Law Society of the Northern Provinces v Phiri and Another (1848/10) [2011] ZANWHC 42 (23 June 2011)

IN THE NORTH WEST HIGH COURT

MAFIKENG

CASE NO.: 1848/10

In the matter between

THE LAW SOCIETY OF THE NORTHERN PROVINCES …..............................APPLICANT

and

SIMON MATHATA PHIRI ….....................................................................1ST RESPONDENT

THE LAW SOCIETY OF BOPHUTHASWANA

(The Law Society of the North West incorporated

as the Law Society of Bophuthatswana ) …........................................2ND RESPONDENT

HENDRICKS J & LANDMAN J

DATE OF HEARING : 3 JUNE 2011

DATE OF JUDGMENT : 23 JUNE 2011

FOR THE APPLICANT : MR LAMEY

FOR THE RESPONDENTS : No appearance

_____________________________________________________________________

JUDGMENT

LANDMAN J:

[1] This is an application launched by the Law Society for the Northern Provinces (the Law Society) to suspend Simon Mathata Phiri (first respondent) from practising as an attorney. The Law Society of Bophuthatswana is the second respondent. No relief is sought against the second respondent.

[2] The first respondent was admitted as an attorney of this court on 11 November 1993 and his name is still on the roll. The first respondent currently practises as an attorney. He practices as a single practitioner for his own account under the style of Phiri Attorneys at Office No 3 B, Leseding Complex, 4358 Jubilee Road, Temba. Temba falls within the jurisdiction of this court.

[3] The Law Society brings this application for the suspension of the first respondent because:

(a) he has practised as an attorney without being in possession of a fidelity fund certificate;

(b) he has failed to submit his firm’s Rule 70 auditor’s report for the year ending 28 February 2009 to the Law Society;

(c) he failed to submit his firm’s Rule 70 auditor’s report for the year ending 28 February 2007 to the Law Society timeously;

(d) he has failed to pay fines imposed by a disciplinary committee to the Law Society;

(e) he has failed to comply with an order of a disciplinary committee of the Council of the Law Society;

(f) he has failed to reply to a letter addressed to him by the Law Society; and

(g) he has failed to keep proper accounting records in respect of his practice and contravened provisions of the Attorneys Act 53 of 1979 (the Act) and the Law Society’s Rules relating to bookkeeping by attorneys.

[5] The first respondent was required to submit his Rule 70 auditor’s report for the period ending 28 February 2009 to the Law Society on or before 31 August 2009. He failed to do so. The purpose of a Rule 70 auditor’s report is to satisfy the Law Society that an attorney’s accounting records are kept in accordance with the provisions of the Rules and the Act and that an attorney handles and administers trust monies entrusted to him or her by his clients properly and responsibly. By failing to submit his Rule 70 auditor’s report to the Law Society the first respondent contravened the provisions of Rule 70. In terms of Rule 89.11 the first respondent made himself guilty of unprofessional, dishonourable and unworthy conduct.

[6] The first respondent appeared before a disciplinary committee of the Council on 3 November 2009 in order to answer the charge that:

“He is guilty of unprofessional or dishonourable or unworthy conduct in that he failed or neglected to furnish to the Society, as required, within six (6) months after the annual closing of you books of account with a certificate from his accountant for the period ending 28 February 2009.”

[7] The first respondent pleaded guilty to the charge. He was found guilty and fined an amount of R10 000.00, R5 000.00 of which was suspended for a period of three years. The first respondent was also ordered to submit his outstanding Rule 70 auditor’s report to the Law Society on or before 30 November 2009. The first respondent failed to comply with the order and the report is currently still outstanding.

[8] The Law Society reminded the first respondent on 20 January 2010, of his failure to submit his Rule 70 auditor’s report to the Law Society. The respondent failed to respond to the Society’s letter.

[9] The first respondent has previously failed to submit his Rule 70 auditor’s report for the period ending 28 February 2007 timeously to the Law Society. The first respondent subsequently submitted the report to the Law Society on 14 August 2008, i.e. one year later.

Fidelity fund certificate

[10] An attorney shall not practise or act as a practitioner for his own account or in partnership unless he is in possession of a fidelity fund certificate. See section 41(1) of the Act. This stipulation is peremptory. A contravention in terms of section 83(10) of the Act, constitutes an offence punishable with a severe fine. The purpose of the issue of a fidelity fund certificate is to protect the general public. The Attorneys Fidelity Fund (the Fund) was founded for the purpose of reimbursing persons who suffer pecuniary loss as a result of the theft committed by a practising attorney.

