Legal Practitioners' Fidelity Fund v Guilherme

Ms Carla Marshall Guilherme was the widow of Mr Bradley Clem Bartie who committed suicide on 10 May 2012. She became the sole beneficiary of a life policy valued at R5,000,000, receiving an initial payment of R50,000. On the advice of her deceased husband's attorney, Mr Spencer (who was also appointed executor of the deceased's insolvent estate), she paid the balance of R4,950,000 into Mr Spencer's attorney trust account to protect the funds from creditors of her deceased husband's estate. Over time, she withdrew R1.4 million and later received R2,750,032.76 from Mr Spencer. Her new attorney discovered that R799,967.24 was still owing. It was discovered that Mr Spencer had been suspended in April 2017 and struck from the roll in November 2017. Mr Spencer had misappropriated the outstanding funds. Ms Guilherme claimed reimbursement from the Legal Practitioners' Fidelity Fund (the Fund), which was initially rejected on the basis that there was no entrustment as contemplated in section 26 of the Attorneys Act 53 of 1979.

• Whether money paid into an attorney's trust account for safekeeping from creditors constitutes 'entrustment' as provided for in section 26(a) of the Attorneys Act 53 of 1979
• Whether the concept of 'deposit' for safekeeping is distinct from 'entrustment' for purposes of the Attorneys Act
• Whether the two-element test for entrustment requires that money be held for the benefit of a third party or whether it may be held for the benefit of the depositor herself
• Whether payment of money to an attorney's trust account to hide it from creditors is contrary to public policy and thus disqualifies a claim against the Fidelity Fund

The appeal was dismissed with costs. The order of the Western Cape Division of the High Court requiring the Legal Practitioners' Fidelity Fund to pay Ms Guilherme the amount of R799,967.24 plus interest a tempore morae and costs was upheld.

Money paid into an attorney's trust account for safekeeping, based on the attorney's professional advice and to be held pending further instructions or the conclusion of a matter, constitutes 'entrustment' for purposes of section 26(a) of the Attorneys Act 53 of 1979. Entrustment comprises two elements: (a) placing property in the possession of another, and (b) subject to a trust (not in the technical legal sense), meaning the person entrusted is bound to deal with the property for the benefit of some person or for the accomplishment of some special purpose. The depositor of money may also be its beneficiary. Section 26(a) provides for reimbursement to either the person by whom or on whose behalf money has been entrusted, provided that person has suffered pecuniary loss. The mere fact that money was deposited to protect it from creditors does not automatically disqualify a claim against the Fidelity Fund, absent proof of participation in a fraudulent scheme.

The Court noted that if money is simply handed over to an attorney by a debtor to discharge a debt, with the attorney having a mandate to receive it on behalf of the creditor (acting as a mere conduit), it may be difficult to establish entrustment. The Court also observed that an attorney owes a duty to a depositor even if the depositor is not an existing client of the practice - that duty is to deal with the money in such a way that harm is not negligently caused to the depositor. The Court gave an example of a legitimate entrustment: a client depositing money into an attorney's trust account before extended overseas travel with instructions to make monthly payments to cover debit orders. The Court acknowledged that while there might have been a questionable motive in Ms Guilherme's case, the Fund failed to make proper enquiries and present sufficient facts showing she participated in a fraudulent scheme to hide assets from creditors. The minority judgment's public policy concerns were rejected by the majority on the facts.

This judgment clarifies the scope of 'entrustment' under section 26(a) of the Attorneys Act 53 of 1979 for purposes of claims against the Legal Practitioners' Fidelity Fund. It establishes that: (1) The concepts of 'deposit' and 'entrustment' are not mutually exclusive - money deposited into an attorney's trust account for safekeeping can constitute entrustment. (2) The two-element test for entrustment does not require that funds be held exclusively for the benefit of third parties - a depositor can also be a beneficiary. (3) Entrustment does not require a trust in the technical legal sense. (4) The purpose of section 26(a) is to protect persons who suffer pecuniary loss from theft by attorneys, whether the person entrusted the money themselves or it was entrusted on their behalf. (5) Attorneys owe duties even to non-clients who deposit money into their trust accounts. The decision extends protection to vulnerable clients who act on attorney advice, even where the purpose may involve shielding assets from creditors, provided no fraudulent scheme is established.