KwaZulu-Natal Law Society v Khumalo and Another (592/17P) [2020] ZAKZPHC 3 (27 January 2020)

IN THE HIGH COURT OF SOUTH AFRICA

KWAZULU-NATAL DIVISION, PIETERMARITZBURG

CASE NO. 592/17P

In the matter between:

KWAZULU-NATAL LAW SOCIETY APPLICANT

and

LEAH THABISILE KHUMALO

FIRST RESPONDENT

STANDARD BANK OF SOUTH AFRICA

SECOND RESPONDENT

O R D E R

1. The first respondent is granted condonation for the late filing of her heads of argument.

2. The rule nisi of 17 August 2017 is confirmed.

J U D G M E N T

Henriques J (Jappie J concurring)

Introduction

[1] This opposed application concerns an application to strike-off the first respondent from the roll of attorneys in terms of s 22(1)(d) of the Attorneys Act 53 of 1979 (‘the Act’).[1]

The Act

[2] Section 22(1)(d) of the Act reads as follows:

‘Any person who has been admitted and enrolled as an attorney may on application by the society concerned be struck off the roll or suspended from practice by the court within the jurisdiction of which he or she practises –

. . .

(d) if he or she, in the discretion of the court, is not a fit and proper person to continue to practise as an attorney;. . . ’.

The applicable test

[3] The Supreme Court of Appeal in Jasat v Natal Law Society[2] held that the section envisaged a three-stage enquiry. The preliminary enquiry which a court has to decide is whether the

alleged offending conduct has been established on a preponderance of probabilities.[3] Secondly, whether in the discretion of the court the person is a fit and proper person to continue to practice, given the conduct expected of an attorney. Thirdly, whether in all the circumstances the person should be removed from the roll of attorneys or whether an order of suspension from practice for a specified period would suffice.[4] This approach has been endorsed and subsequently followed in a number of decisions.[5]

[4] In deciding whether or not a person is a fit and proper person to continue to practice as an attorney, the court exercises a discretion which:

‘. . . 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.’[6]

[5] The applicant instituted proceedings in March 2017 seeking the suspension of the first respondent from practice as an attorney pending the return date of the rule nisi. The application papers could not be served personally on the first respondent despite several attempts, so on 26 June 2017 an order for substituted service was granted in which the applicant was authorised to serve the first respondent application papers by way of publication in various newspapers.

[6] Pursuant to such publication on 17 August 2017, the applicant obtained a rule nisi directing the first respondent to, inter alia, show cause why her name ought not to be struck off the roll of attorneys. The first respondent had not at that stage opposed the

proceedings. Pending the final determination of the application, the first respondent was suspended from practicing as an attorney.

[7] Essentially the applicant approached court for the relief obtained on the following basis:

(a) a complaint received from a trust creditor of the first respondent, Magadabana Anthony Dube, the sole shareholder and director of Gadabana Estate (Pty) Ltd arising from conveyancing transactions which the first respondent attended to; and

(b) the results of an investigation conducted by an inspection committee appointed by the applicant consisting of Mr Umesh Jivan and Mr Madoda Nxumalo following upon the complaint of Dube; and

(c) discrepancies and inconsistencies arising from various audit reports submitted by the first respondent which indicated that the first respondent did not maintain proper books of account and further that there was a shortfall in her trust account which prima facie constituted evidence of misappropriated trust money.

[8] Several sets of affidavits were filed in this matter, given the manner in which the proceedings were conducted. The first respondent sought adjournments on a number of occasions to file further supplementary affidavits and audited trust records in order to provide an explanation in relation to the alleged offending conduct. Given the number of occasions the matter was adjourned, the first respondent, in my view, was provided with sufficient opportunity to place whatever information she wished before the court in order for it to properly determine the issues.

[9] A perusal of the court file indicates that after the issue of the court order of 17 August 2017, the first respondent filed a preliminary answering affidavit. In such affidavit she requested that the matter be adjourned and she be provided with sufficient opportunity and time to file a report by a registered chartered accountant to audit the books of her account and accounting records. This was to enable her to deal with the allegations of the offending conduct alleged by the applicant in its affidavits. It was for this reason that the matter was adjourned in November 2017 and the first respondent directed to file an answering affidavit by 18 February 2018. The first respondent did not file such affidavit by 18 February 2018.

[10] It is common cause that on 23 March 2018, when the matter served before court, the first respondent appeared in person and again requested a further adjournment to enable her to obtain new legal representation, and to file a further affidavit and audit report. Consequently, on 23 March 2018, directives were issued for the filing of further affidavits by the first respondent and her former attorneys of record in relation to the non-compliance with the previous court order and the late withdrawal by her attorneys of record.

[11] When the matter served before us on 1 June 2018, the papers were complete and the first respondent had filed affidavits without any independently audited report relating to her trust accounts and did not seek leave to do so.

[12] The first respondent has denied the allegations and submitted that none of the stages in the three-stage enquiry referred to in Jasat have been met and consequently she ought not to be struck off the roll of attorneys. In the alternative, the submission is made that her conduct warrants merely a suspension from practice for a period of time.

Issue for determination

[13] The issue is whether the offending conduct has been established on a balance of probabilities, and given the conduct of the first respondent, whether she is a fit and proper person to continue to practice as an attorney having regard to the enquiry as set out in Jasat. In the event of the court finding that the first two stages of the enquiry have been established, the court must consider what sanction ought to be imposed, namely, whether she should be removed from the roll of attorneys or merely be suspended from practice.

[14] At this juncture it is necessary to set out the circumstances which resulted in the institution of the application and the first respondent’s response thereto. I have dealt with this in some detail, as it is relevant to the enquiry the court must engage in, specifically in relation to the third stage of the enquiry.

