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Trust Accounting  Legal Services Commission responsible for breaches of LPA o ← complaints heard by Legal Practice Tribunal & Court of Appeal Trust accounting involved in 2.08% of complaints | 20% of prosecutions | 46.1% of charges Legislative Framework  Prior to 1/04/2008—Trusts Account Act 1973; Trusts Accounts Regulations 1999  Since 1/07/2007—Legal Profession Act 2007 Part 3.3 & Legal Profession Regulation (LPR) Part 3.3  Transitional period until 1/04/2008 Purpose  Protection of clients: s236(a)  Minimise compliance requirements: s236(b)  Ensure effective cooperation between law society & other jurisdictions: s236(c) Definition of Trust Money  If in doubt → QLS may be asked to decide via referral or own action: s239  Best practice—if in doubt, put it in trust Trust Money = money entrusted to a law practice in the course of or in connection with the provision of legal services (s237), including—  Legal costs in advance: s237(a)  Controlled money: s237(b) o = received under written direction to deposit in another account which the practice exclusively controls: s237 (eg term deposit for client to earn interest while money in trust)  Transit money: s237(c) (not addressed in this course) o = received under instructions to deliver to 3rd party (not associate of practice: s237  Money the subject of a power exercisable by the practice for the client: s237(d) (not addressed)  If only controlled or transit money, need not keep trust acc: s247(3) Not Trust Money Money involved in financial services or investments (s238)  Practice / associate offering services which require Australian financial services licence: s238(1)(a)  Practice / associate acting as a representative of person carrying on financial services business: s238(1) (b)  Including— o Money held for a managed investment scheme: s238(2) o Money held in relation to a mortgage scheme: s238(2) Obligations of Practitioners  Hold on trust exclusively for the client: s249(1)(a) (50PU) o Trust money for each matter is theoretically separate, and each covered by a smaller trust, even though the money is all in one aggregate account o Cannot use a client’s money for another client  Disburse only on direction by that person: s249(1)(b) (50PU)  Not to intermix money—unless permitted by law society & subject to any conditions: s257 (100PU)  Keep trust records: s261 (in a manner prescribed under the regulations—100PU) o permanent form—printed/capable of printing (recognises computer systems) | in English Andrew Trotter

LWB433 Professional Responsibility

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o In a way enabling them to be conveniently & properly examined (eg passwords on system to which auditor does not have access) o for 7 years: r59(2) (100PU) – Need permission of AG to destroy Provide Trust Account Statements (Ledger) to client— o Time—  After completion of the matter: r53(6)(a)  On reasonable request: r53(6)(b)  After 30 June each year (r53(6)(c)) unless—  Ledger is less than 6 months old: r53(7)(a)  Balance = $0 & no transactions in last 12 months: : r53(7)(b)  No transactions since last statement within last 12 months: r53(7)(c) o Must contain: r53(5)  All information required to be included in the ledger or record  Balance of the money o Must keep copy of statements provided: r53(8)

Reporting Legal practitioner must report any irregularity to QLS— o Irregularity in accounts of own firm: s260(1) (50PU)  Even where not own fault—eg where bank mistakenly draws fees from trust account not general account o Irregularity in receipt, recording or disbursement of another firm: s260(2) (50PU)  Not responsible for losses arising after making such a report: s260(3)  ONLY applies to legal practitioners—but may affect admission of students etc: s218 LPA Breach Failure to comply with obligations may result in finding of—  unsatisfactory professional conduct under s 418 LPA  professional misconduct under s 419 LPA  Partner also liable for failure to supervise: Council of the Queensland Law Society Inc v Cummings [2004] (failed to supervise—serious breaches of trust account which he could not explain  struck off)  If negligent but not dishonest → breach of 418 but may not be struck off: LSC v Ferguson  Grounds for external intervention: s497(d)(vii); practice – 100PU s247(1) Professional Misconduct  Fraud— o Trust account to general account: QLS v Wakeling o Using trust money for personal purposes: QLS v Wakeling; LSC v Clair o Misrepresenting account transfers on trust statements: QLS v Wakeling o Overcharging for professional services: Council for the Queensland Law Society Inc v Wakeling (fraudulently appropriating funds out of trust account into general account—putting towards own use—misrepresenting transfers on trust statements—overcharging for professional services  professional misconduct—struck off) o Where convicted of fraud: Legal Services Commissioner v Clair (requested $4k from client, used for personal purposes—plead guilty to 3 x fraud | conviction recorded → 12mth recognisance  struck off)  Unauthorised transfers, even if for a legitimate purpose: LSC v Twohill (transferred $11k from trust to general account to pay fees & outlays—disputed money held on basis that would only be disbursed with consent of wife or on court order—money legitimately owed to lawyer, but did not get authorisation  substantial departure from standards = professional misconduct → $5000 fine | trust account training) Andrew Trotter

