MONEY IN AN ATTORNEY’S TRUST ACCOUNT ACTUALLY CAN PRESCRIBE BY ATHOL GORDON
I had always understood that monies retained in trust by an attorney in his or her trust account on behalf of a client were sacrosanct.
I have since discovered that this may, in fact, not be so.
In a judgment handed down by his Lordship Mr Deputy Judge President Levinsohn on 28 November 2007 the court held that a claim for repayment of trust monies by a client against his attorney may prescribe (cf. Ramdin v Pillay & Others 2008 (3) SA 19 (D)).
The plaintiff, Mr Ramdin, had been a client of a firm of attorneys of which the defendants were partners. Between February 1997 and August 2000, Ramdin had deposited various amounts into the defendants’ trust account.
Ramdin maintained that the funds were paid into the account for the specific purpose of investment on his behalf on his specific instructions.
The Judge observed: “Properly construed it seems to me that what was intended was that the plaintiff conferred a mandate on the attorneys to make investments on his instructions in that the monies in the trust account were earmarked for that purpose.”
Ramdin alleged that during the period in question he had deposited some R940 000 into the defendants’ trust account on the basis described by the Judge. He also alleged that during April 2002 he had demanded repayment of the funds held on his behalf. He subsequently received some R350 000 but the defendants had not paid the balance.
In 2007 Ramdin issued summons against the defendants, claiming repayment of the R590 000 balance. The first defendant pleaded that the claim had prescribed, alleging that a client’s right to recover monies held in trust by his attorney can become extinguished by virtue of extinctive prescription.
The plaintiff’s counsel contended that monies held in trust by an attorney are simply incapable of prescribing. He also contended that the defendants had received the monies in trust as stakeholders and that prescription, therefore, did not apply.
The Court disagreed, holding that: “The concept of a stakeholder is best known in our law in the context of a person who holds a res litigiosa pending the outcome of litigation between two rival claimants”.
In the matter of Baker v Probert 1985 (3)SA 429 (A), Botha JA held, at page 441 B to E, that the essence of stakeholding was that at its inception it was uncertain which of the two parties vying for it would be entitled to the subject matter held by the stakeholder. Botha JA concluded: “The identity of the creditor will only be established on the happening of an uncertain future event – the outcome of the litigation or of the wager”.
On the basis of this dictum, Levinsohn DJP held that the defendants did not hold the plaintiff’s funds in trust as stakeholders, since they were not holding a res litigiosa. Rather, the defendants held the funds as agents of the plaintiff for the purpose of investment thereof.
Levinsohn DJP accordingly concluded that the plaintiff’s demand of August 2002 for repayment of the funds constituted a demand for repayment of a debt.
While plaintiff’s counsel contended that monies paid into an attorney’s trust account could never prescribe, if a demand for repayment of monies paid into attorney’s trust account constitutes a debt, within the meaning ascribed to that term by the Prescription Act 68 of 1969, then it could be susceptible of extinctive prescription.
Levinsohn DJP found that the term “debt”, for the purposes of the Prescription Act, “refers to an obligation to do something, whether by payment or by the delivery of goods and services”. In terms of this definition, therefore, the right of the client to require the repayment of monies held in trust by the attorney falls within the definition of a debt.
Consequently, the minute the debt becomes repayable, whether by demand or operation of law, extinctive prescription begins to run. The normal prescriptive period applies. Accordingly, if summons is not served by the client within three years of the date upon which the debt arose (the date upon which the trust funds were repayable to the client), the right to reclaim the funds in trust would become extinguished by prescription.
An important caveat to this ruling is that even though the client’s right to reclaim payment of the funds held in trust has prescribed, this does not mean, in my view, that the attorney in whose trust account it resides becomes its owner.
A client finding himself in a position similar to Ramdin’s should approach the Law Society to lodge a complaint against the attorney, since the attorney (at least in the Cape) has a duty, within a reasonable time after performance or termination of his mandate (as the case may be), to account to his client and to pay any amount due to that client.
This may not ensure repayment of the money owed, but will go some way to ensuring that the attorney is disciplined.
Be that as it may, the ultimate method of obtaining repayment of funds held in trust by his attorney, who refuses to repay on the basis that the right to reclaim payment has prescribed, may be to lodge a criminal complaint against the attorney.
A complaint of theft, alternatively fraud, would appear appropriate, since his retention of the funds against the client’s will is unlawful and it must be an inherent representation by the attorney to the client, when receiving the funds in trust, that he will repay those funds when the client demands or when his mandate has terminated.
In addition to the criminal complaint, the client should be advised to apply, in terms of section 300 of the Criminal Procedure Act 51 of 1977, for an award of compensation to be made against the accused, directing that he make good the loss suffered by the client as a consequence of his conduct.
Athol Gordon is a director at Bowman Gilfillan