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Law Society of the Northern Provinces [Incorporated as the Law Society of the Transvaal] v Goosen and Others (17289/04)  ZAGPHC 5 (23 January 2009)
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IN THE HIGH COURT OF SOUTH AFRICA
(TRANSVAAL PROVINCIAL DIVISION)
CASE NO: 17289/04
In the matter between:
THE LAW SOCIETY OF THE NORTHERN PROVINCES
[Incorporated as the Law Society of the Transvaal] Applicant
LEON GOOSEN First Respondent
PIETER DE KEIJZER Second Respondent
AYESHA MOHAMED SEEDAT Third Respondent
This is an application in terms of Section 22(1)(d) of the Attorneys Act, 53 of 1979 (“the Act”), for the removal of the Respondents’ names from the roll of attorneys together with ancillary relief which is normally granted in applications of this nature, on the grounds that the Respondents are no longer fit and proper persons to practice as attorneys.
The applicant originally approached the Court on an urgent basis to suspend the respondents from the practice of attorneys. The Court hearing the application refused to grant such relief, apparently as a result of the many factual disputes which exist on the papers before the Court.
Since the first hearing quite extensive additional documents have been filed by the parties and presently the application consists of approximately 1600 pages.
The first respondent is 54 years of age and was admitted and enrolled as an attorney of this Court on 20 November 1978. During the relevant period pertaining to this application the first respondent was a consultant to the firm of van der Merwe, Stock and Steyn, (registration number 88/04431/21), (hereinafter “the firm”). According to the applicant the first respondent appeared to be the senior practitioner in the firm, had intimate knowledge of all financial and administrative aspects of the firm, signed trust cheques of the firm and was for all practical purposes in control of the firm. The applicant submitted that the only reason for the first respondent being a consultant to the firm was because the first respondent had been sequestrated. The first respondent is presently employed as a consultant by another firm of attorneys.
The second respondent was admitted and enrolled as an attorney of this Court on 26 November 1991 and was a director of the firm from March 2003 until 1 September 2003. The second respondent is presently practising for his own account under the name and style of De Keijzer Prokureurs.
The application against the third respondent is still before this Court but the applicant has indicated in a later supplementary affidavit that no order was asked against the third respondent except that no order as to costs should be made.
The main allegations on which the applicant relied in order to have the respondents struck off the roll of attorneys, were the following:
the respondents did not keep proper financial records in respect of their practice;
the bookkeeping of the firm was in a chaotic state;
the respondents were guilty of contravening a number of provisions of the Act and the Rules of the Law Society promulgated in terms of the Act (“the Rules”).
the respondents failed to timeously submit to the applicant the Rule 70 audit certificate for the year ending 28 February 2003;
the applicant received a complaint against the respondents.
The Position of the First and Second Respondent:
It seems to be common cause that the practice of the firm van der Merwe, Stock and Steyn predominantly entailed conveyancing and that it was quite a large practice. The second respondent was not involved in conveyancing and his practice related exclusively to litigation. The first respondent was in charge of the conveyancing section but was not a director of the firm, due to his status as unrehabilitated insolvent.
In his answering affidavit the second respondent stated that he became a director of the firm during March 2003. He received a salary and did not share in the profits. After his appointment as director he continued with his litigation practice and had nothing to do with the conveyancing section of the firm. According to the second respondent, the first respondent was the person who de facto controlled and managed the firm. This fact was denied by the first respondent and I shall revert thereto below.
After his appointment as director the second respondent immediately took active steps to bring the bookkeeping and finances under his control and to get advice in this regard and to implement same. The second respondent stated that he experienced resistance from the first respondent in this regard and that the first respondent showed a complete lack of interest in the records of the firm. He experienced the same attitude from Me Robertson (hereinafter “Robertson”), the office manager. According to the second respondent they created the impression that they could do what they wanted and he stated that he struggled to exercise control. According to the second respondent he did all in his power to bring the conveyancing section under his control and to implement proper controls, but that first respondent made this impossible. According to second respondent the first respondent took the view that second respondent should concern himself with his litigation practice and that he, the first respondent, as the senior practitioner in the firm and the one who generated the biggest income of the firm, would see to the administration of the firm. According to the second respondent there was continuous friction which eventually culminated in hostility towards him.
It was against this background that the second respondent, on 23 May 2003, contacted an accountant, Mr FGJ Wiid, (hereinafter “Wiid”), with a request to audit the books of the firm and more particularly to make recommendations in respect of systems and controls to facilitate the handling of the bookkeeping and to implement control measures in the bookkeeping system to ensure that no irregularities could creep in.
Wiid commenced with an audit which he then converted into a year-end audit for the year ending 28 February 2003. Wiid made certain recommendations and advised that a half-year audit ending 31 August 2003 should be done in order to ensure that the recommendations had been properly implemented. Second respondent gave the necessary mandate to Wiid in this regard.
On 27 August 2003 Wiid presented the draft financial statements and an audit report for the year ending 28 February 2003 to second respondent. At this point second respondent was informed that there existed a trust deficit in the books of the firm in the amount of R637 720,10. When second respondent confronted first respondent with this trust deficit, first respondent immediately made arrangements to make good this deficit. According to Wiid proper bookkeeping was done without irregularities between 28 February and 29 August 2003.
As a result of the difficulties experienced by second respondent referred to above, and the result of the investigations by Wiid, the second respondent on 1 September 2003 resigned as director of the firm with immediate effect. He also instructed staff members in writing to remove his name from all letterheads under the heading “Director” and not to present any cheques to him for signature. The second respondent also on 1 September 2003 notified the first respondent in writing of his resignation as a director of the firm with immediate effect and gave notice of the termination of his employment. The notice period was three months, i.e., and until 1 December 2003.
On 23 September 2003 the second respondent instructed Wiid to immediately submit a qualified audit report to the applicant. This was done on 28 September 2003. There were further communications between the second respondent and the applicant, all of which probably resulted in the investigations by and on behalf of the applicant into the affairs of the firm, although this apparently, and for some unknown reason, only commenced after another four months had expired.
The First and Second Reports of Marais:
During January 2004 the applicant instructed Mr Louis Marais (hereinafter “Marais”), a chartered accountant, to visit the firm and to conduct an investigation in respect of the financial records, books of account and matters relating to the practise of the firm. Marais submitted his first report on 15 April 2004 and a second report on 3 June 2004. The report dated 15 April 2004 consisted of some 14 pages and had attached to it approximately 170 pages of annexures. The investigation by Marais related to the period 1 March 2003 to 28 February 2004. The so-called “Hoogtepunt Opsomming” of Marais was the following:
“Die rekenkundige rekords toon ‘n trusttekort van R12 528 371,85. Debietinskrywings kan beteken dat die trusttekort minder beloop, maar dit sal steeds ten minste R2 249 689,80 beloop.”
By the time that Marais visited the firm, the second respondent was no longer part thereof. All discussions were with first respondent and other members of staff. In his report Marais stated that it was clear to him that the first respondent was the responsible person who controlled and managed the firm. However, due to his status as an unrehabilitated insolvent, he was never a director of the firm.
As far as the financial side of matters was concerned, Marais stated that on the day on which the inspection commenced, i.e., 23 March 2004, the first respondent informed him that apart from a trust deficit which had been pointed out by the firm’s auditors, there were no other difficulties. According to the report of Marais, this was, however, not the position. I do not deem it necessary to refer to the detail of Marais’ report and I shall summarise the main impressions which I gained from a reading of the report as a whole.
According to Marais the books of account of the firm were in a chaotic state. It is not necessary to refer to the detail in this regard. Generally speaking, the books were not up to date, entries were incorrectly entered and were allocated to the wrong files, business debtors and trust creditors were shown at incorrect amounts, and amounts reflected as business debits were in fact trust debits. This last aspect of course would create a trust deficit in the books of the firm which does not reflect the true position.
Another aspect related to the policy of transferring amounts from the trust account to the business account which were not accurately identifiable with amounts due to the firm. The policy, according to first respondent and Me Robertson, was to transfer an amount which was roughly calculated to be an amount which was not more than would eventually be owed to the firm. Except for one amount of R60 000,00 which Marais could not trace, but which first respondent said could be traced, all these transfers could eventually be connected to higher amounts due to the firm.
Another aspect which contributed to the inability to reconcile the books was the fact that no financial records, except source documents, were available in respect of the business account. Marais also stated that Robertson informed him that one of the clients of the firm lent moneys to another client of the firm “through” the firm. Large amounts were apparently involved but neither first respondent nor Robertson could supply full and accurate particulars regarding the position of these two persons.
