Law Society of the Northern Provinces v Scalco (90063/2015) [2015] ZAGPPHC 907 (31 December 2015)

IN THE HIGH COURT OF SOUTH AFRICA

GAUTENG DIVISION, PRETORIA

CASE NO: 90063/2015

REPORTABLE

NOT OF INTEREST TO OTHER JUDGES

31/12/15

In the matter between:

LAW SOCIETY OF THE NORTHERN PROVINCES Applicant

and

CLORINDA ROVENA SCALCO Respondent

JUDGMENT

Tuchten J:

1. The applicant (the Law Society) asks that the respondent, an attorney, be struck from the roll or suspended from practice. The evidence

presented shows that the respondent was responsible for a number of financial irregularities, contraventions of the Attorneys Act[1] and breaches of the Law Society's Rules. I shall not describe them individually because, save for one,[2] they arise from the conduct as described in the papers before me of Mr Anton de Beer, formerly an attorney in the respondent's employ. I do not have the version of Mr de Beer. Nothing I say, therefore, should be regarded as conclusive against him. The papers do say, however, that he has been struck from the roll and is awaiting trial for fraud and theft.

2. The case came before me in the urgent court. It was common cause that the respondent has been practising without a fidelity fund

certificate. I accordingly made an interim order suspending the respondent from practice pending my judgment on the Law Society's

application to have the respondent removed from the roll. An attorney who is required to have but is not in possession of a valid fidelity fund certificate simply may not practise. Every moment that she does makes her a danger to the public. I shall later explain why I say so.

3. The respondent began to practise for her own account in 1985. She had a partner for the first year or two but after that the applicant conducted a one person practice in the sense that she had no partners. At the time of the hearing before me she practised from offices in a northern suburb of Johannesburg. She employed Mr de Beer from 2002 for about 12 years, first as a candidate attorney and then, after he qualified, as an attorney. She trusted him fully. Her trust was misplaced. During about 2012 to 2013, Mr de Beer stole about R3 million from her trust account.

4. In about 2008, Mr de Beer suggested to the applicant that she allow him to do conveyancing work. The applicant agreed. Mr de Beer prepared conveyancing documents but did not sign them because he was not a qualified and admitted conveyancer. The documents were, where required by law, sent to a qualified conveyancer who checked and then signed them and lodged and executed them. I take judicial notice that this is quite a common practice with small firms. The respondent says, and the Law Society does not dispute, that this practice is not unlawful. The Law Society asserts that the respondent fraudulently allowed Mr de Beer to create the impression that he was a conveyancer. This is denied by the respondent and I do not find this allegation proved.

5. The respondent reported the conduct of Mr de Beer to the Law Society on 2 June 2014. She obtained a loan of R1,3 million to cover the trust deficit she had at that stage discovered but the funds were for some undisclosed reason not forthcoming. She then found a buyer for her shares in a property holding company from which she expects to realise some R1,5 million which she undertakes to pay into her trust account towards the deficit. The deficit rose to over R3 million but as at 31 October 2014 was just under R1,017 million. It is not suggested that the respondent could have done more to remedy the situation or that she has not cooperated with the Law Society in investigating and responding to it. At the relevant times, she employed a bookkeeper who received and receipted payments to the firm and an accountant who was responsible for journal entries, trial balances, queries from the bookkeeper, VAT and PAYE. She also employed an auditor to conduct the annual trust audits required by the Law Society. The auditor who had conducted these audits from about 2000 was murdered in June 2013. There seems to have been something of an hiatus in this area because the new auditor retained by the respondent is said to have conducted trust audits for 2015 and 2016 (s c). Perhaps the death of the former auditor contributed to the failure of the respondent to discover the misappropriations earlier than she did.

6. In fact, towards the end of 2014, Mr de Beer announced his intention of resigning his employment. The respondent began to notice in about February or March 2015 that clients were complaining about Mr de Beer's professional conduct. Mr de Beer left the respondent's employ on 14 May 2015, without notice. He announced his departure in an electronic message, a mode of communication often used in modern times by those who do not have the courage to look the recipient in the eye when they decide to end a relationship.

7. Applications such as the present are sui generis and of a disciplinary nature. There is no /is between an applicant Law Society and the respondent. The Law Society merely places facts before the court for consideration. The court first determines whether the alleged offending conduct by the respondent attorney has been proved. Then, on the strength of the proven facts, the court must form a value judgment on the question whether the respondent is or is not a fit and proper person to practise as an attorney. The third step in the enquiry, assuming proven misconduct, is to determine whether the appropriate sanction would be a striking off or a suspension from practice or something lesser.

