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Ethics Committee Rulings

Every Issue

Cite as: (2009) 83(06) LIJ, p.77

Ethical dilemmas are part of everyday practice for solicitors. The LIV Ethics Committee is available to help.

Trust accounts

Release of funds from trust; costs

(R4595 December 2008)

A firm may be required to pay trust money it holds into court in situations where the client withdraws its previous instructions to pay that money to a former firm in settlement of a debt for unpaid legal fees owed to that former firm.

A firm acted for the wife in family law matters and held the sale proceeds of various properties in its trust account.

The parties agreed that the husband’s share should be released to the husband’s firm after final calculations to satisfy his costs. Before distribution, the husband changed lawyers and refused to agree to the release of his share of funds to his former firm on the basis of a costs dispute.

The husband’s former firm had obtained a costs judgment in its favour against the husband.

Recommendation

In the opinion of the Ethics Committee and on the information presented:

  • The husband’s former firm should consider and are encouraged to form an opinion or to ask the court to determine whether or not the authority given by the husband to release the proceeds of sale monies to it could be construed as an equitable assignment of that property to the former firm, such as to form the basis of an equitable lien.
  • Subject to the former firm putting the wife’s firm on notice of the existence of an equitable lien, the wife’s firm should request instructions from the husband’s current firm to transfer the monies into its trust account to hold pending resolution of the “authority” issue with the husband’s former firm.
  • In the event that such instructions are not provided by the husband’s current firm to the wife’s firm and if a lien is not asserted by the husband’s former firm, the wife’s firm should pay the monies into court, in order for the court to make a proper determination of ownership of the monies (per s3.3.14(2) of the Legal Profession Act 2004 (Vic)).
  • In the event that the wife’s firm makes such an application to the court, the wife’s firm should seek an order from the court for its costs in making the application.
  • It would be preferable for the husband’s former firm to claim a lien over the monies rather than seek to use the Magistrates’ Court judgment debt as a means of justifying the release of the monies to it.

Trust accounts

Undertakings; release of money from trust


(R4597 February 2009)

Practitioners must honour undertakings.

In 2006, the client’s firm undertook to hold $15,000 in its trust account by way of security, to uphold the lien claimed by the client’s former firm for unpaid costs. The terms of the undertaking were to hold the money until the costs issue was resolved by agreement or court order.

In 2007 the client’s matter was finalised. A year later, the client’s firm dissolved and the costs matter with the former firm had not been resolved. The solicitor acting in the matter advised the former firm that the money would be transferred to his new firm’s trust account and held “in accordance to the terms previously agreed”.

In early 2009 the client requested the return of his money on the basis that he did not engage the new firm to act for him and did not provide an authority for the transfer of money.

The new firm claimed that as the files were returned to the former firm, the money should be returned to the client. The former firm rejected this, stating that the terms of the undertaking had not been completed.

Recommendation

In the opinion of the Ethics Committee and on the information presented:

  • The new firm hold the monies in their trust account on behalf of both the former firm and the client pursuant to a personal undertaking provided by the new firm.
  • The new firm must not distribute the monies in their trust account held on behalf of the former firm and the client until any costs owing to the former firm by the client are resolved either by agreement between the parties or by decision of any court or tribunal.

Wills & estates

Solicitor as executor; professional fees


(R4590 December 2008)

A solicitor executor should be cautious in charging professional fees when acting in an executorial capacity.

A firm acted for two brothers who were registered proprietors of one half undivided share of a farm as tenants in common. The other registered proprietor was the executor of a deceased estate, who was also a solicitor.

It was agreed by consensus that the farm was to be sold at auction. The brothers’ firm was engaged to prepare the sale documents and conduct the conveyance. The solicitor executor appointed himself to act on his own behalf as vendor and requested one-third of the professional fees from the brothers’ firm.

Recommendation

In the opinion of the Ethics Committee and on the information presented:

  • The demand for a one-third split of conveyancing costs is not appropriate in that, in order for the solicitor executor to charge the estate for his “pains and troubles” in acting in his executorial capacity, he should make a proper application pursuant to s65 of the Administration & Probate Act 1958. It also appears that there will be negligible legal work done by the solicitor executor in the conveyancing matter.
  • If the basis on which the solicitor executor seeks to instruct the firm is unacceptable to the firm, then the firm should decline to act on the sale.

The ETHICS COMMITTEE is drawn from experienced past and present LIV Council members, who serve in an honorary capacity. Ethics Committee rulings are non-binding, however, as the considered view of a respected group of experienced practitioners, the rulings carry substantial weight. It is considered prudent to follow them.

The LIV Ethics website, http://www.liv.asn.au/regulation/ethics, is regularly updated and, among other services, offers a searchable database of the rulings, a “common ethical dilemmas” section and information about the Ethics Committee and Ethics Liaison Group.

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