Marais further stated that first respondent and Robertson agreed that the deficit of the trust account could be attributed to a few factors, namely, too large payments to the aforesaid two clients as well as payments to the business account. In regard to the accounts of the aforesaid clients it was stated for example that the one account reflected trust cheques in the amount of R2 000 850,54 and very few credit entries with the result that the debit balance on this account amounts to R1 963 748,54. All the transactions relating to these matters appeared as a business debit in the books of the firm instead of reflecting that they were in reality trust transactions. According to Marais the cause of the trust deficit was not investigated further due to a lack of time.
The difficulties experienced by Marais namely that the records were unreliable and that a reconciliation of the books of account was not possible, was exacerbated by the fact that, according to first respondent, the computer containing the financial records, the server and backups, were stolen shortly prior to the visit of Marais to the firm and also by the fact that it had been established, as alleged by first respondent, that the firm’s full-time bookkeeper of many years, Me K. Doerck (hereinafter “Doerck”), and who had resigned shortly before the second inspection, had misappropriated funds of the firm and had sabotaged the books of the firm in order to hide her actions. In this regard the first respondent submitted an acknowledgement of debt signed by Doerck in the amount of R107 000,00.
By the time of the inspection of Marais the first respondent had appointed three new bookkeepers who were trying to reconstruct the books of account as well as typists and others to assist in this effort. This was a time-consuming process as the cash book reflected approximately 18,000 entries per month. This reconstruction had not yet been completed but also showed a trust deficit. In this regard many amounts were put forward by Marais in his report. He referred, for example, to a trust deficit of R2 249 689,80 as at 29 February 2004, according to his calculations. He also referred to a calculated loss, according to the new system employed by first respondent, of R2 071 327,14 as at 31 January 2004. I shall refer to this aspect again below.
Subsequent to the report of Marais the first respondent wrote a letter to the applicant denying the alleged trust shortfall of approximately R2 000 000,00. In support of this contention he annexed a report of BMS Chartered Accountants dated 12 May 2004. According to this report the trial balance prepared by this firm reflected a shortage of R850 320,01 and it was stated that this shortfall largely resulted from the shortfall created from the opening balances as at 29 August 2003. It was further stated that no records prior to this date were available and consequently that the shortfall could not be investigated further.
In a subsequent report dated 31 May 2004, BMS Chartered Accountants filed another report relating to an audit of the firm for the year ending 29 February 2004. It was stated in this report that an audit could not be done as the computers had been stolen and the only records available was a client trial balance. Regarding the period after 29 August 2003 the report stated that a possible trust shortfall of R1 771 413,15 may exist as at 31 May 2004.
At this point the first respondent had arranged for the amount of R2 000 000,00 to be deposited into the trust account in order to reimburse any shortfall that may be found.
As a result of the aforesaid letter of the first respondent and the report from the auditors, Marais again visited the firm on 3 June 2004. He met with the first respondent and Mr I Kempen, the representative of BMS Chartered Accountants. According to Marais Mr Kempen agreed during their discussion that the trust deficit amounted to at least R2,2 million. It was further stated that Kempen agreed with Marais that certain bona fide trust credits could not be set off against the trust credit balance, with the result that the trust deficit as 29 February 2004 would amount to approximately R2,7 million. Marais concluded that the financial records of the firm were still not accurate.
First Respondent’s Answering Affidavit:
The first respondent filed a bulky answering affidavit. I shall merely refer to certain salient factors. Firstly, the first respondent made the point that he was merely a consultant of the firm and that he was never involved with the financial management of the firm and that he did not share in profits but merely received a salary. The first respondent stated that the second respondent was the director of the firm until at least December 2003. According to first respondent the business of the firm was under the sole control of the second respondent and that he, the first respondent, had no insight into the books or the financial affairs of the firm.
Regarding the deficit in the trust account the first respondent stated that the second respondent informed him during August 2003 that the auditors would have to submit a qualified trust audit report due to a trust deficit of R637 720,10. The first respondent stated that this deficit was made good by a deposit in that amount on 29 August 2003. What first respondent does not say is that he was responsible for this deposit and neither does he explain why he caused this deposit and why second respondent had nothing to do therewith. I shall revert to this issue below.
The first respondent stated that the second respondent purported to resign as director of the firm but that notwithstanding his supposed resignation, he remained with the firm and continued to practise in the name of the firm until the end of December 2003. During the period September to November 2003 the first respondent negotiated with the second respondent on behalf of his brother, also an attorney, for the takeover of the conveyancing practice of the firm by the new firm of Stock and Steyn Incorporated. According to first respondent the second respondent never became a director or shareholder of this new firm but that his brother and the third respondent became the directors and shareholders thereof.
The first respondent further stated that after the second respondent had left the firm at the end of December 2003, he was forced to take control of the firm in order to ensure an orderly transfer of the conveyancing practice to the new firm of Stock and Steyn Incorporated. He stated that he did not want to abandon the practice and consequently exercised control until 28 February 2004 after which the new firm, Stock and Steyn Incorporated, under the control of his brother and the third respondent, took over the business and managed it. He was again appointed as a consultant of this new firm. First respondent stated further that after a dispute with second respondent regarding the name of this new firm, his brother founded a new company by the name of Stock and Steyn (Wesrand) Incorporated. This company took over all the staff of the original firm and is still conducting business. According to the first respondent most of the clients transferred to this new firm and the trust funds pertaining to such clients, were also transferred to this firm.
Regarding the financial affairs of the firm the first respondent stated that he had no access to the financial management of the firm and neither was he allowed to have such access. He further stressed that he had no intimate knowledge of the financial and administrative affairs of the firm and that he was shocked to hear from Marais about the problems and mistakes and the chaotic state of the financial records of the firm. He stated that he was under the impression that the deposit made on 20 August 2003 would make good the deficit but that when he later realised that the amount had been wrongly calculated, he instructed BMS Chartered Accountants to audit the books again.
According to first respondent he inherited the problems when he was forced to take over control of the firm in the period after December 2003 until 28 February 2004 and he further stated that the problem had existed prior to 29 August 2003. Consequently, so the first respondent alleged, the deficit of R1 771 000,00 calculated by BMS Chartered Accountants according to the letter of June 2004, mainly arose prior to 29 August 2003 and at a time when he was not responsible for the financial affairs or the books of account of the firm.
First respondent further stated that although he acted unlawfully by taking over the affairs of the firm in the period December 2003 to 28 February 2004, since he was merely a consultant, he regarded it as his obligation due to the circumstances which was forced upon him. In this regard he appointed personnel and instructed auditors in order to try and rectify the books of account of the firm.
According to first respondent it was during this period that he established for the first time that the financial records were not kept up to date and that the financial affairs were in chaos. According to the first respondent he appointed additional personnel and bookkeepers in order to bring the books of account of the firm in order. The amount spent in this regard was approximately R200 000,00.
The first respondent further stated that after Marais had found a deficit of approximately R2 million, the new firm of Stock and Steyn Incorporated obtained loans in this amount which were kept on trust. According to the first respondent Stock and Steyn Incorporated took over the whole practice and the trust account, including the deficit, of the firm. Since that time, and having regard to the payment of R2 million in order to make good the deficit, there had been no trust deficit in the books of the new firm.
First Respondent’s Affidavit in Answer to the Second Respondent and the Applicant’s Answering Affidavits:
In this affidavit the first respondent reiterated his denial that he was in control of the financial affairs of the firm and stated that he merely inherited this problem and was not responsible at all for the poor condition of the accounting records of the firm.
Regarding the status of the second respondent, the first respondent stated that after 1 September 2003 the second respondent regularly attended the offices in order to manage the affairs of the firm and his clients. I find this statement by the first respondent improbable. Soon after receipt of the report from the auditors the second respondent informed all members of staff in writing of his resignation as director and also, inter alia, informed them that he would no longer be signing cheques on behalf of the firm. He also handed this document to the first respondent. Thereafter he commenced with arrangements to establish his own firm. It seems improbable that despite all this the first respondent would still have managed the affairs of the firm in the sense implied by the first respondent.
The first respondent denied that the trust deficit only arose subsequent to 1 September 2003. In this regard he submitted that it would appear that the outstanding cheques could have been deliberately omitted when the trust deficit was calculated as at 29 August 2003, so as to reduce the total amount that was actually owing the time. Consequently, so it was submitted, the payment of R637 720,10 was not sufficient to extinguish the entire trust deficit. It is not clear who the first respondent is accusing of deliberately omitting cheques.
The Answering Affidavit of the Second Respondent:
I shall now refer to the salient aspects mentioned by the second respondent in his answering affidavit. As has been stated earlier, the second respondent resigned as a director of the firm with effect from 1 September 2003. He also tendered his resignation as an employee with a notice period of three months. The second respondent stated that from 1 September 2003 he was no longer responsible for the business of the firm and that he merely directed his attention to the conclusion of the litigation matters with which he was busy at the time. He attended the offices of the firm on a few mornings each week to collect litigation files in order to work on them and in order to collect his post. He also consulted with clients and the first respondent regarding the fact that he was leaving the firm and in respect of which clients and files he would take with him to his new firm. It was, inter alia, agreed with first respondent that the first respondent’s brother would take over the directorship of the firm.