8. The Law Society submits that the respondent was negligent. I shall assume in favour of the Law Society that she was. But her situation is hardly unprecedented. Throughout the history of the legal profession (and I refer in this regard both to attorneys and advocates) and other firms operating within the jurisdiction of this Division, there have regularly been cases of misappropriations of funds by trusted employees. Ido not think that, in principle, an attorney whose trust funds have been misappropriated in these

circumstances and who takes all proper steps to deal with the situation ipso facto makes herself guilty of conduct which justifies the conclusion that she is not a flt and proper person to practise as an attorney.

9. It follows that the second stage of the enquiry must be resolved in favour of the respondent. But the matter regrettably does not end there. The applicant is not in possession of a valid fidelity fund certificate. She was refused one because the deficit in her trust account meant that she could not satisfy the audit requirements of the Law Society upon which I shall touch below. It has not been suggested that the respondent was unlawfully refused a fidelity fund certificate.

10. The law provides a stringent framework for the regulation of attorneys' trust accounts. An important component of that framework is the Attorneys' Fidelity Fund (the fidelity fund), established and perpetuated by statute. The Attorneys Act regulates the operation of the fidelity fund and the statutory provisions discussed below are to be found in that measure. The purpose of the fidelity fund isto protectthe public against misappropriation of the money they have entrusted to attorneys.[3] It is chiefly financed by contributions made by practising attorneys and the interest attorneys earn on their deposits into trust bank accounts.[4]

11. All money entrusted to attorneys must be held by them in separate trust accounts which do not form part of the attorney's assets. Attorneys must keep proper accounting records reflecting particulars and information of the money held in trust.[5] The council of the Law Society in the province in which an attorney practises may inspect an attorney's records to satisfy itself that all is in order.

12. These provisions are supported by the Rules of the Law Society. Rule 70 obliges a firm of attorneys at its own expense every calendar year or at such time required by the council, to appoint an accountant approved by the council to act as for an on behalf of the Fidelity Fund to discharge the duties prescribed in Rule 70.4. These duties include determining whether the attorney's trust debts are covered by funds standing to the credit of the trust banking account. The accountant is required annually to report to the Law Society, pursuant to an audit, on whether the firm has complied with the Attorneys Act and the Rules of the Law Society.

13. Section 41 bars an attorney such as the respondent from practising for her own account without a fidelity fund certificate.6 Section 83(1) criminalises such conduct. The reason for this, and why I said that such an attorney who practises without a valid fidelity fund certificate is a danger to the public, is that the public are in those circumstances deprived of the protection of recourse to the Fidelity Fund.

14. I find it of considerable significance in this case that the Attorneys Act only prevents a member of an attorney's firm who has been refused a fidelity fund certificate from practising as an attorney for her own account or in partnership. The Attorneys Act does not prevent such an attorney from practising as the employee of another attorney.

15. It therefore seems to me that justice will be served if the respondent is interdicted from practising as an attorney for her own account or in partnership unless and until she is in possession of a valid fidelity fund certificate.[6] In coming to this conclusion I take into account that the respondent was negligent, as Ihave assumed her to be, in relation to the administration of her trust account, that the respondent contravened the Attorneys Act and the Rules of the Law Society as alleged and, most importantly, that she has practised for at least a year without a valid fidelity fund certificate. If the respondent had stopped practising for her own account immediately she ceased to hold a valid fidelity fund certificate and otherwise demonstrated that she would not practise for her own account or in partnership until she obtained a valid certificate, I would seriously have considered not making an order against her and merely noting her undertaking. But she continued to practise and tendered no such undertaking. So an order must issue.

16. Costs as between attorney and client have traditionally been awarded to applicant Law Societies which bring the conduct of practitioners

to the attention of the court as has been done in the present case and I find no reason to depart from that tradition.

17. I make the following order:

1. The respondent is interdicted from practising as an attorney for her own account or in partnership unless and until she is in possession of a valid fidelity fund certificate issued pursuant to the provisions of s 42 of the Attorneys Act, 53 of 1979.

2. The applicant may, on notice to the respondent, approach the court or a judge in chambers for an amplification of this order to provide as may be necessary or desirable for the effective management of the respondent's practice and related matters while this interdict remains in force.

3. Paragraphs 2 to 12 of the draft order incorporated in the interim order made on 8 December 2015 (the draft order) will remain in force for 10 days after this judgment is handed down; provided, however, that if the applicant gives notice as contemplated in paragraph 2 above within that period, paragraphs 2 to 12 of the draft order will remain in force until the court or the judge in chambers has ruled on the request for amplification.

4. The respondent must pay the costs of this application on the scale as between attorney and client.

___________________________

NB Tuchten

Judge of the High Court

31 December 2015

[1] 53 of 1979

[2] A relatively minor transgression of failing within a reasonable time to respond to and pay a correspondent's account. It was made good before the matter was heard.

[3] Section 26(a)

[4] Section 43

[5] Sections 78 and 79

[6] 'A practitioner shall not practise or act as a practitioner on his own account or in partnership unless he is in possession of a fidelity fund certificate."