[11] Because the first respondent failed to submit his Rule 70 auditor’s report for 2009 to the Law Society, a fidelity fund certificate was not issued to him for 2010. The first respondent nevertheless continued, from 1 January 2010, practising as an attorney without a fidelity fund certificate. The first respondent had also practised as an attorney without a fidelity fund certificate during the period 1 January 2008 to 20 August 2008.

[12] The seriousness of the first respondent’s conduct in practising without a fidelity fund certificate cannot be overemphasised. First his conduct is contrary to a peremptory legal requirement and the first respondent has made himself guilty of an offence. Secondly, the first respondent places his trust creditors, who may suffer pecuniary loss as a result of the misappropriation of his trust monies, at risk.

Law Society’s investigation

[13] After the first respondent had failed to submit his auditor’s report for the period ending 28 February 2007 to the Law Society, the Law Society instructed a chartered accountant and auditor, Mr Deleeuw Swart (Swart), to visit his firm and to conduct an inspection of the firm’s accounting records and practice affairs.

[14] Swart visited the firm on 20 June 2008. He was received at the office by the first respondent. He enquired from the first respondent about the outstanding accountant’s report. The first respondent informed him that he was still waiting for the firm’s accountant to update the firm’s accounting records. Separate trust and business banking accounts were conducted at Standard Bank, Central City branch.

[15] The firm’s accounting records consisted only of a trust creditors’ ledger. At the time of Swart’s visit, this ledger was written up to 30 April 2008. This is a contravention of Rule 68.1 of the Rules (Rule 48(1) of the Bop Rules) in that the firm did not keep in an official language of the Republic such accounting records as are necessary to reflect fully and accurately transactions in accordance with generally accepted accounting practice. This is also a contravention of Rule 68.5 of the Rules (Rule 48(3) of the Bop Rules) in that the firm did not regularly and promptly update its accounting records as its accounting records had not been written up for more than one month.

[16] At the time of Swart’s visit the accounting records were with the accountant and were written up and balanced to 31 July 2007. This is a contravention of Rule 68.5 of the Rules (Rule 48(3) of the Bop Rules) in that the firm did not regularly and promptly update its accounting records as its accounting records have not been written up for more than one month and had not been balanced for two months. This is also a contravention of Rule 68.4.2 of the Rules (Rule 48(1)(b) of the Bop Rules) in that the firm’s accounting records were not retained at no other place than the firm’s main office.

[17] The first respondent arranged a meeting for 1 August 2008 at the offices of the firm’s accountant in Pretoria. At that meeting, it was established that the firm’s accounting records have been written up to the middle of July 2008 and balanced to 31 May 2008.

[18] Swart selected 29 February 2008 and 31 May 2008 to compare the total of the balances of the trust creditors’ accounts with the balance of the trust banking account. He found a shortage of R6 768.25 on each occasion. On investigating these two trust shortages, he established that these shortages were caused by excess bank charges debited by the bank against the firm’s trust banking account. The first respondent agreed to contact the bank to transfer future excess bank charges to the firm’s business banking account.

[19] When examining the firm’s lists of trust creditors, Swart established that there were a number of credit balances in these lists which were fees which had not been transferred by the firm. The total of these fees exceeded the trust shortages. This is a contravention of Rule 68.1 of the Rules (and Rule 48(1) of the Bop Rules) in that the firm did not keep, in an official language of the Republic, such accounting records as are necessary to reflect fully and accurately transactions in accordance with generally accepted accounting practice.

[20] The firm has very few trust creditors and the reason why the balances of the trust accounts appeared high, are due to two conveyancing matters, Messrs D J Mosaka and M D Masango. On these two dates, there accounts represent a balance of R410 075.69 on 29 February 2008 and a balance of R298 020.69 on 31 May 2008. The balance of the trust accounts represents deposits received on litigation matters and fees earned but not yet transferred.

[21] A notice of opposition has been filed but no answering affidavits has been delivered. Consequently these averments are not disputed.

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

“22 Removal of attorneys from roll. – (1) 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 practises –

(a) ....

(b) ....

