Limpopo Provincial Council of the South African Legal Practice Council v Chueu Incorporated Attorneys and others
| Jurisdiction | http://justis.com/jurisdiction/166,South Africa |
| Judge | Saldulker JA, Nicholls JA, Carelse JA, Nhlangulela AJA and Mali AJA |
| Judgment Date | 26 July 2023 |
| Citation | 2023 JDR 2704 (SCA) |
| Hearing Date | 08 May 2023 |
| Docket Number | 459/2022 |
| Court | Supreme Court of Appeal |
Nicholls JA (Saldulker and Carelse JJA and Nhlangulela and Mali AJJA concurring):
2023 JDR 2704 p11
Nicholls JA (Saldulker and Carelse JJA and Nhlangulela and Mali AJJA concurring)
On 25 October 2021, the Limpopo Division of the High Court, Polokwane (the high court) dismissed an urgent application for the suspension of various legal practitioners, brought by the statutory regulator, the Limpopo Provincial Council of the South African Legal Practice Council (the Limpopo LPC), the appellant before us. The first respondent is Chueu Incorporated Attorneys (the firm), the law firm of which the second to eighth respondents were directors. The Limpopo LPC sought to suspend the second to eighth respondents from practising as attorneys for a period of 18 months pending the finalisation of a disciplinary enquiry into the alleged misconduct of the respondents, and certain interim relief related thereto.
At the time, the firm was facing a final liquidation application. The high court, by agreement, granted an order of suspension against the second respondent for a period of 12 months, pending the finalisation of investigations into his conduct and disciplinary proceedings against him. It dismissed the application for the suspension of the other directors. This prompted the Limpopo LPC to bring an application for leave to appeal in respect of the other six directors, the third to eighth respondents. The high court dismissed the application for leave to appeal, and granted a punitive costs order against the Limpopo LPC. Special leave to appeal was sought, and granted, by this Court.
At the heart of this appeal is the question of the liability of all the directors of a law firm, when the financial misconduct has allegedly been committed by only one of the directors.
Legal practitioners are obliged to conduct themselves with the utmost integrity and scrupulous honesty. Public confidence in the legal profession is enhanced by maintaining the highest ethical standards. A lack of trust in the legal
2023 JDR 2704 p12
Nicholls JA (Saldulker and Carelse JJA and Nhlangulela and Mali AJJA concurring)
profession goes hand in hand with the erosion of the rule of law. The Legal Practice Act 28 of 2014 (the LPA) replaced the Attorneys Act 53 of 1979 and came into operation on 1 November 2018. Like its predecessor, the objects of the LPA are, inter alia, to promote and protect the public interest and to enhance and maintain appropriate standards of professional and ethical conduct of all legal practitioners. [1] As such, the Limpopo LPC is not an ordinary litigant, but generally acts for the public good. Legal proceedings brought by the Limpopo LPC in this regard are sui generis, [2] and the disciplinary powers of the high court over the legal practitioners are founded in its inherent jurisdiction as the ultimate custos morum of the legal profession. [3]
In terms of the LPA, practitioners may establish private companies to conduct their legal practice, subject to certain conditions. Section 34(7) provides:
‘A commercial juristic entity may be established to conduct a legal practice provided that, in terms of its founding documents-
. . .
. . .
all present and past shareholders, partners or members, as the case may be, are liable jointly and severally together with the commercial juristic entity for-
the debts and liabilities of the commercial juristic entity as are or were contracted during their period of office; and
in respect of any theft committed during their period of office.’
In this regard, the third to eighth respondents do not deny their liability for the debts of the firm, but contend that they should not be subjected to disciplinary measures for the financial misconduct of another director, the second respondent.
2023 JDR 2704 p13
Nicholls JA (Saldulker and Carelse JJA and Nhlangulela and Mali AJJA concurring)
The firm, which had been registered as a partnership since 1998, was incorporated in 2014. According to the second respondent, it was handling approximately 6 000 files, with an estimated gross value of R6.2 billion, when the application for suspension was launched. The firm specialised in personal injury matters. It had four offices, in Lephalale, Pretoria, Polokwane and Mahikeng, all of which operated independently of each other. The second respondent was the ‘managing director’ of the firm and in charge of the overall finances of the firm. During the relevant period, the third to eighth respondents were directors of the firm, operating at different locations. The third and fifth respondents worked at the Pretoria office. The fourth, seventh and eighth respondents were stationed at Lephalale, and the sixth respondent at Polokwane.
