I. INTRODUCTION

5.1 In this chapter we look first at the present position in New South Wales concerning the handling of money paid to solicitors for or on account of costs and disbursements. We do so under three headings, namely

• payment into a trust account;
• withdrawal from a trust account;
• refusal to withdraw from a trust account.

We then discuss difficulties which arise in each of these areas, and various possibilities for reform. We conclude the chapter with our recommendations.

II. THE PRESENT POSITION

A. Payment into a Trust Account

5.2 The statutory requirement to pay trust money into a trust account is expressly excluded in relation to “moneys receivable by a solicitor for or on account of legal costs, whether already due or to accrue due.”¹ There is considerable uncertainty about the meaning and scope of this exclusion. For example, it is not clear whether “costs” includes “disbursements”, nor whether it relates to all costs or, say, only those where the work has already been performed and a bill rendered to the client.² Moreover, confusion or dispute may arise over whether particular moneys paid to a solicitor were “receivable for or on account of legal costs” rather than having been paid for some other purpose or for general purposes.³

5.3 The effect of this exclusion is that money falling within its ambit need not be paid into a trust account. In some circumstances, however, such money must not be paid into a trust account. This arises from the general principle to which we referred in the previous chapter⁴ that trustees must not mix their own money with trust money. If a solicitor performs work, renders a bill and then receives payment of the amount shown in that bill the money is received as his or her own money and therefore must not be paid into the trust account(unless it is received as part of a payment which also includes trust money⁵). The position is less clear, however, where the money is received after the work has been done but before a bill has been rendered. In this situation it may be permissible for the money to be treated as trust money, rather than as the solicitor s money, and paid into the trust account. Indeed, it may be mandatory to adopt this procedure in such circumstances.

5.4 It is not surprising, given the uncertainty of law, that there is no uniform practice amongst solicitors in New South Wales concerning payment into the trust account of moneys received for or on account of professional costs and disbursements. In relation to money received for or on account of costs, if the work has been done and a bill rendered before the money is received by the client, most solicitors would pay the money directly into their general account rather than their trust account. If the work has been done but no bill rendered, some solicitors would pay the money directly into their general account, but others would pay it into their trust account at least until a bill has been rendered. If the work has not yet been carried out, most solicitors would pay the money into their trust account, save perhaps where the work is to be completed in the very near future. In relation to money received for or on account of disbursements, most solicitors usually would pay the money straight into their general account if the disbursements have already been made or are about to be made, especially if the amount involved is substantial, but otherwise would pay it into their trust account.

B. Withdrawal from a Trust Account

Entitlement to Withdraw

5.5 There is also some controversy about the law relating to withdrawals from trust accounts in relation to costs and disbursements. The first issue concerns the circumstances under which solicitors may make such withdrawals. Prior to 1976, it was generally considered amongst solicitors in New South Wales that they were entitled to withdraw trust money held on behalf of a client in order to pay costs earned by them, and disbursements made by them on behalf of that client, irrespective of whether the client had instructed them to make such a withdrawal. In the light of a Supreme Court decision in that year,⁶ however, it now appears that withdrawals may be made in two situations only, namely where

• the client has given clear instructions to that effect; or
• the solicitor has what is known as a “particular lien”, and has obtained a court order entitling him or her to withdraw the money.⁷

A particular lien applies only to such money, if any, as the solicitor has obtained for the client by means of litigation or arbitration and has paid into his or her trust account. The lien can be used by the solicitor to obtain a court order permitting withdrawal from that money to meet such costs and disbursements as were earned or made in the course of conducting the particular litigation or arbitration in question but not other amounts to which the solicitor may claim to be entitled.⁸

5.6 Until 1976 it was not uncommon for solicitors to pay their costs and disbursements from trust money without obtaining the clients instructions to do so. We understand, however, that the profession at large now accepts that this practice is unlawful and that prior instructions must be obtained. But there is room for doubt about whether, in fact, clients’ express instructions are always obtained; great and perhaps unjustified, reliance may sometimes be placed on what a solicitor alleges is implied acquiescence by a client. Many solicitors usually render a bill when seeking a clients instructions to pay themselves from trust money, or, if they already have such instructions, they may render a bill upon or before implementation of those instructions. Bills are less likely to be rendered in relatively simple matters or where a fee has been agreed in advance.

