South African Case Law: Fidelity Fund & Indemnity

Question 1 [15 marks]

Read the judgment in South African Legal Practice Council v Swartz (15857/2023) [2025] ZAWCHC 60 {21 February 2025). Based on the knowledge you have gained in this module:

• What would you advise a practitioner in a similar position to Ms Swartz to do when faced with a claim that a matter has prescribed in their hands?
  • At paragraph 48 of the judgment the court stated that:

“Rather than informing the complainant about her option to file a claim against the fidelity fund insurance, the respondent asked her if she would consider settling the matter, to which the complainant agreed. In addition, it appears that the reason why the respondent did not tell her that she had such an option was because she was embarrassed by what had happened and concerned that if it became known in the profession it would affect her reputation. The respondent then proceeded to make payments to the complainant which exceeded the amount of R350 000 which the complainant had indicated she was prepared to accept in settlement. The payments were made from the respondent’s personal funds.”

• Would the Legal Practitioners’ Fidelity Fund (Fidelity Fund) have been liable in terms of section 55 of the Legal Practice Act 28 of 2014 to indemnity the complainant?
  • Which insurance was the court referring to?
  • Could the complainant claim directly from the Legal Practitioners Indemnity Insurance Fund NPC (LPIIF) in these circumstances?
  • Had the complainant brought a claim against Ms Swartz for compensation:

• Would the Ms Swatz have been entitled to apply to the LPIIF for indemnity?

1. If so, what amount of cover would she be entitled to?

• Would she be liable to pay an excess (deductible) under the LPIIF policy and, if so, what would that excess be in the circumstances of this case?
  • In addition to registering her matters with the Prescription Alert unit as ordered by the court, what other steps would you advise Ms Swartz to take to avoid a similar occurrence?

Question 2 (20 marks]

• Questions on case law:

1. In Legal Practice Council v Van Dyk (90321/19) [2020] ZAGPPHC 624 (30 October 2020); 2020 JDR 2511 (GP), the court stated:

“The applicant is the authority in South Africa tasked with regulating the affairs of all legal professionals. It was established in terms of section 4 of the Legal Practice Act, 28 of 2014 (the Act) and is a juristic entity. The applicant succeeded its predecessor, the Law Society of South Africa. It has the same responsibilities as its predecessor, but now also regulates practitioners who were previously admitted and enrolled as advocates, prior to the Act coming into force.” (underlining added).

Are the underlined words, with respect, a correct reflection of the law?

• Compare the judgments in Edward Nathan Sonnenberg Inc v Judith Mary Hawarden

(421/2023) [2024] ZASCA 90; 2024 (5) SA 9 (SCA} (10 June 2024), Hartog v Daly and

Others (A5012/2022} [2023] ZAGPJHC 40; [2023] 2 All SA 156 (GJ) (24 January 2023) and

Fourie v Van der Spuy and De Jongh Inc. and Others (65609/2019} [2019] ZAGPPHC 449; 2020 (1) SA 560 (GP} (30 August 2019}. Your comparison must cover the differences, if any, of the:

• modus operandi employed by the perpetrators of the fraud in the cases;

• cause of action in each case; and

• the court’s reasoning in reaching the conclusion/s it did in each of the cases.

1. In Ndayi v Minister of Police (33/2020} (2025] ZAECMHC 22 (25 March 2025) the court ordered that the attorney pay costs de bonis propriis on scale C of Rule 67A. Will the LPIIF’s Master Policy indemnify an attorney for such an order?

Question 3 (15 marks]

Ms Thandi Mali is introduced to an attorney, Mr Rob Flankly. In course of a discussion between them, Mr Frankly tells Ms Mali of a “lucrative deal with no risks”. A multinational corporation is looking for land to purchase in South Africa. Another of Mr Frankly’s clients, Mr Tshepo Moreki, has identified a piece of land that will suit the corporation’s needs. Mr Moreki has clandestinely agreed with the current, highly indebted owner of the land that he (Mr Moreki) can purchase the land in question for a cash price of R3.5 million. Mr Moreki’s has, on the other hand, had discussions with the corporation’s South African representatives who have indicated that they have a budget of between R25 million and R30 million to spend on the land in question. Mr Flankly explains to Ms Mali that Mr Moreki has managed to raise R2 million of the required purchase price but is unable to raise the balance, and reluctant to approach a bank or other financier as (i) he does not want word of his plans getting out, and (ii) wants to do the deal quickly. Mr Frankly has raised R200 000 of his own money to invest in the deal and asks Ms Mali if she would be interested in advancing the balance (Rl 300 000) and participating in the deal. The profits will then be shared between the three of them (Mr Moreki, Mr Frankly and Ms Mali) in the ratio of their respective investments after the multinational corporation buys the land for R30 million. He assures her that this is a lucrative deal, he will be the appointed conveyancer and thus control the transaction, the deal will be finalised “in a couple of months” and she should pay the Rl 300 000 into his trust account where it will be safe. Keen not to lose out on such a lucrative investment opportunity, Ms Mali agrees to participate and pays the Rl 300 000 into Mr Frankly’s trust account. He disappears soon thereafter and she cannot find him. She reported the matter to the police and was informed that there are numerous similar matters being investigated against Mr Frankly. The Legal Practice Council informs her that Mr Franky “cleaned his trust account and disappeared.” She approaches your firm seeking advice on whether she can approach the Fidelity Fund for reimbursement.

Consider the decision in Smith v Legal Practitioners’ Fidelity Fund Board (541/2023) [2024] ZASCA 170 {11 December 2024) and advise Ms Mali on her prospects of a successful claim against the Fidelity Fund.

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Law Assignment Answers: Expert Answers on Above Law Questions

LPC vs Swartz
Advice to practitioner
The practitioner is required to immediately inform the client about the risk of prescription, and provide clear indication of all the remedies possible. It is also recommended to avoid any kind of private settlement from personal funds and proceed with registering the matter with prescription alert in order to prevent recurrence.
Fidelity fund liability
The losses covered by the Fidelity fund include those because of theft of Trust money and it does not cover negligence or prescription errors. In the given case scenario, the claim made by the complainant would not fall under Fidelity fund.
Insurance referred to by the court
The specific insurance that the quote was referring to is legal practices indemnity insurance fund.
Direct claim against LPIIF
It is not possible for the complainant to claim directly from LPIIF.
If complainant sued Ms Swartz
In case of complainant suing Ms Swartz, Swartz could apply to LPIIF for indemnity. The cover limit applicable is R5 million per claim per annum and in case of excess deductible, she will be liable for it.
Additional steps for Ms Swartz
That should be a reminder set for the prescription dates. The staff should be adequately trained with respect to monitoring the prescription. The clients should be made aware of complete information through full disclosure in case of errors.

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