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GAZETTE
JUNE/JULY 1976
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.
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