Factual matrix

[15] It is common cause that:

(a) the first respondent is a member of the applicant, having been admitted as an attorney on 12 December 2003;

(b) at all material times the first respondent practiced as a sole director of MMK Incorporated

(Mngoma-Mlaba & Khumalo attorneys Inc);

(c) she was the sole trust practitioner responsible for maintaining the accounting records of the practice and for ensuring compliance with the rules of the applicant.

[16] For the financial years ending 28 February 2013, 28 February 2014 and 28 February 2015, MMK Incorporated was a participant in the applicant’s Reform Audit Support System (‘RASS’) program which entitled it to a ‘free audit’. This is disputed by the first respondent.

[17] In summary, the applicant alleges that the first respondent submitted fraudulent audit reports in terms of rule 21(A) of the rules of the KwaZulu-Natal Law Society, GN 161, GG 6316, 2 March 1979, promulgated in terms of the Act (‘the KZNLS rules’). These audit reports, allegedly compiled by Poona Maharaj and Associates, were for the periods 1 March 2012 to 28 February 2013 and 1 March 2013 to 28 February 2014 (annexures ‘PAM2’ and ‘PAM3’ to the founding affidavit) and were submitted by the first respondent by way of a letter, dated 1 April 2015, on MMK Inc.’s practice letterhead. These audit reports (PAM2’ and ‘PAM3’) were apparently submitted in compliance with rule 21(A).

[18] On receipt of annexures ‘PAM2’ and ‘PAM3’ certain anomalies were noticed. In consequence thereof a letter dated 8 July 2015 was addressed to auditors Poona Maharaj and Associates. In response to such query they indicated that neither ‘PAM2’ nor ‘PAM3’ was produced in their offices and confirmed that the contents thereof were incorrect. Subsequently Poona Maharaj and Associates attended to the audit of the first respondent’s books of account for the same period and the reports were received on 8 September 2015 which are annexed to the founding affidavit as ‘C’, ‘D’ and ‘E’.

[19] A comparison of ‘PAM2’, ‘PAM3’ and ‘C’, ‘D’ and ‘E’ revealed certain differences and anomalies in consequence whereof the Attorneys Fidelity Fund (‘the Fidelity Fund’) was instructed by the applicant to conduct an inspection of the accounting records, and bank statements of MMK Inc

for the same period and report thereon to the applicant. The Fidelity Fund subsequently completed a report dated 26 August 2016, which is annexed to the founding affidavit as ‘PAM4’.

[20] According to this report, the first respondent refused to allow one of the inspectors, Ms Dayanand, to conduct the inspection and consequently Ms Dayanand was replaced by Mr B Twetwa. The inspection committee visited the firm on two occasions being 16 March 2016 and 18 April 2016 and on both of these occasions EFT confirmations were not available.

[21] In addition, the relevant files that related to certain transactions were not presented for inspection timeously, making it difficult to check the EFT payments. On each occasion that the inspection committee attended MMK Inc.’s offices, they were presented with a different set of accounting records. The debit balances in the ledgers in the first set of records were subsequently rectified in the second set of records, but the records were inconsistent, and consequently no reliance could be placed thereon.

[22] A number of investment statements were missing and the trust investment ledgers were not balanced at year end. The inspection committee noted that as a result of the lack of investment records, the trust position reflected in the audit reports prepared by Poona Maharaj and Associates appeared to be incorrect, and in the absence of investment statements, the correct position with the trust account could not be determined.

[23] In addition, a difference of R18 066 490.36 as at the end of February 2013 reflected in the trust records due to limited or missing investment records. The investments were not accounted for in the firm’s accounting records and in addition the audit report prepared by Poona Maharaj and Associates only accounted for R1 277 896.19 in investments.

[24] In respect of the financial year 2014, MMK Inc failed to provide investment statements as at 28 February 2014 and only provided investment statements from 1 March 2013 to 21 August 2013. Although the accounting records were balanced as at 28 February 2014, the records were incorrectly prepared as a consequence of the lack of investment records. The trial balance reflected investments with huge debit balances and no fee journal book had been maintained. The instructions provided by clients to invest such monies were also not available for inspection.

[25] What is noteworthy regarding the 2014 financial year was that Poona Maharaj and Associates did not account for any investments for the financial year ending February 2014. In respect of the 2015 financial year, MMK Inc did not account for investments as at the end of February 2015 in any records submitted by their auditors. The trust trial balances were in debit and reflected amounts that should have been reflected as investments of trust funds and therefore gave the appearance of being prepared incorrectly.

[26] Transfers from the trust account to the business account were not properly identified. As a consequence of these anomalies and differences between the accounting records and workings done by the RASS team, when compared with that done by Poona Maharaj and Associates, the Fidelity Fund inspection committee concluded that no reliance could be placed on the accounting records submitted for inspection as the investment records were missing and had not been accounted for by the firm. In addition, the report noted that the first respondent had last been issued with a Fidelity Fund certificate in February 2014.

[27] In the intervening period, the applicant received a complaint in December 2015 from a trust creditor of the first respondent, Magadabana Anthony Dube (‘Dube’), the sole shareholder and director of Gadabana Estate (Pty) Ltd. He indicated that MMK Inc. had attended to a property transaction on his behalf and moneys owing to him arising from a conveyancing transaction had not been paid to him.

[28] It was not disputed that the first respondent dealt with certain conveyancing transactions on behalf of the Department of Land and Rural Development. The first respondent confirmed that she was not a qualified conveyancer and accordingly her Pietermaritzburg agent attended to conveyancing transactions on her behalf but all financial matters in relation to the transactions were dealt with by her office.

