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.

Back to Table of Contents

Related Rules