(c) ....

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

[23] The approach which must be adopted to an application such as this one is set out in Jasat v Natal Law Society 2000 (3) SA 44 (SCA). A three-stage inquiry is envisaged.

“First, the court must decide whether the alleged offending conduct has been established on a preponderance of probabilities, which is a factual inquiry.

Second, it must consider whether the person concerned ‘in the discretion of the court’ is not a fit and proper person to continue to practise. This involves a weighing up of the conduct complained of against the conduct expected of an attorney and, to this extent, is a value judgment.

And third, the court must inquire whether in all the circumstances the person in question is to be removed from the roll of attorneys or whether an order of suspension from practice would suffice.”

[24] I am satisfied that the first respondent has done the acts and omitted to do the acts which the Law Society complains of. The conduct of the first respondent is conduct which is unbefitting an attorney. He has disregarded important Rules of the Law Society (and those of the second respondent) which apply to his profession. He has failed to comply with the orders of a disciplinary committee convened under the auspices of his professional society. He has places his clients at the risk of financial loss by deliberately practising without being in possession of a fidelity certificate.

[25] I have no doubt that the conduct of the first respondent falls short of the conduct of an attorney to such an extent that he is not a fit and proper person to continue to practise as an attorney.

[26] This brings me to the consideration of the appropriate sanction. The Law Society moves for his suspension from practice and not his removal from the roll of attorneys

[27] . The first respondent is not guilty of dishonesty. The result is that an order for the suspension of the first respondent is indicated. See Summerly v Law Society, Northern Provinces 2006 (5) SA 613 (SCA) at paragraph 21 and Malan and Another v Law Society, Northern Provinces [2008] ZASCA 90; 2009 (1) SA 216 (SCA) at 221E-F.

[28] Apart from the fact that the first respondent’s conduct did not involve dishonesty the nature of his trust deficit which Swart uncovered i.e. that bank fees were debited against the trust account, is such that in addition to the first respondent, the bank should have been aware that bank fees are not debited against a trust account. His auditors should also have alerted him to this.

[29] Moreover the nature of his offences is such that one can reasonably expect that the first respondent should be able to rehabilitate himself so that the suspension can be lifted.

[30] Ideally, and this was the debate which the court had with Mr Lamey, who appeared for the Law Society, the order which this court makes should be one which avoids the necessity for the first respondent to have to apply for the lifting of the suspension. This would be the case if we were able to tailor the remedial action required to remove the cause of the first respondent’s unfitness. See the Malan decision at page 220E-I. Unfortunately the absence of information concerning the first respondent’s circumstances, reasons for doing what he did and suggestions as regards conditions of suspension have hampered this court’s ability to make an individualised order. The first respondent delivered a notice of opposition but failed to file an answering affidavit. Although the notice of set-down was delivered to his local attorney, the first respondent failed to appear on the day set down for the hearing.

[31] As Mr Lamey pointed out the first respondent should have assisted the court to formulate optimum conditions of suspension. In the Malan decision Harms ADP (as he then was) said the following, in the context of an application for striking out, but it is apposite as

regards an application for the suspension of an attorney from practice:

“An attorney, who is the subject of a striking-off application and who wishes a court to consider this lesser option, ought to place the court in the position of formulating appropriate conditions of suspension.”

[32] In the absence of any assistance from the first respondent this court can only make the conventional order as was done in A v Law Society of the Cape of Good Hope 1989 (1) SA 849 (A) i.e. an order suspending the first respondent from practising as an attorney until this court is satisfied that the cause of unfitness has been removed.

[33] This order will require the first respondent, should he wish to do so, to apply for the lifting of his suspension at a time when he is able to demonstrate that he is a fit and proper person to resume practising as an attorney.

[34] In the result I make the following order:

1. That SIMON MATHATA PHIRI (hereinafter referred to as first respondent) is suspended from practice as an attorney until such time as he satisfies this Court on application, to be served on applicant and second respondent, that he is a fit and proper person to resume practise as an attorney.

That first respondent immediately surrenders and delivers to the registrar of this Honourable Court his certificate of enrolment as an attorney of this Honourable Court.

That in the event of the first respondent failing to comply with the terms of this order detailed in the previous paragraph within two (2) weeks from the date of this order, the sheriff of the district in which the certificate is, be authorised and directed to take possession of the certificate and to hand it to the Registrar of this Honourable Court.

