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GAZETTE
AUGUST/SEPTEMBER 1994
Compensa t i on Fund Risk Cont rol
- The French CARPA Scheme
Colm Mannin
by Colm Mannin*
The efforts of the Law Society to deal
with the escalation of claims on the
compensation fund have focused the
attention of all Irish solicitors. The
sharp increase in the cost of the
practising certificate for the current
year will undoubtedly stimulate further
reflection on what can be done to
bring exposure within acceptable
limits.
As the problem is by no means unique
to Ireland, in its efforts to deal with it,
the Law Society may therefore find
guidance from the practice of some of
its foreign counterparts. In particular,
the CARPA scheme operated by the
French avocats provides a very
effective means of preventing
improper use of client funds. This
article will describe the operation of
the scheme. In preparing it, the author
sought the views of a cross-section of
members of the profession as to how
they perceived the effect of the
operation of the scheme on their
respective practices. Overall
impressions were very positive despite
recognised administrative delays in the
processing of transactions.
The CARPA Scheme of Handling
Client Funds
The essence of the scheme is that
instead of individual avocats or firms
of avocats lodging clients monies to
client accounts held in the name of the
practitioner or his firm, all funds must
be lodged to the bank account of the
CARPA, a non-profit making
association. The accumulated funds
can then be placed on short, medium
or even long-term investment. The
proceeds are used to further the
interests of the profession.
The scheme has thus two significant
differences compared to that which
operates in Ireland. Firstly, the funds
are not held in the name of the
individual lawyer or firm although the
latter has control of the account but
only by delegation from his Bar
Council so that his authority can be
withdrawn at any moment. Secondly,
except in the case of proceeds of sale
or sums recovered by sequester,
interest earned on clients funds does
not accrue to the benefit of the client
but rather to the profession itself. In a
sense, the client forfeits his right to
interest in favour of the CARPA so
that the latter can finance the various
services provided to the profession and
the public. From the client's
perspective, the most important
service he gets is the constant and
extremely rigorous surveillance which
CARPA maintains over the use of
client funds. In reality therefore, the
client is buying an insurance policy
against misuse of his funds.
It might be asked why the client
should have to pay anything to protect
himself against the negligence or
dishonesty of his lawyer. The
pragmatic answer to such an objection
must be that the profession has grown
such that the numbers of practitioners
and the amounts of monies they handle
dictate the need for tight control, the
cost of which will, in one way or
another, be reflected in the fees the
client will be asked to pay. The
efficiency of the CARPA scheme is
such that the overall cost is minimal.
For example, while few practitioners
would bother to place small amounts
in interest-earning accounts, they do
earn money under the CARPA scheme
because as all client monies are
payable to CARPA, the accumulated
total of funds, including even the
smallest amounts, constitutes a very
substantial sum on permanent
investment. Hence, in a city having
600 avocats, the local CARPA could
have a sum in the region of 250 to 300
million francs on permanent
investment.
Other justifications for the fact that the
client forfeits his right to interest on
monies deposited with his avocat are
that firstly, the latter takes no personal
benefit from the arrangement and
secondly, the interest earned is used to
improve the overall quality of service
provided to the public.
CARPA Associations
As already stated, CARPA is a non-
profit making organisation, constituted
as an association and operating very
much like any other type of
association with a charter, bye-laws,
committee, sub-committees and
Chairman (or President as he is called
in France). By virtue of that status, its
revenues are thus exempt from
taxation even though it has a defined
revenue-earning objective since its
charter authorises it to place client
monies on investment.
There is not one but several CARPA
associations, each within the
jurisdiction of a local Bar Council by
reason of the decentralised structure of
the profession of avocat. In France
there is no national Law Society.
Instead, each region has its own local
Bar Council (Conseil de l'Ordre)
headed by a president (Batonnier)
elected from the avocats attached to
the local Bar. Each Bar Council has its
own CARPA association. The
members of the association are the
individual avocats attached to the local
Bar. The association is governed by a
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