Regarding the financial affairs of the firm, second respondent stated
with reference to the report of Wiid that he inherited a trust deficit and that he took active steps to take effective control of financial matters and the bookkeeping of the firm and to obtain proper advice and to implement same. The deficit which had existed was made good with the result that at the time of his resignation as a director, according to the first respondent, there was no trust deficit.
The trust deficit and the resistance he experienced from the first respondent and other members of the personnel eventually caused him to tender his resignation with immediate effect. The second respondent stated that he realised that the bulk of the practice of the firm related to conveyancing, of which he knew very little, and in respect of which he would not make a success especially since the staff members in the conveyancing section were loyal to the first respondent. Without the first respondent he would not be able to make a success and consequently he realised that it would serve no purpose to dismiss the first respondent from the firm at that time but that he should rather resign from the firm himself and start afresh.
Second Respondent’s Affidavit in Answer to the First Respondent and the Applicant’s Answering Affidavit:
In this affidavit the second respondent stated that according to the report of Marais the trust deficit of R637 720,10 was made good on 29 August 2003; that the calculated trust deficit as at 31 January 2004 was R2 071 327,14; and that the trust deficit as at 29 February 2004 was, according to the records, R12 528 371,85. Against this background the second respondent stressed the fact that all indications are that the trust deficit related to a period after he had left the firm.
The second respondent reiterated that since the resignation of the previous director of the firm, a certain Mr van der Merwe, the position, status, rights and obligations of the first respondent changed drastically. This was, according to the second respondent, because the first respondent, as senior practitioner and head of the conveyancing section, took complete control and took decisions in consultation with Robertson. He consequently denied that he was in sole control of the firm. According to him the first respondent also had an intimate knowledge of the firm’s financial and administrative affairs as well as the state of the financial records.
Regarding the position after his resignation, the second respondent stated that he was hardly ever present at the offices of the firm after 1 September 2003. He stated that he was on leave and out-of-town from 5 December 2003 until 23 December 2003. On 24 December 2003 he visited the offices for the last time and that was for the purposes of overseeing the move of his office furniture and equipment to the new premises.
Applicant’s Supplementary Affidavit and the Third Report by Marais:
Subsequent to the order of this Court on 19 July 2004, the applicant instructed Marais to proceed with his investigations regarding the financial affairs of the firm. Marais completed his investigation and filed a third report dated 19 October 2004. The so-called high water mark summary of Marais was the following: In respect of first respondent he was of the view that first respondent was more than a salaried employee or consultant of the firm. Furthermore that first respondent was personally responsible for extensive trust deficits in the books of the firm and that the first respondent and his clients benefited from these trust deficits.
In respect of the second respondent Marais formed the view that the second respondent was responsible for trust deficits which originated during the period that he was a director of the firm. Furthermore that the second respondent was also responsible for proper financial records not being kept.
The report of Marais consisted of 19 pages and more than 300 pages of annexures. I shall merely refer to the salient features of this report and shall endeavour not to repeat what has already been stated regarding the affairs of the firm.
Marais visited the firm during August and September 2004. The purpose was to establish how the trust deficits originated and what the amount thereof was.
The Period Prior to 29 August 2003:
No financial records for the period before 29 August 2003 were available when Marais commenced his investigations. This made it impossible for Marais to establish when trust deficits originated or, for that matter, how they originated. Although the relevant source documents were initially supplied to the auditors Reyneke and Associates, those documents were handed back to the firm and were at the firm, according to second respondent, when he left the firm during December 2003. The first respondent was, however, not able to find the source documents in order to hand them to Marais.
The fact that financial records were not available is a breach of the Rules and an unacceptable state of affairs. In casu there is no evidence, however, on which it can be found exactly when the documents disappeared or who had control over them when that happened. The only evidence is that of the second respondent who stated that they were available at the firm at the time that he left.
According to Marais he was unable to find any trust determinations at the firm apart from the one prepared by the auditors on 29 August 2003. In this regard the second respondent stated that frequent trust determinations were done in the time that he was a director of the firm. He was not satisfied, however, with the manner in which the books were kept and with the explanations given to him in regard to certain trust debits by the conveyancing section. These factors contributed to his decision to instruct the auditor Reyneke to do the necessary audit and to improve the system.
No financial records for the period prior to 29 August 2003 were available. The only available financial record was the list of trust creditors as at 29 August 2003 which was attached to his report of 15 April 2004. However, in its report Marais stated that this list could not be verified since the detailed trust creditor accounts were not available.
Marais again referred in his third report to the trust determination of the auditors Reyneke and Associates. Marais, however, added cheques which had not been deposited by 29 August 2003 and therefore not considered by the auditors. This resulted in an increase of the trust deficit but Marais pointed out that such cheques should only be considered if same were posted on the system against trust creditors. However, as mentioned before, the trust creditor list could not be checked as the detailed trust creditor accounts were not available. Source documents were also not available although, according to the first respondent, the source documents were available. Marais calculated a trust deficit on 29 August 2003 in the amount of R1 444 008,21. However, in light of the aspects referred to in the previous paragraph, and having regard to a number of other provisos mentioned by Marais, it is clear that Marais’ attempted reconstructions of the position as at 29 August 2003 is not reliable at all.
The Period 29 August 2003 to 29 February 2004:
For this period there existed two sets of records. The first is the one prepared by Doerck, the bookkeeper of the firm. The second is the one prepared by the first respondent and the personnel he appointed to assist in the attempt to reconstruct the records.
Marais is of the view that large deficits arose subsequent to 29 August 2003. He arrives at a figure of R3 033 338,56, which is a balancing figure arrived at for the period 30 August 2003 until 11 August 2004. This figure was arrived at by accepting a deficit on 30 August 2003 in the amount of R1 444 008,21, subtracting payments in the amount of R2 637 720,00, and factoring in a deficit on 11 August 2004 in the amount of R1 839 636,77. Regarding the position on 11 August 2004 Marais stated the trust cash on hand to be R655 842, 65 and the amount due to trust creditors to be R2 495 469,42. This translated into a trust deficit on 11 August 2004 of R1 839 626,77.
According to the report of Marais further trust deficits in excess of R 3 million arose subsequent to 29 August 2003. In this regard it was submitted on behalf of the first respondent that it is highly improbable that the first respondent would misappropriate this amount, or any amount at all, after all that had happened and after the applicant had become involved in the affairs of the firm. I shall revert to this issue later.
In his last affidavit the first respondent furthermore submitted that the deficit calculated by Marais is in any event speculative in the extreme. He referred to the fact that Marais used the deficit as at February 2003 as a starting point to prove later deficits. However, the deficit found by Reyneke for February 2003, is not a reliable. Furthermore there are indications that the deficit referred to by Marais was an historic deficit which probably arose prior to February 2003. In this regard he mentioned the fact that the auditors reported that they were unable to carry out all auditing procedures or obtain all information and explanations which they considered necessary to satisfy themselves that proper accounting records had been kept of sales, debtors and salaries. These auditors also highlighted the fact that in their opinion a large portion of the shortfall was created prior to 29 August 2003. Furthermore, BMS auditors, and more particularly Mr Kempen, was of the view that the deficit found later during 2004, was largely historical in nature. Furthermore, according to first respondent, Mrs Pelser, the new bookkeeper, succeeded in balancing the monthly reports since 1 September 2003, proving that the deficit identified in 2004, was historic in nature and that the deficit found with reference to 28 February 2003 was totally unreliable. Mrs Pelser also found numerous obvious mistakes involving large amounts when she reconstructed the accounts in the beginning of 2004. Furthermore, the loss of Reyneke’s working documents, the loss of all financial documentation prior to 1 September 2003 and the theft of the firm’s financial records on 11 February 2004, all contributed to making it impossible to establish whether the trust determination as at 28 February 2003 was reliable.
The only reason why Marais accepted the opening balance as at 1 September 2003, appears to be the fact that the reconstruction was based on the list of creditors mentioned by Reyneke. That fact indicated to Marais that the first respondent “had confidence” in the said opening balance and that he could therefore safely assume the correctness thereof. The error in this approach, however, lies in the fact that the first respondent and his personnel who conducted the reconstruction, had no other information but the aforesaid list of creditors to work from and, as stated by Marais himself, this list could in any event not be verified since the detailed trust creditor accounts were not available. Consequently, the fact that the first respondent and his personnel used that information as a starting point, does not improve the reliability thereof.
All these factors also affect the reliability of the deficit found by Marais in respect of August 2004, and especially his conclusion that a further deficit of approximately R3 000 000,00 arose between the August 2003 and August 2004. It would seem that a deficit cannot be established for the period 1 September 2003 until August 2004 unless and until a reasonably accurate opening balance as at 1 September 2003 can be established. It does not seem to be possible to do so.
