The case for a differentiated rate of payment of subscriptions by legal practitioners in SA to the LPC at the rate of 2% of taxable income (arising from the highest levels of income inequality in the world)

December 1st, 2019

The Legal Practice Council (LPC) established in terms of ch 2 of the Legal Practice Act 28 of 2014 (LPA), came into being on 1 November 2018 and is the last regulatory body – of all the professions in South Africa (SA) – to be established post-1994. Why did it take more than 24 years for the regulatory body to be established after the advent of our new democracy?

The reasons are many and detailed, but the shortest and all-embracing reason finds its roots in a strategically powerful but deeply divided legal profession, based on race, class, gender and historical past oppression and exploitation. That, however, is a discussion for another occasion.

A quick look at the long title of the LPA indicates its broad intention, viz, ‘[t]o provide a legislative framework for the transformation and restructuring of the legal profession in line with constitutional imperatives so as to facilitate and enhance an independent legal profession …’. The second paragraph of the preamble to the LPA also reminds us that the legal profession is ‘fragmented and divided’, ‘not broadly representative of the demographics of South Africa’, ‘access to legal services is not a reality for most South Africans’ (I say, vast majority) and further that ‘opportunities for entry into the legal profession are restricted’. These sad realities of society are mentioned in almost abstract political science jargon without any means or directives on how to reverse this. The LPC is, thereafter, exhorted to address these serious contradictions in the remaining parts of the preamble, the purpose (s 3), objects (s 5), and powers (s 6) in the LPA, again, without saying how and without added specific powers under the LPA to break down this historical mountainous headache of our past and painful history.

Before the LPC can embark on this seemingly impossible task, which only an inspired, honest and driven government can hope to achieve, it would need essential components, like financial aid (funds), united and committed people and a plan of action based on a clear vision. The LPC has just started along this long walk.

This article focuses on the funds, or the shortfall of funds.

As at May 2019, the LPC had a projected budget of approximately R 333 million. The appropriations that the LPC hoped to receive stands at about R 205 million. There is a shortfall of approximately R 120 million. The LPC will have to ensure that it gets the necessary funding from the Legal Practitioners’ Fidelity Fund (LPFF). Save for its new name in terms of ch 6 of the LPA, the present LPFF still operates in terms of the previous and untransformed mandates of the Attorneys Fidelity Fund, through its previous and unelected board, which ought to have been elected by May 2019 in terms of the LPA, under the auspices of the LPC. As a result, without the overdue elections, the LPFF still exhibits all the signs of an unwilling partner in its marriage to the LPC.

While the LPC waits patiently, it must prepare for comprehensive negotiations with a new and refreshed LPFF, in order to address its present and future funding needs.

What are the remaining options facing the LPC to raise the necessary funding for its multitude of activities to effectively and efficiently regulate the legal profession of SA? The State is unable to fund itself and is in a serious financial crisis and will not be able to fund the LPC. The LPC in any event, will not wish to look to the State for funding in order to preserve its independence. After the impasse with the LPFF is resolved, some financial relief may be on offer from the LPFF. However, the new LPFF will have to still sustain and protect its funds based on sound corporate governance and economic principles for the future of the legal profession and the interests of the public.

The only enduring option rests with raising the additional necessary funds from the legal profession through the payment of subscriptions. The simple straightforward mechanical thinking that is prevalent these days, in almost all systems and structures in calculating payments of levies or subscriptions is an easy but a harsh and an unjust one, namely, the method of applying the formula of ‘one size fits all’. For example, a budget of say R 300 million divided by a membership of 30 000 will equate to a subscription of R 10 000 per legal practitioner annually. This way of thinking is lazy and is a dangerous way of dealing with a legal profession that is seriously skewed in wealth and income differences, more specifically, a legal profession rooted in a country with a history of centuries of exploitation that has resulted in the greatest inequalities in income in the world.

The calculation of a fair and just system for the payment of annual subscriptions by legal practitioners in SA must be determined through a new paradigm. It should be through the prism that reflects the socio-economic realities of a greatly divided profession and society. This prism must give life to the imperatives in the LPA, namely, to ‘transform and restructure’ our legal profession. It must further give effect to the preamble of the LPA and the purpose and objectives of the LPC.

Before one starts with any mechanical or complex system of calculating annual subscriptions, one has to consider the material conditions prevailing in SA as legal practitioners do not live and work in a vacuum. Legal practitioners are all part and parcel of the terrible disparities in our society, from the few who enjoy the fruits of wealth to the many who face daily hardship and poverty, and everyone in between. Legal practitioners, wealthy and poor, come from the ranks of this unequal society. The poor and marginalised, mainly Black legal practitioners cannot be expected to contribute to the LPC’s coffers at the same rate as wealthy legal practitioners (some Black as well) who have benefited from the unjust past and further seized the wonderful economic opportunities that post-democratic processes have gifted them, and further under our present Constitution, protects them and their privileges.