[29] Arising from the complainant by Dube, the applicant appointed an inspection committee in order to investigate the complaint. The inspection committee, which consisted of Messrs Umesh Jiven and Madoda Nxumalo, contacted the first respondent with a view to meeting with her to investigate the complaint. Prior to arranging a mutually convenient date and time for the inspection, the inspection committee brought to the first respondent’s attention that she would need to have all her accounting records for the 2013 and 2014 years available to be verified. The inspection committee also forwarded a copy of Dube’s complaint to her in order for her to address same at the meeting. The inspection committee prepared a report and it is common cause that they arranged to meet with the first respondent at her offices to deal with the complaint.

[30] Initially the first respondent indicated that she did not have all the documents available for the inspection committee and indicated to the inspection committee, through her office administrator/bookkeeper who had recently been employed by her, that she was attempting to regularise her records to enable her to properly address the complaint of Dube. She indicated that she required additional time to regularise her records and would have been in a position to provide the documents to the committee by 30 June 2016. The inspection committee indicated that the first respondent appeared to keep two sets of books relating to her practice accounting records. An extension was granted to her to provide the documents and despite

numerous follow up requests for her to do so she failed to provide the documents by 13 July 2016.

[31] During the inspection by the applicant’s inspection committee the first respondent informed the inspectors that Poona Maharaj and Associates were the firm’s accountants and had attended to the audit of her trust account: she knew they were not as she had provided instructions to her bookkeeper to appoint Ayathemba Consulting to prepare audit reports. Regarding the complaint of Dube, she indicated that she had invested the money relating to the property transactions with Standard Bank and had managed the money transactions relating to the property transactions on a software platform offered by Standard Bank to its clients.

[32] According to the first respondent, such software platform was managed by the business banking section of Standard Bank, Johannesburg, and she was experiencing difficulty obtaining accounting records from the bank relating to the property transactions which she had conducted on behalf of Dube. She confirmed there was no money standing to the credit of Dube and consequently she was unable to make any payment to him relating to his complaint. She further undertook

that she and her office administrator, Mrs Muller, would attempt to reconcile all the accounts relating to the various property

transactions which she had attended to on behalf of Dube, and would forward the documents to the inspectors on or before 30 June 2016. She had failed to do so by 13 July 2016 despite the undertaking given.

[33] Subsequently, on 27 July 2016 the accountants and auditors for Dube, indicated that an amount had been credited to his account but they had not picked this up due to an incorrect reference. Despite this credit, an amount of R1 358 387 was still outstanding and owing to Dube. Such letter was despatched to the inspectors, the first respondent and her auditors, Poona Maharaj and Associates.

[34] As a consequence of this further letter, the inspection committee attempted to once again meet with the first respondent and or her auditors. This was to establish whether the lost files and accounting records relating to Dube’s complaint had been located. Despite several assurances from the first respondent and Poona Maharaj and Associates to make themselves available to attend such meetings they failed to do so and messages left were not responded to.

[35] As the first respondent failed to contact the inspectors and make available the missing files and accounting records relating to the Dube complaint regarding the shortfall due to him, the inspectors finalised a report and concluded that there was a shortfall in the trust account of MMK Inc in the sum of R1 350 387.22. They further concluded that the shortfall arose either through gross negligence on the part of the first respondent in dealing with the property transactions of Dube, or that there was a misappropriation of such monies by the first respondent.

[36] The first respondent has responded to the allegations in the following manner. In a preliminary answering affidavit filed in November 2017, on the first occasion that she sought an adjournment, she indicated that she wished to instruct an independent accountant to examine her books of account and furnish a detailed report in relation to her trust account to confirm whether or not there were trust deficits.

[37] As she did not have sufficient funds to do so, she approached an accountant, Shirish Bhoola Consulting (‘Bhoola’) on 1 November 2017 who had undertaken to assist her. Such report would be available by 15 December 2017. The first respondent indicated that between 2012 and 2016 vast amounts of money were transferred into her account from the Department of Rural Development which monies had to be invested in interest-bearing money market accounts until such time as the property transactions had been concluded. These amounts related to land restitution claims.

[38] As a consequence, it would take a considerable period of time for any independent accountant to unravel her trust records and prepare a report. Any analysis of her trust account would accurately determine if the complainant, Dube was entitled to any monies. She further undertook that if the report of Bhoola did not exonerate her she may concede to the relief sought in the notice of motion being a final order to strike her off the roll of attorneys.

[39] In support of the request for the first adjournment and for time to prepare a comprehensive audit report by Bhoola, the first respondent relied on a letter from Poona Maharaj and Associates dated 8 July 2015, addressed to the applicant. Such letter acknowledged that the previous accountants had made ‘a serious error in their calculations and summary in 2013 and 2014 Rule 21B certificates’.[7] In consequence the court granted the first respondent an indulgence and adjourned the matter to 23 March 2018 and directed the first respondent and the applicant to file affidavits prior to such date.

[40] Prior to the matter being in court on 23 March 2018, the applicant’s compliance officer deposed to an affidavit in which it was confirmed that despite the order of 17 November 2017 and the directions issued, the first respondent had not delivered her answering affidavit, had not nominated an address for service, and had not appointed attorneys

of record. On 23 March 2018, the first respondent applied for a further adjournment, as she indicated she had to instruct new attorneys of record. This adjournment was granted.

[41] Subsequent to the second adjournment, the first respondent filed an answering affidavit. It contained an explanation as to why she did not comply with the order of 17 November 2017 and also indicated that despite obtaining the assistance of Bhoola, she was unable to file an audit report dealing with the state of her trust account for the years 2012 to 2013, and 2013 to 2014. This was as a consequence of her, firstly, not having any source of income to pay Bhoola and, secondly, not having had sufficient access to her trust account records to enable her to deal with the allegations.