This state of affairs makes it impossible, according to first respondent, to establish what amount could have been stolen by Doerck and over what period. If the first respondent’s evidence regarding Doerck is accepted, which for purposes of this application it has to be done, the submission is well-founded. Similarly, it has become impossible to establish whether any amount had been stolen or misappropriated for any particular person’s personal benefit, or whether any deficit in the trust account merely arose as a result of improper and erroneous bookkeeping practices.
In his answering affidavit to applicant’s supplementary affidavit, the first respondent mentioned that despite the finding of Marais that a trust deficit of R1 839 626,77 existed as at 11 August 2004, the financial affairs of the firm had almost been wound up under informal curatorship and that the trust account at that point showed a credit balance of R137 577.59. The trust creditors amount to R213 415, 03 but includes an amount of R75 847,44 which represents an attachment order obtained by the second respondent, which is presently disputed, as well as an amount of R92 570,24 which represents interest due to the applicant. Consequently, so the first respondent stated, no client of the firm or member of the public or the fidelity fund is at risk in any manner whatsoever and that Marais’ statements to the contrary had been proven wrong by the passage of time.
According to the first respondent, by the time of the filing of his last affidavit, which was approximately 2 years after Marais’ last report, there had been no irregularities and the applicant had been provided with an auditors report as required by the Act, which certified that there were no further trust deficits. In an affidavit dated 26 July 2007 the first respondent again referred to the fact that the business of the firm was finally wound up under the informal curatorship of Mr van Staden who is attached to the applicant. At the conclusion of that process, there were no unsatisfied claims by either business creditors or trust creditors. Furthermore, Pelser was able to reconcile the books every month.
Payments to First Respondent from the Trust Account:
According to Marais trust deficits were also caused by improper payments from the trust account to or on the half of the first respondent. He stated that an account under a false name in the books of account was used for this purpose.
In this regard the first respondent stated in a further answering affidavit that as a result of his insolvency he could not open a bank account. Consequently a salary cheque could not be made out in his favour and neither could he pay his personal accounts by cheque. As a result he caused cheques of the firm to be made out in order to pay his creditors. All payments, however, always remained within the parameters of his remuneration package.
The first respondent denied any knowledge of the use of the account of PJE de Waal, who was a former employee, in order to allocate payments to himself. This was done by Doerck and first respondent had no knowledge thereof. He admitted, however, that payments should have been made from the business account after transfer of amounts debited against fees from the trust account. First respondent stated that there had always been sufficient fees in the business account to cover any payment to or on behalf of himself, but such payments were made good from the business account, and that no payment resulted in a deficit in the trust account.
Payments to personnel from the Trust Account:
According to Marais trust deficits were also caused by improper payments from the trust account to personnel of the firm. Payment of the lease of the premises occupied by the firm, was also paid from the trust account.
In this regard the first respondent stated in a further answering affidavit that in regard to the payment of rent, the lessor required a bank transfer but that the business account did not have such a facility. Consequently the relevant amounts were transferred to the particular account mentioned by Marais from which electronic transfers would be made. Regarding payments to personnel the first respondent explained that the firm paid bonuses to certain employees under certain circumstances. Amounts due as fees were then sometimes transferred from the trust account to the account in question from where payments would be made to the employees. This was a long-standing practice in the firm which was terminated after Doerck resigned. With reference the reconciliations by Pelser during the first months of 2004, the first respondent stated that no trust deficit was ever caused by these practices.
Transfers from the Trust Account to Business Account:
According to Marais transfers were made from the trust account to the business account of money to which the firm was not entitled. This contributed to the trust deficit.
I have referred to this matter above. It does not appear that any amount was paid over to the business account which was not eventually covered by fees that became due to the firm. Consequently, although fees may in all instances not have been due at the time, and should obviously not have been paid out at the time, no trust deficit was caused thereby in the long run.
Other Payments from the Trust Account:
Regarding cheques made out to cash or bearer and to Doerck and Robertson, the first respondent admitted that these cheques should never have been paid from the trust account. He stated that he signed literally hundreds of cheques per month and could not verify the contents of the particular file every time he was required to sign a cheque. He stated that provision was always made that the cheques be paid from funds which were due and not from trust funds which belonged to the client.
Discussion re First Respondent:
The first respondent admitted that he specialised in conveyancing and that he had done so for the past 10 years. He also conceded that he was the head of the conveyancing department. Regarding the background, the first respondent stated that he was sequestrated during 2000 and could consequently not practise for its own account. He succeeded in obtaining employment with Mr Jan van der Merwe as consultant. Mr van der Merwe took over the firm of the first respondent and continued with the business under the name of Stock and Steyn. According to the first respondent the management responsibilities and the financial control of the firm was done by Mr van der Merwe alone. He stated that Me Doerck had been in the employ of Mr van der Merwe for many years and that the financial information and documentation emanating from the conveyancing department, was submitted by the personnel of that department directly to Doerck, who, in turn, reported to Mr van der Merwe. According to the first respondent his only responsibility was to deal with conveyancing matters and to promote that division of the firm without having any financial and management responsibilities. That was done by Mr van der Merwe with the assistance of experienced personnel.
According to the first respondent Mr van der Merwe retired at the end of 2001 and a certain Mr Bruwer took over as director of the firm. According to first respondent Mr Bruwer took over the role of Mr van der Merwe including the financial management of the firm as well as the financial management of the conveyancing section, and again the first respondent played no part therein.
Mr Bruwer resigned as director on 15 January 2003 and this resulted in the second respondent being appointed as director. According to the first respondent the second respondent also took over the management and financial management of the firm to the exclusion of the first respondent.
Reference was made above to the position of the second respondent in the firm and his relationship with the first respondent. It is necessary to make a few further remarks in this regard. Firstly, it was common cause that the conveyancing section constituted the bulk of the practice of the firm and the second respondent had nothing to do with conveyancing. Under these circumstances I find it quite hard to accept the statements by the first respondent that he had no access to the financial records and books of the firm and that he was not allowed to have access thereto. It was clear from the evidence before the Court that the first respondent conducted quite a large conveyancing practice and that, as could be expected, the activities of that section of the practice entailed working with the business account and the trust account and generally the financial books of the firm, on a daily basis. The members of staff who mainly worked with the financial books and records of the firm, were also under the direct control of the first respondent. Although the second respondent, as director, may have been ultimately responsible for financial matters, it would have been the first respondent who would have been closely and intimately connected therewith on a continuous basis. I find the statement by first respondent that he was at all times completely in the dark regarding the financial affairs and state of the financial books and records of the company, extremely improbable and, in any event, unacceptable. For the same reasons I find even more improbable the statement that the first respondent had actually been denied access to the financial records and books of the firm. The first respondent gave no details in this regard. If regard is had to the fact that the first respondent conducted a litigation practice and had tried since his appointment as director during March 2003, to gain control of the financial affairs of the firm, which statements by the second respondent I find quite probable, it is simply inconceivable that the second respondent would deny the first respondent access to the financial records and books of account of the firm.
As an example a reference may be made to the explanation by the first respondent in his answering affidavit regarding the allegation that amounts were transferred to the business account at a time when the firm was not yet entitled to such amounts. The first respondent denied this fact and explained that at the end of each month the personnel involved with the posting of fees were under great pressure. He stated that the firm was obliged to ensure that sufficient funds were transferred to the business account in order to pay salaries and expenses. He further stated that a system was consequently developed in the conveyancing section in terms whereof fees due in respect of property transactions which had not yet been posted, were calculated by Robertson and supplied to Doerck. Doerck then transferred these amounts from the trust account to the business account together with those fees which had already been posted. According to the first respondent Robertson and Doerck always caused a lessor amount to be transferred than what the firm would have been entitled to once the fees had been properly posted in the journal in order to avoid a situation that funds would be transferred to which the firm was not entitled to. He further added that these transfers were made at a time when the conclusion of the main transaction was inevitable. The parties are in dispute as to the propriety of these actions. What is more important, however, is that these transactions and more particularly the actions of the personnel, occurred in the ranks of the conveyancing section which fell under the direct control of the first respondent. Furthermore, I fail to see how the first respondent was able to give the aforesaid assurances if he was so unfamiliar with the financial affairs of the firm as suggested by him in his answering affidavit.
In any event, the first respondent was an attorney. He was responsible for the files under his control and the transactions pertaining to each. As such he was responsible to ensure that the books of account properly and correctly reflect all transactions and that no irregularities occurred. He had signing powers on the business as well as the trust accounts. He also allowed personnel to sign trust cheques. He could hardly, under these circumstances, be heard to say that he had no responsibility in respect of the financial affairs of the firm. The first respondent was also responsible to ensure that the personnel who worked with him do their work correctly.