Requirement to Withdraw

5.7 The second issue concerns the circumstances in which solicitors must make withdrawals from their trust account in relation to costs and disbursements. After much uncertainty and debate, the current law in New South Wales has been described authoritatively by the Court of Appeal as follows:

“If a solicitor is entitled, on his client’s behalf, to pay and, on his own behalf, to receive money of the client in the solicitor s trust account to meet costs owing by the client to the solicitor, the proper course is to separate what is to become the solicitor s money from trust moneys, by a withdrawal of the money from the trust account and by payment of the cheque to the solicitors general account.”⁹

It is not permissible, the Court said, for the money merely to be transferred within the trust account from a ledger account in the client s name to one in the solicitors name.¹⁰ We assume that the term “costs”, as used by the Court of Appeal in this context included “disbursements”.

5.8 Despite this recent clarification some major questions remain unresolved. The most important one is: when does a solicitor become, in the words of the Court of Appeal, “entitled to receive money for his or her costs or disbursements?¹¹ It may be argued that the entitlement arises when the work is done or the disbursement made, subject to the general rule that, in the absence of agreement to the contrary, no money for professional costs is payable by a client to his or her solicitor until the whole task is completed.¹² Alternatively, it may be argued that no entitlement arises until the solicitor not only carries out the work, or makes the disbursement, but also renders a bill.¹³ A third possibility is that entitlement does not arise until one month after a detailed bill has been rendered. This possibility arises from the existence of a statutory prohibition against solicitors suing for their costs until one month after they have delivered a detailed bill to their client.¹⁴

5.9 A second unresolved question is how quickly solicitors must pay themselves from their trust accounts upon becoming entitled to do so. Must they, for example, do so “forthwith”, or within a day or a month?

5.10 It seems clear that solicitors are under no general obligation to take prompt action upon completing work for a client, to render a bill and/or seek instructions to pay themselves from any trust money which they may hold for or on behalf of the client. Accordingly, sums of money which a solicitor has earned, and would be entitled to withdraw if he or she completed the requisite formalities, may remain in the trust account for substantial periods. In other words, a trust account may contain considerable sums of money to which, in a loose colloquial sense, the solicitor is entitled although in a legal sense they remain on trust for the client.

5.11 Following the Court of Appeal decision in 1982, the Law Society advised its members that they must discontinue the hitherto widespread practice of transferring money, said to be due from a client for costs and disbursements, from a trust ledger in the clients name to one in their own name. It is not known whether this directive has been implemented by all solicitors. In the Court of Appeal reference was made to a

“suggestion that whilst a solicitor may not yet have acquired an entitlement in respect of the trust bank account moneys or an entitlement to be paid a particular amount (because, for example, he had not complied with all of the precedent formalities in that regard), yet he may set up in the trust account records an account of the amounts which subject to compliance with such formalities, he will be entitled to have. Such an account would be generally of the nature of a control account, recording amounts which by a proper appropriation, will become his”.¹⁵

One member of the Court indicated that he regarded such control accounts as lawful.¹⁶ The Law Society has taken the view that it is permissible to use a “Costs and Disbursements Clearing Account in the trust ledger for the purpose of transferring costs and disbursements from the trust account to the general account, provided that money passes straight through the clearing account and it has a “nil balance” at the end of each day.

C. Refusal to Withdraw from a Trust Account

5.12 We have referred earlier to the “particular lien” which in certain circumstances enables solicitors to obtain a court order under which they may pay themselves from a clients trust money even though the client does not wish them to do so.¹⁷ Where this lien applies, it also entitles solicitors to refuse to pay the money out of their trust account despite their client’s instructions that they must do so.

