Catastrophe Cases

 Fund cannot subvent cover for theft

I refer to the letter, '"Cover for misappropriation of trust, money or property" article disturbs' by Saber Ahmed Jazbhay requesting the Attorneys Fidelity Fund (AFF) to subvent the cost of insurance cover for practitioners against loss consequent on theft of trust money or property, in 2007 (Nov) DR 3. After due consideration of your correspondent's proposal, the AFF's Board came to the view that, for the AFF to subvent the cost of insurance cover for loss arising from theft of trust money or property by practitioners will be contrary to the very purpose for which the AFF was established, namely to provide protection to members of the public against loss consequent on the theft of money or property entrusted to attorneys or their employees.

As Ann Bertelsmann, General Manager of the Attorneys Insurance Indemnity Fund (AIIF), pointed out in her article published in 2007 (Sept) DR 31, the AFF is constituted as a fund of last resort. Section 49 (1) of the Attorneys Act 53 of 1979 provides that no action may without leave of the Board of Control be instituted against the AFF until the claimant has exhausted all available legal remedies against the practitioner in respect of whom the claim arose, or that person's estate and against all other persons liable in respect of the loss suffered, before having recourse against the AFF. In appropriate cases - that is, where insistence on excussion will not be patently futile, the AFF will accordingly require claimants to excuss the practitioner concerned, his partner(s) or any other person(s), such as employees - who may have been complicit in the theft.

For the AFF to subvent the cost of providing insurance cover to practitioners as proposed by your correspondent would be illogical, as such cover is intended to minimise what is in effect a business-related risk to which practitioners are exposed, the cost of which needs to be borne by them. The AFF is accordingly not empowered to fund such cover that can be purchased in the commercial insurance market.

Similarly, theft by an employee of money or property belonging to a practice - as distinguishable from trust money - is a business risk that falls to be borne by the practitioner. In her article, Ms Bertelsmann explained the nature of fidelity guarantee insurance in relation to such theft, and indicated that cover therefore is also available in the insurance market. The Fund is likewise not empowered to provide any measure of funding for the provision of fidelity guarantee insurance cover. 

Practitioners are urged to ensure that the necessary controls with respect to the accounting function within their practices are in place and are reviewed at regular intervals to ensure that the risk of exposure to loss due to theft is minimised.

The Board also directed me to respond to your correspondent's reference in his letter to interest contributed to the AFF by practitioners. Interest on money deposited in attorneys' trust banking accounts opened in terms of s 78 (1) of the Attorneys Act vests in the Fund.

The inference that such interest is wasted (by the AFF) is unfounded. Apart from its core function of indemnifying the general public against loss such as that described above, your correspondent should know that a substantial measure of funding is provided by the AFF to ensure that every firm of attorneys in South Africa receives, through the AIIF, the very valuable benefit of a primary level of professional indemnity insurance cover annually at no cost.

This significant benefit to practitioners is unique to the profession in South Africa. By virtue of their fiduciary responsibility as trustees of the AFF, members of the Board are required to ensure that the administration of the AFF's resources is subject to stringent controls, and is applied in accordance with the powers vested in the Board by the provisions of the Attorneys Act.

John Moorhouse, Executive Director, Attorneys Fidelity Fund, Cape Town

I hope that this letter finds publication, if it merits that, before the story goes cold and out of the radar of small practitioners struggling to survive but comforted by the fact that while they are out there battling for their clients, should theft or misappropriation occur they are covered, especially when they are blameless. Statistically the majority of practitioners, I guess, falls into that category and cannot afford insurance cover for misappropriation from the commercial market. One commercial insurer quoted me over R12 000 per annum which I can barely afford.

I therefore find the article published in 2007 Sept DR 31, 'Cover for misappropriation of trust money or property' by Ann Bertelsmann most concerning, there should be some sort of active subvention on the part of the constituent law societies in favour of small practitioners in circumstances described in that article, as I believe that the interest which we contribute towards the Attorneys Fidelity Fund is being wasted.

I believe that the Law Society of South Africa and its constituents should meet and consider a strategy as well as subvention for after all, we serve a union function, need to come to the rescue of those innocent members who become victims of theft and, by Ms Bertelsmann's account we are unprotected. If this is the case, then I suggest that members be allowed to take out insurance covers subsidised by the fund otherwise the current position, by my account, is untenable.

I hope that the powers that be give my letter serious consideration and convene a meeting to resolve what I find most concerning.

Saber Ahmed Jazbhay, attorney, Durban and councillor of the KwaZulu-Natal Law Society

Queenstown lawyer and former provincial gambling board head Vuyo Poswa (43) has been convicted in the Grahamstown High Court of stealing R1.4m trust money.

A  report says Poswa had represented Judy Clarke in a Road Accident Fund claim case, and claimed he was owed R1.1m of the payout as he had bankrolled all Clarke's medical expenses and legal consultations while he tried to reach a settlement with the RAF. He had received an amount of R1 446 278 from the fund but only paid Clarke R50 000. He 'converted' the balance of R1 396 278 for his own use.

A secretary from a law firm in Empangeni convicted of stealing over R1-million

According to state prosecutor Mlungisi Magwanyana, Marika Gauche (56) of Botha's Incorporated had been stealing money from the company for over 12 years. "Evidence revealed before the court showed that Mrs. Gauche stole as much as R 2 000 a day since 1995 from her former employer," said Magwanyana.

The total amount stolen was R 1.1 million. The money was removed from a trust account via forged signatures and placed into Gauche's own account; Botha's Incorporated is likely to continue with a civil claim to recoup the funds. Gauche told the court that she sold a house in Mtunzini to offset the money stolen.

Magistrate JK van Heerden sentenced Gauche to six years in prison, two years suspended on a count of theft. Gauche was sent to Zululand's female prison in eShowe.