It may very well be, as first respondent stated in his answering affidavit to the applicant’s supplementary affidavit, that when he was employed by Mr van der Merwe, and thereafter under Mr Bruwer, he focussed on developing the conveyancing practice and was the head thereof, but that he had no responsibilities regarding the financial management of the firm or of the conveyancing section. As mentioned before, he stated that Mr van der Merwe implemented the financial systems and that all financial records were handled by Doerck who reported directly to van der Merwe and that the practice was that all the financial information and documentation were submitted to Doerck by the personnel in the conveyancing section.
However, after van der Merwe left the firm, and after his successor, Mr Bruwer, had also left, and the second respondent became the director, it must have been clear to the first respondent that the second respondent, who exclusively ran a litigation practice, would not be in a position to exercise the control which van der Merwe and Bruwer may have done while they were still the directors of the firm. On the evidence before this Court it appears that the second respondent did in fact not, and could not, exercise the same control which van der Merwe or Bruwer, according to the first respondent, exercised during their time as directors of the firm. That would also have been evident to all concerned. According to the first respondent the firm employed 10 full-time conveyancing typists and the conveyancing practice was one of the largest in the Westrand, conducting between 100 to 130 transfers per month plus the bonds associated therewith. This is not counting the other transactions, inter alia, relating to developments and those which emanated from corporate bank clients. Approximately 781 payments per month (9372 per year) were made from the trust account. An average of 18 000 entries were made in the books every month.
Exercising proper control over the financial affairs of the firm emanating from the conveyancing section would have been an almost full-time affair. If the second respondent had to exercise such control, he would have required extensive and positive co-operation from the first respondent. The first and second respondent would obviously also have had to discuss how that was going to happen in practice. According to the first respondent he gave no assistance to the second respondent. In fact, according to him, he did not concern itself with the financial affairs at all. According to him he relied on the bookkeeper, Doerck, to properly maintain and write up the financial records. He also made no mention of any discussion between him and the second respondent regarding this issue. I find it equally improbable that second respondent, on being confronted with this new and extensive responsibility, would not have expected or required the first respondent to become involved and to assist him - as was stated by the first respondent. It is also significant that the first respondent did not make the allegation that Doerck or any of the other personnel in the conveyancing section, ever reported to the second respondent.
I find it totally improbable that, in these circumstances, the first respondent could have been of the view that he had no responsibility in respect of the financial affairs and more particularly in respect of the financial records and bookkeeping relating to the conveyancing section of the firm. There can be little doubt, in my view, that the first respondent knew that he was in the de facto control of the conveyancing section, including the financial affairs of the section and that he was the person responsible for such matters. As such he knew that the personnel in the conveyancing section was his responsibility in respect of, inter alia, the keeping of financial records on a day-to-day basis and that to that extent, Doerck was also his responsibility. In these circumstances it should have been obvious to first respondent that he had to be actively involved in the financial affairs of the section and that he had to keep the second respondent, as director, fully informed of such matters.
The first respondent stated that he relied on Doerck and that she muddled up the books in order to hide her own actions. This, in my view, cannot justify the actions of the first respondent, or rather the lack thereof. He could and should have exercised proper control over Doerck and the other personnel. In any event, and having regard to all the facts, all the blame cannot be placed before the door of Doerck. Some of the actions relating to the misappropriation of the trust fund and some of the irregularities pertaining to the financial records and books of account were, on the probabilities, within his own knowledge. I have already referred to transfers to the business account of amounts which have not yet become due as fees owed to the firm. Another example would be that transfer costs and commission were paid to estate agents from the trust account before funds had been received for such purpose. I find it against all probability that the first respondent would have signed such cheques without being aware of such facts. If he was unaware, he was negligent in the extreme for not satisfying himself that such amounts were actually due.
The first respondent had signing powers on the business and trust accounts of the firm. This fact alone does not allow, in my view, for an attitude that the first respondent was entitled to be totally uninformed of the financial situation of the firm and more particularly of the state of the different accounts and the books of account in general. The first respondent admitted that there was at all relevant times a deficit in the trust account. Yet he stated that he denies that he ever drew a trust cheque or caused one to be issued knowing, or while he should have known, that there were no trust funds available. As stated before, the conveyancing practice was large and vibrant. Many financial transactions, including payments from the firm’s accounts, must have occurred on a daily basis. The first respondent was the only person in the de facto control of these affairs. The second respondent was most certainly not involved therein.
In paragraph 8.55 of the founding affidavit the applicant referred to provisions of the Act and the Rules which the respondents allegedly contravned. The list is quite comprehensive and refers to Rule 68.1, 68.5, 68.6.2, 68.7, 69.3, 69.5 and 69.7 of the Rules as well as section 78 (4) of the Act. Rule 69.5 refers, for example, to fees which were transferred to the business account prior to it being due to the firm. Rule 68.6.2 refers to transfers in the accounts which are not identifiable with amounts which are due to the firm. Rule 69.3 refers to balances of trust creditors running into debit and resulting in a trust deficit. Section 78 (4) of the Act refers to the failure to keep adequate financial notes. Although the second respondent carried the overall responsibility it is clear that most, if not all, of the listed transgressions occurred in the course of the business of the conveyancing department of the firm and resulted from the actions and inactions of personnel doing their normal work under the direct supervision of the first respondent.
The response of the first respondent was that he takes notice of these allegations but that he was merely a consultant and consequently these transgressions cannot be put before his door. He then expressed the following view: “Dit blyk asof die Tweede Respondent laks was met sy toesighouding oor die rekenkundige aspekte van die firma se besigheid.” The first respondent then added that after everybody had run away, he did his best to try and save the day to ensure that clients would not suffer any loss. He added that if he had access to, or a greater say in, the financial administration of the firm, he would definitely have taken steps at an earlier stage to avoid the difficulties which the firm eventually experienced.
In my view the accusation levelled against the second respondent is opportunistic in the extreme. The main difficulties and the trust deficit in particular, arose mainly, if not in totality, in the conveyancing section and as a result of the actions and inactions of those involved in that section. I find it highly improbable that the first respondent, being a practitioner of 26 years standing and aware of the provisions of the Act and the Rules, as he himself professed, and furthermore an expert in conveyancing, as he himself also professed, would not have been aware of the poor state of affairs in respect of the financial records of the firm and more particularly of his conveyancing section and also that the aforesaid provisions of the Act and the Rules had been contravened.
Although the first respondent stated that the new firm of Stock and Steyn Incorporated raised and paid the deficit of R2 million, it is clear that this amount would have been raised by the first respondent himself from persons and or entities which were his clients while he was at the firm. Why the first respondent had done so if he was so sure that he had played no part in the deficit arising in the first place, or in the poor state of the financial records, and more particularly that he had no responsibility in regard thereto, was not adequately explained by the first respondent. The same can be said of the amount of approximately R600 000,00 which he immediately paid in during November 2003 when the second respondent informed him of the trust deficit found by the auditors.
In the answering affidavit of the first respondent to the supplementary affidavit of the applicant, the first respondent stated that when he heard of the trust deficit, he thought that the deficit had been caused by premature debits relating to transfer costs and commissions. He stated that his first thought was that he should make good the deficit by obtaining a loan from a client and that the matter would rectify itself within a matter of weeks. It was only later that he realised that the financial records of the firm were in a chaotic state. The loss of the financial records relating to the period prior to 29 August 2003 and the dishonest conduct, according to him, of Doerck, exacerbated the problem.
According to the first respondent the deficit existing at the time could very well have been an historical deficit and one which did not necessarily arose as a result of theft. According to him that deficit could have arisen as a result of the improper bookkeeping methods employed by Doerck by, for example, reflecting trust debits as business debits in order to cover up improper withdrawals for her own benefit.
He also referred to a fictitious loan of R10 million to Matthews appearing in the books of the firm. According to the first respondent Matthews was an old client of van der Merwe and that when he confronted Matthews, Matthews could not explain this fictitious entry. An affidavit of Matthews verifying that fact was also submitted.
The first respondent also suggested, with reference to the report by the BMS auditors, that the deficit could to some degree be attributed to the fact that journal entries were not made prior to September 2003 despite funds having been deposited in the trust account.
Discussion: Theft or Dishonest Misappropriation of Funds:
Regarding the question whether there was a shortfall in the trust account of the firm it is noteworthy that the auditors and accountants who tried to reconcile the books and financial records of the firm were particularly unsuccessful. It is, of course, not necessary in matters such as this, that the applicant should prove the exact amount of a deficit in the trust account of an attorney. However, there is a striking disparity in the amounts that have been mentioned as possibly reflecting the deficit at different times. To this must be added the fact that large amounts were often at stake in a single transaction and in this regard the large amounts at stake in, for example, the dealings between the clients Matthews and Renico CC are not without significance. Consequently what may constitute a large deficit in the books of account, might in reality be the result of merely one or two erroneous book entries. The relevance of this is that the large deficit, whatever it might have been at any particular time, is not necessarily an indication of a constant or frequent misappropriation of funds from which a conclusion might be drawn that on the probabilities the first respondent misappropriated funds for his own personal gain.