5.13 At common law, solicitors also have what is called a “general lien” over money in their possession.¹⁸ One effect of this lien is that, until a client has paid his or her costs or disbursements, the solicitor is entitled to retain money in their possession which otherwise would be payable to the client. The general lien does not entitle solicitors to do more than retain money, unlike the situation where they have a particular lien, they cannot pay it to themselves. It is arguable, however, that the general lien does not apply to trust moneys and, if it does, has been overridden in that respect by statute in a number of jurisdictions, including New South Wales.¹⁹

5.14 But even if they do not have a general lien over trust money, solicitors may be entitled, in effect, to deduct money which a client owes to them for costs and disbursements from any trust money which they may owe to that client. This right of “set-off” exists at common law and may not have been overridden by statute in New South Wales.²⁰

III. DISCUSSION

A. Payment into a Trust Account

Future Work or Disbursements

5.15 It is difficult to see any good reason why solicitors should not be required, generally speaking, to pay into a trust account any money received on account of costs for work which they have not yet performed or disbursements which they have not yet made. We know of no jurisdiction other than New South Wales in which solicitors are not subject to such a requirement We suggested in our Discussion Paper that a general requirement of this kind should be introduced,²¹ and the Law Society has expressed its agreement with that suggestion.²²

5.16 There are two possible exceptions to such a requirement which merit particular consideration. The first is where the client instructs the solicitor to deal with the money in some way other than paying into the trust account. This may occur, for example, where a matter is likely to be protracted and the client agrees to make part-payment in advance rather than expect the solicitor to go without any payment until the matter has been completed. The Law Society considers that an exception should apply where solicitor and client make an arrangement that the money should not be paid into the trust account.²³ In several other jurisdictions, including England²⁴ and Ontario,²⁵ such an arrangement must be in writing signed by the client. The principal justification for requiring written instructions is to reduce the possibility of confusion or dispute arising, not only about whether the alleged instructions were actually given but also about the services and disbursements intended to be covered by the payment. The latter concern suggests that it may be appropriate to require the solicitor, immediately upon receipt of the money, to render a bill or receipt which identifies the services, as yet unperformed, for which the money is being paid. A requirement of this kind applies in British Columbia.²⁶

5.17 The second possible exception concerns the situation where the work is to be performed, or the disbursement made, very shortly after the client pays the money. For example, when solicitors appear in a Court of Petty Sessions for a client, it is not uncommon for them to be paid in full, often at their request, a day or even only a few minutes before the hearing. It may be argued that in these circumstances it is unduly officious to require the money to go through a trust account. On the other hand, we have recommended earlier²⁷ that money need not be paid into a trust account until the end of the next banking day. If the work has been performed by that time, the money can be handled on that basis rather than as payment for work not yet done. The same would apply to disbursements made before the end of the next banking day. Moreover, any inconvenience can readily be avoided by obtaining the clients written instructions not to pay the money into the trust account.

Past Work or Disbursements

5.18 There is no dispute, so far as we are aware, that where solicitors receive money for work which they have performed, or disbursements which they have made, they should not have to pay the money into a trust account if they have written instructions from their client to handle it in some other way. Indeed, if the instructions require, rather than merely permit, the money to be handled in this other way, the solicitor must comply with them.

5.19 A more difficult question is whether, in the absence of written instructions, solicitors should have to pay the money into a trust account unless some form of bill for the relevant costs or disbursements has been rendered. The main justification for such a requirement is to provide written evidence for all concerned, including those responsible for examining the solicitors accounts, of the purpose for which the payment was made and the reason why it did not go into the trust account. Of course, a bill is unlikely to be of much assistance in this regard unless it gives some particulars of the work performed and the disbursements made, and indicates the period during which these events occurred.

5.20 The principal argument against requiring a bill to be rendered is the work and delay which it may involve. But the work and delay need not be substantial if it is accepted that the bill need not particularise the services in detail approaching that of a bill of costs suitable for taxation. Moreover, the requirement to prepare a bill would help to ensure that solicitors carefully what services they are charging for, and what are the appropriate charges for those services, before deciding upon a total sum to be sought from the client.

5.21 There may be a case for distinguishing between costs and disbursements in this context. It would be unreasonable to require a solicitor to remain for a lengthy time without reimbursement of a substantial out-of-pocket expense on behalf of a client. On the other hand, if the need to recoup a substantial disbursement, or a series of disbursements, became of substantial concern to the solicitor, he or she could solve it by rendering a bill and obtaining payment Moreover, the need for accountability and for accurate records is no less significant in relation to disbursements than in relation to costs.

