June 2, 2022

June 2, 2022

A recent BC Court of appeal decision has affirmed a Law Society Tribunal decision that says funds a lawyer accepts under a fixed or flat fee arrangement may be trust funds. If the funds received from a client are trust funds, they must be deposited into a trust account as soon as practicable or it could amount to misappropriation. As noted in the case below, mishandling trust funds is conduct that has resulted in disciplinary action.

A recent BC Court of Appeal decision has affirmed a Law Society Tribunal decision that funds received by a lawyer pursuant to fixed or flat fee arrangement for services to be performed were trust funds and should not have been deposited to a general account. Where you have received a fixed or flat fee and have not completed the services for the client, the funds must be deposited into a trust account as soon as practicable and are to be held in trust until the services have been provided, unless there is an express agreement with the client.

Here is some guidance to assist you in avoiding risk of mishandling funds.

Are funds received under a fixed fee arrangement trust funds?

Under the Law Society Rules, when a client pays funds under a fixed fee arrangement, prior to the legal work being completed, the funds are trust funds. Law Society Rule 1 defines “trust funds” to include funds “received from a client for services to be performed or for disbursements to be made.” The fiduciary relationship between lawyer and client also requires that advance payments for work to be completed are to be held in trust, and only an express agreement with the client to the contrary (fully informed and preferably in writing) may vary from this requirement.

Trust funds cannot be withdrawn from the trust account until the work has been completed and a bill immediately delivered to the client in keeping with Rules 3-64(1) and 3-65.

In Law Society of British Columbia v. Guo, 2022 BCCA 154, the Court of Appeal, in dismissing the lawyer’s appeal, affirmed the above principles. The lawyer had deposited cash received from six clients directly to her firm’s general account. The clients had agreed to a fixed fee for the work, which the lawyer had not completed at the time funds were received. The Court of Appeal agreed with the Law Society hearing panel that the payments were trust funds that ought to have been deposited to a trust account. In the circumstances, the mishandling of the trust funds was a breach of Rule 3-58(1) and amounted to professional misconduct.

Resources to assist you in complying with the trust accounting rules are available at Trust Accounting. Law Society practice advisors are also available to provide confidential advice. You may contact them at practiceadvice@lsbc.org or 604.443.5797.