Lawyers can't hold money from clients

Lawyers can't hold money from clients

Law Society agrees to proposal to protect public from rogue lawyers

AFTER years of wrestling with the problem of lawyers running off with their clients’ money, a decision has been made to bar them from holding such funds.

The Chief Justice disclosed this in a recent speech to lawyers, adding that only the details needed to be ironed out.

The Law Society, which has tried several ways to protect clients’ funds parked with lawyers, particularly those made in the course of property transactions, has finally ’seen the light’, said Chief Justice Chan Sek Keong.

He did not go into the mechanics but one possible idea has been to entrust clients’ funds to the Singapore Law Academy, which is already doing something similar for housing developers.

It appeared that the Law Society leadership took some convincing.

The problem of rogue lawyers led to the Chief Justice appointing a committee chaired by Appeals Court judge V.K. Rajah early this year to resolve the issue.

Replying to queries, a Law Society spokesman said it told the committee that the current practice of lawyers holding clients’ funds is a ‘critical and practical step’ in the conveyancing process.

Typically, conveyancing lawyers hold between 5 and 9 per cent of the cash value of a property deal for about three months on the seller’s behalf.

This is the time needed for the buyer to make various checks to verify that the property is genuinely owned by the prospective seller.

The spokesman said having the money with the lawyers meant they could forward the amounts when due. Payment delays could incur interest as a penalty.

But, to instil public confidence, the society was agreeing to the committee’s proposal. The spokesman stressed that the society was asked only about money for property deals. Besides such deposits, lawyers are also entrusted with funds for commercial transactions and settlements.

Speaking at the society’s annual dinner and dance earlier this month, the CJ said the society had taken a ‘brave decision’ in agreeing to the proposal.

The problem of lawyer defalcations has concerned the profession for decades, but has drawn more attention recently in the wake of heightened property prices.

Moves to stem such criminal practices have always been contentious, with small legal practices and sole proprietors baulking at the cost of increased safeguards.

The most recent step to strengthen safeguards was to require two signatories to withdraw amounts of more than $30,000 from clients’ accounts.

But the moves did not stop six lawyers from fleeing with more than $29 million over the last five years.

‘Lawyers collectively should have felt extremely embarrassed, if not ashamed, by The Straits Times report that six out of the top 10 fugitives for this kind of offence were lawyers,’ said CJ Chan.

Lawyers contacted wondered about the practicality of removing the ability of lawyers to hold on to clients’ money, but expect the issue to be clearer when details are known.

Noting that ‘the devil is in the details’, Senior Counsel Kenneth Tan said that while large amounts could be entrusted to another party, ’small amounts such as for lawyer disbursements and expenses for convenience and efficiency are better paid directly to lawyers’.

The 671 small firms are likely to be more affected by the move than the 98 medium- and large-sized firms.

Lawyer Amolat Singh said small firms would require more time to retrieve such funds for disbursement if they are parked elsewhere.

Sole proprietor Rajan Chettiar welcomed the impending move. It would cut costs as he would not need to maintain a bookkeeper, he said. Not having to safeguard the accounts also means ‘less stress and tension’.

While he too welcomed the move, lawyer R.S. Bajwa, who also runs his own firm, said: ‘It is very sad that a very small minority have brought about this to a majority of lawyers.

‘It is a very extreme measure to take away a trust account from a lawyer.

Senior Counsel Cavinder Bull sounded sanguine: ‘In principle, this sort of change is not going to cripple the legal profession and we should move with the times.’

COLLECTIVE SHAME

‘Lawyers collectively should have felt extremely embarrassed, if not ashamed, by The Straits Times report that six out of the top 10 fugitives for this kind of offence were lawyers.’ – Chief Justice Chan Sek Keong

Straits Times - Wednesday, 22 Oct 2008

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Does this new ruling from the Law Society mean en bloc lawyers can no longer act as stakeholders to the sale deposit and lay claim to the substantial interest earned? It seems so.

Without the added safeguard of keeping the interest in cases where the sale does not go through. perhaps en bloc lawyers will, from now on, seek to be paid incrementally for work done , or at least 50% up front.