5.22 The only specific provisions about withdrawals for past work or disbursements in the other jurisdictions to which we have referred are those in England and Ontario. In each case the provisions refer to money which must not be paid into a trust account In England, this requirement applies to money which is paid to the solicitor

in reimbursement of money expended by the solicitor on behalf of the client; or which is expressly paid to [the solicitor] either -

(i) on account of costs incurred in respect of which a bill of costs or other written intimation of the amount of the costs incurred has been delivered for payment; or

(ii) as an agreed fee ... for business undertaken.”²⁸

In Ontario, the requirement applies to money

“that is received by the [solicitor]... for services already performed for which a billing is delivered forthwith thereafter or is received to reimburse the [solicitor] for disbursements made or expenses Incurred on behalf of the client.”²⁹

5.23 In our Discussion Paper we suggested, in effect, that money received for past work should have to be paid into a trust account unless and until a bill, not necessarily in detailed form has been rendered.³⁰ The Law Society responded that the money should have to be paid into a trust account unless there is an “arrangement to the contrary” or the money is “capable of being applied against either a bill already rendered or disbursements already paid.³¹

Direct Payments Register

5.24 We have recommended earlier that money which is received by a solicitor on trust but is not paid into a trust account should be recorded in a Direct Payments Register.³² There would be obvious advantages in requiring that any money received for or on account of costs or disbursements, but not paid into a trust account, should also have to be recorded in that Register. In many instances the nature and propriety of certain payments into, or withdrawals from a trust account in relation to a particular client cannot be established without knowing details of any payments by the client for costs or disbursements which have not passed through the trust account.

B. Withdrawal from a Trust Account

5.25 As we explained earlier the present position in New South Wales is that solicitors must not withdraw money from their trust accounts for costs or disbursements unless either they have clear instructions from their client to do so, or they obtain a court order for withdrawal because they have a particular lien over the money in question. Two principal areas arise for consideration of possible reforms, and we look at each of them in turn below.

Upon Client’s Instructions

5.26 First, should the client’s instructions to withdraw costs and disbursements provide sufficient justification in themselves for making such a withdrawal? The main arguments in favour of this approach are the general desirability of giving paramountcy to clients’ wishes, and the fact that in some circumstances it may be of great importance to clients that they be entitled to give advance authorisation for a withdrawal. There are situations, especially where major disbursements may be necessary at short notice, in which it would be quite reasonable for solicitors to insist on such authorisation as a condition of being willing to undertake the clients work.

5.27 On the other hand, there is considerable scope for uncertainty and argument about whether instructions were given, or in what terms they were given unless they are in writing. The embarrassment and difficulty involved in resolving such a dispute is likely to be increased by the fact that, by contrast with other types of instructions over which dispute may arise, the instructions being alleged by the solicitor are in his or her personal interests. A further difficulty is that instructions may be given without an adequate understanding of the reasons for which the withdrawal is to be made, nor of the rights which the client is forgoing by giving those instructions.

5.28 In some jurisdictions, such as Queensland,³³ the client’s instructions to make withdrawals for costs or disbursements are sufficient justification for doing so provided that they are in writing. In our Discussion Paper we suggested a similar approach.³⁴ The Law Society responded by questioning the utility of requiring instructions to be in writing.³⁵ It said that there would be nothing to prevent a solicitor obtaining a very broad authorisation from the client well in advance. For example, upon commencing to act for a client a solicitor might obtain the following instructions from the client:

“You are hereby authorised to deduct at the appropriate time your proper costs and disbursements in this matter from moneys you are holding or may or wi ‘II receive on my behalf.”

Moreover, the Society said that the instructions might be given without the client being aware of his or her rights to require a bill and to have it taxed.

5.29 A possible response to the Law Society’s criticisms is to require that the clients authorisation must either be in a prescribed form which entails a reasonable degree of specificity, or must have attached to it the bill which is to be paid pursuant to it. In addition, the authorisation could be required to include a prescribed form of explanation of clients rights to refuse to sign authorisations, their rights if they do sign them, and their rights if they do not sign them.

Without Clients’ Instructions

5.30 The second major question concerning withdrawals for costs or disbursements is whether there are circumstances in which they should be permissible without the clients instructions. We have explained earlier that until 1976 solicitors in New South Wales believed that they could make such withdrawals without clients instructions. They now can do so only if they have a particular lien.