LWB433 Professional Responsibility

Unsatisfactory Professional Conduct  Administrative Incompetence: LSC v Ferguson (practitioner acting for purchaser in a sale—mistakenly paid vendor prior to finalisation—contract fell through, trust money immediately repaid  unsatisfactory professional conduct → $1000 fine)  Not dishonest but unable to admit failures due to some trauma → suspension: A-G & Minister for Justice Qld v Priddle [2002] (P=trustee made poor investments & lost money—sparse accounting records—previously held hostage by gunman—failed to respond to request for updates from beneficiaries  not deceitful—arose from difficulty admitting poor judgment to relatives=beneficiaries → suspension only)  Signatory on a trust account will be personally responsible for any breach of the legislation and regulations.  Mellifont v Queensland Law Society [1981] Qd R 17  Council of the Queensland Law Society Inc v Tunn [2004] QCA 412 The Trust Account  Firm receiving trust money must have a trust account in Qld: s247(1) (100PU)  Must be— (s247(2) (in accordance w regulations—100PU) & r33) o In Qld: r33(2)(b) o with an approved financial institution (ADI): r33(2)(a)

Andrew Trotter

LWB433 Professional Responsibility

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Australia and New Zealand banking Group Limited (ANZ) Bank of NZ Australia (BNZ) Bank of Queensland (NOQ) Bank of Western Australia Limited (Bank West) Bendigo Bank Limited Commonwealth Bank of Australia (CBA)

Andrew Trotter

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Mackay Permanent Building Society Ltd Macquarie Bank Limited National Australia Bank Limited (NAB) Queensland Police Credit Union Limited (QPCU) Suncorp-Metway Limited St George Bank Ltd The Rock Building Society Limited Westpac Banking Corporation (WBC)

LWB433 Professional Responsibility

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o Account name— (r33(2)(c)) (unless established before 1.7.07: r33(3))  in the name of the practice  includes the words ‘law practice trust account’ (unless name already includes ‘law practice: r33(4)) o of a kind approved by the QLS (r33(2)(d)) must not fall into debit: s259(1)(a)

Records Compulsory Records Compulsory trust records include— (s237) a) Receipts (numbered) b) Cheque Butts or Requisitions c) Records of authorities to withdraw by EFT d) Deposit Records e) Trust Account bank (ADI) statements f) Receipts & Payments Cash Books g) Trust Ledger Accounts h) Records of Monthly Trial Balances i) Records of Monthly reconciliations j) Trust Transfer Journals k) Statements of account req’d under regulation

Andrew Trotter

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Registers req’d to be kept under a regulation Monthly statements req’d under a regulation Files re trust transactions or bills of costs Written directions, authorities or other documents required to be kept under this act or regulation p) Supporting documentation required to be kept under a regulation in relation to powers to deal with trust money.

LWB433 Professional Responsibility

Other QLS Recommended Records o Register of Trust Account Receipt Forms (used to be compulsory) [Fig 1] o Post-Dated Cheque Register o Post-dated cheques cannot be deposited until date arrives as not a legal document o 7 day fee register (used to be 30 days) o Keeping track of when funds may be withdrawn for fees o Special Clearance Register—where cheque has special fees associated with clearance [Fig 2] o Details of person drawing cheque | where from | details of application for special clearance | date of application | whether progressed | whether cheque was honoured Documents & the Recording Process Flow of Information [Fig 3]  Receipts & cheques = primary source documents o Receipts entered into “cash receipts book” o Cheques entered into “cash payments book”  → information transposed into one individual trust account ledger for each matter  ← Balance of ledger for each matter = balance of bank account less amount deposited with AG under s285 LPA  → number of ledgers = number of matters money with trust money (can never be in debit, must be in credit) + 1 (which is amount held by AG under s285 and can be in debit) Trust Accounting Documents [Fig 4] Good Practice  File all pieces of paper relating to trust accounts Receipt  Bank money daily or as soon as reasonably practicable: s248(1) (100PU)  If unsure if the money is trust money—bank it or ask QLS who can determine on application: s239  Don’t back-date receipts, issue in order: r34(7) (must be consecutively numbered)  Particular records o Telegraphic transfers, credit card or direct deposits → get written confirmation from the bank to avoid errors—amount paid, who paid, whether cleared. o Special clearances—Establish a register Withdrawal  Money may only be used for purpose it was deposited (eg—if $5000 given into trust for stamp duty, cannot draw a cheque to pay stamp duty that is over $5000) o ← makes detail in the receipt very important  Cannot draw upon uncleared funds  Notify bank to charge bank fees and charges from general not trust account (including dishonoured fees, EFT charges, cheque charges, monthly account fees etc)—otherwise unauthorised withdrawal  Fees— o Must wait relevant time period (7 or 60 days) from the delivery bill before transferring money o Where possible have the client sign an authority early in the matter to transfer from trust