[42] In addition, the first respondent raised a point in limine in which she indicated that the application was premature as the applicant had not complied with s 71 of the Act or rule 50.1 of the Rules for the Attorneys’ Profession, GN 2, GG 39740, 26 February 2016, which provide that ‘[t]he Council shall have disciplinary jurisdiction over all members no matter where the conduct which is, or allegedly is, unprofessional or dishonourable or unworthy is perpetrated.’ The first respondent avers that the applicant did not conduct an enquiry in terms of the above provisions prior to instituting the application. At the hearing of the matter, Ms Memke, who appeared for the first respondent, correctly so in my view, abandoned the point in limine.

[43] The first respondent confirmed that MMK Inc was a participant in the applicant’s RASS program but submits that it was only entitled to a free annual audit for an uninterrupted period of five years. In 2010, the first respondent procured the services of an independent accounting and auditing firm, TASMA, to audit the trust account. TASMA audited the trust accounts and books for the period 2010 to 2012 and these reports were in order. In 2013, the mandate for

TASMA was terminated and as a consequence the trust account books of MMK Inc were not audited on time for the 2013 and 2014 financial

year.

[44] These reports were subsequently lodged in April 2015 and were late as the first respondent had approached a number of accounting firms to audit the trust books but could not reach an agreement with them regarding the fees to be paid for the services rendered. As a consequence, she engaged her bookkeeper Mr Ndabenhle Ndumiso Zulu (‘Zulu’) to assist her in finding an accountant. Zulu facilitated the appointment of Mr Themba Madonsela (‘Madonsela’)

of Ayathemba Consulting and submitted all financial records to them. Zulu had advised her that Madonsela worked with Poona Maharaj and Associates. In April, Zulu forwarded the first respondent annexures ‘PAM2’ and ‘PAM3’ which were signed by Mr Poona Maharaj (‘Maharaj’) of Poona Maharaj and Associates.

[45] These reports were submitted late but she was subsequently advised by the applicant that the reports were fraudulent. As soon as she was informed of this by the applicant she conveyed this to Zulu and thereafter attended a meeting with Zulu at Poona Maharaj and Associates’ offices in Reservoir Hills. Maharaj confirmed that he knew Madonsela and merely highlighted the errors contained in the report which Madonsela had submitted. These errors were highlighted in a letter dated 8 July 2015 signed by Maharaj. In consequence thereof, Maharaj conducted a fresh audit of the trust account and submitted this to the applicant on 8 September 2015.

[46] The first respondent confirmed that she was last issued with a Fidelity Fund certificate for the year ending 2014 based on the 2013 report submitted. She confirms that she is not in possession of a Fidelity Fund certificate for the period 2015 and 2016. The respondent confirmed that she was appointed to the panel of the Department of Rural Development and Land Reform and received conveyancing work.

[47] Pursuant to being on the panel she opened money market investment accounts and identified the accounts by using the details of the parties reflected in a specific agreement. She indicated that although she was advised by the inspection team of the applicant that she was not entitled to open money market accounts, she indicated that she did not find any such provision in the Act which prevented her from doing so. She confirmed that as soon as the transfer of the property had been effected she would then recall the investment in the money market account and pay it into her trust account.

[48] In a confirmatory affidavit Zulu confirmed that he was employed by MMK Inc. as a bookkeeper and worked on the financial records of the firm when the audit was done by Ayathemba Consulting, FBS and Maharaj. He corroborates the first respondent’s version that he approached Madonsela, an accountant, on behalf of MMK Inc., who informed him that he was working together with Maharaj, on the instructions of the first respondent. He was authorised by the first respondent to facilitate the appointment of Ayathemba Consulting and submit all financial records to them.

[49] On receipt of the reports from Ayathemba Consulting, which bore the signature of Maharaj, he submitted this to the first respondent. When the first respondent advised him that the applicant alleged the reports were fraudulent he approached Madonsela, conveyed this to him and Madonsela confirmed that he had signed the report on behalf of Maharaj. A meeting was then facilitated between himself, Maharaj and the first respondent and at such meeting Maharaj acknowledged that he knew Madonsela and that there were errors on the audit reports which he undertook to rectify.

[50] Maharaj had indicated that all financial records and investment bank statements needed to be submitted to Roshan Munn (‘Munn’) of FBS. Munn indicated that he had communicated with the applicant and would rectify the errors with the audit reports. Subsequently, revised audit reports were received from Poona Maharaj and Associates, which were signed by Maharaj. Zulu confirms that at no stage was he informed by Maharaj or Munn that ‘PAM2’ and ‘PAM3’ were fraudulent. Notably, the affidavit of Zulu was signed and deposed to on 30 April 2018 prior to that of the first respondent.

[51] In a confirmatory affidavit, Madonsela, a qualified technical accountant, confirmed he is a director of Ayathemba Consulting and confirms the version of the first respondent and Zulu. He conducted the audit of the books of MMK Inc. and thereafter consulted Maharaj, and compiled and signed ‘PAM2’ and ‘PAM3’ on behalf of Maharaj. He indicates that Maharaj and he have a professional accounting/auditor relationship dating back to 2013 and Maharaj is a consultant who reviews his work.

[52] Madonsela denies that the reports were fraudulent and acknowledges that he made an accounting error in the reports as he allocated interest as a liability. He acknowledged that he signed the reports on behalf of Maharaj as Maharaj had authorised him to do so. He indicated that he had disclosed to Zulu, at the time of his engagement to audit the accounting records of MMK Inc., that he had worked with Maharaj and would pay Maharaj for his services. Similarly, his confirmatory affidavit was deposed to on 30 April 2018 prior to the first respondent signing hers.

