A recent judgment by the Gauteng Local Division of the High Court in Legal Practice Council v Louw and Others 2025 (1) SA 447 (GJ) has cast doubt on the principle of collective liability of law firm partners for financial misconduct as previously articulated in Law Society, Northern Provinces v Stuart and Others 2019 (3) SA 535 (GP), and Limpopo Provincial Council of the South African Legal Practice Council v Chueu Incorporated Attorneys and Others (SCA) (unreported case no 459/22, 26-7-2023) (Saldulker, Nicholls and Carelse JJA and Nhlangulela and Mali AJJA).

In Stuart, the firm’s managing partner, Marlon Leslie Stuart, improperly drew money from the firm’s trust account, creating a deficit, without his co-director’s knowledge or involvement. In coming to its conclusion that the co-director was responsible for the trust account deficit, the court held that an attorney who leaves the management of the administration and finances of his practice to another person, even another attorney, and pays no further heed to it, either in setting up the systems to be followed or in monitoring them may be found guilty of misconduct in his own right under the principle of dereliction of duty.

In Chueu, the court found that the firm’s managing director, Chupjana Lekoloana Chueu, engaged in serious financial misconduct by misappropriating client trust funds, notably retaining an erroneous duplicate payment of R 29 million from the Road Accident Fund. Several clients also complained that the firm received settlement funds but failed to account for or pay these amounts over to them, resulting in a significant trust deficit exceeding R 25 million. The other directors denied direct involvement, claiming ignorance and asserting they had limited oversight over the firm’s finances. The SCA found that substantial misconduct by Chueu relating to the firm’s trust accounts had been established. However, the other directors were also found to have breached their fiduciary duties by entirely neglecting the financial affairs of the firm, regardless of their assertions of ignorance or limited roles.

In Louw, the Gauteng Local Division of the High Court was faced with a dishonest scheme orchestrated by then managing partner, Jan Gysbert Louw. Louw deliberately understated his law firm’s annual fee income to circumvent stricter Broad-Based Black Economic Empowerment compliance requirements. He achieved this by improperly paying the firm’s business expenses directly from the trust account rather than transferring fee income first into the business account and then using it to cover expenses. Although the money ultimately reached the intended recipients and there was no theft or deficit in the trust account, the court found that the misconduct lay in improperly accounting for and using trust funds directly to pay operational expenses. Thus, while the scheme was dishonest, it did not involve misappropriation or theft of trust funds. The court distinguished this case from Chueu, where actual misappropriation of trust funds occurred, in concluding that culpability could not automatically be imputed to the other directors (the ‘uninvolved directors’).

It was submitted that the distinction made by the court in Louw between misappropriation of trust funds and lesser forms of financial misconduct is an unjustified departure from Stewart and Chueu. Firstly, it leaves unclear precisely when uninvolved directors’ fiduciary responsibilities are triggered – only in cases of overt theft or trust deficits, or also in lesser forms of financial misconduct. Secondly, it generates confusion over how much oversight uninvolved directors must proactively exercise regarding firm finances. Thirdly, it complicates enforcement of the Legal Practice Act 28 of 2014 for the Legal Practice Council, which must now try to distinguish between overt trust account theft and other forms of financial misconduct. Fourthly, it leaves open the question of whether a court will even sanction lesser forms of financial misconduct by way of suspension or striking an attorney off the roll if the uninvolved director was ignorant of the financial misconduct.
If the court in Louw wanted to depart from the blanket liability imposed on uninvolved directors by Stewart and Chueu and create a category of financial misconduct for which uninvolved directors would not be liable, it should have clarified what standard of liability would be imposed in cases like this. The result is lingering uncertainty in an area of law which was previously clearly defined.

Ivor Heyman BA LLB (Wits) LLM (Duke University, USA) is an advocate in Johannesburg.

This article was first published in De Rebus in 2025 (May) DR 15.