Duty to Account and Costs

Duty to Account

• Lawyers commonly hold money for or on behalf of others in trust accounts.
• Law practices also have office accounts for their own money.
• NSW Barristers’ Rules Rule 13 states a barrister must not act as a person’s general agent, attorney, or hold, invest, or disburse any funds for any other person, subject to rules 14 and 15.
• Regulation 15 of the Legal Profession Uniform Law Application Regulation 2015 allows receipt of trust money by a barrister in the case of a direct brief and only for the advance payment of their fees.

Why Hold Money on Trust?

• Deposit money into a trust account to cover future legal costs.
• Payment of client’s disbursements, such as:
  • Barrister’s fees
  • Expert opinion
• Holding money on behalf of a client.

What is Trust Money?

• Section 129 Legal Profession Uniform Law 2014 (NSW) defines "trust money" as money entrusted to a law practice in the course of or in connection with the provision of legal services.
  • Includes:
    • Money received on account of legal costs in advance of providing the services.
    • Controlled money received by the law practice.
    • Transit money received by the law practice.
    • Money received by the law practice, that is the subject of a power exercisable by the law practice or an associate of the law practice, to deal with the money for or on behalf of another person.

Dealing with Trust Money - Legal Profession Uniform Law 2014 (NSW)

• Section 135(1): A law practice must deal with trust money in accordance with this Law and the Uniform Rules and not otherwise. Civil penalty: 50 penalty units.
• Section 135(2): Trust money held by a law practice may be dealt with only by the law practice or an associate of the law practice.
• Section 136(1): A law practice that receives trust money to which this Part applies (other than controlled money or transit money received in a form other than cash) must maintain a general trust account in this jurisdiction. Civil penalty: 50 penalty units.
• Section 136(2): A law practice may maintain one or more general trust accounts in this jurisdiction.
• Section 137: A law practice must deposit trust money (other than cash) into the law practice’s general trust account as soon as practicable after receiving it unless:
  • The law practice has a written direction by a person legally entitled to provide it to deal with the money otherwise than by depositing it in the account; or
  • The money is controlled money or transit money; or
  • The money is the subject of a power given to the practice or an associate of the practice to deal with the money for or on behalf of another person. Civil penalty: 100 penalty units.
  • Note: Section 143 deals with trust money received in the form of cash.
• Section 138(1): Except as otherwise provided, a law practice must:
  • Hold trust money deposited in the practice’s general trust account exclusively for the person on whose behalf it is received; and
  • Disburse the trust money only in accordance with a direction given by the person.
• Section 138(2): Subsection (1) applies subject to an order of a court of competent jurisdiction or as authorised by law.
• Section 138(3): The law practice must account for the trust money as required by the Uniform Rules.
• Section 146: A law practice must not intermix trust money with other money unless authorised to do so by the designated local regulatory authority, and only in accordance with any conditions the designated local regulatory authority imposes in relation to that authorisation.
• Section 147(1): A law practice must keep in permanent form trust records in relation to trust money received by the law practice.
• Section 147(3): A law practice must not knowingly receive money or record receipt of money in the law practice’s trust records under a false name.
• Section 147(4): If a law practice is aware that a person on whose behalf trust money is received by the law practice is commonly known by more than one name, the law practice must ensure that the law practice’s trust records record all names by which the person is known.
• Section 148: Deficiency in trust account.
  • A law practice, an Australian legal practitioner, or any other person must not, without reasonable excuse, cause:
    • a deficiency in any trust account or trust ledger account; or
    • a failure to pay or deliver any trust money.
  • Penalty: 500 penalty units or imprisonment for 5 years, or both.
  • "Cause" includes being responsible for.
  • "Deficiency" in a trust account or trust ledger account includes the non-inclusion or exclusion of the whole or any part of an amount that is required to be included in the account.

Mandatory Reporting

• Section 154 Reporting irregularities and suspected irregularities:
  • As soon as practicable after:
    • a legal practitioner associate of a law practice; or
    • an ADI; or
    • an external examiner; or
    • another entity of a kind specified in the Uniform Rules for the purposes of this section
  • becomes aware that there is an irregularity in any of the law practice's trust accounts or trust ledger accounts, the associate, ADI, examiner, or entity must give written notice of the irregularity to the designated local regulatory authority.