[53] In the replying affidavit the applicant, quite correctly in my view, points out that there are discrepancies in all three different audit reports prepared for MMK Inc. on the same set of facts and accounting records. From the accounting records that were presented to the Fidelity Fund inspectors, a trust deficit in excess of R18 000 000

existed in 2013.

[54] In addition what has also not been addressed is that in ‘PAM2’ for the period ending 28 February 2013 the trust creditors per the trial balance are reflected in the amount of R56 235.03 whereas in the Fidelity Fund report they are reflected in the amount of R1 277 896.16. From the inspection conducted by the Fidelity Fund a trial balance of R56 235.03 was reflected and a trust creditors listing of R18 122 725.39.

[55] Similar inconsistencies are apparent when one compares annexure ‘D’ with ‘PAM3’ and the findings of the Fidelity Fund inspectors. Consequently, if one compares the reports submitted by the first respondent being ‘PAM2’, ‘PAM3’ and ‘C’, ‘D’ and ‘E’ with that of the Fidelity Fund report then the only logical explanation for the differences having arisen was if different accounting records were utilised.

[56] Having regard to the affidavit of Zulu and the first respondent, one must accept that annexures ‘PAM2’, ‘PAM3 and annexures ‘C’ and ‘D’ were prepared from records and information supplied by the first respondent. Similarly, the Fidelity Fund report was prepared from information and records supplied by the first respondent to the inspectors.

[57] Consequently, the information that as provided to prepare ‘PAM2’ did not contain any investments in terms of s 78(2A) for 2013, whereas the information that was given to the auditors who prepared annexure ‘C’ was that there were investments in the sum of R1 221 661.16. In respect of the 2014 financial year when ‘PAM3’ was prepared, records would have been provided containing s 78(2A) investments of R22 772 390.62 whereas when annexure ‘D’ was prepared, no records were provided for such investments, alternatively, the author of annexure ‘D’ must have been informed that there were no such investments.

[58] When the Fidelity Fund inspectors prepared their report for the 2013 period a deficit in excess of R18 000 000 was evident from the records supplied. Consequently, the inescapable inference to be drawn is that there were three different sets of accounting records. One set which was used in the preparation of ‘PAM2’ and ‘PAM3’, a second set used in the preparation of annexures ‘C’ and ‘D’, and finally a third set presented to the Fidelity Fund inspectors to enable them to prepare their report.

Has the offending conduct been established

[59] I propose to now deal with whether or not the offending conduct has been established on a preponderance of probabilities. It is common cause that the first respondent submitted audit reports for the periods ending February 2013 and 2014 which are annexures ‘PAM2’ and ‘PAM3’ to the founding affidavit. Having regard to the email of Maharaj these were not prepared by him nor were they signed off by him. The first respondent’s bookkeeper, Zulu, and Madonsela of Ayathemba Consulting, confirm that it was at the first respondent’s behest that Zulu made contact with Madonsela and handed over all the relevant financial records to Madonsela in order for him to prepare ‘PAM2’ and ‘PAM3’.

[60] These were submitted by the first respondent to the applicant and bore her signature. When the applicant pointed out to the first respondent that these audit reports appeared to be fraudulent in light of the email received from Maharaj, the first respondent then once again with the assistance of Zulu and Maharaj submitted annexures ‘C’ and ‘D’ which were different reports for the same period on 8 September 2015.

[61] An inspection subsequently done by members of the Fidelity Fund compared the reports submitted by the first respondent to the applicant, with the accounting records supplied to the applicant by the first respondent and/or her staff. The trust creditors’ control or trial balance, which represents the actual balances in the firm’s trust banking account and investment accounts at a specific date, differed drastically. This is confirmed by the contents of the Fidelity Fund’s report.

[62] In addition, having regard to the trust creditors listing, which is the total trust creditors extracted from MMK Inc.’s accounting records, these also reflect huge discrepancies between the various reports submitted by the first respondent when compared to the Fidelity Fund report. For example, ‘PAM2’ submitted by the first respondent does not reflect any s 78(2A) investments whereas annexure ‘C’ for the same period reflects investments in excess of R1 200 000. In respect of the period ending February 2014, annexure ‘PAM3’ reflects s 78(2A) investments in excess of R22 000 000, whereas annexure ‘D’ submitted for the same period, reflects no such investments.

[63] In addition, from the records provided to the Fidelity Fund inspectors, s 78(2A) investments in excess of R46 000 000 were identified for the period ending February 2014. What is noteworthy regarding the contents of the Fidelity Fund inspectors’ reports is that, given the lack of investment records, the trust position reflected in the audit report prepared by Poona Maharaj and Associates is incorrect.

[64] On each of the occasions on which the Fidelity Fund inspectors visited the first respondent’s firm, they were presented with different sets of records and among the records many investment statements were missing and trust investment ledgers which were not balanced as at year end. The Fidelity Fund inspectors were in addition not provided with the investment statements as at 28 February 2014.

[65] The first respondent, instead of addressing the issues raised in the Fidelity Fund report in her answering affidavits, has rather attempted to point the finger at the applicant. She has on various occasions sought adjournments to file answering affidavits to deal with the allegations of misappropriation and the differing trust records and balances. As at the time of the hearing of the application, she had not filed a report of an auditor to properly deal with the trust balances and apparent discrepancies, nor has there been any explanation of the failure to maintain proper accounting records and bank statements.

[66] Consequently, the applicant’s allegations which are supported by documentary proof stand unchallenged. In addition, in respect of the complaint made by Dube, the first respondent has indicated that the proceeds of the various sales for such transactions were invested with Standard Bank. No money was standing to the credit of the seller and consequently she cannot make payment to the complainant.