From the inspections of Marais and Kempen it appears that sometimes debit accounts for clients had been opened in the ledgers and that trust debits were not always reflected against trust credits. This had the result that an apparent trust debit appeared while in reality there was a trust credit, but under a different ledger number. The first respondent attributed this to either ignorance or an express attempt by Doerck to hide her misappropriation of trust funds by creating a duplicate account and to represent a debit as a business debit.
As an example the first respondent referred to the fact that the debit balance according to the old and the new system, differed by approximately R921 000,00. This he attributed to the fact that trust cheques which were issued to the client Renico CC in respect of funds of the client Mathews which were with the firm and which Mathews from time to time lent to Renico CC, were erroneously debited against the trust creditor ledger account of Renico CC and not debited against the trust ledger account of Mathews. As an aside it may be mentioned that from the evidence before the Court it would appear that the first respondent allowed at least these two clients to use, and in the process abuse, the trust account of the firm.
In respect of the amounts which the first respondent caused to be paid in order to reduce the trust deficits, it appears from the report of Marais that these amounts were not loans to the firm but in reality the repayment of advances which had earlier been made from the trust account to these clients. Although there appears to be other reasons as well for the deficit in the trust account, the overall impression was that the manner in which the trust account of the firm was used by clients doing business with each other, was probably the cause of the bulk of the deficit which existed at any particular time. Especially if Marais is correct that the payments by the aforesaid clients in order to reduce the trust deficit, were in actual fact repayment of amounts paid to such clients which were in fact not due at the time the payments were made, it would explain why, after approximately a year and a half after Marais calculated a deficit of approximately R1, 8 million, the trust account does not show a deficit but in fact a credit balance. It must be added, however, that the first respondent insisted that these amounts were loans by the two clients. He also added that these loans had been repaid. If this is so, and the books eventually, after a passage of time, showed no outstanding trust debits, the deficit which existed in the firm’s books at any particular point during 2003 and 2004, must have been the result of improper and incomplete bookkeeping and the absence of proper and complete financial records.
It seems to be accepted by all, except second respondent, that there was some form of deficit in the trust account at some point, but it is not possible to say with any degree of certainty what that amount was. It is also impossible to say when such a deficit arose or how exactly it arose. The statement by Marais that a new and further trust deficit arose subsequent to 29 August 2003 and more particularly in an amount of more than R3 million, I find totally improbable. At that time the firm was under investigation from the applicant, the first respondent had resigned as a result of the financial affairs and at some point Marais had also commenced his investigations. Furthermore the first respondent had appointed personnel and expended a large sum of money in order to try and establish the true and correct state of affairs and to reconstruct the books. I cannot imagine the first respondent stealing such large amounts under these circumstances.
With reference to what I have stated before and from the other evidence before the Court, it is clear that it has never even remotely been shown what the true state of affairs was in February 2003. Figures were calculated on incomplete documentation and could never be verified. The exact total relating to trust creditors could also never be established. To make further assumptions and calculations based on such questionable and sometimes patently wrong initial figures and without having proper documentation from which to do so, adds nothing to the exercise. It might even be that the whole or bulk of any deficit that may have existed, arose prior to February 2003. At different times deficits of between a few hundred thousand Rand and more than R12 million, have been calculated by Marais and this is surely another indication of the unreliability of any attempt to even remotely reconstruct the financial state of affairs of the firm. It is clear that the calculations by Marais resulted from incorrect figures and a lack of documentation and necessary information. Many of the conclusions to which Marais came were based on no more than broad assumptions and speculation. The fact that a number of years down the line, and after the affairs of the firm had been wound up under the curatorship of Mr van Staden, no deficits were found, despite the earlier pronouncements by Marais that the contrary would undoubtedly be the case and that creditors would suffer huge losses, is surely the best indication that any trust deficit which may have existed at any particular time, was not the result of theft.
From the above it is therefore clear that although there might have been a trust deficit in the books of account of the firm, it cannot be said that first respondent stole any amount or misappropriated any amount for his personal benefit. On the probabilities it appears that the deficit resulted from poor and erroneous book keeping coupled with a misappropriation of the trust fund but a misappropriation which did not involve theft.
Discussion re Second Respondent:
It is clear that soon after the second respondent was appointed as a director of the firm, he took active steps to gain control of the financial affairs of the firm. The fact that within two months of his appointment he had become so concerned that he called in the assistance of an auditor to advise him and to assist with the implementation of control measures, is proof, on the probabilities, that the second respondent did not sit idle but actually directed his attention actively towards the financial affairs of the firm. To do so would have been no small feat. It took experts, including Marais, many months to do so and even they were eventually unsuccessful. In my view the submissions from the bar on behalf of the applicant as to what the second respondent could and should have done, loses sight of the facts of the case and the reality of the situation.
It is furthermore significant that when the auditors appointed by the second respondent reported a trust deficit, he immediately reported that fact to the applicant. When he confronted the first respondent with the state of affairs, the first respondent made good the deficit. I am not convinced that the mere fact of the trust deficit would have caused the second respondent to resign his directorship and his employment at the firm. I find it more probable that he eventually resigned mostly for the reason that he felt marginalised by the first respondent, that he could not control the first respondent and effectively manage the firm, and because the first respondent failed to assist him in a manner which would have made it possible for him to effectively manage and control the firm and its business. The second respondent received the report of Wiid on 27 August 2003 and then, for the first time, he became aware of the trust deficit and the extent thereof. He resigned a few days later. The report was more probably the proverbial last straw which prompted his departure from the firm .
Regarding the trust deficit itself there was no suggestion that it arose as a result of anything other than the actions and inactions of those involved in the conveyancing section. This fact, and the fact that the first respondent was in total control of the conveyancing section, would have made it extremely difficult for the second respondent to take effective control and to implement effective control measures. The first respondent stated that he did what he could under the circumstances and it appears that in the meantime he waited for the report of the auditors. I am not convinced that there was much more the second respondent could have done without first obtaining a comprehensive and accurate picture of what the actual state of affairs was. When he received that information from the auditors, he acted immediately and decisively.
According to the third report of Marais he could find no evidence of any unlawful payments to or on behalf of the second respondent. There was also no evidence that the second respondent caused a deficit in the trust account. As stated before, it is quite significant that when payments were made in order to reduce the trust deficit, it was the first respondent who arranged for such payments and that he never approached the second respondent to do so or to even make a contribution.
Regarding the disappearance of financial records, the second respondent cannot be held accountable. According to him the relevant documentation was available at the time he left the firm. Frequent trust determinations had also been done in his time as director. There was no evidence to gainsay these statements and nobody could establish exactly when these records disappeared. Regarding the accusations that second respondent failed, in the short period that he was the director of the firm, to keep proper books of account and to have trust determinations done, care must be taken not to confuse the later state of affairs, i.e., when the computers and backup material had been stolen and source documents had disappeared, with the earlier period when the second respondent was the director of the firm. It was, after all, as a result of the financial records which he initially provided to the auditors and the general state of the bookkeeping, which enabled the auditors to establish that there was a deficit in the trust account. When the second respondent physically left the firm, he was not entitled to take any financial record or document with him and cannot be blamed that he is at this point unable to produce same or that he was not in a position to supply same to Marais when Marais eventually commenced with his investigations.
Regarding the allegation by the applicant and Marais that the second respondent, at the very least, allowed a trust deficit to exist at the time that he was a director of the firm, the facts appear to be that Wiid and Reyneke determined a trust deficit as at 28 February 2003. Their report was finalised on 29 August 2003 and within days thereafter the second respondent resigned. As stated before, Marais was unable to establish when the deficit in the trust account arose and what the deficit was at any particular time. Furthermore, Wiid, who was the only expert who actually investigated books of account, found no irregularities in the bookkeeping prior to 29 August 2003. Consequently, on the evidence before the Court, even if a trust deficit existed at the time of the second respondent’s directorship, it arose as a result of the circumstances discussed above.
In my view the second respondent adequately answered all suggestions by the applicant and Marais of any possible improper conduct on his part.
In the circumstances it cannot be said that the respondent acted in breach of the provisions of the Act and the Rules. In the result the application against the second respondent falls to be dismissed.