That the first respondent be prohibited from handling or operating on his trust account as detailed in paragraph 5 hereof.

That Johan van Staden, the head : members affairs of applicant or any person nominated by him, be appointed as curator bonis (curator) to administer and control the trust account of respondent, including accounts relating to insolvent and deceased estates and any deceased estate and any estate under curatorship connected with respondent’s practice as an attorney and including, also, the separate banking accounts opened and kept by respondent at a bank in the Republic of South Africa in terms of section 78(1) of Act No 53 of 1979 and/or any separate savings or interest-bearing accounts as contemplated by section 78(2) and/or section 78 (2A) of Act No. 53 of 1979, in which monies from such trust banking accounts have been invested by virtue of the provisions of the said sub-sections or in which monies in any manner have been deposited or credited (the said accounts being hereafter referred to as the trust accounts), with the following powers and duties:

immediately to take possession of respondent’s accounting records, records, files and documents as referred to in paragraph 6 and subject to the approval of the board of control of the attorneys fidelity fund (hereinafter referred to as the fund) to sign all forms and generally to operate upon the trust account(s), but only to such extent and for such purpose as may be necessary to bring to completion current transactions in which respondent was acting at the date of this order;

subject to the approval and control of the board of control of the fund and where monies had been paid incorrectly and unlawfully from the undermentioned trust accounts, to recover and receive and, if necessary in the interests of persons having lawful claims upon the trust account(s) and/or against respondent in respect of monies held, received and/or invested by respondent in terms of section 78(1) and/or section 78(2) and/or section 78 (2A) of Act No 53 of 1979 (hereinafter referred to as trust monies), to take any legal proceedings which may be necessary for the recovery of money which may be due to such persons in respect of incomplete transactions, if any, in which respondent was and may still have been concerned and to receive such monies and to pay the same to the credit of the trust account(s);

to ascertain from respondent’s accounting records the names of all persons on whose account respondent appears to hold or to have received trust monies (hereinafter referred to as trust creditors) and to call upon respondent to furnish him, within 30 (thirty) days of the date of service of this order or such further period as he may agree to in writing, with the names, addresses and amounts due to all trust creditors;

to call upon such trust creditors to furnish such proof, information and/or affidavits as he may require to enable him, acting in consultation with, and subject to the requirements of, the board of control of the fund, to determine whether any such trust creditor has a claim in respect of monies in the trust account(s) of respondent and, if so, the amount of such claim;

to admit or reject, in whole or in part, subject to the approval of the board of control of the fund, the claims of any such trust creditor or creditors, without prejudice to such trust creditor's or creditors' right of access to the civil courts;

having determined the amounts which he considers are lawfully due to trust creditors, to pay such claims in full but subject always to the approval of the board of control of the fund;

in the event of there being any surplus in the trust account(s) of respondents after payment of the admitted claims of all trust creditors in full, to utilise such surplus to settle or reduce (as the case may be), firstly, any claim of the fund in terms of section 78(3) of Act No 53 of 1979 in respect of any interest therein referred to and, secondly, without prejudice to the rights of the creditors of respondent, the costs, fees and expenses referred to in paragraph 10 of this order, or such portion thereof as has not already been separately paid by respondent to applicant, and, if there is any balance left after payment in full of all such claims, costs, fees and expenses, to pay such balance, subject to the approval of the board of control of the fund, to respondent, if he is solvent, or, if respondent is insolvent, to the trustee(s) of respondent’s insolvent estate;

in the event of there being insufficient trust monies in the trust banking account(s) of respondent, in accordance with the available documentation and information, to pay in full the claims of trust creditors who have lodged claims for repayment and whose claims have been approved, to distribute the credit balance(s) which may be available in the trust banking account(s) amongst the trust creditors alternatively to pay the balance to the Attorneys Fidelity Fund;

subject to the approval of the chairman of the board of control of the fund, to appoint nominees or representatives and/or consult with and/or engage the services of attorneys, counsel, accountants and/or any other persons, where considered necessary, to assist him in carrying out his duties as curator; and

to render from time to time, as curator, returns to the board of control of the fund showing how the trust account(s) of respondent has been dealt with, until such time as the board notifies him that he may regard his duties as curator as terminated.