5.31 An idea of the range of situations in which solicitors could be given the right to withdraw without their clients instructions can be obtained by looking at the present position in other jurisdictions. In some Jurisdictions, including Victoria,³⁶ England³⁷ and Ontario,³⁸ solicitors may withdraw money for disbursements provided that they have been made already, and money for costs provided that a bill, or other written notification of the amount of costs, has been delivered” to the client In England, the client must also be notified in writing that the money is being or will be applied towards or in satisfaction of the costs.”³⁹ The law societies in Victoria and South Australia have advised their members that they should “issue a bill of costs to the client wherever costs are taken from the trust account and [not] take such costs until the client has had proper opportunity to object.”⁴⁰

5.32 In Queensland, withdrawals without clients instructions are permissible in the following circumstances only:

• where a bill has been rendered and taxed;
• where “an untaxed Bill of Costs has been delivered to the client and at the expiration of one month after delivery no evidence exists of any objection by the client to the quantum thereof; or
• where the solicitor has made disbursements “on the client’s instructions”.⁴¹

5.33 In our Discussion Paper we Suggested that solicitors should be entitled to withdraw money for disbursements, without obtaining their clients instructions or rendering a bill.⁴² But we suggested that withdrawals for costs should not be permitted until a bill not necessarily in detailed form, has been delivered and one month has expired without objection from the client as to quantum.⁴³ This suggestion was based on the Queensland provisions referred to above, and was influenced by the existing statutory requirement in New South Wales that before suing for costs or disbursements solicitors must deliver a detailed bill and wait one month to see whether the client requires the bill to be taxed.⁴⁴ The Law Society’s response agreed in effect with our suggestion save for the proposed one-month waiting period.⁴⁵

5.34 In view of the broad consensus on many issues raised above, including the requirement to deliver a bill before withdrawing for costs, we concentrate here on the principal area of disagreement, namely the question of a one-month waiting period after delivery of the bill. The main arguments in favour of such a period are that clients should be given a reasonable amount of time in which to consider whether to challenge a bill, and pending the determination of such a challenge solicitors should not be able to gain the great advantages of paying themselves the money in dispute. We have mentioned the existing statutory requirement of a one- month period between delivering a bill (which must be in taxable form) and suing the client for payment. The argument for such a protection is, if anything, stronger in relation to withdrawing from a trust account than it is in relation to suing.

5.35 It is important to bear in mind in this context that withdrawals for costs or disbursements have been a major area of trust account abuse in New South Wales in recent years. They have caused serious harm to clients, substantial losses for the Solicitors Fidelity Fund, and great damage to the reputation of the profession.⁴⁶

5.36 The Law Society argues, with some justification, that if the procedures for withdrawing money without the clients instructions are made too onerous, many solicitors may make a practice of obtaining general instructions to withdraw almost whatever they want whenever they want it.⁴⁷ There is no shortage of clients who could be persuaded to sign such authorisations without really understanding the consequences. However, as we have mentioned earlier,⁴⁸ one response to this argument is to tighten up the requirements concerning written instructions. The Society also points out that some people, such as travel agents, have a statutory right to withdraw money from their trust accounts for costs and disbursements.⁴⁹ It may be doubted, however, whether such rights are appropriate and, in any event it may be argued (as the Law Society has done in other contexts, such as conveyancing) that solicitors have a useful “selling point” for their services if they can point to stringent protections for their clients which do not apply to other occupational groups.

5.37 A further argument put by the Law Society is that solicitors are less likely to undertake work for clients who are not demonstrably well-to-do if they do not have the security of knowing that any trust money held for such a client can be withdrawn to pay their costs or disbursements. Solicitors, it is argued, may refuse to act for such clients or may insist on conducting credit-worthiness checks. One response to this argument is that many other professions and occupational groups are in this position. Another is that it is now eight years since solicitors “lost” what they had hitherto regarded as a right to withdraw without the client s instructions, yet there is no evidence that this “loss” has increased the reluctance amongst solicitors to act for less-wealthy clients. Furthermore, if solicitors were permitted to withdraw money one month after rendering a bill (in the absence of objections, they would be in a better position than at present, since they are now unable to withdraw without instructions unless they have a particular lien and obtain a court order.