The Position of the Third Respondent:
According to the first respondent the third respondent was never a director of the firm. She commenced working for the firm in July 2003 as a professional assistant. At no time did she operate on the trust account of the firm or had signing powers in respect of the trust account. First respondent further stated that she joined the new firm of Stock and Steyn Incorporated and that she was appointed as a director of that firm from 1 March 2004. He stated that the application for a fidelity fund certificate erroneously related to the old firm instead of the new firm. The third respondent filed a supporting affidavit verifying the allegations made by first respondent on her behalf. She specifically confirmed that she had never been a director of the firm and never intended to assume such appointment. She confirmed that she signed the application for a fidelity fund certificate without noticing that it erroneously referred to the original firm instead of the new firm. She remained with the new firm for the period 1 March 2004 until 31 May 2004 when it was decided to wind up the affairs of this new firm due to the dispute with the second respondent. She further confirmed that she was at no stage in the control of the affairs of the firm and that she had had no access to its accounting records.
There is nothing to gainsay these allegations by and on the half of the third respondent. In the supplementary affidavit of the applicant it was stated that no order was asked against the respondent. In the result the application against the third respondent falls to be dismissed.
The complaint of Mr PN Hartley:
On 15 July 2004 the applicant received a complaint against the first respondent from a certain Mr PN Hartley. Mr Hartley had sold and immovable property to a certain Mr Grant. The first respondent was responsible for the transfer of the immovable property into the name of Mr Grant. A dispute arose between the parties relating to a borehole on the property. An amount of R 7000,00 was retained by the first respondent pending the resolution of this dispute. At some point the first respondent paid the amount of R4 500,00 to Grant and Hartley accused the first respondent of causing him a loss by preventing him from complying with his obligations relating to the borehole.
In his answering affidavit to the applicant’s supplementary affidavit, the first respondent stated that this complaint had never been put to him and that he became aware thereof for the first time when he read the applicant’s supplementary affidavit. Regarding the facts the first respondent stated that the parties agreed that the transfer of the property should be proceeded with and that in the meantime the amount of R7 000,00 should be retained by the firm in order to replace the borehole pump. After the cost of the pump was eventually established and paid over to the purchaser, the balance was paid to the seller.
The complaint of Me N Vorster:
The applicant also received a complaint by Me N Vorster which related to the transfer of immovable property which the first respondent was responsible for. The complaint was that a number of mistakes had been made and that the transaction was delayed. The accusation was that the transaction was handled in an unprofessional manner which caused financial loss to the complainant. A further complaint was that there was no communication between the firm and the complainant with the result that certain problems could not be resolved.
The first respondent responded to this complaint in writing on 25 November 2004. The applicant alleged that the first respondent did not respond properly to the complaint and did not adequately address the aspects mentioned by Vorster in an affidavit.
The first respondent denied that the firm made any mistakes. He stated that the reason why the bond documentation was signed, was because the firm was instructed by Absa Bank to register the bond. The delay was explained in the letter which he wrote at the time and this pertained to the delay caused by the municipality when they created a new account. Correspondence show that there was communication with the complainant throughout.
The complaint of First National Bank:
On 21 January 2004 the First National Bank of Bloemfontein filed a written complaint regarding the first respondent. The bank was the executor in a deceased estate and the firm was instructed to register the transfer of immovable property. According to the complaint the firm failed to supply a copy of the sale agreement as well as progress reports in respect of the transaction, to the bank. In a letter to the applicant the first respondent explained why correspondence had not been answered and tendered his apologies. It was alleged that the first respondent still failed to answer adequately and the bank again complained to the applicant.
According to the first respondent he was under the impression that this complaint that been settled. At the time when he explained the situation in writing he invited the complainant to contact him directly, but this never happened. He was unaware of the letters dated April and May 2005 and only became aware of it when he read the applicant’s supplementary affidavit. He was unaware that there had been any dissatisfaction. To the present he has not received any formal complaint in this regard.
The aforesaid individual complaints only related to the first respondent and not to the second and third respondents. On the evidence before the Court no finding of any improper conduct on the part of the first respondent can be made.
I now revert to the main case against the first respondent. In terms of section 22(1)(d) of the Attorneys Act 53 of 1979, an attorney may at the instance of “the law society concerned be struck from the roll or suspended from practice by the Court ... if he, in the discretion of the Court, is not a fit and proper person to continue to practise as an attorney”. In Summerley v Law Society of Northern Provinces 2006(5) SA 613 (SAC) at p615B the Supreme Court of Appeal held that it has now become settled law that the application of section 22(1)(d) involves a threefold enquiry. What this entails was stated at p 615C to be the following:
“The first enquiry is aimed at determining whether the law society has established the offending conduct upon which it relies, on a balance of probabilities. The second question is whether, in the light of the misconduct thus established, the attorney concerned is not a ‘fit and proper person to continue to practise as an attorney’. Although this has not always been the position, section 22(1)(d) now expressly provides that the determination of the second issue requires an exercise of its discretion by the Court (see eg A v Law Society of the Cape of Good Hope 1989 (1) SA 849 (A) at 851C-E). As was pointed out by Scott JA in Jasat (at 51E-F), the exercise of the discretion at the second stage ‘ involves, in reality, a weighing up of the conduct complained of against the conduct expected of an attorney and, to this extent, a value judgment’ (see also, eg, Budricks (supra) at 14A). The third enquiry again requires the Court to exercise a discretion. At this stage the court must decide, in the exercise of its discretion, whether the person who has been found not to be a fit and proper person to practise as an attorney deserves the ultimate penalty of being struck from the roll or whether an order of suspension from practice will suffice.”
In casu the following may in summary be said about the conduct of the first respondent which has been established on a balance of probabilities:
He was not in all respects open and frank in his answering affidavits. This related, inter alia, to the role he played in the firm, his knowledge of and control over financial matters, especially those relating to the conveyancing section, and the dealings of especially the clients Matthews and Enrico CC and the firm’s involvement therein.
He refused to accept responsibility in respect of irregularities which emanated from the conveyancing section and for which he was directly and indirectly responsible, and shifted the blame to the second respondent.
He misappropriated trust funds and generally acted negligently, and in some instances recklessly, with regard to trust funds. In doing so he caused a deficit in the trust account and for it to remain for an inordinate period of time.
He failed to keep proper financial records and books of account relating matters for which he was responsible, and to ensure that same be properly incorporated in the financial books of account of the firm.
He allowed personnel falling under his direct supervision and control to sign trust cheques.
He allowed a trust cheque to be made out to bearer.
He caused and/or allowed large amounts to be transferred from the trust account to the business account in circumstances where the firm was not yet entitled to such amounts.
He caused and/or allowed transfer costs and commission to be paid to estate agents from the trust account before funds had been received for such purpose.
He failed to exercise proper and efficient control over personnel and financial matters in his section, thereby causing Doerck, according to the first respondent, to steal trust funds.
He allowed payments to or on behalf of himself from the trust account which payments should have been made from the business account.
Regarding the individual complaints relating to certain clients, the applicant has not established on a balance of probabilities that the first respondent conducted himself improperly.
With reference to the evidence relating to the general state of the accounts and the deficit in the trust account, I am satisfied that on the evidence as a whole the appellant was shown to be not a fit and proper person to continue to practise as an attorney for his own account and more particularly to have the responsibility of managing an attorneys’ firm and to conduct and manage a trust account and to sign trust cheques of the firm.
This brings me to the third enquiry, namely whether the appellant should be removed from the roll of attorneys or whether an order suspending him from practice or placing some or other restrictions upon him, would be an appropriate sanction. In exercising this discretion the courts have sought, as it was put by Hefer JA in Law Society of the Cape of Good Hope v Budricks 2003 (2) SA 11 (SCA) at 16 E-F, not only “to discipline and punish errant practitioners, but also, and more importantly (particularly in cases ... where trust money was misappropriated), in order to protect the public.” (Cf also Law Society, Cape of Good Hope v Peter  SCA 37 (RSA) in para ; and Summerley (supra) at p620 F; para ). In Summerley (supra) in para  it was stated that before imposing the severe penalty of striking off, the Court should be satisfied that the lessor stricture of suspension from practice will not achieve the objectives of the Court’s supervisory powers over the conduct of attorneys.
In deciding on an appropriate sanction, every case must be decided on its own facts. Although the misappropriation of trust funds is an extremely serious issue and, as a general proposition, would lead to an attorney being struck off the roll, regard should be had to the existence or otherwise of mitigating factors. Misappropriation of trust money which does not involve the attorney dishonestly using the money for his own benefit or that of others, which in reality amounts to theft, may be such a mitigating factor. All the facts of the matter, both the aggravating as well as the mitigating factors, must be considered in conjunction. (Cf Law Society of the Cape of Good Hope v King 1995 (2) SA 887 (a CPD)).
In casu it has not been shown that the first respondent acted dishonestly. His misconduct related to a complete disregard for the rules of the profession relating to financial records and proper book-keeping and generally displayed a complete lack of insight into an attorney’s obligations with regard to a trust account.
The manner in which the first respondent sought to distance himself from his obligations as an attorney as well as from all the difficulties which later arose, was rather disingenuous and the fact that he tried to shift all the responsibility and blame to the second respondent brought a rather bitter taste to the mouth.