During 2020/2021, various complaints from members of the public were received by the Limpopo LPC. These were to the effect that the firm had represented them in litigation against the Road Accident Fund (the RAF), collected monies from the RAF, but failed to pay it over; that the firm had failed to account for monies claimed and received from the RAF; and, had failed to respond to communications or deal properly with clients’ instructions in this regard.
The first complaint, by Ms Puleng Jowie Mugwena, was that the client had been awarded R377 522.91 plus costs by the high court, but no account had been rendered and no monies paid to her. The second complaint, by Ms Rebone Evelina Motlhabane and lodged with the Limpopo LPC on 9 October 2020, was by a client of the third respondent in Lephalale who was awarded R1 251 978.25 by the high court. She received a statement that an amount of R938 983.69 was due to her after the deduction of fees. She did not receive any payment. The third complaint, by Mr Pakiso Aron Boye, also emanating from the Lephalale office, was in regard to an
2023 JDR 2704 p14
Nicholls JA (Saldulker and Carelse JJA and Nhlangulela and Mali AJJA concurring)
award of R857 602 that had been ordered by the high court. The RAF had paid the firm, but no account was rendered to the client and no payment made to him. The fourth and fifth complaints were made by Mr Serole Gift Mapaya and Ms Tumelo Enny Makoti respectively, both clients of the Lephalale office. The former related to monies which had been claimed and paid out by the RAF, but were not accounted for, nor paid over to the clients. Ms Makoti stated that she had instructed the firm to pursue a claim against the RAF for R8 100 000 which they had taken over from another attorney. The firm did not respond to her queries and did not account to her. The claim subsequently became prescribed.
In addition to the above, the Limpopo LPC was informed by the Gauteng LPC about a complaint received from the RAF, that it had erroneously made a duplicate payment to the firm. This resulted in an overpayment to the firm in an amount of R29 043 606.64, which monies, instead of being repaid to the RAF, had been appropriated by the firm.
The matter was referred to the Investigating Committee of the Limpopo LPC, which found evidence of numerous breaches of the code of conduct including, inter alia, failure to account accurately and timeously; failure to respond to complainants’ communications; failure to deal properly with instructions of clients; failure to comply with the directives of the Limpopo LPC; failure to exercise proper control and supervision over staff; failure to report to the LPC; and dishonest and irregular conduct on the part of a trust practitioner in relation to the handling of trust monies.
Charges were then formulated against the directors of the firm, the second to eighth respondents. On the day of the disciplinary hearing, the directors did not
2023 JDR 2704 p15
Nicholls JA (Saldulker and Carelse JJA and Nhlangulela and Mali AJJA concurring)
arrive, although an advocate was present who purported to act for them. The respondents did not answer the complaints against them, which had grown to 26 in number by the time that the Limpopo LPC instituted action in September 2021.
On receipt of the trust accounts of the firm, the Limpopo LPC’s investigation team ascertained that there was an amount in trust of R8 006 186.94 on 15 May 2021. This was reduced to R5 545 013.84 on 1 September 2021. Bearing in mind the duplicate payment of the RAF, and without taking into account the various complaints of non-payment, the Limpopo LPC concluded that there was a substantial trust deficit of at least R25 825 699.89. This pointed, prima facie, to a misappropriation of trust funds.
As a result, the Limpopo LPC launched an urgent application for the suspension of all the directors of the firm. It founded its jurisdiction in terms of s 43 and s 44(1) of the LPA. Section 44(1) empowers a high court to adjudicate upon matters concerning the conduct of a legal practitioner, a candidate legal practitioner or a juristic entity. [4] Section 43 provides for the LPC to institute urgent legal proceedings in the high court to suspend a legal practitioner from practice, if a disciplinary body is satisfied that the legal practitioner has misappropriated trust monies. [5]
2023 JDR 2704 p16
Nicholls JA (Saldulker and Carelse JJA and Nhlangulela and Mali AJJA concurring)
The application was defended. The common thread running through the defences of the third to eighth respondents was that their shareholding, if any, was minor, and as individuals they had nothing to do with the firm’s finances. This aspect, they alleged, was entirely within the knowledge and control of the second respondent. They were not provided with financial statements, were not consulted in respect of major decisions and did not receive any distributions of profit. The respondents were aware of the...
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