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Court case about funds “entrusted” to an attorney

Legal Practitioners’ Fidelity Fund v Guilherme [2023] ZASCA 96

The respondent (G) lodged a claim against the appellant (the Fund) for payment of an amount of R799,967.24, plus interest, after an attorney misappropriated this amount. The amount was part of the pay-out that G received from an insurance company as beneficiary on a policy on the life of her deceased spouse (B) who passed away in 2012. G paid the full pay-out of the policy into the trust account of B’s attorney (S), who was also the executor of B’s insolvent deceased estate. S advised her to do so to prevent B’s creditors to get access to the funds. After G became concerned with the way in which S dealt with the funds and her late husband’s estate, she appointed a new attorney who discovered that the amount in question was missing. In 2018 G lodged a claim with the Fund, which claim was rejected in July 2019 on the ground that there was no entrustment of the funds to S as provided for in section 26 of the Attorneys Act, 1979.* G instituted action against the Fund in the Western Cape High Court (WCHC) and the court ruled in her favour.

The Fund applied for leave to appeal, which was refused by the WCHC. The SCA granted leave to the Fund to appeal to a full bench of the WCHC. The full bench dismissed the appeal in a majority judgement (Savage and Kusevitsky JJ concurring and Ndita J dissenting). The Fund then requested and received special leave to appeal to the SCA. The Fund argued before the SCA that there is a difference between “entrusting” funds to an attorney and “depositing” funds with an attorney, and that section 26 of the Attorneys Act only covers the “entrusting” of funds. In her founding affidavit for the original action G stated that she would never have paid the funds to S for any other reason than that he advised her as her attorney to do so. This was never disputed by the Fund.

The SCA (Daffue AJA (Dambuza ADP and Saldulker, Mothle and Matojane JJA concurring)) held that there is no merit in the Fund’s argument that there is a further element that has to be present for “entrustment” to exist and that a mere deposit does not amount to entrustment. The court referred to the following passage from the judgement of the SCA in Du Preez and Others v Zwiegers 2008 (4) SA 627 (SCA):

“Vis-à-vis the depositor the attorney is not just another member of the public who is entitled to expect fellow citizens to take reasonable care to protect their own interests. An attorney into whose trust account money is paid owes a duty to the depositor even if the depositor is not an existing client of the practice. That duty, at the risk of repetition, is to deal with the money in such a way that harm is not negligently caused, to the depositor among others.”

The appeal was dismissed with costs and therefore the order of the full bench was confirmed that the Fund had to pay the amount in question, plus interest a tempore morae, to G.

* This act was replaced by the Legal Practice Act, 28 of 2014, but the replacement act was not yet in force when action was instituted in September 2018.

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