King v The Attorneys Fidelity Fund Board of Control

103 plaintiffs invested substantial sums (totaling over R33 million) into Van Schalkwyk's Attorneys' trust account between 1997 and May 2000. The funds were intended for a factoring scheme operated by David Halgryn that involved discounting estate agents' commissions and later proceeds of property sales. Investors were promised returns of 22-28% over 10-week cycles. The plaintiffs were introduced to the scheme through various intermediaries, including Andre Naude (insurance broker), Paragon Asset Management Trust (set up by Hosking), and Alexander Neaves. The attorneys involved were Van Schalkwyk (who later emigrated to the USA) and Du Mont (whose estate was subsequently sequestrated). The scheme collapsed in May 2000. Van Schalkwyk and Du Mont allegedly misappropriated the funds by disbursing them to Halgryn or entities linked to him for purposes other than the factoring scheme. The plaintiffs claimed reimbursement from the Attorneys Fidelity Fund under section 26(a) of the Attorneys Act 53 of 1979.

• Whether the plaintiffs' moneys were 'entrusted' to Van Schalkwyk's Attorneys within the meaning of section 26(a) of the Attorneys Act
• Whether the entrustment occurred 'in the course of practice' of the attorneys
• Whether the plaintiffs' claims were excluded by section 47(1)(g) of the Attorneys Act, which excludes liability where a practitioner has been instructed to invest money on behalf of a person
• Whether the Paragon plaintiffs had standing to claim, given money was paid through Paragon as an intermediary
• Whether the transactions contravened the Banks Act and were therefore unlawful and void

The appeal was dismissed with costs, including costs of three counsel, to be paid by the appellants jointly and severally. The plaintiffs' claims for reimbursement from the Attorneys Fidelity Fund were refused.

Where clients deposit money into an attorney's trust account with the purpose and expectation that such money will be used to invest in a specified scheme (such as a factoring scheme) with the expectation of earning profit or interest, the clients have instructed the attorney to invest the money on their behalf within the meaning of section 47(1)(g) of the Attorneys Act 53 of 1979. Such claims are therefore excluded from the liability of the Attorneys Fidelity Fund. The term 'invest' in section 47(1)(g) bears its ordinary meaning: to put money into financial schemes, shares or property with the expectation of achieving profit. The fact that the attorney issued acknowledgments of debt guaranteeing capital and returns does not alter the characterization of the transaction as an investment instruction. Each act of depositing money into the trust account for this purpose constitutes an instruction to invest.

The court noted several interesting legal questions which it found unnecessary to decide given its conclusion on section 47(1)(g): (1) Whether the transactions contravened section 11 of the Banks Act 94 of 1990 and were therefore unlawful and void ab initio; (2) Whether the plaintiffs' moneys were 'entrusted' to Van Schalkwyk's Attorneys within the meaning of section 26(a); (3) Whether the entrustment occurred 'in the course of practice' of the attorneys. The court accepted, without deciding, that all plaintiffs (including the Paragon plaintiffs who paid through an intermediary trust) had standing to claim, suggesting the phrase 'on behalf of' in section 26(a) should be given a wide meaning such as 'for the benefit of', 'to the advantage of' and 'in the interest of', referring to S v Moloi 1987 (1) SA 196 (A) and Premier Milling Co (Pty) Ltd v Van der Merwe 1989 (2) SA 1 (A).

This case provides important guidance on the scope and application of section 47(1)(g) of the Attorneys Act, which excludes Fidelity Fund liability where money has been entrusted to an attorney with instructions to invest it. The case clarifies that where clients pay money to attorneys' trust accounts for the purpose of participating in investment schemes (even those operated by third parties), this constitutes an instruction to invest within the meaning of section 47(1)(g). The case demonstrates the limits of Fidelity Fund protection and emphasizes that the Fund does not protect investors who use attorneys' trust accounts as conduits for investment schemes. It also illustrates the vulnerability of investors who participate in high-return investment schemes through attorneys' trust accounts, believing they have the protection of the Fidelity Fund. The case is significant in professional regulation, establishing boundaries between legitimate attorney practice and investment activities that fall outside Fidelity Fund protection.