The Gazette 1976

GAZETTE

NE/J

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

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.

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.

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