5.38 If a one-month period is to be adopted, the question arises as to what action the client must take during that time it he or she wishes to prevent withdrawal from the trust account. An obvious possibility is to require the client to seek taxation, which would involve as a prelude the preparation by the solicitor of a bill in taxable form. Another possibility, which in practice may not be very different, is merely to require the client to raise “an objection” which is the term used in the Queensland provision.⁵⁰ Presumably, the solicitor would then have to pursue the procedure for suing, which under present law involves the preparation of a bill in taxable form and the client having one month thereafter to seek taxation.⁵¹

5.39 A major difficulty with both of these possibilities is the substantial inconvenience, delay and expense involved in the present taxation system. It is widely agreed that the system is inadequate from the viewpoints of both solicitors and clients. It is beyond the scope of this Report to propose reforms of that system. If, however, a simpler, quicker and cheaper procedure was introduced, clients could be required to resort to this new procedure within one month of receiving a bill if they wish to dispute withdrawals for costs of disbursements.

C. Refusal to Withdraw from a Trust Account

5.40 Solicitors’ “particular lien” relates only to money obtained for a client by a solicitor as a result of litigation or arbitration.⁵² It is difficult to see why money of this kind should be treated differently from other money received by the solicitor for or on behalf of a client, such as money obtained by negotiation, investment or some other non-litigious process. This is true not only in relation to solicitors withdrawing the money in order to pay it to themselves (“active enforcement”) but also to solicitors refusing, despite the client’s instructions, to withdraw the money and pay it to the client or some other person. If a general procedure is specified by which solicitors may withdraw trust moneys for costs or disbursements without having their client s instructions to do so, there seems no good reason to retain a special procedure in relation to moneys of the kind now covered by a particular lien. If this special aspect of a particular lien is abolished, there then ceases to be any reason for preserving a distinction between particular liens and general liens.

5.41 We have referred earlier⁵³ to the doubt which currently exists about whether or not the solicitors “general lien” over trust moneys has been overridden by statute in New South Wales. It is obviously desirable that as important a question as this should be clarified authoritatively, preferably by statute. There is no doubt that a general lien is of considerable assistance to solicitors since in many cases it provides them with a substantial measure of security for their costs and disbursements. In the absence of such a lien they may be more inclined to require full payment in advance, or to conduct creditworthiness checks, before agreeing to act for a client. Moreover, if there were no general lien, and solicitors were required to render a bill and wait one month before withdrawing their costs or disbursements, clients could withdraw all their trust money before the month expired. This could be seen as putting solicitors at an unfair disadvantage.

5.42 On the other hand, the general lien can enable some solicitors to bring undue pressure on clients to pay bills which are unreasonably high. The procedures by which clients can challenge bills and thus recover trust money to which their solicitor is not properly entitled are cumbersome, expensive and slow. These disadvantages may affect both solicitor and client, but they tend to fall more heavily on the latter. This is especially so since the client will usually have to pay another lawyer to pursue this course of action and unless the bill is reduced by at least one-sixth on taxation the client will have to bear the costs incurred by his or her original lawyer in the course of the taxation process.⁵⁴

IV. RECOMMENDATIONS

A. Introduction

5.43 Our recommendations emerge from the preceding discussion and the principal reasons for them have been canvassed in the course of that discussion. Where money is paid to a solicitor for or on account of costs and disbursements we consider that in order to protect the client and to ensure adequate records of the transaction it should have to be paid into the trust account or, where it falls within an exemption from that requirement, should have to be recorded in a register which forms part of the trust account records. We consider also that, generally speaking, solicitors should not be permitted to appropriate clients’ money to themselves for their costs or disbursements unless, prior to the appropriation the clients have been adequately informed in advance and have approved, or acquiesced in the proposed appropriation. In order to ensure adequate protection for clients, and to avoid subsequent confusion or dispute, detailed rules are necessary in relation to the types of information which must be provided to clients, the ways in which their approval may be indicated, and the procedures to be followed before their acquiescence can be presumed.

5.44 On the other hand, solicitors should not be allowed to hold their own money in their trust account, thereby confusing the management and records of that account, and also depriving potential creditors of access to the solicitors resources. Accordingly, they should not be permitted to pay their own money into their trust account, and should be required to withdraw their own money from their trust account within a reasonably short time of being entitled to do so.

