RPK 210 Assignment
Handling and Mismanagement of Trust Monies
Joubert du Preez (u20431300)
Morgan Potgieter (u22531867)
Carlo Jorge Ferreira (u22556304)
Omaimah Soomro (u24583406)
Jessica Sikhosana (u23574772)
“Ethical behaviour is doing the correct thing when no one else is watching, even
when doing the wrong thing is legal”. Legal practice and ethics are the cornerstone
of the legal profession, and every practitioner must strive to uphold the values
expected of them.
One of the most pressing ethical issues plaguing the legal profession is the
mismanagement of trust accounts. In our Special Taskforce appointed by the LPC
we will evaluate the issue and its development over time. We will also consider
actionable solutions to the ethical issue and propose these solutions to the LPC.
Identification of the issue:
The improper use of trust funds is one of the most pressing ethical issues facing the
legal profession; this violation violates legal norms and seriously damages public
trust in the legal system. All attorneys and law firms must maintain a trust account
per sections 84 to 87 of the Legal Practice Act (hereinafter referred to as “LPA”). By
keeping client monies apart from the practitioner's operating accounts, these
accounts are meant to protect them and uphold the fiduciary duty that lawyers have
to their clients.
In spite of these explicit legal requirements, the mismanagement of trust accounts
persists with worrisome regularity. Unauthorised withdrawals, inaccurate record-
keeping, and, in more severe situations, the theft of money for private or commercial
gain are examples of common offences. These behaviours go beyond simple
procedural infractions; they are grave ethical transgressions that undermine an
attorney's obligation to behave honourably, openly, and responsibly.
In Vassen v. Law Society of the Cape of Good Hope 1998 (4) SA 532 (SCA), the
court underlined that attorneys are subject to a higher degree of ethical conduct
because of their fiduciary duties, emphasising the seriousness of such wrongdoing. 1
The ruling declared that any misappropriation of trust funds, regardless of the
1
Vassen v Law Society of the Cape of Good Hope 1998 (4) SA 532 (SCA)
amount or purpose, is professional misconduct and may be grounds for expulsion
from the legal profession.
As per s86 of the LPA, any interest accrued due to placing trust money into interest-
bearing accounts must be paid over to the fidelity fund. There is, however, a way, as
per s86(5)(b), that the interest accrued can be paid over to the client, and the fidelity
fund only receives 5% of the interest. This can only take place with the explicit
consent of the client. Some practitioners misuse this provision and place trust money
into interest-bearing accounts without the consent or knowledge of the client, only to
keep the interest. This fraud is in direct contradiction with the ethical duties placed
upon legal practitioners.
The ethical consequences of trust fund mismanagement extend beyond individual
cases, as such conduct undermines the reputation of the legal profession. Strict
adherence to legal frameworks and persistent commitment to responsible financial
management are necessary to preserve the integrity of the profession. Therefore, it
is crucial to have strong internal compliance processes, independent audits, and
ongoing professional training to make sure that trust funds are managed in a way
that adheres to the highest ethical standards.
Development of the issue over time
The handling as well as mismanagement of trust monies has been a longstanding,
critical issue in South Africa’s legal profession, causing systematic weaknesses, as
well as ethical failings. Trust fund theft by legal practitioners is a serious offence that
comes with harsh consequences, such as attorneys being convicted and removed
from their roles as attorneys for the misappropriation of trust accounts.2
In Legal Practice Council (Kwazulu-Natal Provincial Office) v Naicker and Another
(KZP) (unreported case number 2788/2019P, 6-11-2020) (Bezuidenhout AJ),3 the
2
J Ndlovu ‘Theft of trust money by legal practitioners – the consequences’ (2022).
