The events underlying the dispute between the parties in Legal Practice Council v Mjila and Another (NCK) (unreported case no 1635/22, 1-3-2024) (Tlaletsi JP, Williams J and Lever J) raise several questions. For current purposes, the focus is whether an attorney issued with a Fidelity Fund Certificate (FFC) to practise in one entity and enrolled with the Legal Practice Council (LPC) as practising in that entity, can contend to be practising in another.
In this case, the deceased was a practising attorney in the Northern Cape. Following his passing, the LPC resolved that an application be brought for the director of the provincial council to be appointed curator bonis of the deceased’s legal practice. The LPC filed an urgent application and a rule nisi was issued appointing the provincial director curator bonis of the practice. The rule nisi was extended at least four times.
A Full Bench was constituted when it became apparent that the rights to the deceased’s estate, controlled by the first respondent (the deceased’s wife and executrix of his estate), was an issue. The first respondent contended that the deceased had run his practice as an incorporated professional entity. The incorporated professional entity is a personal liability company contemplated in ss 8(2)(c) and 11(3)(c)(i) of the Companies Act 71 of 2008 and, for purposes of a legal practice, the commercial juristic entity referred to in ss 34(5)(b) and 34(7) of the Legal Practice Act 28 of 2014 (the Act). A Full Bench was constituted because the rights of a deceased estate in relation to a personal liability company, such as an attorney’s incorporated practice, is an area of law that it not yet settled.
An incorporated professional entity had been registered in the name of the deceased and he was the sole shareholder and director of that entity at the time of his death. However, no FFC had ever been issued to the deceased as a practitioner in the incorporated professional entity, but such a certificate was issued in his name as sole practitioner. This was the case even on the date of his demise. It followed that the deceased had never used the incorporated professional entity as a vehicle through which he conducted his practice.
The executrix’s main ground for opposing the confirmation of the rule nisi was her contention that the deceased conducted his practice through an incorporated entity and thus she, as executrix, could nominate a new director for the entity who had an FFC and transfer the share in the company to that person. This contention could, however, not be sustained and she ultimately consented to the confirmation of the rule nisi. It had come to light that even the person who was proposed to take over the deceased’s practice had written to the LPC on a letterhead of the incorporated entity though he knew from the trust account records that the deceased had run his practice as a sole proprietorship and not through the juristic entity. Following on the executrix ultimately consenting to the confirmation of the rule nisi, the court was only left to decide the question of costs.
The facts of the Mjila case raise several questions, including regulatory, liability and risk considerations. That case also demonstrates how this can have broader implications beyond the professional life of a practitioner. Can one be issued with an FFC to practice in one entity (as a sole proprietorship) and then purportedly conduct the legal practice in another (a commercial juristic entity in this case)? My submission is that the entity through which the practice is conducted must be the one in respect of which an FFC is issued to a practitioner.
It is trite that a commercial juristic entity and a sole proprietorship are different legal entities subject to contrasting legal regimes and consequences. Clients and other third parties must know what type of entity they are dealing with. Legal practitioners must be consistent in using one type of entity.
When completing the application form for an FFC (see s 2 of sch 7A in the Final rules as per ss 95(1), 95(3) and 109(2) of the Act (the rules)) attorneys must provide the name under which the practice will be conducted (‘the firm’) and the full name and registration number if the practice is incorporated. The rules for legal practitioners prescribe that:
‘47.3 Every legal practitioner who is obliged in terms of section 84(1) of the Act to be in possession of a Fidelity Fund Certificate shall sign, or confirm through the electronic on-line submission, the application form relevant to him or her and shall truly, accurately and completely set out the information and particulars provided for in the form … .’
Practitioners thus have an obligation to provide accurate information relating to the entity used to conduct their practices.
A practice purportedly conducted in an entity different to that recorded with the LPC and in respect of which the FFC is issued may also have implications for practical vocational training (PVT) contracts entered into with candidate attorneys. The consequences of the validity of a PVT contract being called into question – because the practice providing the training is conducted through an entity different to that recorded by the LPC – would be serious and unfortunate to all involved. In terms of rule 17.2.7.1 an application for admission and enrolment must be accompanied by an affidavit of the applicant setting out whether he or she conducts practice ‘for his or her own account and if so, whether alone or in partnership (stating the full names of his or her partners) or as a member of a commercial juristic entity (stating the full names of his or her co-members)’. This rule further demonstrates that a practice is conducted either as an unincorporated entity or as a commercial juristic entity. Numerous provisions in the Act, rules and Code of Conduct, respectively, repeatedly refer to a sole practitioner, a partnership or a commercial juristic entity. There is thus a distinction between unincorporated and incorporated entities as vehicles used to conduct a practice.
The correct entity (personal liability company, sole proprietorship or partnership (as the case may be)) will also have to register as the accountable institution in terms of the Financial Intelligence Centre Act 38 of 2001. The trust and business bank accounts, respectively, must be opened in the name of the correct entity. Registrations with the South African Revenue Service, Department of Labour and all other institutions must similarly accurately reflect the name of the firm and type of entity.
The Legal Practitioners Indemnity Insurance Fund NPC’s (LPIIF) Master Policy only indemnifies legal practices conducted in the form of either a sole practitioner, a partnership of attorneys, a commercial juristic entity referred to in s 34(7) of the Act or an advocate referred to in s 34(2)(b) of the Act (see clauses 5 and 6 of the Master Policy available on the website www.lpiif.co.za) where the practitioner concerned had an FFC on the date that the cause of action arose. One cannot apply for indemnity in terms of that policy contending that an FFC was issued for a practice to be conducted in any entity different to that in respect of which such certificate was issued. There will be one annual limit of indemnity for that entity (see clauses II, 7 and sch A). On the facts of the Mjila matter the incorporated entity would thus not be entitled to indemnification under the LPIIF policy. The Master Policy also excludes claims for compensation arising out of legal services conducted in violation of the Act (clause 16(u)). Neither s 34 of the Act, the rules nor the Master Policy authorise a private company, for example, to be used as the vehicle through which to conduct a legal practice or for such an entity to own a practice.
Ensure that the entity conducting the legal practice is the same entity reflected on the records of the LPC and all other regulators and that the FFC and bank accounts of the practice accurately reflect that. Where the name of the firm or the vehicle used to conduct the practice change, the onus is on practitioners to ensure that the records across all the relevant platforms are timeously updated. Apply caution and check the accuracy of the description of the firm in stationary, letterheads, the firm’s website and all other documents. A failure to do so can result in regulatory action and other risks materialising.
Thomas Harban BA LLB (Wits) is the General Manager of the Legal Practitioners Indemnity Insurance Fund NPC in Centurion.
This article was first published in De Rebus in 2024 (December) DR 18.
