The Gazette 1976

JUNE/JULY 1976

GAZETTE

LEGAL PROFESSION Should Solicitors "profit" from their Client Accounts?—A reply by J. C. Stebbings, M.A., Member of the Council of the English Law Society THE broad assumption made in Mr. Michael Zander's article in the May 6 issue is that the retention by solicitors of any part of interest arising in the deposit of their clients' mixed balances is in fact wrong, at least morally; accordingly it proposes legislation to provide for the collection of such interest from Banks and the application of the resulting moneys for purposes such as Law Reform, legal aid, Legal Education, Law Lib- raries, legal research etc.; it refers to legislation in force in some States or Provinces in Commonwealth coun- tries. The use by one part of moneys belonging to another is to be found in almost every walk of life; it is the foundation of banking; the practice in one form or another is generally adopted by Estate Agents, Insur- ance Brokers, Stock-brokers, Accountants and all others who in the course of their profession or business handle money for clients or customers; it exists in every area of commerce. Many solicitors, for years prior to the Solicitors Act 1965, placed a greater or smaller part of the aggregate balances on general client account on deposit with their bankers and were accustomed to receive and retain interest thereon; had they not done so, the entire benefit of those balances would have accrued to their bankers; as was demonstrated in the case of Brown v I.R.C. [1964] 3 All ER 119, the problems posed by a need to allocate interest to moneys held for a short time did, and does, not admit of a simple practical solution. The Solicitors Act 1965 enshrined solicitors' rights and responsibilities in this matter and gave effect to the practice and custom referred to above. In terms of morality, therefore, many would differ from the views expressed in Mr. Zander's article that solicitors should be specially selected for treatment different from the rest of the community. The position in the Commonwealth countries referred to is historically different; it is understood that lawyers in those Commonwealth States or Provinces which have legislated in this sphere have never received nor counted on deposit interest from general client account as part of their income or as an aid to their cash flow; there are differences in the regulation of remuneration and conditions of practice between the Common- wealth countries and England which require detailed examination before any true comparison can be made. For many years the Law Society's Compensation Fund has safeguarded the interests of the public against the dishonesty of solicitors in connection with their practice; there is no need for a fidelity or guarantee fund in England and that is one of the main purposes of the legislation in at least one of the States in Aus- tralia. Legal Education has been sponsored by English solicitors for many years; the College of Law is a memorial to that sponsorship of which solicitors arc justly proud. Legal Aid in England was, from its conception, nur- tured by the English legal profession. The financial con- tribution and sacrifice of time by members of the legal profession in general and solicitors in particular re- ceives little or no recognition nor on the whole is re- cognition sought.

The circumstances in England and the Common- wealth countries are not parallel and it appears that the Commonwealth legislation was promoted to fill gaps in their system which had already been catered for in England. Reply to Mr. Zander's criticisms Mr. Zander's article states certain propositions in support of its concluding recommendations: 1. "Interest on client account does not 'belong' to solicitors". The widest commercial practice and custom would entitle a solicitor to such interest; the issue be- fore Parliament in 1965 considering the Solicitors Bill was whether in the light of "the Brown decision" and having regard to the special features of the solicitor/ client relationship that practice and custom should be displaced by Statute. The rights of his client were and are uppermost and the formula was designed through the medium of the Solicitors Act 1965 and the Solicitors Accounts (Deposit Interest) Rules 1965 to ensure, irre- spective of whether a solicitor chose to deposit the whole or any part of the mixed balances on his client account, that he is himself under a personal obligation to pay interest to a client on moneys held where in fairness interest ought to be earned for the client; subject to that responsibility the Statute enshrines the commercial practice. 2. " It would hit hardest those firms that do least for the kind of public purposes that would benefit". This must be a matter for speculation; the majority of solicitors do undertake in their professional or private capacity some public and social work; certainly many city solicitors are so involved; very often the larger commercial clients move money around with such directness that the question of deposit — even over- night — does not arise. The large city firms are not necessarily the recipients of the most deposit interest. 3. "The money would be extremely welcome". Money for public purposes is, of course, always wel- come especially when it comes from somebody else's pocket. Tn so far as payment for legal services to be provided is part of the welfare state the cost should be borne out of the public purse as with all other services. The legal profession is independent and a bul- wark of the liberty of the individual; there are those whose aim is to establish a National Legal Service and they would be vociferous in their claims over any moneys derived from this source under the initial guise of promoting the cause of the disadvantaged sectors of the community. Fairness dictated that arguments contrary to the con- clusion recommended in the article should be set forth as indeed they were, at least in part: 1. "It would not be right to single out solicitors". That is, indeed, fair comment for the reasons stated above. 2. "The money is being used to subsidise unecon- omic work". That may indirectly be the case inasmuch as it is treated, except for taxation purposes, as part of the general income of a solicitor's practice. Many solicitors do, however, regard the receipt of deposit interest as a contribution towards the cost of every increasing 'dead' overheads. The central administration of a solicitor's office today has to cater for sophisticated accounting procedures, to deal with clients' money, staff salaries, pensions and employment, VAT, insurances, time costing and general organisation, none of which is itself productive. More importantly the receipt of deposit interest does ensure a cash flow for the maintenance of those central services. 109