[67] In addition, the first respondent indicates that she paid Dube all monies owed to him and she does not owe any further money to him. This is disputed by Dube, and as at March 2018, an amount of in excess of R2 000 000 was still owing to him. Despite undertaking to produce records and a report to support this denial, she has failed to do so. The only inference to be drawn having regard to the reports prepared on behalf of the applicant, is that she owed money to Dube and there is a shortfall in her trust account.

[68] A highly unsatisfactory element of the first respondent’s answer to the applicant’s case against her is the fact that there appears to be an element of dishonesty in all her dealings with the applicant. She deposes to affidavits in which she indicates that she has been issued with valid Fidelity Fund certificates by the applicant. What she fails to take the court in her confidence about is the fact that these were self-certification certificates which she obtained. She however knew full well that these are not valid certificates issued as there were still audit queries for 2015/2016 audit year. Moreover, she is aware that she was last issued with a Fidelity Fund certificate in 2014, which would not have related to the periods in question.

[69] In addition in her answering affidavit she indicates that she was not aware that the applicant was taking measures against her for her suspension and strike-off. Yet it is apparent from an email which she put up addressed to the applicant that she was aware in 2016 already[8] that the applicant was contemplating taking steps against her, for her strike-off, alternatively suspension.

[70] When asked for an explanation in relation to the allegations in the applicant’s affidavits which remained unanswered, Ms Memka, who represented the first respondent, was constrained to concede that she could not deal with them and was confined to the papers. The first respondent has not dealt with the apparent shortfalls in her trust account and the differing accounting records supplied which resulted in the discrepancies being discovered.

[71] As alluded to earlier she has attempted to blame others for her non-compliance with the rules of the applicant. She was aware that she was required to comply with rule 21A of the KZNLS rules and submit auditor’s reports in respect of the financial years in question. Despite knowing this, she instructed her bookkeeper to appoint Ayathemba Consulting to do this service, knowing full well that Ayathemba Consulting are not auditors. In addition, at the time that these reports were submitted to the applicant in July of 2015, she was aware that they were on the Poona Maharaj and Associates letterhead and she was also aware that she had not given instructions to her bookkeeper to instruct Poona Maharaj and Associates to prepare the report but rather Ayathemba Consulting. Why then would she sign these reports and submit them?

[72] Neither Zulu nor Madonsela had informed her of Maharaj’s involvement. She also wants to disavow any knowledge of the contents of the reports and the inaccuracies contained therein on the basis that these reports were prepared by someone who, unbeknownst to her, forged the signature of Maharaj thereon. However, the difficulty with this is that she had given instructions for Zulu to hand all the accounting records to Madonsela to prepare the audit reports.

[73] Ms Memka suggested that that there was no act of dishonesty on the part of the first respondent as the reports were based on what available information there was and there are records missing. Thus, at best the first respondent is guilty of maladministration and not dishonesty. She indicated that because there are insufficient records and one does not have all the records, one cannot draw the conclusion that there is a shortfall, and it may very well be that the first respondent did not keep proper records.

[74] I do not agree with these submissions. The conduct of the first respondent does not amount to a mere failure to keep proper records or maladministration. For reasons mentioned in the judgment and alluded to in the heads of argument submitted by Mr Pretorius, the conduct of the first respondent amounts to dishonesty. She was aware that she needed to submit audit reports in terms of rule 21A of the KZNLS rules. It does not follow then, that Ayathemba Consulting, who are not auditors, be appointed. She signed and submitted reports by Poona Maharaj and Associates knowing full well that she had not authorised that they be instructed to prepare the audit reports.

[75] The first respondent has failed to deal with the fact that different accounting records were kept and utilised to prepare the audit reports. She has not, inter alia, explained the shortfall of monies in her trust account and the apparent misappropriation thereof. She has failed to deal with the trial balances which had debit balances and the investments which similarly had debit balances. She has also not explained the discrepancies between what the Fidelity Fund auditors found when compared with annexures ‘C’, ‘D’, ‘PAM2’ and ‘PAM3’.

[76] I am of the view that the offending conduct has been established on a preponderance of probabilities as envisaged in Jasat.[9]

The second stage of the enquiry

[77] The second stage of the enquiry is whether or not the first respondent is a fit and proper person to continue to practise given the conduct expected of an attorney. Here the court exercises a discretion which involves weighing up the conduct complained of against the conduct expected of an attorney, and to this extent, a value judgment.

[78] Mr Pretorius at the hearing of the matter submitted that here, apart from the offending conduct, one must consider the conduct of the first respondent in relation to the application and in relation to her dealings with the applicant and those appointed to conduct the

investigation. He submitted that the conduct of the first respondent was evasive throughout. Rather than deal with the issues

and queries raised, she engaged in a finger-pointing exercise and appeared to deflect from herself. He submitted that she did not take the court into her confidence and provide an explanation for the conduct complained of.

[79] More importantly, the first respondent was extremely antagonistic and dishonest when addressing the allegations in the various affidavits. As a consequence, he submitted that the first respondent did not display the conduct expected of an attorney.

[80] He indicated that in support of the submission that this is not merely maladministration, but dishonesty, one must consider the cumulative effect of the transgressions coupled with the fact the first respondent submitted that she had been issued with a Fidelity Fund Certificate. It was pointed out by Mr Pretorius that the first respondent received a qualified audit and this was an indication that everything was not in order in relation to the audit reports submitted.

