I. INTRODUCTION

1.1 The Commission has a reference from the then Attorney General of New South Wales, the Hon F.J. Walker, Q.C., M.P., to inquire into a wide range of matters in relation to the legal profession in New South Wales. The terms of reference for this Legal Profession Inquiry, as it has become known, are reproduced in Appendix 1 of this Report.

1.2 In the course of the Inquiry we have published three Reports, each of which contains our final recommendations to the Attorney General on particular topics. - The First Report deals with general regulation of the legal profession the division of the profession into barristers and solicitors, various aspects of the Queen’s Counsel system, and the dress worn by advocates in court. The Second Report is concerned with the making, investigation and adjudication of complaints about lawyers, and certain other matters concerning discipline and standards within the legal profession. The Third Report considers restrictions on advertising and other forms of attraction of business by lawyers, and regulation of specialisation within the profession.

1.3 Each of these Reports was published in 1982 and is currently under consideration by the Government. Relevant developments since their publication have been summarised in our Annual Reports for 1982, 1983 and 1984 respectively. The 1982 Annual Report also contains a survey of the wide-ranging changes in the legal profession which have occurred since we published our first Discussion Paper in 1979.

II. THE SCOPE OF THIS REPORT

1.4 The present Report is concerned with the law and practice relating to solicitors trust accounts. The following parts of our terms of reference are of particular relevance to these topics:

“To enquire into and review the law and practice relating to the legal profession and to consider whether, and, if so, what changes are desirable in

(a) the structure, organisation and regulation of that profession;

(b) the functions, rights, privileges and obligations of all practitioners; and

(c) the provisions of the Legal Practitioners Act - 1898 and the Rules and Regulations made thereunder and other relevant legislation and instruments,

with particular reference to but not confined to the following matters -

...

(h) the fixing and maintenance of ethical standards;

(i) the making, investigation and adjudication of complaints concerning the professional competence or conduct of legal practitioners and the effectiveness of the investigation and adjudication of such complaints by professional organisations;

(j) the making, investigation and adjudication of complaints concerning charges made for work done by legal practitioners;

(r) fidelity guarantees ... ;

(s) the Statutory Interest Account;

(t) the supervision by independent third parties of trust accounts of legal practitioners;

(u) the necessity for participation by legal practitioners in courses of continuing legal education.

III. OUR METHODS OF INQUIRY

A. General

1.5 At the commencement of the Legal Profession Inquiry we issued a general invitation to lawyers and members of the public to make submissions to us. We have received more than 400 submissions from a wide range of people and organisations, including some from other parts of Australia and from overseas. A number of responses have been made in other forms such as articles in periodicals, speeches and press releases.¹

1.6 We have had discussions with a wide range of lawyers about issues relevant to the Inquiry. Some of these meetings were at our initiative, while others were in response to invitations. They included State and regional law society meetings, barristers’ meetings, national and international conferences of lawyers, and university seminars, as well as many private interviews.² We arranged meetings on numerous occasions with office - bearers of the Law Society of New South Wales and the New South Wales Bar Association in order to discuss particular aspects of the Inquiry.

1.7 We have also had discussions with a large number of non - lawyers, including members of other professional disciplines such as accountancy. A special effort was made to obtain the views and experiences of people who are unlikely to write submissions to Inquiries or speak at public meetings, but who nevertheless may have well-informed and responsible views to express. We conducted “open houses” in eight country and six suburban centres where, at well - publicised times, any member of the public could talk privately to a member of the Commission (or, less frequently, to a member of the Commission’s staff about his or her experiences with lawyers. More than 300 people attended these open houses. More than 500 other people telephoned, visited, or wrote to us at the Commission. In addition we examined over 600 files in which the Law Society of New South Wales or the New South Wales Bar Association had dealt with complaints against their members, and we obtained information about many hundreds of other complaints.³

1.8 We have carried out a considerable amount of empirical research. Much of this research has been the subject of reports published in our Background Papers.⁴ In addition we co-operated with the Law Foundation of New South Wales in an extensive questionnaire survey of the profession.⁵ We also have undertaken or commissioned bibliographical research into the history and present operation of the legal profession and of certain other professions, in New South Wales and many other parts of the world. We have been assisted in this work by a number of academic consultants from law and other disciplines.⁶

