A wealthy man who trusted a lawyer and deposited more than R8m into his trust account only for the lawyer to disappear, failed in his court bid to be reimbursed by the Legal Practitioners’ Fidelity Fund board as he could not prove he entrusted the lawyer with the money.
Ian Smith had sent millions of rand over two years to lawyer Andruw Stephens of Dadic Attorneys to be placed in a trust account after he was duped into funding investment schemes.
The theft started in March 2015 when Smith approached the lawyer to collect £50,000 (R900,000) in England after he had won a civil case against a company. The money was transferred on March 26 to Stephens, who confirmed receipt of the money to Smith. Smith said Stephens understood that he should hold on to the money in the trust account “until such time as I called for [the money]”.
Stephens then approached Smith about whether he would be interested in using the money towards a loan agreement with another company, which came with a 3% interest payment per month. Smith agreed for the money to be used, but he later learnt the transaction was “completely and utterly fraudulent”, he told the court.
In October 2015, unaware of the previous scam, Smith was again approached by Stephens to give a loan to a company that intended to buy immovable property from Telkom. After showing him documents confirming the intended purchase of the property and that the deal came with a 5% interest payment per month, Smith paid R1m into the trust account.
However, he later learnt that the transaction was fake.
In June 2016, still unaware of the previous fake transactions, Smith was again told by Stephens about a client who needed money urgently as he was owed R7.5m. Stephens proposed that he purchase the debt for R6.1m, but since he only had R2.1m available, he asked Smith to contribute the remaining R4m.
Stephens' proposal also stated the R4m loan would be repaid in 10 months, including an additional payout of R950,000. When it was agreed that Smith would in turn receive a total of R4.95m at the end of the period, he transferred R4m into the trust account.
It was later discovered that the transaction was fake and a witness said the company was only R1m in debt and not R7.5m as Stephens had claimed.
In July 2017, an unknowing Smith was again approached by Stephens about a book debt of R44m which was going to go on tender and that he could acquire it for R4m. He told Smith that they could each contribute a loan of R1m to another company to acquire the book debt and get the remaining R2m from a third party.
Smith said he volunteered to lend R2.7m with 25% interest to be paid to him when the collection was made as it sounded like a “very good proposition to become involved” in. Again, it was discovered that the transaction was fake.
It was only in 2018 that Smith realised that Stephens had stolen from him when an attorney from the same firm mentioned that Stephens had disappeared. Smith then looked into his trust bank account and realised a series of transactions was made and he was only left with R2,883.35.
Smith lodged four claims with the Legal Practitioners’ Fidelity Fund, but after they were rejected, he instituted an action in the Pretoria high court against the fund. The court, however, dismissed all four claims on the grounds that there was no proof that Smith entrusted Stephen with the money, but rather that he invested in Stephen’s fake proposals.
Smith approached the Supreme Court of Appeal, where the court had to determine whether Smith ‘entrusted’ the money in terms of the Attorney’s Act and whether the fund was liable to reimburse him.
Section 26 of the Attorney’s Act, which deals with the fund, states that it shall reimburse those who suffer a pecuniary loss due to theft committed by a practising legal practitioner who was entrusted by such a person, explained acting judge of appeal, Gerald Bloem.
“I am satisfied that in each of the claims, Smith suffered pecuniary loss as a result of theft committed by Stephens ... of money that Smith paid or caused to be paid into the trust account and that such payment was made to Stephens in the course of his duties in the firm. The question to be answered is whether Smith entrusted the money to the firm or Stephens when he paid or caused it to be paid into the trust account ... the fund must reimburse Smith if he entrusted those payments to the firm or Stephens.”
Looking at the definition of ‘entrusted’, based on previous case law, the court determined that to ‘entrust’ meant money should be in the possession of someone who is bound to deal with the money for a special purpose.
“In light of the above authorities, to ‘entrust’ ... means that a person, like a client of a practising practitioner, must have placed the money or other property in the possession of the practising practitioner ... who must deal with the money or property for the client’s benefit. In other words, the practising practitioner ... must deal with the money or property in accordance with the intention of the client who placed the money or property in his or her possession.
“If, for example, a person is purchasing an immovable property and paid, in terms of the deed of sale, the purchase price of the trust account of the seller’s attorney, there can be no doubt that the purchaser entrusted the money to the seller’s attorney,” said Bloem.
Bloem, however, ruled in favour of the high court’s dismissal on three of the four claims.
He said in the claims where Smith handed R1m in October 2015, R4m in June 2016 and R2.7m in July 2017, there was no evidence that the money was entrusted. Instead, Smith had made the payments to the trust account which would then be transferred to other companies for Stephen’s proposed loans and investments.
The Supreme Court of Appeal, however, upheld Smith’s appeal for the R900,000 he received from the England case despite the high court determining that the entrustment ended once the transaction was processed.
“I agree that Smith established that he entrusted the R900,000 to the firm, represented by Stephens. I do not agree that the entrustment came to an end in June 2017 when Smith agreed to become involved in the transaction ... Smith has established an entitlement to be reimbursed because he suffered pecuniary loss as a result of theft committed by Stephens of the R900,000 that he entrusted to him in the course of his duties in the firm.
“[Smith’s] first, third and fourth claims are dismissed. The second claim is upheld. [The fund] shall pay R900,000 to [Smith], with interest thereon at the rate of 10.25% per annum... from the date of service of the summons.”
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