The Gazette 1976

GAZETTE

J U NE/J U LY 1976

First, as has been said above, the firms that benefit most from interest on client account are those that do least uneconomic work. Secondly, legal aid work, at least in the large cities, is mainly done by firms that specialise in it for whom no subsidy is necessary since it is far from unre- munerative. The recent study of legal services in Bir- mingham, for instance, showed that over half the legal aid work in the area was done by 10 per cent of the firms, and that for these firms legal aid represented over half their work. About 20 per cent of all firms did some legal aid work and 70 per cent did hardly any. ( Legal Services in Birmingham, Richard White et al, 1975, p. 35.) The study also showed that nearly all firms, including those that specialised in legal aid work, did a great amount of conveyancing (Ibid. p. 36.) 3. Solicitors, when they act as stakeholders, are entitled to retain interest earned in this capacity. This is true at present (see Potters v. Loppert (1973) 1 All ER 658). Legislation implementing the proposal made here would either have to change this rule, so far as solicitors are concerned, or make an exception for this category of case. There would seem no great case for excluding stakeholders. Under the present legal position, the stakeholder retains the interest, as has been said, "as his reward for holding the stake" (Smith v. Hamilton (1951) Ch at 184.) But as Lord Justice Harman said in that case, "the position seems to me an odd one". The office of stakeholder is hardly a burdensome one and may require no reward. Alter- natively, there is, presumably, nothing to prevent a stakeholder from charging normally for any work done in that capacity. 4. Some of the money held by solicitors for clients is on account of bills that have not yet been delivered. This seems a fair point and it would surely be reasonable to exclude any such moneys from the general rule. It is the solicitor who should have the interest on such moneys. 5. Solicitors only hold some of clients' money on deposit account. If legislation took the deposit interest from solici- tors, it might be said that there would be no incentive to place it on deposit. It would, however, be provided in the legislation that solicitors were required to place the whole or at least a proportion of their client funds on deposit. The Commonwealth legislation does this, and it seems to cause no problem. Arrangements could, presumably, be made with the banks to permit withdrawals to be made on short notice from moneys held on deposit — no doubt at a lower overall rate of interest. 6. The volume of interest on client accounts will vary from year to year with the economic position of the profession and the country as a whole. Insofar as the fund committed itself to expenditure in the fat years, it might find itself embarrassed in lean years. Obviously, if moneys are expended in years 1, 2 and 3 for, say, law centres, it would be extremely unfortunate if, in years 4, 5 or 6, some had to close because of a reduction in the level of income in the fund. There are various possible solutions. One is to get the Government to guarantee a minimum income, based on projections from previous years' experience. Another is to require the trustees of the fund to reserve a considerable amount of income for the first few years to guard against such contingencies. Certainly there are solutions that could work. 7. Interest on client account is now taxed at the highest rate earned by the partners as unearned income

and a large proportion of it, therefore, goes to the Revenue already. (This argument is, of course, to some extent incon- sistent with the contention that the profession relies on this source of income.) To the extent that it is true, it only means that there may be Treasury objections to the proposal made here. But maybe these could be overcome by pointing out the great benefits that could accrue from this use of interest on client account as against the present position by which £X go through taxation into the general pool of public moneys, whilst an additional £Y go into the pockets of solicitors. Instead of £X going to the Exchequer and £Y going to the profession, £X plus £Y would go to the pur- poses earmarked by the legislation. 8. The aggregate of moneys earned on client account would be a small proportion of legal aid funds gener- ally. This is, of course, true, but if sums of a few million pounds were generated from this source and were used as an additional source of income, it could be extraordinarily valuable. The fund could be used for a variety of purposes: law centres; to finance the Law Society's practical skills courses which had to be abandoned for lack of the profession's financial sup- port; institutional advertising; subventions to uni- versities interested in pioneering experiments in legal education; to undertake much needed research and development in the field of legal services; grants to organisations such as the Legal Action Group or the Child Poverty Action Group; to support representa- tion in tribunals by non-lawyers such as members of the Citizens' Advice Bureaux. Once the money started to flow, the trustees would find no lack of proper causes to support. It would be vital, of course, that the Treasury did not use the existence of the fund as a pretext for reducing existing funding. If this occurred, one would be back to square one. The Fund would, therefore, be used only for special and additional purposes. This seems to have been achieved in the Commonwealth jurisdictions. 9. Solicitors cannot afford to lose this income. The question whether solicitors are, or are not, currently enjoying a period of relative affluence cannot be regarded as critical to the principle at issue — this must stand or fall on its merits, irrespective of the precise level of profits at any given time. But in political terms it is obviously one of the factors that would be taken into account. A definitive answer to the level of the profession's income will now have to await the inquiries of the Royal Commission, but in the meanwhile it is legitimate to suggest that it is far from clear that the profession will be shown to have slipped behind inflation. In 1968 and 1969 the Prices and Incomes Board thought the profession was making "excess profits" on conveyancing, which remains by far the largest single source of its income. It recommended some increases and some decreases in scale fees. The increases were implemented; the decreases were not. Subsequently, scale fees were abolished altogether, ostensibly with a view to reducing fees to the consumer, but with largely the opposite effect. (See the special Which study in June 1975.) Of course, inflation has raised the cost of overheads and cash flow and working capital problems have in- creased. Also, conveyancing slowed down in the period 1972-74. (Building Society mortgages went from 681,000 in 1972 to 433,000 in 1974.) But recently 63