1.9 With the benefit of the information and ideas obtained by the means referred to above, we prepared and published a series of six Discussion Papers on various topics falling within our terms of reference.⁷ These Papers described the present position in New South Wales in relation to the topics under consideration and made tentative suggestions for change in a number of areas. They were supplemented by five Background Papers containing further information about the position in New South Wales and in some other places.⁸

1.10 The Discussion Papers were published in order to obtain the benefit of responses to tentative suggestions before we decided upon final recommendations to be made in our Reports. The Papers received considerable publicity in the media, resulting in further submissions and other responses to us. They were also the subject of seminars and sessions of lawyers’ conferences in New South Wales and elsewhere.

B. Solicitors’ Trust Accounts

1.11 Matters relevant to solicitor’s trust accounts were canvassed in many of the submissions, discussions and research reports to which we have referred above. Particular mention should be made here of two lengthy submissions by the Law Society of New South Wales, and of discussions with representatives of that society, the New South Wales Auditor-General (Mr. Jack O’Donnell), the Joint Legislation Review Committee of the Institute of Chartered Accountants and the Australian Society of Accountants, representatives of two firms of accountants (Coopers and Lybrand, and Adrian Ross and Warry), officers of several inter-state law societies, and a number of individual accountants and solicitors in private practice. We gratefully acknowledge the assistance given to us in these ways.

1.12 In addition we commissioned three research reports on matters concerning solicitors trust accounts. First, the Accounting Research Centre at the University of Sydney carried out a survey of present practices of accountants in New South Wales and Queensland when inspecting or auditing solicitor’s trust accounts. Secondly, Coopers and Lybrand, a leading firm of accountants, prepared a report on theoretical and practical aspects of auditing solicitors trust accounts. Thirdly, Yarwood Vane & Co., another prominent firm of accountants,⁹ provided us with an analysis of their long experience in investigating, at the request of the Law Society of New South Wales, the affairs of solicitors who are suspected of having mishandled trust moneys. Each of these reports is reproduced in our Background Paper - V.

1.13 A Discussion Paper entitled Solicitors’ Trust Accounts and the Solicitors’ Fidelity Fund was published by the Commission in 1981. It described, amongst other things, the current law and practice relating to solicitor’s trust accounts in New South Wales, and it made tentative suggestions for change. Submissions in response to the Paper were sought and have been taken into account in the formulation of the final recommendations in this Report.

IV. STRUCTURE OF THIS REPORT

1.14 In chapter 2 of this Report we summarise the principal causes for concern in relation to mishandling of solicitor’s trust accounts in New South Wales. In chapter 3 we provide a relatively brief overview of the principal suggestions for reform relating to the solicitor’s trust accounts which we canvassed in our Discussion Paper in 1981, and of the responses which those suggestions have evoked from the Law Society of New South Wales as the body principally responsible for the current system. In doing so, we also summarise the main features of that system.

1.15 In the remainder of the Report (chapters 4-11) we consider a number of issues in detail and make our final recommendations in relation to them. The areas with which we deal are:

• handling trust moneys (chapters 4 and 5);
• recording and accounting for trust moneys (chapter 6);
• independent scrutiny of trust accounts (chapters 7-10); and
• investing clients’ money (chapter 11).

FOOTNOTES

1. Submission and certain other responses are listed in Appendices II and III of our First Report.

2. For further details, see First Report, para 1.6, note 1.

3. For further details of the inquiries mentioned in this paragraph, see out Discussion Paper, Complaints, Discipline and Professional Standards - Part I, and our Background Papers I and II.

4. See Background Papers II, III, IV and V.

5. A report on the results of this survey has been published by the Law Foundation, see R. Tomasic and C. Bullard, Lawyers and their Work in New South Wales (1978).

6. Our principle academic consultants are listed in Appendix IV of our First Report.

7. The Discussion Papers are listed on p.vii of this Report.

8. The Background Papers are listed on p.vii of this Report.

9. The firm has now merged with, and adopted the name of, Deloitte Haskins & Sells, a large international firm.