On the other hand, I have little doubt that the first respondent, especially since he is a senior practitioner, has learnt a hard and painful lesson. The investigations against him were of a protracted nature and the proverbial sword had been over his head for approximately the past five years. According to the evidence the first respondent suffered greatly on a personal level and had also been financially ruined as a result. Counting in first respondent’s favour is also the fact that he immediately expended a vast amount in his efforts to reconstruct the books of account of the firm the moment the chaotic state of affairs became known to him. He also made sure that all the files be transferred to another firm and that all the matters were satisfactorily concluded. He also of his own volition placed the firm under the curatorship of Mr van Staden and gave him his full support. This all resulted in the business of the firm being wound up successfully and that no client suffered a loss.
The first respondent clearly practised in a cavalier fashion and lost sight of important principles surrounding the practice of an attorney. His actions also placed his colleague, the second respondent, in an untenable situation. In my view he has by now probably realised all this and has probably realised his own shortcomings. Apart from his actions since the commencement of the investigations mentioned above, it is not insignificant that during the earlier proceedings when the applicant unsuccessfully applied for an interim order, the first respondent gave an undertaking that he would not sign any further trust cheques. The first respondent has also declared that if he be allowed to practise, he would subject himself to an order that he shall for a period of time merely do so as an employee of another attorney and not in partnership or for its own account or as a director or in association with another attorney. Further that he shall not be allowed to manage or control a trust account or the financial management of an attorney’s practice. The first respondent also declared that after the aforesaid period and should he wish to practise without the aforesaid restrictions, he should first satisfy this Court that he be allowed to do so. Lastly it may be mentioned that regarding the first respondent’s performance during the period since he has entered the service of the attorney who presently employs him in the restricted fashion aforesaid, he has received sterling reports.
In summary, I am of the view that the penalty of striking-off is too severe in the circumstances of this case and that the protection of the public also does not require such an order. In my view an order restricting the first respondent in the manner set out above for a period of three years would afford sufficient punishment to him as well as afford sufficient protection to the public.
Regarding costs it is clear that the applicant should pay the costs of the third respondent and, in fact, that she should not be out of pocket. The third respondent was neither a partner nor a director of the firm and merely served as a professional assistant . At no stage did she control or had anything to do with the finances of the firm. The only reason why the present application was brought against her was because she had at some point, when she applied to the applicant for a fidelity fund certificate, erroneously described herself as a director of the firm. The name of another firm should have been mentioned in her application. It is not known whether the applicant did in fact issue the third respondent with a fidelity fund certificate, but even if it did so, it is neither here nor there. It would have been the easiest of things for the applicant to have verified the true state of affairs and more particularly the third respondent’s status at the firm at the relevant time. Instead of doing so, the applicant chose to take the ultimate route of applying for the striking-off of the third respondent’s name from the roll of attorneys. I do not regard the applicant’s conduct in this regard as reasonable. The present application should never have been brought against her and she should not be out of pocket.
In respect of the second respondent the same applies. It should have been clear to the applicant from the outset that on his appointment as a director of the firm, the second respondent inherited a chaotic financial state of affairs coupled with a unique set of internal difficulties which prevented him from gaining control and resolving same. Also that he immediately sought outside professional help and on receiving the results thereof he acted immediately and decisively and, inter alia, informed the applicant of the existing state of affairs and gave his full assistance. When it became abundantly clear to him that he could not gain full access and control over the firm’s finances and books of account, he resigned and informed the applicant accordingly. By acting as he did and especially by sensitizing the applicant of the firm’s problems which might have had the potential of exposing the public to risk, the second respondent acted in the best traditions of the profession. All these facts were at the disposal of the applicant from the beginning. It was further submitted on behalf of the second respondent that it was however his distinct impression that the applicant, and more particularly Marais, was not really interested in what he had to say. In fact, Marais spoke to him for the first time when he prepared his third report approximately a year after second respondent had reported the matter to the applicant. By then the application to strike off the second respondent’s name from the roll of attorneys had already been launched. In my view it was unnecessary and unreasonable of the applicant to have brought the present application against the second respondent and even more so to persist therewith to the end. Consequently this is a case where there is no justification for the second respondent to be out of pocket in regard to costs.
In respect of the first respondent a number of submissions were made on his behalf. Firstly reference was made to the fact that the applicant was unsuccessful in its initial urgent application to suspend the first respondent from his practice. It was submitted on behalf of the respondent that the Court refused to make an order on the facts before it and more particularly as a result of the disputes of fact. Furthermore that the first respondent offered to be precluded from signing trust cheques of the firm pending finalisation of the application and for that to be included in the order of the Court. For these reasons, it was submitted, the applicant should be ordered to pay the costs of the first court appearance.
Reference was further made to the costs of a postponement which resulted from further affidavits which had to be filed. In this regard it was submitted that the costs should be paid by the applicant.
Regarding the matter in general it was submitted that prior to the second court appearance all the necessary documents had been before court and that at that time a letter was written on behalf of the first respondent to the applicant explaining that there was no theft involved in respect of the alleged trust deficits and that for that and other reasons the first respondent would submit to an order placing certain restrictions on him. It was submitted that if this Court makes an order similar to that tender of the first respondent, the applicant should pay the costs of the court appearances thereafter. It was conceded that the applicant was entitled to launch the application as a result of what was reported to it by Marais and that the aforesaid cost orders in favour of the first respondent should consequently only relate to the aforesaid court appearances.
Regarding the first appearance which culminated in the order on 19 July 2004, it appears from the court order in the court file that nothing was said by the Court in regard to costs. That means that no order for costs had been made and that each party shall pay his own costs pertaining to that appearance. In the result no specific order is necessary.
Regarding the other costs, the applicant’s status as custos morum should not be eroded by the threat of a costs order if an application is not successful or does not result in the ultimate sanction being meted out. As long as the applicant acts bona fide and responsibly, it should not be mulcted in costs. In the present matter the matter was rather clouded by some of the statements made by Marais in his respective reports to the applicant. In numerous instances he accused the first and second respondents of dishonest and improper conduct which statements were based on no more than suppositions and assumptions. The impression was that, at least in some instances, Marais did not remain objective. However, these factors did not affect the final outcome of the matter but did result, in my view, in the matter taking on the unfortunate proportions that it did. The first respondent did not ask for a special order as a result of the aforesaid but in my view it should to some extent be reflected in the cost order to be made.
Regarding the aforesaid submissions on behalf of the first respondent relating to the tender in respect of the order to be made, I propose to make an order similar to the one offered on behalf of the first respondent. In all the circumstances of the case I am, however, not of the view that by making such an order the applicant should be restricted in respect of costs, save to the extent that I have indicated. It cannot be said, in my view, that the applicant acted unreasonably by persisting with the submission that the first respondent should be struck off the roll. The facts of the matter were complicated and the misconduct of the first respondent of a sufficiently serious nature to allow for such a submission, albeit one which was not ultimately accepted.
In the result the following order is made:
1. The first respondent is precluded from practising as an attorney for his own account, either as sole practitioner or in partnership or in association or as director of a private company conducting an attorneys’ practice, for a period of three years.
2. Pending the aforesaid period of three years, the first respondent is interdicted from:
(a) operating a trust account or on the trust account of any other person(s) or exercising any control or authority in respect of any trust account;
(b) exercising any control over the financial management of any attorney’s practice.
3. Should the first respondent, after the expiry of the period mentioned in paragraph 1 above, elect to practise in the manner set out in that paragraph, and without the restrictions set out in paragraph 2 above, he shall satisfy the High Court within the jurisdiction of which he then practices that he should be permitted to practise for its own account and without the aforesaid restrictions.
4. The first respondent is ordered to pay the applicant’s costs of the application.
5. The application against the second respondent is dismissed and the applicant is ordered to pay the second respondent’s costs on the attorney and client scale.
6. The application against the third respondent is dismissed and the applicant is ordered to pay the third respondent’s costs on the attorney and client scale.
7. The aforesaid costs orders shall include costs previously reserved.
JUDGE OF THE HIGH COURT
ACTING JUDGE OF THE HIGH COURT
CASE NO: 17289/04
FOR THE APPLICANT: ADV A.T. LAMEY
INSTRUCTED BY: ROOTH & WESSELS ING
REF.: MNR A. BLOEM
FOR THE 1ST RESPONDENT: ADV A.P. JOUBERT SC
ADV L.J. VAN DER MERWE
INSTRUCTED BY: HOFMEYR HERBSTEIN & GIHWALA
REF.: I. GOUWS
FOR THE 2ND RESPONDENT: ADV J. VAN ROOYEN
INSTRUCTED BY: PIETER DE KEIJZER PROKUREUR
REF.: P. DE KEIJZER
DATE OF JUDGEMENT: 23 JANUARY 2009