December 7, 2011

Bills and retainers are frequent source of complaints

December 7, 2011

The improper handling of client retainers and bills triggers numerous complaints to the Law Society

The Legal Profession Act and the Law Society Rules contain a comprehensive scheme for the handling of funds received from clients.  Strict compliance with these provisions, as well as timely and effective communication with clients regarding these issues, are crucial.  Mishandling these matters, whether intentionally or through inadvertence or incompetence, damages the public’s trust in the profession and may lead to disciplinary action for individual lawyers.

Each year, a number of lawyers are referred for investigation and possible disciplinary action following a compliance audit that disclosed improper handling of client retainers and billing.

The following key principles should be kept in mind when bills are being prepared.

Under section 69 of the Legal Profession Act, a bill must:

• be signed by or on behalf of a lawyer, or be accompanied by a letter signed by or on behalf of the lawyer,
• contain a reasonably descriptive statement of the services with a lump sum charge,
• contain a detailed statement of disbursements, and
• be delivered to the person charged.

Law Society Rule 3-57 sets out requirements that must be met before fees can be paid from trust.  The services must have been “performed” and the bill must be prepared and delivered to the client before a lawyer withdraws trust funds to pay fees.  The Benchers recently amended Rule 3-57(3) to clarify the methods by which a lawyer can deliver a bill to a client.

When a lawyer receives funds from a client for services to be performed, these funds are received in trust.  Such funds are paid in advance of the lawyer performing the services and are security for payment.  These funds are often referred to as a “retainer,” which does not change the fact that they are paid in trust.  A lawyer is not entitled to use those funds until the services have been performed and a bill has been properly issued and delivered.  

Funds received before the services are performed must be deposited to the lawyer’s trust account (Rule 3-51(1)).  Subject to very limited exceptions, it is improper for a lawyer to do any of the following:

• transfer any part of funds received in trust from a trust account to a general account before providing the legal services to the client, issuing a bill and delivering it to the client;
• deposit a retainer directly to a general account;
• withdraw a retainer from trust in payment of a bill when the lawyer is aware that the client has objected to the bill.
• issue a bill for the purpose of transferring from trust any funds remaining in trust, if there is no genuine basis for the amount charged. (Refer to the Practice Watch column in the Spring 2010 Benchers’ Bulletin, which explains how to handle trust funds remaining unclaimed for more than two years.)

A lawyer and client may agree that the lawyer will perform certain services for a set or flat fee.  However, such an agreement does not of itself entitle the lawyer to treat the funds received as his or her own property because the services have not yet been performed.

If a lawyer mishandles a client retainer in breach of the rules, disciplinary action will likely result.  

In some circumstances, the transfer from trust of funds received as a retainer, prior the performance of the legal services, may be considered misappropriation.

Lawyers are reminded of the need for strict compliance with the Legal Profession Act, the Law Society Rules and the Professional Conduct Handbook.  Read them carefully, and if you have any doubts, contact a Practice Advisor.