Receiving Money into Trust 1. Issue the Trust Receipt Immediately 2. Bank the trust money daily or as soon as practicable 3. Post entries into a. cash receipts book and b. the client’s individual trust ledger card as a credit o within 5 days, including the date of receipt: r40(4) 1. Issuing Receipts: r34 [Fig 5-7]  Must issue immediately: r34(2)  Each receipt must be in duplicate: r34(4)  Must deliver original receipt, on request, to the person from whom the trust money was received: r34(6)  Must show: r34(5) o Date it is made and date receiving the money (if ADI informs of DD or Telegraphic Transfer later) o Amount of Money received o Form in which the money was received o Name of the person from whom the money was received o Details clearly identifying the name of the client o The matter description o Matter Reference o Purpose for which the money was received. o Name of the law practice o The expression ‘trust account’ or ‘trust a/c’ o The name of the person who made out the receipt o The number of the receipt  Don’t backdate—Consecutively numbered and issued in consecutive sequence: r34(7)  Where cheque is payable direct to a third party there is no need to bank or issue a receipt (eg to OSR for stamp duty) Corrections and Cancellations  Corrections o Rule through the error o Issuing person to initial correction o Add correct details to both copies  Cancellations: r34(8) o If a receipt is cancelled or not delivered, the original receipt must be kept: r34(8) o Retain both copies in the receipt book. o Write ‘CANCELLED’ on both receipts w reason for cancellation in red pen 2. Depositing Trust Money Generally—deposit in trust account as soon as practicable: s248(1) (100PU)  Good practice—deposit daily  Received as cash → deposit to general trust account: s 255 LPA (100PU) Exceptions  Under written direction (s248(1)(a)) → deal with as per direction— (s248(2) (100PU)) o Within the stated period o if no period given → as soon as practicable

 Controlled Money (s248(1)(b)) → deposit into the controlled money account and maintained exclusively for the person on whose behalf it was received, as soon as practicable after it was received: s251 & s255(3) LPA (50PU) o Account name— on Deposit for  Transit money (s248(1)(c)) → pay or deliver the money as required by the instructions— (s253 (50PU)) o Within the stated period o if no period given → as soon as practicable  Power money (s248(1)(d)) → deposit to the clients account & only deal with under that power: s254(1) (50PU) Note will not immediately clear—Bank Cheque is not cash  Ensure cheques have cleared before money is withdrawn from trust o Banks have a standard time of 3 days for clearance o failure to do so → spending another client’s money or may put trust account in debit  breach s 418 and 419 LPA  Bank cheques can be dishonoured if: o stolen o lack of consideration for cheque (ie where US draft is given for Australian cheque and draft dishonoured b/c assets frozen) o assets frozen under force of law o fraud (altered cheque etc) 3. Cash Receipts Book  Record within 5 days, including the date of receipt: r40(4) o Any computer programme must be approved by QLS  2 cash books— (r39) o cash receipts book (r40) o cash payments book (r41)  = only books of original entry for trust accounting.  Entries taken from primary documents—receipt & cheque butt  Recorded in order of date or receipt or cheque number  Must include— o Form of the money o matter reference o purpose or receipt or payment o BSB of ADI 4. Trust Ledgers: r42 [Fig 9]  Record within 5 days, including the date of receipt: r40(4)  Individual ledger for each matter for each client  Must contain detail to be able to identify— o the client o their address o the matter o all aspects of the transactions undertaken. eg—the Estate of Norma Jean (Deceased) [can’t act for NJ as she’s dead] Re: Administration  Only the ledger established to record the s285 LPA deposit may have a debit balance

