In practice we are often faced with management of cases where funds, more particularly in conveyancing and personal injury matters, are stolen from an attorney’s trust account. These thefts, aside where it is an inside job, are often done through criminals hacking into the attorney's, communication channels and/or banking systems to syphon money and disappear with it. I am currently dealing one such matters, and this article is based on the Heads of Arguments I used in that matter, and it is the purposes hereof to share some notes.

The starting point in all such matter is to recognize that in the case of law firms and practicing attorneys, the law is settled and provides that all present and past shareholders or members, as the case may be liable jointly and severally together with the company for the debts and liabilities of the company contracted during their period of office.

In circumstances where money was paid over to a Trust account of any lawyer for work to be done or as proceed of recoveries made on behalf of the client, such moneys belong to the client. The lawyer is mandated to retain and hold those funds in trust until instructed by the client. Those funds are loosely referred to as trust funds and must be kept in a trust account.

NATURE OF TRUST ACCOUNT

In the case of Wypkema v Lubbe 2007(5) SA138(SCA), the Court considered the nature of an Attorneys’ Trust account as was summarized in Furhi vs Geyser and Another 1979(1) SA 747(N) at 749C-E as follows by Hefer J :-

Despite the separation of trust money from an attorney’s assets thus affected by 33(7) it is clear that trust creditors have no control over the trust account ownership in the money the account vests in the bank or other institution in which it has been deposited (S v Kotze 1965 (1) SA 118 (A) at (124) and it is the attorney who is entitled to operate on the account and to make withdrawals from it (De Villiers NO v Kaplan 1960(4) SA 476 (C). The only right that trust creditors have, is the right to payment by the attorney of whatever is due to them and it is to that extent that they are the attorney’s creditors. The right to payment plainly arises from the relationship between the parties and has nothing whatsoever to so with the way in which the attorney handles the money in his trust account.

The court accordingly held that “when an attorney draws a check on the trust account he exercises his right to dispose of the amount standing to the credit of that account and does so as principal and not in a representative capacity”. This is a huge shift in contractual responsibility concerning monies paid to an attorney, this means that the attorney as principal has full control and responsibility concerning such moneys.

The lawyer therefore is obliged, as practicing attorneys to account to the client for such funds and does so as a principal. In many cases the attorney's account to their clients by issuing statements of account, for instance at the end of conveyancing instruction indicating moneys received and the disbursements made.

Where the funds are disturbed and lost to hacking criminals through interception, it will not be a defense to the lawyer to argue that he/she had paid as was instructed when he/she did not verify the instruction. It is furthermore not a defense to aver that the attorney’s account was hacked by criminal. The law requires them as attorneys to have systems in place to detect and mitigate losses arising from being hacked and their failure to do so does not excuse them from liability for the loss suffered. This is deducted from the case of Frikkie Pretorious and Another –v- Glass 2011(2) SA 407 KZP at par 19 where the court said-

in considering the duty of an attorney in dealing with trust money the Court in Aeroquip SA v Gross and Another held-

An attorney who holds an amount of money in his trust account on behalf of a client is obliged to use it for no other purpose than he is instructed by the client. It is trite that it must always be available to the client. In Law Society, Transvaal v Matthews 1989 (4) SA 389 (T) AT 394 the Court said:-

I deal now with the duty of an attorney in regard to trust money. Section 78(1) of the Attorneys Act obliges an attorney to maintain a separate trust account and to deposit therein money held or received by him on account of any person. Where trust money is paid to an attorney it is his duty to keep it in his possession and to use it for no other purpose than that of a trust. It is inherent in such a trust that the attorney should at all times have available liquid funds in an equivalent amount.

The Eastern Cape Local Division of the High Court was recently called upon to adjudicate in a matter where a plaintiff suffered a loss following a cybercrime being perpetrated in a conveyancing transaction. In this case where there were almost identical facts as in this case, Honorable Tokola, J relied on two cases, to conclude that the attorney was liable. Firstly, reference is made to the decision in Margalit v Standard Bank of South Africa and Another 2013 (2) SA 466 (SCA) where paragraph 23 and 24 were relied on and for present purposes will only quote the relevant parts:-

As was remarked many years ago by De Villiers CJ, in a dictum recently followed by this court,

“I do not dispute the doctrine that an attorney is liable for negligence and want of skill. Every attorney is supposed to be reasonably proficient in his calling, and if he does not bestow sufficient care and attention, in the conduct of business entrusted to him, he is liable and where this is proved the court will give damages against him.’’

Secondly reference can be made to the decision in Lillicrap, Wassenaar and Partners v Pilking Brothers (SA) (Pty) Ltd 1985 (1) SA 475 (A) specifically page 499 D-E where the following appears:-

In applying the test of reasonableness of the facts of the present case the first consideration to be borne in mind is that the respondent does not contend that the appellant would have been under a duty to the respondent to exercise diligence if no contract had been concluded requiring it to perform professional service.

The two legs would thus be a mandate / contract and a common law requirement of sufficient care and attention, in the conduct of business entrusted to the attorney.

It is common cause therefore that when the attorney receives money for onward transmission to client, the Conveyancer/ attorney needs to handle the funds with due care, skill and diligence ordinarily expected of members practicing the same profession.

