Van Wyk Van Heerden Attorneys v Gore NO and Another

Brandstock Exchange (Pty) Ltd (Brandstock), under the directorship of Bruce Robert Philp, made three deposits into the trust account of Van Wyk Van Heerden Attorneys (the attorneys) before being wound up. The deposits were: (1) R1,250,000 on 23 February 2018; (2) R75,000 on 23 February 2018; and (3) R200,000 on 30 April 2018. The attorneys acted for Philp and BRP Livestock CC (another Philp entity), but did not know of Brandstock's existence. The R1.25 million was used as purchase price for Utexx Trust's claims against BRP and Philp, paid in accordance with a cession agreement. The other two amounts (R75,000 and R200,000) were used by the attorneys to settle their fees and disbursements for work done for Philp and BRP. Brandstock was provisionally wound up on 3 July 2018 and finally wound up on 20 August 2018. The liquidators applied to set aside all three deposits under s 26(1)(b) of the Insolvency Act 24 of 1936, arguing they were dispositions without value to the attorneys. The high court agreed and ordered the attorneys to repay R1,525,000 plus interest and costs.

• Whether deposits into an attorney's trust account constitute dispositions to the attorney under s 26(1)(b) of the Insolvency Act 24 of 1936
• Whether an attorney who receives funds into a trust account and pays them on to a third party as instructed by a client 'benefits' from the disposition for purposes of s 26(1)(b)
• Whether an attorney who appropriates trust funds to settle fees and disbursements owed by the client 'benefits' from the disposition
• What the test is for determining who is the disponee under s 26(1)(b)
• Whether the onus to prove solvency under s 26(1)(b) applies to intermediaries who act as conduits

The appeal was upheld in part with costs, including costs of two counsel. Paragraphs 2 and 3 of the high court order were set aside and substituted with: (1) A declaration that the payments of R75,000 on 23 February 2018 and R200,000 on 30 April 2018 are dispositions without value under s 26(1)(b) of the Insolvency Act read with s 340 of the Companies Act 61 of 1973, and they are set aside. (2) An order that the attorneys pay the liquidators R275,000 (reduced from the original R1,525,000).

Under s 26(1)(b) of the Insolvency Act 24 of 1936, a disposition without value can only be set aside against a person who benefited from the disposition or claims under it. The onus to prove solvency at the time of the disposition rests only on such a person. An attorney who receives funds into a trust account and pays them on to a third party in accordance with the client's instructions acts merely as a conduit and does not benefit from the disposition. The disposition in such circumstances is to the ultimate recipient who benefited, not to the attorney. However, when an attorney appropriates funds from a trust account to settle fees and disbursements owed by the client, the attorney benefits from the disposition and becomes subject to the onus under s 26(1)(b) to prove that the assets of the insolvent exceeded liabilities immediately after the disposition. The plain language of s 26(1)(b), particularly the phrase 'benefited by the disposition', requires benefit as an essential element for liability. A purposive interpretation supports this construction, as the section is aimed only at persons who actually benefit from voidable dispositions, not at intermediaries acting in accordance with proper mandates.

The Court made several important observations: (1) It endorsed the principle from Kaplan and subsequent cases that attorneys operate on trust accounts as principals vis-à-vis the bank, but may function as agents when giving effect to client mandates. (2) The Court approved the reasoning in English and Australian authorities that banking intermediaries who simply execute customer instructions without benefiting should not be liable for voidable dispositions. (3) The Court emphasized that the same banking principles apply to attorney trust accounts - the bank owns the deposited money but is obliged to follow the attorney's instructions, and only the attorney (not the client) can instruct the bank. (4) The Court noted with concern that the high court had made strongly deprecatory comments and drawn adverse inferences about the attorneys' conduct without evidential support, and expressly dissociated itself from those unwarranted criticisms. (5) The Court confirmed that the test for whether a factual dispute exists must consider whether the party bearing the onus has adduced sufficient evidence; mere surmise does not create a genuine factual dispute requiring oral evidence.

This case establishes important principles regarding the application of s 26(1)(b) of the Insolvency Act to trust accounts operated by attorneys. It clarifies that: (1) The critical test is whether the recipient benefited from the disposition, not merely whether they received funds into their account. (2) Attorneys who act as conduits, receiving funds and paying them on to third parties as instructed, do not benefit from such dispositions and are not liable under s 26(1)(b). (3) The position differs when attorneys appropriate trust funds to settle their own fees and disbursements - they then benefit and attract liability under s 26(1)(b). (4) The onus to prove solvency falls only on those who benefited from the disposition. (5) The judgment protects attorneys acting in accordance with proper trust account principles and client instructions from unwarranted liability, while still holding them accountable when they benefit from dispositions. The case has significant implications for the banking sector and legal practitioners operating trust accounts, clarifying when intermediaries can be held liable for voidable dispositions.