Guidance related to Rule B4: Terms of Business - Client Funds
During October 2008 there was uncertainty about the stability of
banks and the Society sought the opinion of the Dean of Faculty.
That opinion can be summarised as follows:
Common Law Duties of Accounting for Client
Funds
In the Dean's view the basic duty is that of the solicitor of
ordinary skill acting with ordinary care as set out in Hunter - v -
Hanley 1955 SC 200. The contract of agency between solicitor and
client is fiduciary but in the Dean's view that does not equate to
an absolute duty to account to clients for client funds which have
been deposited in accordance with the Society's Accounts Rules. If
the solicitor has actual or constructive knowledge of a material
risk of failure of a particular bank, a question of negligence
might arise.
In the Society's view, actual or constructive knowledge of a
material risk of failure means such knowledge of a specific and
material risk for a bank. Mere knowledge of speculation in the
media or on the internet would be unlikely to amount to actual or
constructive knowledge.
The Accounts Rules
In response to the suggestion that the Society's Accounts Rules,
and in particular Rule 4(3)(b) (in the 2001 Rules, now Rule
B6.3.3(b)), create an obligation to guarantee clients' funds the
Dean confirmed that such an obligation is not created by the
Accounts Rules. The wording in the relevant rule that nothing
contained in the rule shall relieve a solicitor or practice unit of
responsibilities must refer to responsibilities to be found
elsewhere and not within the Accounts Rules.
Terms of Business
In the light of the Dean's opinion and having regard to his advice
the Professional Practice Committee agreed that further guidance on
terms of business is appropriate. You should advise clients in your
standard terms of business of the identity of the bank or banks in
which any funds held for the client will be deposited. The terms of
business should further say that if clients wish their funds to be
deposited in a different bank or banks they will need to give you
specific instructions to that effect.
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