Withdrawing Trust Moneys - Legal Profession Uniform General Rules 2015 (NSW)

• Rule 42(3): Once the law practice has rendered a complying bill of costs to the client, and there is no objection made to that bill by the client, the practice may transfer funds from trust to pay the account on the expiration of seven days.
• Rule 42(4): If instructions giving authority to withdraw the funds are held by the law practice and the practice has made a request for payment, noting the proposed withdrawal.
• Rule 42(5): The law practice may withdraw trust funds if the money is owed to the law practice by the client as reimbursement of money the law practice has paid on behalf of the person (for example, disbursements).
• Rule 42(6): Where the client is a commercial or government client, trust money may be withdrawn to pay costs when a bill specifying the amount payable has been rendered and the money is withdrawn in accordance with a complying costs agreement.
• Council of the Law Society of New South Wales v Bouzanis [2017] 97 NSWLR 488.

External Audit

• Section 155 Legal Profession Uniform Law 2014 (NSW): a law practice is required to have its trust records externally examined once in each financial year if it has received or held trust money, excluding transit money.

Fidelity or Guarantee Funds

• Allow claims by members of the public (not other clients) who suffer loss through "defaults" by a law practice to pay or deliver trust money or trust property.

Misappropriation

• In considering whether any misappropriation amounts to professional misconduct, it doesn’t matter:
  • If the money has been repaid.
  • The client has not suffered a loss.
• Dishonesty is treated very seriously and will most likely result in being removed from the roll of lawyers.
• Berger v Council of the Law Society of New South Wales [2019] NSWCA 119.
• Also applies to lay associates:
  • Council of the Law Society of New South Wales v Ip [2023] NSWCATOD 157: The lay associate (registered accountant who was also a director of firm) disqualified indefinitely for using trust money to fund all sorts of building projects (linked with client, but that is not what trust money was for). Coincidentally, he and his wife had various interests in all these projects too!
• Council of the Law Society of NSW v Pizzinga [2012] NSWADT 211.
  • Misappropriated $145,000$ and $118,452.46$ for personal use including paying off debt.
  • Made false entries in trust account to conceal misappropriations.
  • Misled the Law Society trust account investigator with respect to the withdraws.
  • Withdrew money to pay fees without sending a bill or obtaining authority.
  • Guilty of professional misconduct.
  • Despite the fact that he eventually repaid the money, the court determined he was unfit to practice law for the indefinite future and ordered his name be removed from the roll of lawyers.
  • Ordered to pay the costs of the Law Society.

R v Smith (2000) 114 A Crim R 8, [15]

• “Not only does the client or person of fraud suffer, but the integrity of the profession is necessarily called into question, and the courts must impose sentences which are calculated to ensure that no solicitor will be left in doubt as to the serious consequences that will follow from such conduct.”

Costs

Media Scrutiny of Costs

• Nikolaidis blames excessive costs on his secretary 2007.
• Keddies Lawyers accused of systemic overcharging July 2008.
• Maria Bechara accused of triple billing family – March 2009.
• Legal Services Commissioner v Maria Bechara [2008] NSWADT 215.
  • Client 1, Client 2, Client 3 cases heard simultaneously in a 6-day court hearing. Junior solicitor involved.

Legal Profession Uniform Law 2014 (NSW) s 169 Objectives

• The objectives of this Part are:
  • To ensure that clients of law practices are able to make informed choices about their legal options and the costs associated with pursuing those options; and
  • To provide that law practices must not charge more than fair and reasonable amounts for legal costs; and
  • To provide a framework for assessment of legal costs.

