“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 profession goes hand in hand with the erosion of the rule of law” – Nicholls JA in Limpopo Provincial Council of the South African Legal Practice Council v Chueu Incorporated Attorneys and Others (459/22) [2023] ZASCA 112.
At the heart of the appeal in Limpopo Provincial Council of the South African Legal Practice Council v Chueu Incorporated Attorneys and Others (459/22) [2023] ZASCA 112 lies the question of liability of all directors of a law Firm for financial misconduct committed by one director.
Chueu Incorporated Attorneys (“the Firm”) specialised in personal injury matters.A number of complaints to the Limpopo Legal Practice Council (“LPC”) from members of the public represented by the Firm in litigation against the Road Accident Fund (“RAF”) concerned failure to account to clients for monies claimed and received from the RAF; and failure to respond to communications or deal properly with clients’ instructions; and a complaint to the Gauteng LPC from the RAF about a double payment of some R29 million erroneously made by the RAF to the Firm and not repaid, but instead appropriated by the Firm (the “financial improprieties”).
The LPC brought an urgent application for the suspension of all directors of the Firm under Sections 43 and 44 of the Legal Practice Act (LPA), on grounds of the financial improprieties.
The other directors of the Firm argued that they should not be held accountable for disciplinary measures for the financial improprieties of another director. The common thread in the defences of the other directors was that each of them held only a minor shareholding and had no involvement in the financial operations of the Firm. They claimed that they received no financial statements, were not consulted on financial matters by the director concerned; and did not share in the distribution of profits from the improprieties; and that they were effectively kept in the dark.
The judgment of the court was unequivocal: Each director bears a fiduciary duty towards the company, and the defence of ignorance regarding financial matters, when faced with allegations of misappropriation of clients’ money, does not absolve directors from their responsibilities. Relying on Hewetson v Law Society of the Free State 2020 (5) SA 86 (SCA) the Court emphasised that “legal practitioners cannot escape liability by contending that they had no responsibility for the keeping of the books of account or the control and administration of the trust account”. The court went further to quote Hepple v Law Society of the Northern Provinces [2014] 3 All SA 408 (SCA) that “for an attorney to explain trust deficits on the grounds thathe or she had no involvement in the financial affairs of the Firm ‘is no defence at all’”.
The Court concluded that by failing to be involved in the oversight of financial matters the directors were derelict in their duties. The facts presented in this case were thus sufficient to warrant suspension of all the directors of the Firm from practising as attorneys for a period of six months, pending the finalisation of investigation into their conduct. The principle confirmed in this case is clear: In disciplinary proceedings all the directors of a law firm can be held responsible for the financial misconduct of one of them. The court’s judgment emphasized that each director bears a fiduciary duty towards the company, and a defence of ignorance regarding financial matters does not absolve directors from their responsibilities.