[81] Of further relevance to the second stage of the enquiry is the manner in which the first respondent approached the matter. In her affidavit in which she sought an adjournment of the matter to secure the services of an auditor, Bhoola, she, on oath, indicated that it was based on the legal advice that she obtained that it was necessary for all her records to be considered and for her to properly deal with the nature of the allegations levelled by the first respondent and Dube against her. The purpose of instructing Bhoola was to specifically deal with the 2013 and 2014 audit reports. Both she and Bhoola confirmed in affidavits that she handed over all her records for this to be done.

[82] Yet in the answering affidavit delivered subsequently, what is not explained is why Bhoola prepared reports for previous financial years not relevant to the issue at hand. She then goes on to indicate that she had made enquiries with Standard Bank relating to a transfer made and Standard Bank was not co-operating with her. The impression gained from the initial answering affidavit when compared to the subsequent answering affidavit is that the first respondent was intent on providing an explanation and dealing with all the allegations contained in the affidavits filed by the applicant and Dube. She pertinently indicated that such report would exonerate her and determine whether any monies were owing to Dube. Yet in the subsequent affidavit she provides a list of payments made to Dube and then invites him to explain his dishonesty and explain

why he indicates monies are still owing.

[83] In doing so, she inadvertently confirms that more than R11 million passed through her trust account and confirms the trial balance in the trust account and ledgers as indicated in the RASS Auditor’s Report. This however flies in the face of ‘PAM 2’ and ‘PAM 3’ which do not reflect close to such amounts being paid to Dube or passing through her trust account. In my view, given the cumulative effect of the transgressions, the failure by the first respondent to deal with them, and what appears to be a subsequent attempt to obfuscate issues, the only conclusion is that the first respondent is not a fit and proper person to continue to practise as an attorney.

[84] That then brings me to the third leg of the enquiry being whether the first respondent should be struck from the roll of attorneys or whether she should be suspended from practise.

The third leg of the enquiry, namely the sanction to be imposed

[85] It is perhaps useful to consider the cases referred to by the respective legal representatives in respect of the sanction to be imposed. This must be seen in the light of the submissions made by both the applicant and the first respondent; the applicant contending for the strike-off of the first respondent and Ms Memka contending for a suspension of the first respondent. The nub of the difference in the submissions relates to the nature of the transgression relied upon.

[86] There is undoubtedly a huge difference between acts of dishonesty and maladministration, both warranting diametrically opposed sanctions. In KwaZulu-Natal Law Society v Moodley & another[10] the court was of the view that a suspension was the most appropriate sanction. The court remarked as follows:

‘The first respondent has demonstrated that he was not fit and proper to practise as an attorney. However, I think too that the facts demonstrate that he has learnt a hard lesson and that there is no reasonable danger of the events recurring. The ultimate professional penalty would, in my view, be too harsh in all the circumstances of the case. A suspension from practice, itself suspended for a period upon appropriate conditions coupled with an Order for the repayment tendered, would, in my view constitute

sufficient punishment.’ [11]

[87] The decision in Moodley did not involve theft but rather unprofessional conduct in the form of overreaching in respect of fees charged. The fee involved was the sum of R150 000 which the attorney undertook to repay and in fact did repay. Although the attorney in Moodley initially challenged the strike-off application, at the hearing of the matter, the approach was to accept ‘his wrongdoing’.[12]

[88] In Botha v Law Society, Northern Provinces[13] the unprofessional conduct complained of related to contravening the Act and the rules made under the Act relating to books of account, trust moneys and a failure to give proper attention to clients’ matters. The court a quo granted an order of striking-off. On appeal, the court endorsed the court a quo’s conservative approach to the sanction but emphasised, however, that it was significant that the attorney had not been found guilty of any conduct involving dishonesty. In addition a factor which weighed heavily with the court was the fact that the attorney had not practiced for his own account for a period of three years prior to the hearing of the appeal, but had practised under supervision, and that those years under supervision would be ‘sufficient to make him realise the error of his ways’.[14] As a consequence the court was of the view that the conduct was not likely to reoccur and a suspension was a more appropriate sanction.

[89] In Holmes v Law Society of the Cape of Good Hope & another; Law Society of the Cape of Good Hope v Holmes,[15] N C Erasmus J was of the view that the only appropriate sanction was that of a strike-off. The attorney in that matter failed to properly administer trust funds but also was not frank and open in her dealings with the law society and with the court, and had deceived both. The court was of the view that such conduct was inexcusable and warranted a strike-off. In addition, the attorney had misappropriated funds and used these funds to pay for personal expenses.

[90] In Law Society of Cape of Good Hope v Peter[16] the attorney used trust moneys to pay for practice expenses as well as accommodation expenses.[17] The court was not convinced that the attorney suffered from a defect of character, but only that she had had a moral lapse due to the pressure that she was under at the time,[18] and ordered a suspension from practice rather than a strike-off.

[91] In Summerley v Law Society, Northern Provinces[19] a shortfall was discovered in an attorney’s trust account. A trust cheque had also been dishonoured on presentation. The explanation provided was that the cheque was issued on the basis that the attorney had received an assurance from the client that moneys had been transferred into his trust account. The difference between the decision in Summerley and the decision in Peter was that in Summerley the attorney had not used the money for himself. In Peter the attorney was frank and honest and made a full disclosure and accepted responsibility for her conduct. The court in Peter was of the view that what counted heavily in the attorney’s favour was this disclosure, and that the transgression had occurred over a short period of time and that she had accepted full responsibility for such conduct, which was limited.

[92] In Law Society of the Northern Provinces v Mabaso[20] the attorney did not provide a full and frank explanation for the misappropriation of funds and attempted to lay the blame at someone

else’s door. The court was of the view that, as the attorney had failed to take responsibility for his conduct and falsely accused others in order to mislead the court, he displayed conduct which was inconsistent with his duties as an officer of the court, and consequently he was not a fit and proper person to practice and ordered that he be struck off the roll.

