In a judgment recently delivered by South Africa's Supreme Court of Appeal, legal practitioners were reminded of several crucial points:

  • They are obliged to conduct themselves with the utmost integrity and scrupulous honesty;
  • Maintaining the highest ethical standards is essential to enhance public confidence in the legal profession ; and
  • A lack of trust in the legal profession goes hand in hand with the erosion of the rule of law.

In the case in question, Limpopo Provincial Council of the South African Legal Practice Council v Chueu Incorporated Attorneys and others, the SCA dealt with the issue of the liability of all directors of a law firm, when financial misconduct had allegedly been committed by only one director.

Following complaints to the Legal Practice Council ("LPC"), the LPC conducted an investigation, which revealed that Chueu Inc. breached the code of conduct by failing to:

  • account accurately and timeously,
  • respond to the complainants' communications,
  • deal properly with instructions of clients,
  • comply with the directives of the Limpopo LPC,
  • exercise proper control and supervision over staff,
  • report to the LPC and
  • conducting themselves in an honest manner in relation to the handling of trust monies.

Following the investigation, charges were formulated against the managing director and the remaining "salaried" directors of the firm. The LPC thereafter instituted an urgent application for the suspension of the directors of the firm whilst its investigations were ongoing.

Whilst the managing partner agreed to a suspension of a 12-month period, the "salaried" directors of the firm opposed the suspension application on the basis that their shareholding was minor and they were not involved in managing the firm's finances. They contended that the financial management of the firm was left to the managing partner. Their arguments found favour with the High Court, which held that the complaints were directed at the managing partner. Accordingly, the High Court dismissed the application to suspend the "salaried" directors.

The SCA overturned the High Court's decision.

In arriving at its decision, the SCA held that every director has a fiduciary duty towards the company of which they are a director. A director cannot simply plead ignorance of financial matters when faced with allegations of misappropriation. It has been held by a number of courts that the abdication of responsibilities does not absolve legal practitioners of their duties.

The SCA highlighted that the concept of a salaried director does not emanate from the Companies Act, 2008 or the Legal Practice Act, 2013. Once a legal practitioner has been appointed as a director, irrespective of the factual terms associated with such appointment, the legal practitioner bears full responsibility for the finances of the firm.

In circumstances where some of the directors played no role in relation to the accounting and financial affairs of the firm, the SCA held that the directors breached their fiduciary duties (while it appears to us that the more appropriate classification is the breach of the directors' duties of care, skill and diligence). The SCA granted the suspension order against these directors for a period of 6 months but cautioned the LPC not to delay its investigations and requested the LPC to proceed with the final relief against these directors at the earliest opportunity.

It is clear from this judgment that the role of a director in a law firm is multifaceted. Directors are obliged to take a keen interest in the financial management of their firms and there is an obligation on directors to understand, analyse and engage with the financial issues affecting the firm.

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