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LIV 160th: A regulatory leap forward

LIV 160th: A regulatory leap forward

By Simon Smith

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In the final of a four-part series extracted from his history of the LIV published this month, historian Simon Smith looks at how the LIV became the regulator of Victorian solicitors. 

At the end of the 1920s, as the Great Depression arrived, legal firms, like other businesses, faced a challenge to survive. As business activity slowed, clients unable to afford solicitor services dropped away. For many solicitors, particularly sole practitioners, the client money in their solicitor’s bank account proved an irresistible temptation. Why not “borrow” the proceeds of a deceased estate or funds under mortgage investment to tide you over? Who would know? After all, the trust funds were all mixed in with your own moneys and there was no requirement of independent audit. However, once taken, the money was not returned and inevitably the defalcation was discovered. The newspapers gave increasing coverage to the problem. By 1928 Smiths was editorialising as to why 

“. . . solicitors themselves have never had the wisdom to create defences against these shameful frauds”.1

For its part, the LIV was agonised about what to do. Stalwart LIV councillor Charles Lucas was clear about one way forward. In a long opinion piece published in the August 1928 Law Institute Journal he called for the State Auditor-General to be authorised to audit trust accounts and for the LIV to be given power to provide for proper and appropriate systems of bookkeeping. Further, by making membership of the LIV compulsory, real safeguards could be framed that protected the clients and their money.2 At the 1929 Annual General Meeting he followed up with a motion that Council consider establishing a client indemnity fund. The more progressive LIV members could see the way the tide was running; there were similar proposals under active consideration in New Zealand and New South Wales. The motion was carried without dissent.

In March 1930 the LIV convened a special meeting of Council to discuss the detail of the Lucas proposal to establish an indemnity fund, but this time Lucas could not get a seconder. Outspoken members could not see the need. The issue now divided the 664 members (and an estimated 350-plus non-members) of the LIV. The proposal for compulsory membership and fund contribution was a flashpoint, particularly for country solicitors. They saw the proposal as an insult to an honourable profession. An indignant solicitor said “. . . why should we be singled out for such an offensive supervision?” He argued that there was less dishonesty among solicitors than among accountants, secretaries and other professional men.3

During 1930 further meetings of the LIV saw the proposal approved, then rescinded, and then reinstated. However, by August 1930 the LIV Council was able to secure the approval of the majority of members for a bill that established separate trust accounts and created a fidelity guarantee fund. But the country practitioners were not convinced. In 1932, their opposition to a legislative solution saw control of the LIV change, if only for a short time, but enough to stall progress. Charles Lucas was one casualty. He saw that his re-election was unlikely and resigned. However, it was not the end of his determined advocacy. 

He continued to prosecute the case at LIV meetings and through the press for the rest of the decade. After years of division, continued defalcations (estimated at £100,000 a year) and a constantly critical press, there was a partial breakthrough in 1936. That year Parliament passed the Legal Profession Practice Act 1936 (Vic). It was modest reform and required solicitors to keep separate trust accounts and proper books of account. It was not until the late 1930s, as economic conditions improved, that it was possible for the LIV to get agreement on further reform. It was the creation of a Solicitors’ Guarantee Fund (now the Public Purpose Fund) to provide financial reimbursement to clients legislated through the Legal Profession Practice Act 1946 (Vic). 

It was noted that in the previous 20 years, 50 solicitors had defaulted with defalcations totalling £300,000.4 Reform was needed. The establishment of a compensation fund and a compulsory annual audit was only part of the package of reforms that the legislation ushered in on 1 January 1948. It also placed the LIV Council in control and introduced, for the first time, compulsory annual practising certificates. This was a back-door way of also making membership of the LIV “compulsory”. Almost overnight membership ballooned to 995 (709 city and 286 country and provincial members). On 1945 figures, a 29 per cent increase.5 The LIV was now the regulator of the whole solicitor branch, something that it had sought for 90 years.

Relations with the Bar during this period were occasional rather than active. The LIV found it hard to engage the Bar on matters of law reform. That there was not a lot in common is not surprising. With a loose membership of approximately 70, the Bar was a tenth of the size of the LIV’s 700 membership and lacked the same collegiality or scope of professional activities. The Bar’s remit was essentially confined to court appearances in city courts and opinion work. Not for barristers the responsibilities of trust accounts and general practice spread throughout Victoria. For the time being at least it was the LIV that would drive improving standards among the profession. ♦

Dr Simon Smith is the author of Solicitors and the Law Institute in Victoria 1835-2019: Pathway to a Respected Profession released in October and available exclusively from the LIV Bookshop and online.

1. Smith’s Weekly (NSW), 1 December, 1928, 12.
2. Lucas published his first full essay in support of trust fund regulatory reform in “Trust funds” (1928) 2 LIJ 100.
3. “Indemnities against dishonest solicitors”, Gippsland Times, 9 January, 1930.
4. “Solicitors trust fund supported”, Age, 6 December, 1946, 3.
5. “Membership” (1948) 22 LIJ 186. In 1945 there were 707 members (489 city members and 218 country and provincial members). From that point, the names of practitioners holding practising certificates would be proudly published in the LIJ on an annual basis.

 


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