sample notes
SAMPLE NOTES The basic obligation Lawyers receive moneys to be held for or on behalf of a client, whether from that client or a third person.
At general law, if moneys are entrusted to an agent to be held for the benefit of another person, the agent becomes a trustee of those moneys – Mann v Hulme (1961) 106 CLR 136 at 141 per Dixon CJ
Statutes requires lawyers to deposit into a trust account with a financial institution money received for or on behalf of any person to be held exclusively for that. The nature of barristers work (the lack of direct client access to the bar), traditionally meant that barristers do not receive or handle money on behalf of clients – New South Wales Bar Association v Livesey (1982) 2 NSWLR 231 at 242 per Hope JA Barrister’s rules generally prohibit barristers from holding, investing or disbursing any funds for any other person in their professional work – ABA BR 13(l). Where statute permits barristers receiving moneys as costs in advance – NSW s252(2) Legal Profession Regulation 2005 (NSW) “Trust money” The obligation to deposit into a trust account money received or on behalf of any person to be held exclusively for that person applies to money that is ‘trust money’. The Model Laws define trust money as:
Money received in the course of or in connection with the provision of legal services by a law practice for or on behalf of another person. With the statutory reach of “trust money” is: Controlled money: being trust money received or held by a law practice in respect of which it has written direction to deposit in an account over which it has, or will have, exclusive control.
Money controlled by a law practice pursuant to a power to deal with it for or on behalf of another person that is exercisable by the practice “transit money”: money a law practice receives subject to instructions to pay or deliver it to a third party, other than an associate of the practice – LPNL s140
Money involved in financial services or investments not “trust money” Excluded from the concept of “trust money” is money entrusted to or held by a law practice for or in connection with a financial service provided by the practice in circumstances where the practice is required to hold an Australian financial services licence covering its provision. Also excluded is money entrusted to or held by a law practice in connection with a managed investment scheme, or mortgage financing it has undertaken. Money received for costs as “trust money” Money received from a client in payment of professional costs already incurred need not be treated as trust money but may be paid directly into the lawyers office account. Money received in advance of providing the legal services is not beneficially owned by the lawyer and so must be accounted for as trust money. ACCOUNTING FOR TRUST MONEY Duties related to accounting The duty to account represents a necessary incident of a trustees personal obligation to hold and deal with trust property for the benefit of the beneficiaries – Re Simersall (1992) 35 FCR 584 at 589 per Gummow J It requires a lawyer holding trust money to maintain an accurate, accessible and ordered account of that money. Also requires a system of financial controls relating to trust accounts capable of alerting lawyers and regulators to irregularities. Records to be kept Statute requires lawyers to keep detailed accounts of all dealing with trust money that accurately disclose the state of trust accounts and enable the convenient and proper auditing of receipt and payment of trust money – LPNL s147 (1) Duty to give account on request At general law a trustee must give an account of receipts and payments to those interested in the account when it is properly demanded – Wroe v Seed (1863) 4 Giff 425
The legal profession regulations confer a right on persons on whose behalf trust money is held to request in writing, and promptly receive a statement of account of trust funds and their application – r58 Legal Profession Regulation 2005 (NSW) No mixing of trust with non-trust moneys A trustee at general law has a duty not to mix his or her own property with trust property – Re Todd (No 2) (1910) 10 SR (NSW) 490 at 500 Per Street J Trust account not to be overdrawn As the lawyer must follow directions of the person for or on whose behalf trust moneys are held with regard to the use and disbursement of those moneys, and that persons entitlement to so direct is limited to the extent of those moneys there is no justification for a trust account to be in debit.
Lawyers who without reasonable excuse, causes a deficiency in any trust account, or fails to pay or deliver any trust money = guilty of an offence – LPNL s148(1) Duty to report defalcations Legislation requires a lawyer who believes on reasonable grounds that there is an irregularity in connection with the receipt, recording or disbursement of any trust money received to notify the appropriate authority in writing.
At general law, if moneys are entrusted to an agent to be held for the benefit of another person, the agent becomes a trustee of those moneys – Mann v Hulme (1961) 106 CLR 136 at 141 per Dixon CJ
Statutes requires lawyers to deposit into a trust account with a financial institution money received for or on behalf of any person to be held exclusively for that. The nature of barristers work (the lack of direct client access to the bar), traditionally meant that barristers do not receive or handle money on behalf of clients – New South Wales Bar Association v Livesey (1982) 2 NSWLR 231 at 242 per Hope JA Barrister’s rules generally prohibit barristers from holding, investing or disbursing any funds for any other person in their professional work – ABA BR 13(l). Where statute permits barristers receiving moneys as costs in advance – NSW s252(2) Legal Profession Regulation 2005 (NSW) “Trust money” The obligation to deposit into a trust account money received or on behalf of any person to be held exclusively for that person applies to money that is ‘trust money’. The Model Laws define trust money as:
Money received in the course of or in connection with the provision of legal services by a law practice for or on behalf of another person. With the statutory reach of “trust money” is: Controlled money: being trust money received or held by a law practice in respect of which it has written direction to deposit in an account over which it has, or will have, exclusive control.
Money controlled by a law practice pursuant to a power to deal with it for or on behalf of another person that is exercisable by the practice “transit money”: money a law practice receives subject to instructions to pay or deliver it to a third party, other than an associate of the practice – LPNL s140
Money involved in financial services or investments not “trust money” Excluded from the concept of “trust money” is money entrusted to or held by a law practice for or in connection with a financial service provided by the practice in circumstances where the practice is required to hold an Australian financial services licence covering its provision. Also excluded is money entrusted to or held by a law practice in connection with a managed investment scheme, or mortgage financing it has undertaken. Money received for costs as “trust money” Money received from a client in payment of professional costs already incurred need not be treated as trust money but may be paid directly into the lawyers office account. Money received in advance of providing the legal services is not beneficially owned by the lawyer and so must be accounted for as trust money. ACCOUNTING FOR TRUST MONEY Duties related to accounting The duty to account represents a necessary incident of a trustees personal obligation to hold and deal with trust property for the benefit of the beneficiaries – Re Simersall (1992) 35 FCR 584 at 589 per Gummow J It requires a lawyer holding trust money to maintain an accurate, accessible and ordered account of that money. Also requires a system of financial controls relating to trust accounts capable of alerting lawyers and regulators to irregularities. Records to be kept Statute requires lawyers to keep detailed accounts of all dealing with trust money that accurately disclose the state of trust accounts and enable the convenient and proper auditing of receipt and payment of trust money – LPNL s147 (1) Duty to give account on request At general law a trustee must give an account of receipts and payments to those interested in the account when it is properly demanded – Wroe v Seed (1863) 4 Giff 425
The legal profession regulations confer a right on persons on whose behalf trust money is held to request in writing, and promptly receive a statement of account of trust funds and their application – r58 Legal Profession Regulation 2005 (NSW) No mixing of trust with non-trust moneys A trustee at general law has a duty not to mix his or her own property with trust property – Re Todd (No 2) (1910) 10 SR (NSW) 490 at 500 Per Street J Trust account not to be overdrawn As the lawyer must follow directions of the person for or on whose behalf trust moneys are held with regard to the use and disbursement of those moneys, and that persons entitlement to so direct is limited to the extent of those moneys there is no justification for a trust account to be in debit.
Lawyers who without reasonable excuse, causes a deficiency in any trust account, or fails to pay or deliver any trust money = guilty of an offence – LPNL s148(1) Duty to report defalcations Legislation requires a lawyer who believes on reasonable grounds that there is an irregularity in connection with the receipt, recording or disbursement of any trust money received to notify the appropriate authority in writing.