[93] Nugent JA in Peter (writing for the minority) indicated that in deciding on an appropriate sanction, the court must also consider the character of the attorney and that the applicant had a duty to protect the public. In Malan & another v Law Society, Northern Provinces[21] the court was of the view that an attorney would have to show exceptional circumstances warranting the imposition of a suspension

as opposed to a strike-off in matters involving dishonesty.

[94] As stated by the court in Summerley, ‘[t]he attorney’s profession is an honourable profession, which demands complete honesty and integrity from its members’.[22] It is the responsibility of this court to ensure that persons who are not fit and proper to practice are prevented from doing so. Not every attorney who has contravened the Act and the rules under the Act or has been dishonest ought to be removed from the roll of attorneys. In Botha the court held:

‘It must be emphasised that dishonesty is not a sine qua non for striking-off. As Harms JA said in Malan: “Obviously, if a court finds dishonesty, the circumstances must be exceptional before a court will order a suspension instead of a removal . . . . Where dishonesty has not been established the position is . . . that a court has to exercise a discretion within the parameters of the facts of the case without any preordained limitations.”’[23] (footnote omitted).

[95] Among the objectives of the Act is to protect the public where trust funds are involved. In this matter, apart from shifting blame, the first respondent has not made complete and full disclosure. She has not in any way dealt with the findings of the inspection committees specifically that of the Fidelity Fund, which report revealed accounting deficiencies, and prima facie evidence of the misappropriation of trust money.

[96] Although the first respondent has denied these allegations she has done very little to explain these findings. Her failure to do so especially in relation to her failure to maintain individual ledgers for trust accounts, investment statements and her failure to provide all of her accounting records when called upon to do so, is taken seriously by this court.

[97] The conduct of the first respondent fell far short of that expected of an attorney. I do not view her conduct as merely maladministration or negligence, but dishonest and probably fraudulent conduct.

[98] Maintaining proper books of account, specifically trust books of account, is one of the primary responsibilities of an attorney. The first respondent was well aware of this obligation, specifically considering the huge sums of money which passed through her trust account. She must have appreciated the need to properly transfer monies from her trust to her business account.

[99] Despite the reports alluding to two, or possibly three sets of records, she elects not to deal with this at all. When faced with the contents of the two inspection committee reports and the prima facie allegations of impropriety and misappropriation of monies, she does not answer these in any way.

[100] Her failure to do so reflects on her fitness to remain as a member of the attorneys’ profession. I have considered the option of a suspension and I am of the view that given the nature of the transgressions coupled with the fact that the first respondent has not been frank and honest with the applicant, the inspection committees and the court, as was held in Mabaso and Holmes the only appropriate sanction is that of a strike-off.

Order

[101] In the result the following order will issue: the first respondent is granted condonation for the late filing of her heads of argument.

[102] The rule nisi of 17 August 2017 is confirmed.

Henriques J

Jappie JP

Case Information Date of argument : 1 June 2018 Date of judgment : 27 January 2020 Appearances Counsel for Applicant : Mr C Pretorius Instructed by : Venns Attorneys 281 Pietermaritz Street, Pietermaritzburg Email: pat@venns.co.za Tel: 033-355 3119 Ref: PRJ DEWES/LISA/3216421 Counsel for First Respondent : Ms M Memka Instructed by : M Memka Attorneys Inc. 3rd Floor, The Royal Towers 30 Dorothy Nyembe Street, Durban Email: mimie.memka@gmail.com Tel: 031-305 09096 Cell: 082 211 7070

[1] In terms of s116(2) of the Legal Practice Act 28 of 2014, any proceedings already instituted in terms of a repealed law (such as the Attorneys Act 53 of 1979) must be continued and concluded as if that law had not been repealed. Consequently, the relevant test as set out in s 22(1)(d) of the Attorneys Act 53 of 1979 still finds application and the application falls to be determined in terms of that Act.

[2] Jasat v Natal Law Society 2000 (3) SA 44 (SCA).

[3] Jasat at 51C.

[4] Jasat at 51D-I.

[5] Malan & another v Law Society, Northern Provinces [2008] ZASCA 90; 2009 (1) SA 216 (SCA) para 4; Law Society of the Cape of Good Hope v Budricks 2003 (2) SA 11 (SCA) para 2.

[6] Jasat at 51E-F.

[7] First respondent’s preliminary answering affidavit, para 23; Annexure ‘B’ to the first respondent’s preliminary

answering affidavit.

[8] LTK3 page 202

[9] Jasat v Natal Law Society 2000 (3) SA 44 (SCA) at 51C.

[10] KwaZulu-Natal Law Society v Moodley & another (3072/2012) [2014] ZAKZPHC 33 (9 May 2014).

[11] Moodley para 20.

[12] Moodley para 19

[13] Botha v Law Society, Northern Provinces 2009 (1) SA 227 (SCA).

[14] Botha at 235G.

[15] Holmes v Law Society of the Cape of Good Hope & another; Law Society of the Cape of Good Hope v Holmes 2006 (2) SA 139 (C).

[16] Law Society of Cape of Good Hope v Peter 2009 (2) SA 18 (SCA).

[17] Peter para 4.

[18] Peter para 16.

[19] Summerley v Law Society, Northern Provinces 2006 (5) SA 613 (SCA).

[20] Law Society of the Northern Provinces v Mabaso 2015 JDR 1695 (SCA).

[21] Malan & another v Law Society, Northern Provinces [2008] ZASCA 90; 2009 (1) SA 216 (SCA) para 10.

[22] Summerley para 21.

[23] Botha v Law Society, Northern Provinces [2008] ZASCA 106; 2009 (1) SA 227 (SCA) para 3.