ATTORNEYS' LAW SOCIETY
PUBLIC HEARING ON [B95-97] JUDICIAL MATTERS AMENDMENT BILL
MEMORANDUM
1. The following documentation has been furnished:
1.1. Proposed amendment to section 73 of the Insolvency Act, 1936, as included in the Judicial Matters Amendment Bill, 1997;
1.2. Amendment to the said section as proposed by the State Law Advisor;
1.3. Motivating memorandum by the State Law Advisor;
1.4. Comment by the Chief Master on the proposed amendment.
2. A concern has been expressed by the State Law Advisor as to the degree of protection which would be afforded to creditors were the proposed amendment to section 73 of the Insolvency Act to be enacted.
3. Reference is made in a Memorandum by the State Law Advisor to the decision of Wulfsohn V. Kearney 1963(1) SA 782 (TPD).
4. It may be useful as a starting point to refer to that matter in considering the position of creditors (and the insolvent, who has a residual interest in his insolvent estate) regarding costs charged by an attorney to a trustee. It was held by the Court (at 788F) that it was of no concern to the insolvent what amount the attorney charges his client. In this instance the client to whom reference is made was the trustee of the insolvent. The Court went on to state that it would only begin to concern the insolvent when the Master allowed the account rendered by the attorney to the trustee to become part of the costs of the sequestration.
5. On the other hand, whether an account could properly be included as being a cost of liquidation is no concern of the Taxing Master. At 788G the Court held that:-
"He (the Taxing Master) only watches whether the attorney has not over charged his client. In that regard he is to a high degree dependent upon the client, who is expected to object to improper charges to place the responsibility for protecting the insolvent on the Taxing Officer is to emasculate section 111".
6. Section 111 deals with objections to the trustees' liquidation and distribution account.
7. The position was emphasised (at 789B) where the Court stated that:
"1t is obvious that many points can arise which fall outside the province of the Taxing Officer of the Court. His function is to guard against over charging by legal advisors. The question whether costs, however reasonable from an attorney's point of view, can legitimately be charged against an estate is essentially a question for the Master."
8. It is submitted that the protection embodied in the proposed section 73(4) (which is in virtually identical terms to the existing provision) is a sufficient protection and still retains the duty upon the Master to scrutinise costs which the trustee seeks to have included as a cost of administration. The Master has the overriding power to disallow any costs, including any costs taxed by the Taxing Master of the High Court (emphasis supplied) if in his or her opinion the trustee acted either male fide, negligently or unreasonably in incurring such costs.
9. It is suggested in paragraph 5.1 of the Memorandum of the State Law Advisor to the Minister that the decision of Muller v. The Master and Others 1992 (4) SA 277 (TPD) curtails the taxing function of the Master of the High Court in situations where an agreement has been entered into between a trustee (duly authorised by the creditors) and his attorneys for the payment of remuneration at a rate higher than that stipulated by the prescribed tariffs.
10. With respect, the judgment appears to refer to the function of the Taxing Master of the High Court, (a functionary not within the office of the Master of the High Court) rather than that of the Master himself. The judgment (at page 282) states that:
"In the first place, the plain wording of section 73(2)(a) leads inexorably to the conclusion that the Taxing Master is not bound to his prescribed tariff.... The language of the subsection refers merely to taxation by the Taxing Officer of the Court. I agree with counsel for the applicant where he says that there is no indication either in express terms or by necessary implication, that the Taxing Officer is bound to a tariff for purposes of section 73 when an attorney and own client bill is to be taxed. ... In my view, even in the case of such an attorney and own client bill, the Taxing Master retains his taxing function. He must enquire whether there is in fact a liability on the part of the client to pay and he must consider what amount has then to be paid. He cannot wash his hands of these duties merely because there has been an agreement between the attorney and his client."
11. The safe-guards which are built in to the provisions of the proposed section 73(4) whereby the Master (i.e. the Master of the Court and not the official tasked by the High Court with taxing bills of cost) may disallow any costs still remain in place and the powers and obligations of the Master of the High Court appear not to be curtailed in any way.
12. The provision permitting a trustee to conclude an agreement with his attorney in regard to the rate of the remuneration simply embodies the position which exists in regard to other clients.
It was stated in Cambridge Plan AG v. Cambridge Diet (Pty) Limited 1990 (2) SA 574 (T) at 600F/G that:
"Where there is no agreement, the attorney can only obtain what he can validly recover. In the absence of acquiescence by the client, that will in practice amount to what the Taxing Master properly allows him."
