in place a mechanism that can cater for a situation where the Council becomes dysfunctional, an unlikely scenario of course but that should be catered for in any event in the public interest and the interest of the administration of justice,’ he noted.

Mr Masutha said: ‘While the minister does have the power to dissolve the Council if it does become dysfunctional in terms of s 14, he or she at the end of the day can only do so after the Legal Services Ombuds, who is a retired judge, has investigated the matter and has made recommendations to this effect, and then only after the High Court grants an order for the dissolution of the Council. In other words the Minister’s tasks in this regard are circumscribed and can only be exercised, at the end of the day, on the authority of the High Court.’

In conclusion Mr Masutha said that fears were also expressed that the new provisions in s 35 that provides for cost agreements between lawyers and clients will create an administrative burden on to practitioners. ‘The practical implication of this provision was widely exaggerated in the press and by persons who did not read the contents of the Legal Practice Act. It is trusted that attorneys will embrace the advantages to client and practitioner alike … and find a way to implement this initiative,’ he noted.

Mapula Thebe NDip Journ (DUT) BTech (Journ) (TUT) is the editor of De Rebus.

This article was first published in De Rebus in 2015 (Jan/Feb) DR 11.