The piggy bank

One of the key distinctions between the way that barristers and solicitors practise, remains the fact that barristers may not handle client money, whereas solicitors do on a daily basis. This in turn means that the solicitors are required to maintain separate client accounts, to hold money that does not, in fact belong to them, to purchase expensive professional indemnity insurance with premiums which reflect the increased risk to the insurance company in respect of client monies, and solicitors are subject to the labyrinthine provisions of the Solicitors Accounts Rules 2011.

One of the ways that solicitors can easily come into conflict with both their regulator and their client, is when they act on the belief that they have rights over client money, particularly in respect of the payment of their fees, which they do not in fact have, usually because they mistake the scope of their right to claim a lien over their client’s property.

It follows that solicitors should have at least a day to day working familiarity with the Solicitors Accounts Rules 2011: of these solicitors must particularly note rule 17 which provides as follows:

17.1 When you receive money paid in full or part settlement of your bill (or other notification of costs) you must follow one of the following five options:

(a) determine the composition of the payment without delay, and deal with the money accordingly:
(i) if the sum comprises office money and/or out-of-scope money only, it must be placed in an office account;
(ii) if the sum comprises only client money, the entire sum must be placed in a client account;
(iii) if the sum includes both office money and client money, or client money and out-of-scope money, or client money, out-of-scope money and office money, you must follow rule 18 (receipt of mixed payments); or
(b) ascertain that the payment comprises only  office money and/or  out-of-scope money , and/or  client money in the form of  professional disbursements incurred but not yet paid, and deal with the payment as follows:
(i) place the entire sum in an office account at a bank or building society branch (or head office) in England and Wales; and
(ii) by the end of the second working day following receipt, either pay any unpaid professional disbursement, or transfer a sum for its settlement to a client account; or
(c) pay the entire sum into a  client account (regardless of its composition), and transfer any  office money and/or  out-of-scope money out of the  client account within 14 days of receipt; or
(d) on receipt of  costs from the Legal Aid Agency, follow the option in rule 19.1(b); or
(e) in relation to a cheque paid into a  client account under rule 14.2(e), transfer the  costs element out of the  client account within 14 days of receipt.

17.2 If you properly require payment of your fees from money held for a client or trust in a client account, you must first give or send a bill of costs, or other written notification of the costs incurred, to the client or the paying party.

17.3 Once you have complied with rule 17.2 above, the money earmarked for costs becomes office money and must be transferred out of the client account within 14 days.

17.4 A payment on account of costs generally in respect of those activities for which the practice is regulated by the SRA is client money, and must be held in a client account until you have complied with rule 17.2 above. (For an exception in the case of legal aid payments, see rule 19.1(a). See also rule 18 on dealing with mixed payments of client money and/or out-of-scope money when part of a payment on account of costs relates to activities not regulated by the SRA.)

So far, so straightforward. Where problems can arise, is when solicitors attempt to extend their lien in their terms and conditions of business, beyond just the papers belonging to their client, in their possession but to other property or monies of the client.

Money may be paid to a solicitor by a client to hold for bail money, to purchase a property, to buy a business or any number of other reasons. Can an unpaid solicitor use this money to pay their fees, relying upon a contractual lien ?

The leading case on the extent of the lien and how it applies (or not) to funds in a client account is that of Withers LLP v Ryback [2012] 1 W.L.R. 1748 where the Court of Appeal explained how money in a client account could be subject to a lien, and conversely how it would not be subject to a lien.

The case establishes that there are limits to a solicitors lien at common law. As explained by Sir Robin Jacob:

19 Halsbury’s Laws of England  , 5th ed, vol 66 (2009), para 997 says, omitting footnotes:

“The general rule is that the retaining lien extends to any deed, paper or personal chattel which has come into the solicitor’s possession in the course of his employment and in his capacity as solicitor with the client’s sanction and which is the client’s property … The lien does not extend to … (d) documents which did not come into the solicitor’s hands in his capacity as solicitor for the person against whom the lien is claimed … but as … trustee. Moreover, where … money is paid to the solicitor for a particular purpose so that he becomes a trustee of the money, no lien arises over … that money unless subsequently left in the solicitor’s possession for general purposes.”

The passage was cited by Evans-Lombe J in Euro Commercial Leasing Ltd v Cartwright & Lewis [1995] 2 BCLC 618 , 621–622.

20 The key question seems to me to be whether money in a client account is there “for general purposes”.

21 It is not so where it is the subject of a purpose trust, for instance where money is provided to a solicitor for a particular purpose which then fails. Then the solicitor holds it in trust for the provider, as in Stumore v Campbell & Co [1892] 1 QB 314.

22 But a purpose trust is not the only way in which a lien over money in a client account will not arise. The question must always be, why is it there? And if the reason is inconsistent with a lien, then there will be no lien. A purpose trust is merely an example of inconsistency with a lien. In deciding whether there is inconsistency a key question will therefore be whether the money is there “for general purposes” or for a particular purpose?

Thus, if client money  was expressly paid over for a particular purpose and is not for “general purposes”, it is held on trust by the solicitor for the client and no lien should attach to it and it should be returned to a client upon the client’s request, irrespective of any outstanding fees.

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