T J Louw NO and Others v S J Coetzee and Others

Saambou Bank Limited was placed under curatorship in February 2002. The curator refused to pay out deposits made by attorneys' firms (first and third respondents) who had deposited clients' trust funds with the bank in specially designated accounts in terms of section 78(2A) of the Attorneys Act 53 of 1979. The second and fourth respondents were clients who had paid moneys in trust to the respective firms. The respondents applied to the Pretoria High Court, which ordered that the curator's refusal to pay out deposits made after 23 November 2001 be set aside, that such moneys did not form part of the bank's assets, and that all deposits were repayable with interest on demand. The curator appealed this decision.

• Whether moneys deposited by attorneys in bank accounts in terms of section 78(2A) of the Attorneys Act 53 of 1979 constitute 'trust property' as defined in the Financial Institutions (Protection of Funds) Act 28 of 2001
• Whether such trust moneys are excluded from forming part of a bank's assets under section 4(5) of the Financial Institutions (Protection of Funds) Act 28 of 2001
• Whether the Financial Institutions (Protection of Funds) Act 28 of 2001 changed the common law position regarding moneys deposited by customers in banks
• Whether the changed wording between the 1984 Financial Institutions Act and the 2001 Act effected a substantive change in the law regarding attorneys' trust accounts

The appeal was upheld. The orders of the Pretoria High Court were set aside. The curator's refusal to pay out the deposits was held to be lawful. No costs order was made.

Moneys deposited by attorneys in bank accounts in terms of section 78(2A) of the Attorneys Act 53 of 1979 do not constitute 'trust property' as defined in the Financial Institutions (Protection of Funds) Act 28 of 2001. Such deposits are governed by the ordinary common law principles of banking law: the money becomes the property of the bank, which has a personal obligation to repay the depositor. The definition of 'trust property' and section 4(5) of the 2001 Act must be interpreted in the context of the Act as a whole, which deals with situations where financial institutions themselves hold property in a fiduciary capacity - not where attorneys as trustees deposit client funds in ordinary banking accounts. There is no express or implied legislative intention in the 2001 Act to change the common law position or to impose on banks a trustee relationship with attorneys' clients. Accordingly, such deposits form part of the bank's assets and are subject to concurrent claims in the event of the bank's insolvency.

The court noted the curator's alternative argument that even if the funds constituted trust property, the bank was not a financial institution that dealt with trust property as a regular feature of its business (as required by the definition in section 1 of the Financial Services Board Act 97 of 1990). The court observed this argument appeared circular since if attorneys' trust moneys were regarded as trust property in the hands of the bank, the bank would indeed have been such a financial institution. However, the court found it unnecessary to decide this issue given its conclusion on the main question. The court also addressed the curator's practical argument that if banks were placed in the position of trustees over attorneys' clients' funds, they would not be able to invest such money in the ordinary course of business, making it economically unviable for banks to offer such accounts. While the court mentioned this practical consideration, it based its decision on the proper interpretation of the statutory provisions rather than on commercial practicality.

This case clarifies that the Financial Institutions (Protection of Funds) Act 28 of 2001 did not alter the fundamental common law banking principle that money deposited in a bank account becomes the property of the bank, creating merely a debtor-creditor relationship. It establishes that attorneys' trust moneys deposited in banks pursuant to section 78(2A) of the Attorneys Act do not constitute 'trust property' under the 2001 Act and therefore do not enjoy protection from being included in a bank's assets upon insolvency. The judgment emphasizes the principle of statutory interpretation that courts should not infer radical changes to established legal principles from minor changes in wording unless there is clear legislative intention to do so. This has significant implications for attorneys and their clients regarding the risk of depositing trust funds in banks, as such funds rank as concurrent claims in the event of bank insolvency.