13. An analogy can be drawn between the situation where a trustee (acting in his fiduciary capacity in protecting the interests of creditors) agrees a scale of remuneration with his attorney and the situation where "attorney and own client costs" are awarded against an unsuccessful litigant. In the latter regard the Court in the matter of Ben McDonald Inc and Another v. Rudolph and Another 1997 (4) SA 252 (TPD) held at 258H as follows:
"A Court awarding costs to be taxed on the basis of attorney and own client has in mind that these costs should be reasonable and not unreasonable, exorbitant or agreed upon collusively. It follows that even when faced with a written agreement between attorney and client as to the work to be done or the fees to be charged therefor the Taxing Master is still empowered to enquire into the reasonableness of such agreement."
14. In the proposed section, the taxation of costs is specifically excluded by legislation (section 73(2)). However as is stipulated in the proposed section 73(3) the costs may still be taxed by the Taxing Master of the High Court (or the appropriate Law Society or Bar Council) in the case of a dispute between the trustee and the legal representative in respect of costs. Should such dispute in fact arise, it is submitted that a consideration similar to that applied in the Ben McDonald matter (above) would be followed by the Taxing Master.
15. It is pointed out in paragraph 5.2 of the State Law Advisor's Memorandum, that the proviso to the existing section 73(1) was "intended to protect creditors against the dissipation of the estate in useless litigation". Reference is made thereafter to the matter of Wulfsohn v. Kearney N.O. and Others 1963 (1) SA 762 (TPD). That matter, in turn, however referred to the earlier decision of Patel v. Paruk's Trustee 1944 AD 469 in which (at 474 and 475) the Court referred to a previous version of section 73(1) which read as follows:-
"Provided that, subject to the provision of subsection 4 of section 53, the trustee shall not institute or defend any legal proceedings on behalf of the estate unless he has been authorised thereto by the creditors or the Master."
16. It was accordingly pointed out (at 475) that the original proviso (quoted above) prohibiting the trustee from instituting or defending any legal proceedings without the prescribed consent, was "enacted, as between the trustee and the creditors, in order to protect the estate from being dissipated in litigation". That proviso had since been amended. The Court went on to consider that in the amended proviso (substantially in the form in which it exists at present) the prohibition was "merely that the trustee shall not obtain legal advice or employ an attorney or an attorney and counsel for the institution or defence of legal proceedings on behalf of or against the estate without the prescribed consent". The legislative focus apparently moved from the more direct prohibition against the institution or defence of legal proceedings without consent to the obtaining of legal advice or the employment of legal representative for the institution or defence of legal proceedings.
17. The Court, incidentally, held that the prohibition was enacted to operate as between the trustee and the creditors. It was not open to a third party to take the point that the trustee had not been properly authorised and that his actions were therefore a nullity.
18. Thus, in the event of a dispute arising between the trustee and the attorney, the trustee retains the right to require taxation. This would fall within the province of the Taxing Master of the High Court. This is the "first tier" of protection. The "second tier" of the protection built into the proposed section is the Master's power to which reference is made in section 73(4) whereby the Master of the High Court may disallow any costs notwithstanding the fact that the trustee may have consented thereto and further notwithstanding the fact that the Taxing Master of the High Court may have taxed such costs.
19. The "third tier" of protection is embodied in the provisions of section 74 of the Insolvency Act which reads as follows:
"If it appears to the Court that any attorney or counsel has, within intent to benefit himself, improperly advised the institution, defence or conducting of legal proceedings by or against an insolvent estate or has incurred any unnecessary expense therein, the Court may order the whole or part of the expense thereby incurred to be borne by that attorney or counsel personally."
20. Apart from the above, the trustee would generally also operate within the disciplinary strictures imposed by the Association of Insolvency Practitioners of South Africa, to the status of which, I understand, consideration is presently being given.
21. In the circumstances it is submitted that the proposed amendment to section 73 of the Insolvency Act contains adequate safe-guards and is a practical mechanism to relieve the Master's office from the function of taxing accounts submitted to it whilst retaining the overriding right to disallow any costs when appropriate.
22. Consideration will also have to be given to the amendment of regulation 22 of the regulations for the Winding-up and Judicial Management of Companies (as promulgated under government notice R2490 of 28 December 1973 and as further amended) enacted in terms of section 15 of the Companies Act 1973 (Act 61 of 1973). This section reads as follows:
"No bill of legal costs or charges arising out of a liquidation under a Winding-up by the court or under a creditor's voluntary Winding-up shall be paid by the liquidator unless it has been taxed."
23. An appropriate amendment to this regulation is required to ensure consistency with the provisions of the amended section 73 of the Insolvency Act.
DATED at CAPE TOWN on this the 27th day of FEBRUARY 1998.