Payments out of Trust 1. Confirm received authority OR funds received for that purpose 2. Ensure funds are cleared 3. Withdraw—by cheque or EFT 4. Post entries to— a. cash payments book and b. the client’s individual trust ledger card as a credit o within 5 days, including the date of receipt: r41(4) 1. Received Authority or Funds for that Purpose [Fig 10] Legal Fees  Payment authority—could only withdraw trust money— (s8(1) TAA (100PU or 1yr)) o Trust money received for that purpose o Pre-existing written authorisation—for costs, duties, outlays, charges etc o No authorisation—deliver a bill & if no objection by client in 1 month o eg—no win no fee case—judgment debt from defendant deposited into trust—draw cheque to client for balance & bill for legal fees—if no objection within a month, transfer legal fees to general account  New test—money in trust account not used to pay debts of the practice (s256) but can pay legal costs owing to practice (s258) if complying with r58 o Withdrawal with authority: r58(3) a. Send notice—  written notice of withdrawal (letter); or  request for payment (bill) b. Instructions—  Complying cost agreement; or  Instructions authorising withdrawal—can be oral but must be confirmed in writing within 5 days: r58(5) o ← dangerous to rely on client for written confirmation o Withdrawal on issue of bill: r58(4) a. Send bill to client b. Money payable (no objection or application for review)  No objection within 7 days o Unclear whether from date of receipt / date of bill o Prudent to allow 10 days  Objected w/i 7 days but failed to apply for review under LPA within 60 days  Money otherwise legally payable o Breach → no specific penalty but penalty under ss418, 419 LPA  Lack of authority may be professional misconduct, even if for legitimately owed fees: LSC v Twohill (transferred from trust to general account to pay fees & outlays—did not get written instructions from client—money legitimately owed to lawyer, but did not get authorisation  substantial departure from standards = professional misconduct → $5000 fine | trust account training) Disbursements & Outlays  Only actual outlays—construed narrowly o Printing o Postals  Specific amounts—not lump sum (makes it difficult for law firms to charge for this) o Petties and incidentals  Not for undisclosed mark-ups or surcharges—don’t charge for—

o Client registration fees o File opening, closing, archive or retrieval fees o In-house stamping or Citec administration (conveyancing searches) fees o Professional indemnity insurance o Settlement fees, where no agent used o Stationery, printing/email charges  Mark-ups—Must disclose— o The amount of the mark-up in $ or % o In plain English; & o Not bury the disclosure in ‘in fine print’.  Charges to a service company— o must disclose—  Charges  interest the practice or you have in the company (even if indirect [e.g. held by spouse or family member]) o ← Essentially trying to get around regulations by turning mark-ups into outlays, eg—  “photocopying company” in wife’s name  “process serving” in articled clerk’s name 2. Ensure Funds are Cleared  Can be the source of scams—especially overseas banks  Ensure cheques have cleared before money is withdrawn from trust o Banks have a standard time of 3 days for clearance o failure to do so → spending another client’s money or may put trust account in debit  breach s 418 and 419 LPA  Bank cheques can be dishonoured if: o stolen o lack of consideration for cheque (ie where US draft is given for Australian cheque and draft dishonoured b/c assets frozen) o assets frozen under force of law o fraud (altered cheque etc)  For example—Settlement— o A selling old house to X | buying new house from Y  Receive cheque for sale from old house & deposit in trust  Pay special clearance fee  Draw cheque for purchase to new house o Don’t get cheque from X to Y—someone may rescind contract 3. Withdraw Money Methods of Withdrawal  Withdrawals from the trust account can only be made by way of— o Cheque: s250(1)(a) o EFT (if have the approval of the QLS): s250(1)(b) (rare)  Cannot withdraw by o Cash withdrawals: s250(2)(a) o ATM withdrawals or transfers: s250(2)(b) o telephone banking: s250(2)(c) o EFT (unless authorised): s250(2)(d)  Can have view-only netbanking, but not functional netbanking  Rationale—CL duty of care does not apply to EFT

o CL duty of care to check signatures—but not generally examined by banks if < $20,000 o BUT if EFT, fraudsters can just transfer out, just need password (← no bank error) Cheques  All cheques must— (r37(2)) (a) be made payable to a stated person or persons and not to bearer or cash; (b) be crossed ‘not negotiable’; and (c) include— (i) the name of the law practice or the business name under which the law practice engages in legal practice; and (ii) the expression ‘law practice trust account’ or ‘law practice trust a/c’  If to bank for bank cheque—must state final recipient of funds [Fig 11]  One cheque may be used for multiple purposes, even where different matters & clients [Fig 12]  Cheque butt to be retained on file by law practice—must contain— (r37(6)) (a) the date and number of the cheque; (b) the amount; (c) the name of the person to whom the payment is to be made (& if a ADI for a bank chq then who that bank chq is to be payable to, see e.g.. 2 below) (d) details clearly i...