5.45 We turn now to detailed recommendations in relation to respectively, payment into a trust account, withdrawal from such an accounts and refusal to withdraw from such an account of money for or on account of costs or disbursements.

B. Payment into a Trust Account

5.46 We recommend that money received for or on account of costs or disbursements should have to be paid into a trust account unless

• the client has given written instructions for the money to be handled in some other way, and before or upon receipt of the money the solicitor delivers to the client an outline bill or receipt identifying the services or disbursements for which the money is being paid; or
• work has been done or disbursements have been made, an outline bill has been delivered to the client, and the money is applied towards payment of that bill.

If either of these two exceptions applies,

• the money must not be paid into a trust account, unless in the case of the first exception the client’s instructions leave the solicitor with a discretion as to whether or not the money is to be so paid pending its payment elsewhere; and
• the transaction must be recorded in the Direct Payments Register, the establishment of which we have recommended earlier in this Report.

5.47 If work has not been done, or disbursements have not been made, at the time of receipt of the money, but it is done or they are made, and a bill is delivered, before the next banking day, the money must not be paid into a trust account (if such payment into the trust account has not already occurred before the bill is delivered).

5.48 In order to constitute an “outline bill”, a bill should contain sufficient particulars to enable the general nature and scope of the work and/or disbursements to be identified and to be distinguished from other work done or likely to be done, or disbursements made or likely to be made, for the client in question. The bill should indicate the period which it covers.

C. Withdrawal from a Trust Account

5.49 We recommend that a solicitor should not be permitted to withdraw money from a trust account for or on account of his or her own costs or disbursements unless

• the solicitor has delivered to the client an outline bill, and the client has thereafter given written instructions, in a prescribed form, for the withdrawal to be made;
• the solicitor has delivered to the client an outline bill, attached to which is a statement in a prescribed form that money to meet the bill will be withdrawn from the trust account unless the client objects within one month to the quantum of the bill, and no such objection has been made;
• the solicitor has made disbursements on the instructions of the client; or
• the withdrawal is made to satisfy a judgment debt owed by the client to the solicitor.

5.50 The prescribed form for written instructions should include a statement explaining to the client that he or she is under no obligation to sign the form, and outlining the rights which he or she has if the form is signed, or is not signed, respectively.

5.51 If a client objects to the outline bill within one month, the solicitor should then have to prepare and deliver a bill in taxable form. If the client does not seek taxation within one month after receiving the taxable bill, the solicitor should be entitled to withdraw sufficient money to meet the bill.

5.52 Where a solicitor has become entitled to withdraw money in accordance with these rules, he or she should be required to make the withdrawal within one month of becoming so entitled, save where the entitlement relates either to disbursements or to work which has not yet been completed. The main purpose of this recommendation is to ensure, so far as is reasonable, the separation of trust money from money which the solicitor has become entitled to pay to himself or herself. Withdrawal for these purposes means withdrawal from the trust account entirely, not merely transfer to a trust ledger account in the solicitor s name rather than that of the client. It Would be lawful, however, to maintain in trust records certain entries which indicate amounts that the solicitor may become entitled to withdraw for costs or disbursements, provided that those entries do not have the effect, or purport to have the effect of making the solicitor the beneficial owner of the money in question.

D. Refusal to Withdraw from a Trust Account

5.53 We recommend that the particular lien presently enjoyed by solicitors in relation to certain money received by them should be abolished. The uncertainty about whether or not solicitors in New South Wales have a general lien over trust money should be resolved by legislation. We do not necessarily oppose the existence of such a lien (at least in relation to trust money), provided that in addition to, or in substitution for, the existing system for taxation of costs a new system for reviewing bills of costs is established which is fair to both solicitors and clients but is simpler, quicker and cheaper than the existing taxation process.

FOOTNOTES

1. Legal Practitioners Act, 1898, s.41(3).

2. See Stewart v. Strevens [1976] 2 N.S.W.L.R. 321, at p.325 per fielsham in Eq. 3. Ibid.

4. See paras.4.40, 4.42 and 4.46 above.

5. See para.4.40 above.

6. Stewart v. Strevens [1976] 2 N.S.W.L.R. 321 (Helsham C.J. in Eq.).

7. Id., esp. at pp.327-9. See also, Re a Barrister and Solicitor (1979) 40 F.L.R. 26 (Full Court of the Supreme Court of the A.C.T., at pp.39-40; and Johns v. Law Society of New South Wales [1982] 2 N.S.W.L.R. 1, at p.21, per Hope J.A.

