Legal practitioners and the public can now only claim a maximum of R5 million from the Legal Practitioner’s Fidelity Fund (LPFF).
This is according to Section 55(1) of the Legal Practice Act, 2014 (Act No. 28 of 2014), which was gazetted in the Government Gazette by the Ministry of Justice and Constitutional Development on 13 January 2023.
In 2013, the LPFF motivated for a cap on valid claims in their comments on the Legal Practice Bill.
The LPFF was established in 1941 as a fidelity fund guarantee and the organisation aims to reimburse people who have suffered financial losses while dealing with a lawyer or advocate who acts as executor or administrator in a deceased estate, or as a trustee in an insolvent estate.
Until recently, the LPFF’s liability was open-ended.
In the Gazette, it is noted as unusual for any entity to be required to undertake unlimited liability unless the government is prepared to be the ultimate guarantor of the obligations of the entity concerned. This is true for the LPFF.
The LPFF’s primary responsibility is to widows and orphans who could be left destitute by theft of their trust money, rather than to wealthy people or business entities who would be better resourced to recover from loss through such theft.
It is also the responsibility of the LPFF`s Board to ensure the organisation remains sustainable and financially healthy.
The decision to cap the claims at R5 million is based on professional advice from an actuary and extensive research, which kept in mind that the cap should be set high enough so that it does not affect claims of most claimants and that the few unusually large claims are not detrimental to the sustainability or solvency of the LPFF.
In their motivation in 2013, the LPFF stated that 99.9% of the claims it paid out over the past few years would not have been affected by such a cap.
While claims to the LPFF have been capped at R5 million, the cap does not stop any person from recovering the full amount of a claim exceeding R5 million from a guilty party.
The cap only applies to claims that cannot be reasonably recovered from the guilty party, and the LPFF may decide to pay all reasonable expenses and legal costs incurred by a claimant in the course of trying to recover their stolen money.
The cap will have to be reviewed on an ongoing basis, given the effects of inflation and the possible devaluation of South Africa’s currency, relative to others, over time.