3
Legal Practice Council v Naicker 2020.
respondent had stolen a total of one million rand, which had been put into his trust
account to purchase immovable property. Following the money being put into the
trust account, the respondent made many unauthorized payments that went against
the rule 54.14.14 of the LPC that states that any withdraws from a firm’s trust
banking account shall only be made for or to a trust creditor or as transfers to the
relevant firm’s bank account, if not this constitutes theft of trust funds. 4 The
respondent did however, pay the money back, but the court still concluded that even
when someone takes trust money, with the knowledge that it is trust money, and
continues to use it for their benefit, it still counts as theft. The court also found that
while the respondent’s behaviour did not meet the expected standard of
practitioners, it did not reflect any defects in his character, and this caused a
suspension from the practice for two years, instead of being completely struck off the
roll.5
As of 19 November 2024, the Legal Practice Council has reported a total amount of
22,415 unresolved complaints. Currently, 1,100 firms nationwide have been put
under curatorship, including a total of 900 in Gauteng. The total amount of trust
accounts in the Legal Practice Council equals 300 million rand.6 During January
2024 to November 2024, 55 legal practitioners were struck off their roll of attorneys,
and in that same period, 62 legal practitioners were suspended from practicing as
legal practitioners.7 These statistics show how, in such a short period, so much
mismanagement and mishandling of trust monies occur, therefore, there needs to be
proposed solutions put in place to control the ethical issue at hand.
Proposed solutions
Despite a strong statutory scheme under the Legal Practice Act 28 of 2014
(LPA), sections 84–87 in particular, the theft and misappropriation of
4
Ndlovu (n 1).
5
Ndlovu (n 1).
6
Parliament of the Republic of South Africa, Media Statement: ‘Justice and Constitutional
Development in Robust Discussion with Legal Practice Council on Disciplinary Matters’
(2024).
7
Parliament of the Republic of South Africa (n 5).
trust money are grave ethical issues. These incidents not only injure clients but
also bring the legal profession into disrepute. We propose the following reforms
to better ensure compliance, deter misconduct, and enhance supervision.
Bi-annual audits by the Legal Practice Council
At present, trust accounts undergo annual audits per section 87 of the LPA. The trust
accounts’ annual audits can result in prolonged periods of undetected fraudulent
activity because of the lack of regularity. We recommend that the Legal Practice
Council (LPC) impose mandatory audits for small firms and sole practitioners every
six months. As this would help in the early detection of irregularities, promote a
culture of proactive compliance and increase the confidence of the public in lawyers.
The submission of audits digitally, combined with a model that uses risk analysis,
would improve efficiency and reduce administrative strain.
Increased penalties for noncompliance
Although penalties are outlined in the LPA, they have proven inadequate as a
deterrent. For instance, in LPC (KwaZulu-Natal Provincial Office) v Naicker and
Another, the respondent misappropriated R1 million from a trust account to purchase
immovable property, resulting in his removal from the roll8. A similar case, South
African Legal Practice Council v Bobotyana, involved the theft of over R2 million9. In
both instances, the courts condemned the conduct as repugnant to the profession’s
ethical standards10.
We propose an escalating fine for negligence or repeated noncompliance, automatic
suspension for serious breaches, and public reporting of all disciplinary outcomes to
reinforce accountability.
8
LPC (KwaZulu-Natal Provincial Office) v Naicker and Another (KZP) (unreported case
number 2788/2019P, 6 November 2020) para 16.
Available at: https://www.saflii.org/za/cases/ZAKZPHC/2020/68.html [Accessed 21 April
2025].
9
South African Legal Practice Council v Bobotyana [2020] 4 All SA 827 (ECG) para 14.
Available at: https://www.saflii.org/za/cases/ZAECGHC/2020/114.html [Accessed 23 April
2025].
10
Vassen v Law Society of the Cape of Good Hope 1998 (4) SA 532 (SCA) para 27.
Available at: https://www.saflii.org/za/cases/ZASCA/1998/47.html [Accessed 23 April
2025].
We would also recommend more stringent requirements for readmission. It should
be difficult to readmit practitioners who were dismissed for misappropriation. We
advise establishing a minimum disbarment period, a probationary period with
mentorship from an LPC, proof of complete restitution to impacted parties and
mandatory ethics rehabilitation programs.
This reinforces a zero-tolerance message and guarantees that only truly rehabilitated
individuals return to practice. These solutions should also ensure that practitioners
with a tendency to commit these unethical acts are discouraged from doing so as the
proposed penalties are so stringent.
The extent to which practitioners are found guilty of the mismanagement of trust
accounts is troublesome, especially in a profession that prides itself on ethical and
just behaviour. We as the Special Taskforce appointed by the LPC, believe that the
solutions set forth above will aid in the eradication of the mismanagement of trust
accounts and implore practitioners to uphold their ethical obligations to the
profession and the public.