Critical factors to consider

It is almost common knowledge that the Gini coefficient is the measure of income inequality in a country. Simply put, if everyone earned the same in a country the coefficient would be zero, and if one person earned all the income, and the rest nothing, the coefficient would be one.

Global recession, ineffective economic and financial policies, climate change and the many failings of government and society at large, has seen SA emerge with the highest level of income inequality in the world, with a Gini coefficient reading of 0,67.

Wealth inequality in SA on the other hand is even worse and studies have shown that the Gini coefficient during 2014/15 was at 0,94. The legal profession cannot put its head in the sand and pretend that it is not a product of this iniquitous landscape. The wealthiest legal practitioners have accumulated hundreds of millions of Rands in assets and could accumulate more while the poor legal practitioners are experiencing greater hardships and face greater poverty challenges. Against this brief background, the LPC is expected to provide the same high quality regulatory services to both the rich and poor legal practitioners, at subscription rates that will not dent the wallet of a rich legal practitioner, but will definitely drive a poor legal practitioner to desperation.

Take a look at wealthy legal practitioners and the privileges that our new democracy has bestowed on them. They have international status as legal practitioners from democratic SA where the Constitution reigns supreme and the rule of law remains among the strongest in the world. These legal practitioners can brand themselves and commandeer work from the world’s biggest markets, including Africa. The substantial amount of wealth that passes through SA, is transacted, inter alia, through litigation, agreements, industry and trade overseen by these legal practitioners in the largest firms in Sandton, Cape Town, Pretoria, Durban and other cities in the country. Matters relating to minerals and mining, petroleum and energy, intellectual property, land and property transactions, large deceased estates, trusts, matrimonial and even syndicates involved in white-collar crime and many high-profile mobsters turn to these wealthy legal practitioners. They appear in the highest courts not only in SA but also in international and national arbitrations as advocates and attorneys, senior counsel and senior attorneys and commandeer the highest fees. They also protect the rights of multi-nationals, such as Coca-Cola, Nike, Apple to the proverbial Orange.

What work does the poor and not so poor legal practitioner get to do? The proverbial crumbs. The traditional work as we know it from the Road Accident Fund is going to disappear. Legal aid work is long gone and has been moved to the national body of Legal Aid South Africa. Criminal work is highly overtraded, competitive and in a poverty driven environment is no longer a basic source of income. The future for the poor legal practitioner from largely disadvantaged backgrounds looks bleaker post our new democratic dispensation. The question arises, are we expecting disadvantaged legal practitioners to pay the same subscriptions to the LPC as those who are getting even wealthier than they already are?

Legal practitioners of big and small firms, need a national regulatory body for their national and international reputation, which allows them to market themselves accordingly. This, they are guaranteed, through the LPA via the LPC, which licenses them for this wealth accumulation. For the poor legal practitioner, the LPC is not just a financial burden but also a regulatory authority watching over their meagre income and audit reports. The LPC is a watchdog looking over their small business and professional transgressions, with all the prejudices that follow the small and the not powerful.

The Gini coefficient extrapolates this sad reality that SA has benefitted the privileged, powerful and wealthy legal practitioners, among other business people.

It follows, therefore, that these comfortable legal practitioners must pay proportionately more to sustain the LPC on a special scale as compared to the lesser fortunate legal practitioners.

It cannot be unjust in the economic climate in SA for a wealthy legal practitioner to pay R 40k as subscription if their taxable income for the year is R 20 million. This works out at the rate of 2% of taxable income. The benefit for all the legal practitioners is that this will be tax deductible.

Bearing in mind that income is private, my submission is that the only requirement for a legal practitioner is to furnish an affidavit verified by an auditor to the LPC that the taxable income of such a person is ‘x’ and, therefore, the subscription payable to the LPC would be calculated at 2% of the taxable income amount. Exemption from paying subscription in certain categories of legal practitioners, for example, those earning less than R 100k per annum should be allowed.

Adjustments can be made biannually depending on the LPC’s budgetary requirements. The LPC can budget for high standards, good staff and provide excellent regulatory support services. The beneficiaries will be the people of SA, our constitutional democracy, the legal profession, both wealthy and the poor. This relief for the long-disadvantaged poor and not so poor legal practitioner will see some sense of justice dispensed by the LPC. It will also convey a positive message to many other structures in SA.

The two scientifically researched measures mentioned, together expose the greatest challenge to the future of our constitutional democracy and the attainment of the values underpinning our Constitution. Moreover, the realisation of the right to health, education, housing, food, employment, a clean and safe environment and social security is a vanishing dream in a crippled state that is struggling to stand upright again on the world stage as it fights the ravages of poverty, unemployment and inequality.

The LPC has a role to play in this difficult environment. It must not fail the historically disadvantaged legal practitioner.

Krish Govender BA Law (UKZN) BProc (Unisa) is a legal practitioner at TS Law Inc in Durban and a member of the National Executive Committee of the National Association of Democratic Lawyers.

This article was first published in De Rebus in 2019 (Dec) DR 39.