Does the right to claim repayment of an amount paid into an attorney’s trust account for a sale of property prescribe?

May 9, 2023 | , , , | News

I have a number of matters currently pending which deal with the question of what rights a purchaser in a property has, where the sale of the property fell through, and monies are being held on trust in respect of that sale agreement. I recently read the case of Du Toit v Du Toit-smuts & Partners [2023] ZAMPMBHC (please follow the link to the entire case Du Toit and Others v Du Toit-Smuts & Partners and Another (4748/2021) [2023] ZAMPMBHC 22 (12 April 2023) (saflii.org).)

Repayment Claim

In summary the applicants in this matter were the trustees of the Mnandi Trust, and they sought relief against the first respondent (Du Toit-Smuts & Partners) and the second respondent (Bateleur Laeveld (Pty) Ltd).  The applicants pleaded that Du Toit-Smuts & Partners must be ordered to pay Mnandi Trust the sum of R 25 000.00 plus interest thereon.  Further the applicants pleaded that in the event that Du Toit-Smuts & Partners had paid the amount to Bateleur Laeveld (Pty) Ltd (“Bateleur”) by the time the application is heard, that Mnandi Trust’s claim be against Bateleur and that it must pay the R 25 000.00 to Mnandi Trust.

Bateleur did not oppose the application. Du Toit-Smuts & Partners did oppose the application and contended that the claim of Mnandi Trust had prescribed on 3 January 2021; that the claim against Bateleur had also become prescribed because Du Toit-Smuts & Partners had received the payment of R 25 000.00 as an agent on behalf of Bateleur, the principal and as such the claim against Bateleur also became prescribed 3 years after the debt became due; and that the amount of R 25 000.00 was paid by  the first applicant Petrus Lodewiekus Du Toit in his personal capacity and that Mnandi Trust therefore does not have a claim against Du Toit-Smuts & Partners.

The factual background I will deal with in summary – during September 2017, the first applicant (acting on behalf of the Mnandi Trust) entered into a purchase agreement with Bateleur for the sale of a property in Nelspruit. The first respondent does not admit that the first applicant made payment of the R 25 000.00 on behalf of the trust, it avers that the first applicant made that payment in his personal capacity.  Nevertheless, as part of the negotiations, Bateleur required a reservation deposit for the amount of R 25 000.00 to reserve the property for Mnandi Trust pending the finalisation of the negotiations. The terms of the reservation agreement, amongst others are that Mnandi Trust would pay an amount of R 25 000.00 being the reservation costs into the trust bank account of Du Toit-Smuts & Partners, and that the R25 000.00 would be invested on behalf of the Mnandi Trust by Du Toit-Smuts & Partners into an interest bearing trust bank account, and that the this amount would serve as a deposit after the signing of the purchase and building agreement with Bateleur, the developer; should Mnandi Trust not sign the agreement within 14 days after being presented with it, the reservation deposit would be forfeited and the reservation agreement cancelled.

On 8 September 2017 Du Toit-Smuts & Partners received into trust an amount of R 25 000.00 reference number “B8093-4 [….] wDduTOIT”.  Despite this payment taking place, the parties could not reach an agreement on the building plans and the sale fell through.  On 3 January 2018, Du Toit-Smuts & Partners received a letter addressed to them by the attorneys of Mnandi Trust, informing it that the transaction had failed because of the parties’ inability to reach an agreement regarding building costs and they demanded payment of the sum of R25 000.00.  On 29 January 2018, Bateleur answered this letter to Mnandi Trust, indicated that there were costs incurred by it pertaining to certain architect fees in the amount of R 31 413.13 and proceeded to demand payment thereof from Mnandi Trust.  Du Toit-Smuts & Partners, in an updated letter, also replied regarding the letter of 3 January 2018 indicating that the claim for payment had prescribed.

On 18 August 2021, the attorneys threatened to report the matter to the Legal Practice Counsel and on 19 August 2021 again demanded payment of the amount of R 25 000.00.  Du Toit-Smuts & Partners wrote back to the attorneys of Mnandi Trust on 26 August 2021 stating that the amount of R 25 000.00 would be paid to Bateleur.  On 28 September 2021 Mr Smuts of Du Toit-Smuts & Partners wrote a personal email to the first applicant, explaining the legal position and the facts pertaining to the matter.  Refuting that prescription has intervened, the attorneys of Mnandi Trust wrote to Mr Smuts personally on 29 September asserting that the amount of R 25 000.00 should be repaid.

The issues that the Court therefore had to deal with are the following:

  1. Is Du Toit-Smuts & Partners the correct party to have been sued?
  1. Has the claim for Mnandi Trust prescribed, alternatively is the reservation cost a debtor as provided for in Section 12 of the Prescription Act?
  1. Are the unused funds in a client’s trust account deemed to form part of the assets of the trust account practice, alternatively, can the unused funds in a client’s trust account be used to set-off any legal fees owed to the firm concerned?
  1. If the above is answered in the negative, does the conduct of an attorney who uses any unused funds in a client’s trust account, amount to unlawful conduct?

 

The Court dealt to a great extend in detail with these four questions on the legal basis and case law that is presented, and I recommend that any practitioner reads these in order to understand this Court’s approach to these above questions.  In summary the Court found that:

  • Assuming that Du Toit-Smuts & Partners was the party against who the claim was launched, the claim has prescribed.
  • Assuming that the second respondent Bateleur had opposed the matter and raised prescription, a claim against it would similarly have prescribed.
  • In terms of the Stopforth Swanepoel & Brewis Incorporated v Royal Anthem Investments 129 (Pty) Ltd and Others (2015 (2) SA 539 (CC); 2014 (12) BCLR 1465 (CC)) [2014] ZACC 39; [2014] ZACC 26 (2 October 2014) case discussed in the judgment, the money deposited into the trust account belongs to Bateleur, and as such, the claim should have been directed against Bateleur as a party that can lawfully give instructions to the bank.
  • Acknowledging that Du Toit-Smuts & Partners was incorrectly sued because it only received the money into trust on behalf of Bateleur, the Judge held the view that it was ethically expected to advise its principal (Bateleur) to reimburse the funds to Mnandi Trust as a result of the cancelled contract.

 

The Court directed that the question of ethics is not the province of the High Court, and directed that the Legal Practice Counsel should investigate the actions of Du Toit-Smuts & Partners.  As such, the Court ordered that the application be dismissed with costs.

The content does not constitute legal advice, are not intended to be a substitute for legal advice and should not be relied upon as such. Kindly contact us on info@cklaw.co.za or 021 556 9864 to speak to one of our attorneys.

Author:

Michele Engela

Michéle Engela

Michéle Engela is a director at CK Attorneys.

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