6. That the first respondent immediately delivers his accounting records, records, files and documents containing particulars and information relating to:

6.1 any monies received, held or paid by respondent for or on account of any person while practising as an attorney;

any monies invested by respondent in terms of section 78(2) and/or section 78 (2A) of Act No 53 of 1979;

any interest on monies so invested which was paid over or credited to respondent;

any estate of a deceased person or an insolvent estate or an estate under curatorship administered by respondents, whether as executor or trustee or curator or on behalf of the executor, trustee or curator;

any insolvent estate administered by respondents as trustee or on behalf of the trustee in terms of the Insolvency Act, No 24 of 1936;

any trust administered by respondents as trustee or on behalf of the trustee in terms of the Trust Properties Control Act, No 57 of 1988;

any company liquidated in terms of the Companies Act, No 61 of 1973, administered by respondent as or on behalf of the liquidator;

any close corporation liquidated in terms of the Close Corporations Act, 69 of 1984, administered by respondent as or on behalf of the liquidator;

the first respondents' practice as an attorney of this Honourable Court,

to the curator appointed in terms of paragraph 5 hereof, provided that, as far as such accounting records, records, files and documents are concerned, respondent shall be entitled to have reasonable access to them but always subject to the supervision of such curator or his nominee.

7. That should the first respondent fail to comply with the provisions of the preceding paragraph of this order on service thereof upon him or after a return by the person entrusted with the service thereof that he has been unable to effect service thereof on respondent (as the case may be), the sheriff for the district in which such accounting records, records, files and documents are, be empowered and directed to search for and to take possession thereof wherever they may be and to deliver them to such curator.

8. That the curator shall be entitled to:

8.1 hand over to the persons entitled thereto all such records, files and documents provided that a satisfactory written undertaking has been received from such persons to pay any amount, either determined on taxation or by agreement, in respect of fees and disbursements due to the firm;

require from the persons referred to in paragraph 8.1 to provide any such documentation or information which he may consider relevant in respect of a claim or possible or anticipated claim, against him and/or respondent and/or respondent's clients and/or fund in respect of money and/or other property entrusted to respondent provided that any person entitled thereto shall be granted reasonable access thereto and shall be permitted to make copies thereof.

That the first respondent be and are hereby removed from office as -

executor of any estate of which respondent has been appointed in terms of section 54(1)(a)(v) of the Administration of Estates Act, No 66 of 1965 or the estate of any other person referred to in section 72(1);

curator or guardian of any minor or other person’s property in terms of section 72(1) read with section 54(1)(a)(v) and section 85 of the Administration of Estates Act, No 66 of 1965;

trustee of any insolvent estate in terms of section 59 of the Insolvency Act, No 24 of 1936;

liquidator of any company in terms of section 379(2) read with 379(e) of the Companies Act, No 61 of 1973;

trustee of any trust in terms of section 20(1) of the Trust Property Control Act, No 57 of 1988;

liquidator of any close corporation appointed in terms of section 74 of the Close Corporation Act, No 69 of 1984.

The first respondent is hereby directed:

to pay, in terms of section 78(5) of Act No. 53 of 1979, the reasonable costs of the inspection of the accounting records of respondent;

to pay the reasonable fees of the auditor engaged by applicant;

to pay the reasonable fees and expenses of the curator, including travelling time;

to pay the reasonable fees and expenses of any person(s) consulted and/or engaged by the curator as aforesaid; and

to pay the costs of this application on an attorney-and-client scale.

That if there are any trust funds available the respondent shall within 6 (six) months after having been requested to do so by the curator, or within such longer period as the curator may agree to in writing, shall satisfy the curator, by means of the submission of taxed bills of costs or otherwise, of the amount of the fees and disbursements due to him (respondent) in respect of his former practice, and should he fail to do so, he shall not be entitled to recover such fees and disbursements from the curator without prejudice, however, to such rights (if any) as they may have against the trust creditor(s) concerned for payment or recovery thereof;

That a certificate issued by a director of the Attorneys Fidelity Fund shall constitute prima facie proof of the curator's costs and that the Registrar be authorised to issue a writ of execution on the strength of such certificate in order to collect the curator's costs.

A A Landman

Judge of the High Court

I concur, and it is so ordered.

R D Hendricks

Attorneys for the applicant: Rooth and Wessels Inc AND Minchin and Kelly Inc.

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