Are the funds in a client account held on trust by the solicitor for the various clients? My thoughts are that they can’t be as any given client’s funds are usually mixed with the funds of other clients, which would mean that all solicitors would be breaching their duties as a trustee by mixing the money of one client with the money of another client.
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Money in the client account is, indeed, held on trust for the clients. Twinsectra v Yardley, Target Holdings v Redferns and AIB v Mark Redler all cover the point. The chaos that can ensue when there is a shortfall is covered in Re Ahmed & Co; the SRA has special rules about how to deal with the situation, which involves the imposition of a statutory trust.
Josh Lewison
Radcliffe Chambers
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This kind of trust is outside TRS: see TRSM23110. Not for our or our clients’ benefit. HMRC do not want to be bothered with a deluge of new registrations most of which will be short lived.
Jack Harper
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Yes, funds held in a client account by a solicitor are typically held in trust for the benefit of the respective clients. The solicitor is responsible for safeguarding and managing these funds on behalf of their clients and ensuring they are used for the intended legal purposes. This is a fundamental ethical and legal duty for solicitors to maintain client funds in trust.
Yes, I see from the cases that funds in the client account are held on trust. Just a bit hard to get my head around as the different clients funds are not segregated. Usually if one is holding something on trust, you can identify the specific property. I thought the client account was more like a bank account where the client’s asset is a chose in action, specifically the right to be paid the amount they have on account plus interest and the solicitor looked after the account as a fiduciary, but not a trustee.
Trustees must not mix a trust’s funds with their own money or that of different trusts. Case law shows that they do and the law provides a remedy, but not one that is necessarily effective.
Here the separate funds are at least clearly identifiable. It is not like the cases where several beneficiaries are entitled to a portion of an asset held in bulk, or to a stock of identical assets which have not been allocated, which causes problems in some sale/gift of goods cases where the bulk/stock is held on trust or so it is claimed.See Hunter v Moss, Re London Wine Shippers, Re Goldcorp Exchange. The context is usually that the holder of, or claimant to, the asset(s) is insolvent or that the “trust fund” has been damaged or has disappeared in whole or part.
The likelihood that the bank providing the client accounts becomes insolvent is small, given post-2008 regulation, but not zero. The possibility that the solicitors become insolvent is greater, especially in the ABS era. And theft from client accounts according to the Gazette is a weekly occurrence. In each of these situations the trust has a role to play in preserving the client’s money but it is not foolproof. The trust also has a role to play in many commercial situations e.g. the classic Quistclose loan where it is intended to prevent the other party from using the funds for a non-specified purpose and to protect the funds lent from the borrower’s creditors. But it is not foolproof as where the borrower becomes totally insolvent or all its assets are fraudulently plundered by persons who cannot be traced or have spent all the money without creating assets.
Jack Harper
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The general rules against mixing is varied by legislation (i.e. there will be a legal basis for the solicitors accounts rules).
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