Maree & Bernard Attorneys and Another v The South African Legal Practice Council and Another

The first appellant is a firm of attorneys, Maree & Bernard Attorneys Incorporated, and the second appellant, Mr Nicolas Petrus Maree, is the sole director. The firm conducted both a legal practice and an investment business. The firm previously operated as a partnership before incorporating on 1 July 2018. Auditors ARC issued a qualified audit report for the financial year March 2017 to February 2018 because certain investment bank accounts were not audited. These bank accounts related to an investment practice conducted by the firm since the 1960s, separate from the trust account of the legal practice. The accounts had operated for over six years with approximately 2,613 transactions valued at around R66.5 million. The bank accounts initially bore a "trust account" inscription on statements, which Mr Maree said was a bank error and subsequently corrected. The Legal Practice Council (LPC) refused to issue a fidelity fund certificate to Mr Maree for the year ending December 2020 unless the investment accounts were audited. Despite having an unqualified audit report for his trust account, the LPC maintained that the investment accounts constituted a second trust account requiring audit under section 85 of the Legal Practice Act 28 of 2014. The LPC launched proceedings to suspend Mr Maree from practice. Mr Maree approached the high court seeking a declarator that the investment accounts were not trust accounts requiring audit and an order compelling the LPC to issue a fidelity fund certificate. The high court found against Mr Maree, holding that the investment accounts were trust accounts requiring audit, that he was not fit and proper to practice, and suspending him from practice. Mr Maree appealed to the Supreme Court of Appeal with leave of the high court.

• Whether bank accounts related to an investment practice conducted by a firm of attorneys in terms of Rule 55 of the Legal Practice Council Rules constitute trust accounts as defined in section 86(4) of the Legal Practice Act 28 of 2014
• Whether such investment bank accounts must be audited in terms of section 85 of the Legal Practice Act as a prerequisite for the issuing of a fidelity fund certificate to legal practitioners
• The proper interpretation of Rule 55 of the Legal Practice Council Rules concerning investment practices
• Whether failure to have a Rule 55 investment account audited renders a legal practitioner not fit and proper to conduct legal practice
• Whether the matter was moot given that the appellants had ceased practicing

The appeal was upheld with no order as to costs. The order of the high court was set aside and replaced with an order declaring that the First Applicant's investment accounts held with ABSA bank (account number 1950146474) and FNB (account number 62835266687) are not trust accounts that need compliance with the provisions of section 85 of the Legal Practice Act 28 of 2014. The first respondent (LPC) was ordered to issue the applicant with a Fidelity Fund Certificate for the period ending in December 2020. The counter-application was dismissed with no order as to costs.

Bank accounts related to an investment practice conducted by a firm of attorneys in terms of Rule 55 of the Legal Practice Council Rules do not constitute trust accounts as defined in section 86(4) of the Legal Practice Act 28 of 2014, and do not need to be audited in terms of section 85 as a prerequisite for the issuing of a fidelity fund certificate to legal practitioners. Rule 55 investment practices are expressly distinguished from trust accounts regulated under sections 84-87 of the Legal Practice Act. Rule 55(3) expressly excludes from its application investments made pursuant to section 86(3) of the Act. Rule 55.4 requires clients to acknowledge that monies invested through a Rule 55 investment practice do not enjoy the protection of the Fidelity Fund, which is the very purpose of the fidelity fund certificate requirement for trust accounts. Neither Chapter 7 of the Legal Practice Act nor Rule 55 of the LPC Rules requires that a legal practitioner's investment practice bank account must be audited for purposes of obtaining a fidelity fund certificate.

The Court made observations on the proper approach to misconduct complaints against legal practitioners, noting the well-established three-stage enquiry: (1) determining whether the complaint has been established on a balance of probabilities; (2) enquiring whether the practitioner is fit to remain on the roll; and (3) determining an appropriate sanction. The Court noted that the discretion exercised in the second and third stages is a strict one, and a court of appeal may only interfere if the discretion was not exercised judicially. The Court observed that the LPC's reliance on various other rules (55.5, 55.6, 55.7, 55.8, 55.11.2, 55.12, 54.14, 54.16.1, 54.18, 54.31, 54.33) relating to reporting requirements, record-keeping, and compliance with the Financial Advisory and Intermediary Services Act was not the case Mr Maree had to meet in the high court. The Court noted that the LPC has a statutory duty to approach a court for disciplinary action and may be entitled to costs on an attorney-client scale even if unsuccessful, but found that in the particular circumstances where the LPC had not carefully considered the relevant provisions after numerous instances of being alerted to the nature of the accounts, a no-costs order was appropriate.

This case is significant in South African legal practice regulation as it clarifies the distinction between trust accounts regulated under sections 84-87 of the Legal Practice Act 28 of 2014 and investment practices conducted by attorneys under Rule 55 of the Legal Practice Council Rules. The judgment establishes that investment accounts operated under Rule 55 do not constitute trust accounts requiring audit as a prerequisite for the issuing of fidelity fund certificates. This has important implications for legal practitioners who conduct investment practices alongside their legal practices. The judgment also confirms that clients must be informed that funds invested through Rule 55 investment practices do not enjoy the protection of the Legal Practitioners Fidelity Fund. The case reinforces the principle that a finding that a legal practitioner is not fit and proper to practice must be based on a properly pleaded case, and cannot be made as an ancillary finding in disputes about compliance with administrative requirements. It also provides guidance on the appropriate exercise of costs discretion where a regulatory body has not carefully evaluated its statutory position before launching proceedings.