8. Ibid.

9. Johns v. Law Society of New South Wales [1982] 2 N.S.W.L.R. 1, at p,18, per Moffitt P.

10. Ibid., and at p.20, per Hope J.A.

11. See note 5.7.1 above.

12. See, e.g., J. Disney and others, Lawyers (Law Book Co., Sydney, 1977), pp.532-536.

13. See, e.g., Stewart v.Strevens [1976] 2 N.S.W.L.R. 321, at p.325.

14. Legal Practitioners Act, 1898, s.21.

15. Johns v. Law Society of New South Wales [1982] 2 N.S.W.L.R. 1, at p.24, per Mahoney J.A.

16. Ibid.

17. See para.5.5 above.

18. See generally G.J. Graham-Green, Cordery on Solicitors (7th ed., Butterworths, London 1981), pp.273-6; and cases cited in note 5.13.2 below.

19. See Helsham C.J. in Eq. in Stewart v. Strevens [1976] 2 N.S.W.L.R. 321, at pp.327-329; Shand v. M.J. Atkinson Ltd. [1966] N.Z.L.R. 551, esp. per Turner J. Cf. Loescher v. Dean [1950] 1 Ch 491. See also Johns v. Law Society of New South Wales [1982] 2 N.S.W.L.R. 1, at pp.20-21, per Hope J.A.

20. See Shand v. M.J. Atkinson Ltd. [1966] N.Z.L.R. 551, esp. at pp.564-568, per Turner J., and at pp.568-570, per McCarthy J. But see also Stewart v. Strevens [1976] 2 N.S.W.L.R. 321, at pp.328-329.

21. Discussion Paper, paras.4.31-4.32.

22. Law Society’s Response, para.2.6(d).

23. Ibid.

24. Solicitors’ Accounts Rules 1975, r.9(2) (a).

25. Law Society Regulations, reg.18(5) (a).

26. Rules of the Law Society of British Columbia, ch.5., art. 1.2(e). In that province a “specific”, rather than a “written”, authorisation by the client is necessary.

27. See para.4.20 above.

28. Solicitors’ Account Rules 1975, r.9(2) (b) and (c).

29. Law Society Regulations, reg.18(6) (b).

30. Discussion Paper, para.4.39.

31. Law Society’s Response, para. 2.6(d).

32. See paras.4.15-4.39 above.

33. Trust Accounts Act 1973, s.8(1) (c).

34. Discussion Paper, para. 4.73.

35. Law Society’ s Response, para. 2.11 (g).

36. Solicitors (Audit and Practising Certificates) Rules 1965, r.20.

37. Solicitors’ Accounts Rules 1975, r.7(a) (ii) and (iv).

38. Law Society Regulations, reg.18(8) (b) and (c).

39. Solicitors’ Accounts Rules 1975, r.7(a) (iv).

40. See Law Society Bulletin (S.A.) (Nov.1978), Supplement and Law Society of S.A., Legal Practitioners Trust Accounts Manual, p.38.

41. Trust Accounts Act 1973, s.8(1) (c).

42. Discussion Paper, para.4.73.

43. Ibid.

44. Legal Practitioners Act, 1898, s.21.

45. Law Society’s Response, para.2.11.

46. See, e.g., the Solicitors’ Statutory Committee cases of Rogers (No.20 of 1980), Baker (No.11 of 1982), Turvey (No.3 of 1981); and Peet (1980) 18 Law Society Journal 15.

47. Law Society’s Response, para.2.11(g).

48. See para.5.29 above.

49. Law Society’s Response, para.2.1 I (d). See, e.g. Travel Agents Act, 1973 (N.S.W.), s.42C(1) (b).

50. Trust Accounts Act 1973, s.8(1) (c) (ii).

51. See Legal Practitioners Act, 181)8 (N.S.W.), s.21,

52. See paras.5.5 and 5.12 above.

53. See paras.5.13-5.14 above.

54. Legal Practitioners Act, 1898, s.28.