The Legal Practitioners’ Fidelity Fund (LPFF) is often approached by legal practitioners inquiring about the amounts of insurance cover they enjoyed under the LPFF for theft of trust funds. These inquiries are indicative of the fact that some legal practitioners genuinely believe that the LPFF was created for their benefit and protection and to exonerate them in the event of theft of trust funds either by the practitioners themselves or their employees. Some of the practitioners have even gone to the extent of telling their erstwhile clients that the LPFF was their ‘insurance’ against trust fund defalcations. They have also encouraged their clients to lodge claims with the LPFF apparently believing that once the LPFF has paid the claims they would be exonerated from all liability. This article seeks to discuss the role and purpose of the LPFF with a view to clarifying the notion that the LPFF also provides protection to practitioners who have misappropriated trust funds.
Section 57 of the Legal Practice Act 28 of 2014 (the Act) deals with various purposes for which the LPFF may be utilised. This article will, however, confine itself to subs (1)(a) which provides as follows:
‘(1) Subject to the provisions of this Act, the Fund must be utilised for the following purposes:
(a) Meeting the liability of the Fund referred to in section 55.’
Section 55 provides as follows:
‘(1) The Fund is liable to reimburse persons who suffer pecuniary loss, not exceeding the amount determined by the Minister from time to time by notice in the Gazette, as a result of theft of any money or other property given in trust to a trust account practice in the course of the practice of the attorney or an advocate referred to in section 34(2)(b) as such, if the theft is committed –
(a) by an attorney in that practice or advocate, or any person employed by that practice or supervised by that attorney or advocate;
(b) by an attorney or person acting as executor or administrator in the estate of a deceased person; or
(c) by an attorney or person employed by that attorney who is a trustee in an insolvent estate or in any other similar capacity,
excluding a curator to a financial institution in terms of the Banks Act, 1990 (Act No. 94 of 1990) or a liquidator of a mutual bank in terms of the Mutual Banks Act, 1993 (Act No. 124 of 1993).’
It is clear from the foregoing provisions that the main purpose of the LPFF is to protect members of the public who suffer financial loss as a result of theft of money or property entrusted to an attorney or a trust account advocate in the course of the practice of the attorney or a trust account advocate. Members of the public will only enjoy the protection afforded under s 55 if the attorney in that practice or advocate or any person employed by that practice or supervised by that attorney or advocate is the perpetrator of the theft of money or property entrusted to the trust account practice. The section affords protection to the victims and not the perpetrators of the crime of theft.
The LPFF does not provide cover to practitioners for theft of trust funds. It would in any case be anomalous for an institution that was created mainly for the protection of victims of theft of trust funds to also afford protection to those who commit the theft. The notion that the LPFF exists to also protect practitioners in the event of theft of trust funds is untenable. Legal practitioners should remember that theft of trust funds is a very serious crime with dire consequences for the errant practitioners.
Any payment made by the LPFF in settlement of any claim in terms of s 55 marks the beginning of endless trouble for the defaulting legal practitioners. Apart from the Legal Practice Council instituting disciplinary and striking off proceedings against the practitioners concerned, the LPFF is also empowered to institute criminal and civil proceedings to recover the amounts of claims paid by the LPFF. In terms of s 80 of the Act, once the LPFF has paid any claim, the LPFF is subrogated, to the extent of the payment, to all the rights and remedies of the claimant against any practitioner or person in relation to whom the claim arose, or in the event of their death, insolvency or other disability, against any person having authority to administer their estate. The claimant has the right to open a criminal case and to institute civil proceedings against the errant practitioner to recover the stolen funds. Once the LPFF has paid a claim, it will in terms of its right of subrogation be entitled to register a criminal case and institute civil action against the practitioner concerned to recover the amounts of the claims it has paid. Pursuant to its right of subrogation in terms of s 80, the LPFF has registered many criminal cases against errant practitioners and has also recovered millions of stolen trust funds. All these actions, therefore, cannot be interpreted as affording protection to the defaulting practitioners.
In view of the foregoing discussion, it is clear that the LPFF’s main objective is to protect the public against any financial loss as a result of the theft of trust funds by legal practitioners. It certainly does not protect practitioners who are charged with theft of trust money. On the contrary, the LPFF continues to register criminal cases and is actively involved in the investigation and prosecution of legal practitioners found to have misappropriated trust funds.
It is disheartening to know that there are practitioners who are not conversant with the main objectives of the LPFF. Some practitioners clearly believe that they can embezzle trust funds without any serious consequences. This is perhaps the reason why there are so many cases of theft of trust funds by legal practitioners. Some of the practitioners simply do not know about the existence of this important institution. It is suggested that it should become compulsory for all candidate legal practitioners entering the legal profession to undergo training relating to the purposes and objectives of the LPFF and the consequences of stealing trust money. This will instil a sense of responsibility in the practitioners and help to curb the rampant theft of trust money.
John Ndlovu BIur (UniZulu) LLB (UP) Masters Cert (Labour Relations Management) (UJ) is a Senior Legal Adviser at the Prosecutions Unit of the Legal Practitioners’ Fidelity Fund in Centurion.
This article was first published in De Rebus in 2024 (July) DR 8.