The claim from the Respondents that they received instructions via emails, which could be fraudulent and proceeded to transact without employing other verification methods was negligent and a show of lack of proficiency towards their call as Conveyancers and their conduct places members of the public at a huge risk of loss and furthermore places the legal profession into dispute.

For the Respondents to attempt to build a defense around the email address to avoid liability which is entirely theirs is nothing but stubborn and mischievous and deserved them being mulcted with the burden to pay costs of suit at the rate claimed in the papers. Respondent cannot on the one hand aver they were hacked by criminals and on the other hand aver that they shouldn’t be held accountable for their failure to have risk mitigatory mechanisms.

It is incumbent on the Conveyancer/attorney to employ up to date security system to safeguard the funds so handled especially cognizant of the rampant cases of cybercrimes.

In the case of Johan Andre Fourie vs Van der Spuy and De Jongh, Nicola Van der Spuy and Ludwig De Jongh, it was argued that :-

The 2nd Respondent was negligent and failed to exercise the requisite skill, knowledge and diligence expected of an average practicing attorney and thus failed to discharge her fiduciary duty to the Applicant by transacting via email whilst full-well knowing that fraud is prevalent in her profession and not employing and measures to ensure that neither she, nor the Applicant will fall victim to fraud.

The Respondent on his part uses public email engines with no regard as to where and how his emails are stored or how safe or unsafe the email service providers may be. For the Respondent to use hotmail.com as the primary email address for the business is negligent and indeed exposes himself and his clients to the risk of cyber fraud.

Coupled with the duty to be diligent is the requirement to hold client’s personal information with the highest confidentiality. The purported fraud (real or perceived) was a result of negligence on the part of the respondents to safeguard client information in their possession.

It is thus apparent that the First, Second and alternatively the Third Respondent owed a duty of care to the client a duty they failed to perform. Even if it were to be accepted that their emails were intercepted, the clear factual situation shows that whomsoever hacked the emails must have known that there were funds belonging to the Applicant held by the Respondents. Respondent’s failure to safeguard client information adds the more to their shortcomings as practicing attorneys drawing funds from innocent members of the public.

 In a bulletin issued by the Attorneys Fidelity Fund now the Legal Practice Fidelity Fund in February 2017 a warning was issued to all attorneys:

Cyber related risk is on the increase and attorneys must ensure they have adequate risk mitigation/ avoidance measures in place to deal with cyber related risks.

It does not require rocket science to conclude the palpability of the First, Second and Third Respondent in this case and the decision to be taken by this court should sound warning to all other practitioner about their fiduciary duty to protect themselves, their client and the legal fraternity at large.

It is not the duty of this court to prescribe the type of security measures that each practice should employ for the benefit of itself, clients and the legal fraternity at large.

The Attorney bears a legal duty to deal with the money in his trust account without negligence. It is a tacit term of any mandate that the attorney will exercise the skill, adequate knowledge and diligence is expected of an average professional and a practicing attorney and the court should not hesitate to pronounce the Respondents liable for negligence even where the respondents committed an error of judgment on matters of discretion if they failed to exercise the required skill, knowledge and diligence.

Having regards for the above-mentioned cases it is common cause that the 1st, 2nd and 3rd Respondents failed in their duty to pay over the balance due to the Applicant.

Ad Costs of Opposed Suite.

The Respondent’s desperate attempts to frustrate the Applicant should be viewed with the contempt that they deserve, and the Respondents and his Attorneys ordered to pay costs.

Dealing with the question of costs in SOLID BUILD CONTRACTORS CC –v- JOHANNES PETRUS JACOBS & Others (Case Nu 229 /2017 (Free State Division, Bloemfontein), SNELLENBURG AJ referred to the old decision in IN RE ALLUVIA CREEK LTD 1929 CPD 532 at 535 where the following pertinent point was made: -

An order is asked for that he pays the costs between attorney and client. Now sometimes such an order is given because of something in the conduct of a party which the court considers should be punished, malice, misleading the court and things like that, but I think the order may also be granted without any reflection upon the party where the  proceedings are vexatious, and by vexatious I mean where they have the effect of being vexatious, although the intent may not have been that they should be vexatious. There are people who enter into litigation with the most upright purpose and a most firm belief in the justice of their cause, and yet whose proceedings may be regarded as vexatious when they put the other side to unnecessary trouble and expense which the other side ought not to bear.

Having reflected on the above judgment and in the totality of the facts of this case this court should award costs against the Respondents at the rate of attorney and own client. There was no basis for the Respondent to have opposed this application and thereby burdening the Applicant with unnecessary costs of an opposed application.

Instead, the First Respondent and his attorneys proceeded with what is clearly a pointless and misplaced opposition and in so doing placed the Applicant in a position where it had no other option but to appoint Counsel to argue what should otherwise have been an unopposed matter. This court should discourage such annoyance by mulcting the First Respondent and his attorneys with costs at the rate at which such costs have been caused to the Applicant.

In litigation, just like in combat, you don’t strike to preserve, you strike to win, otherwise don’t strike at all, lest you invoke judicial fury.

By Counsel : Adv I Mureriwa.

+27 71 151 9000, advmureriwa@yahoo.com