From 1 November 2018 the legal profession is now regulated by the Legal Practice Counsel (“the
LPC”). Previously the legal profession was regulated by four Provincial Law Societies. One of the
biggest changes introduced is that the LPC regulates all legal practitioners across the board.
Therefore, not only attorneys, but advocates too.
The LPC came into existence as a result of the promulgation of the Legal Practice Act (“the Act”)
which replaced the Attorney’s Act. A significant change introduced by this Act was the replacement
of the Attorneys Fidelity Fund with the Legal Practitioner’s Fidelity Fund (“the Fund”). Although there
are similarities between the Fund and its predecessor, several changes were also introduced by the
Legal Practice Act with respect to the manner in which the Fund now operates.
The Fund has now entered into agreements with ABSA, Albaraka Bank, the Bank of Athens, FNB,
GBS Mutual Bank, Grindrod Bank, HBZ Bank, Investec Bank, Mercantile Bank, Nedbank and
Standard Bank. As a result, a Legal Practitioner wishing to deposit trust monies into a trust- or
investment banking account, other than with one of the banks with which the Fund entered into the
abovementioned agreement, must first obtain prior written consent from the Fund in order to do so.
In practice most Legal Practitioners and Attorney’s firms have more than one banking account and
often more than one banking account at different banks. Previously section 78 of the Attorneys Act
regulated Legal Practitioners’ bank accounts. Section 78 has now been replaced with section 86 of
the Legal Practice Act and states that the underlying reason for money being paid into a Legal
Practitioner’s banking account will determine in which banking account the money must be held.
For instance, if monies are paid towards an attorney’s fees, disbursements or the like the money is
not paid for investment purposes. All interest accruing on those monies are payable to the Fund and
only the monthly bank charges can be deducted from the interest before being paid over to the Fund.
This interest must be paid to the Fund monthly.
Trust accounts are now regulated by sections 86(2) and 86(3) of the Act. When money (usually
larger amounts) is held in a trust account for a longer period and the Legal Practitioner obtains the
consent of the client to invest those monies, it is held in a section 86(4) account.
Section 86(4) of the Act replaced its predecessor, section 78(2A) of the Attorneys Act. Once again,
such an investment account must be opened at one of the approved banks of the Fund listed above.
These accounts are opened on behalf of someone else and the Legal Practitioner will exercise
exclusive control over the account as trustee, agent or stakeholder or exercise a fiduciary function.
A Legal Practitioner must obtain a mandate from a client in order to invest money in terms of section
86(4). In order to obtain such a mandate it is required that the Legal Practitioner explicitly discloses
to the client that the investment is not protected by the Fund as would be the case with a section
86(2) and section 86(3) account. As of 1 March 2019, 5% of the Rand value of the interest accrued
on section 86(4) accounts must be paid to the Fund monthly. The effective date of 1 March 2019
synchronises the implementation of this change with the new tax year, so as to lessen the
administrative burden for Legal Practitioners and their clients.
In terms of a section 86(4) investment the relevant bank must communicate directly with a Legal
Practitioner as to the process that must be followed in reporting these investments and its interest
accrued to the Fund. SARS then require the banks to issue an IT3b tax certificate to the Legal
Practitioner or their client for 95% of the Rand value of the interest earned. A separate IT3b
certificate will be issued to the Fund for its 5% of the Rand value of the interest earned on the
account.
In practice, the nett effect of the above will be that when purchasing a property, the purchaser often
pays a deposit to the attorney’s firm, who in turn invests the money for the benefit of the purchaser.
The 5% now payable to the Fund will therefore affect the purchaser and the interest ordinarily
accrued to him/her.
The two most significant changes introduced by the Act are that:
1. Legal Practitioners can now only invest monies on behalf of clients when there is an underlying
transaction / reason for investing the monies. By way of example, when litigation is about to
commence on behalf of a client or in the event of a sale of a property. To invest monies for a
client, purely for investment purposes, without an underlying reason would be in contravention
of this new Act.
2. Advocates can now operate their own trust- and investments accounts on behalf of clients and
no longer require being briefed by Attorneys to represent their clients and issue an invoice to
the Attorney for payment of their fees. An Advocate can therefore now obtain instructions
directly from a client and no longer needs an attorney to act as his or her middleman.
Related Services:
Property transfers