Legal Profession Uniform Law 2014 (NSW) s 172

• A law practice must, in charging legal costs, charge costs that are no more than fair and reasonable in all the circumstances and that in particular are proportionally and reasonably incurred and proportionate and reasonable in amount.
• In considering whether legal costs satisfy subsection (1), regard must be had to whether the legal costs reasonably reflect:
  • The level of skill, experience, specialisation, and seniority of the lawyers concerned; and
  • The level of complexity, novelty, or difficulty of the issues involved, and the extent to which the matter involved a matter of public interest; and
  • The labour and responsibility involved; and
  • The circumstances in acting on the matter, including (for example) any or all of the following:
    • The urgency of the matter
    • The time spent on the matter
    • The time when business was transacted in the matter
    • The place where business was transacted in the matter
    • The number and importance of any documents involved; and
  • The quality of the work done; and
  • The retainer and the instructions (express or implied) given in the matter.
• In considering whether legal costs are fair and reasonable, regard must also be had to whether the legal costs conform to any applicable requirements of this Part, the Uniform Rules and any fixed costs legislative provisions.
• A costs agreement is prima facie evidence that legal costs disclosed in the agreement are fair and reasonable if:
  • The provisions of Division 3 relating to costs disclosure have been complied with; and
  • The costs agreement does not contravene, and was not entered into in contravention of, any provision of Division 4.

Avoidance of Increased Legal Costs - Legal Profession Uniform Law 2014 (NSW) Section 173

• A law practice must not act in a way that unnecessarily results in increased legal costs payable by a client, and in particular must act reasonably to avoid unnecessary delay resulting in increased legal costs.

Division 3 - Costs Disclosure - Section 174 Disclosure Obligations of Law Practice Regarding Clients

• Main disclosure requirement:
  • A law practice must, when or as soon as practicable after instructions are initially given in a matter, provide the client with information disclosing the basis on which legal costs will be calculated in the matter and an estimate of the total legal costs; and
  • must, when or as soon as practicable after there is any significant change to anything previously disclosed under this subsection, provide the client with information disclosing the change, including information about any significant change to the legal costs that will be payable by the client– together with the information referred to in subsection (2).
• Disclosure to be written:
  • A disclosure under this section must be made in writing, but the requirement for writing does not affect the law practice's obligations under subsection (3).

Billing Arrangements in Australia

• Billable Hours
  • Eg. My hourly rate is $450$ (GST inclusive). This is divided pro-rata into 6 minute units at $45$ each.
    • For a letter that takes 10 minutes to prepare and finalize = $90$
    • For a telephone enquiry to be dealt with inside 6 minutes = $45$
    • For the preparation of document that takes approximately 1 hour = $450$
• Contingency Fees
  • Speculative (no win no fee)
  • Uplift fee (conditional cost agreements are regulated by s 181 Uniform Law – not available in criminal law or family law matters)
  • Contingency paid as a percentage (not allowed in Australia – s 183 Uniform Law)
• Fixed/Flat Fees
  • Wills and estates/ conveyancing
• Disbursements

Costs Orders

• Party/Party Costs
• Solicitor/Client Costs
• Indemnity Costs
• General rule that costs follow the event: A successful party has a “reasonable expectation” of being awarded costs: Oshlack v Richmond River Council (1998) 193 CLR 72 at [67] and [134].
• Where a plaintiff discontinues without the consent of the defendant, or where the plaintiff’s claim is dismissed, the defendant is entitled to costs unless the court otherwise orders: see Scope Data Systems Pty Ltd v Agostini Jarrett Pty Ltd [2007] NSWSC 971.
• The power for an order for costs against a solicitor is derived from the court’s supervisory jurisdiction over officers of the court: Lemoto v Able Technical Pty Ltd (2005) 63 NSWLR 300 at [85]–[86].

Orders against Legal Practitioners Civil Procedure Act 2005 (NSW) s 99

• This section applies if it appears to the court that costs have been incurred:
  • by the serious neglect, serious incompetence, or serious misconduct of a legal practitioner, or
  • improperly, or without reasonable cause, in circumstances for which a legal practitioner is responsible.
• Orders available under this section:
  • Disallow the whole or any part of the costs in the proceedings.
  • Order a legal practitioner to pay any costs that the client has been ordered to pay to any other person.
  • Order a legal practitioner to indemnify any party (other than the client) against costs payable by that party.

Hypothetical Scenario

• Alex Murray, a family law and conveyancing practitioner, faced personal and financial difficulties after an acrimonious divorce.
• He transferred $8,000$ from his trust account to his office account to cover rent, intending to repay it.
• Over six months, approximately $45,000$ of client money was