Fears over new LSUC rules for trust accounts

Innocent transactions could fall afoul of tightened rules on the use of trust accounts, some Law Society of Upper Canada benchers fear.

The LSUC has moved to restrict lawyers’ use of their trust accounts as part of its crackdown on frauds involving licensees, either as active participants or as dupes conned by dishonest clients, that have cost it millions of dollars.

Ontario lawyers are already required to identify and record the names of clients as well as the source of trust funds, but Bencher Carl Fleck, the acting chairman of the professional regulation committee, said there wasn’t enough guidance about the purpose of the money and the risks of allowing an account to effectively become a “banking service” for the client.

“There are some who have been using them for transactions completely unrelated to legal services,” Fleck said, noting lawyers are responsible to the owners of funds held in trust whether or not they’re providing legal services for them.

Amendments to the law society’s Rules of Professional Conduct, passed in principle by Convocation at its February meeting, state that a lawyer, when acting for a client, “shall not use his or her trust account for purposes outside the provision of legal services.” The lawyer must also record the reason for receiving and disbursing money.

“Will it stop or prevent fraud or prevent people from being used as dupes in fraudulent mortgage transactions? I doubt it,” Fleck said.

But he believes the amendments will discourage the use of trust accounts to “lend legitimacy to dubious or fraudulent investment schemes.” They’ll also make it easier for the law society to detect fraud and respond more quickly when suspicious schemes come to light, according to Fleck.

Bencher Christopher Bredt, however, worried the amendments may affect his own anti-piracy practice. He routinely directs trust funds held on behalf of a client to pay anonymous informers who assist in enforcement. “I want to get some sense as to whether I’m going to be offside of the new rule,” Bredt said.

Bencher Julian Falconer, who also sits on the professional regulation
committee, said that in his opinion, Bredt’s disbursements didn’t constitute legal services and urged lawyers to rein in their use of trust accounts.

He used the example of legal clinic lawyers who hold money in trust to help clients pay their rent to suggest they rethink their use of trust accounts even when acting in good faith.

“That is a perfect example of an innocent effort to help, but it’s not the provision of legal services,” Falconer said. “The spirit of the rule is to get counsel to focus on what the purpose of the trust funds are.

If it’s not for the purposes of giving legal advice or providing legal services, then there are probably different accounts that could hold it. It wouldn’t necessarily have to be your trust account.”

Falconer’s position “scared the bejeepers” out of Susan Elliott, who said it could have serious implications for her estates practice. “We often are holding funds in an estate for payment out to beneficiaries and we’re providing, in my mind, the administrative service of executor in our capacity as solicitor for the executor.

This could be a mess if we can’t use the trust account to bank the money, pay the bills, and pay out the beneficiaries.”

Ottawa bencher William Simpson said Falconer’s assertions were arguable. At the same time, law society CEO Malcolm Heins stepped in to reassure benchers there would be a broad definition of the term “legal services” for the purposes of the rules. It would capture related services such as rent payments, estate administration, and informer payments.

“Lawyers do a wide array of activities in the provision of legal services, and I think that’s how it must be construed,” Heins said.

The amendments will return to Convocation when the committee has decided on the precise wording.
Meanwhile, the committee is also looking into new ways to help those who end up in regulatory trouble. Discussions have begun about making pro bono duty counsel available to lawyers under investigation by the law society.

The Advocates’ Society and the Criminal Lawyers’ Association already provide duty counsel to lawyers at disciplinary hearings and proceedings management conferences, but all parties are looking at the possibility of extending availability earlier in the process.

“Being the subject of an investigation is a stressful event for lawyers, and counsel can be of assistance to them,” reads a report to Convocation that also noted that the majority of lawyers are unrepresented during investigations.

According to Alexandra Chyczij, executive director of The Advocates’ Society, her organization has been running its pro bono program since 1998. Its volunteers “provide services that are typical of duty counsel,” she says.

“Some examples include assisting with the preparation of an agreed statement of facts, speaking to penalty, and speaking to adjournments.”

The program relies on volunteers who provide services without remuneration, so the proposal wouldn’t involve any extra costs. Chyczij says it’s too early to tell how much more work would be involved for volunteers.

But Bencher Beth Symes tells Law Times the proposal doesn’t go far enough. She says it’s particularly important that lawyers from small firms and solo practices who are overrepresented in the disciplinary process get access to good legal advice as early as possible.

“I don’t think that pro bono is the way to go. Lawyers in trouble with the law society need competent paid legal representation throughout the entire process, not a few hours of pro bono time. Instead, I think we should put in place insurance for legal fees to mount a defence.”

According to Symes, other professions put lawyers in the shade when it comes to protecting their own members.

The Canadian Medical Protective Association pays for lawyers to defend doctors who run into difficulties with the College of Physicians and Surgeons of Ontario, while the Ontario Nurses’ Association provides help through its legal expenses assistance plan. Teachers and police officers have similar schemes, Symes says.

The professional regulation committee will report back to Convocation once it completes discussions with The Advocates’ Society and the CLA.

For more on the issue of LSUC's assistance to lawyers, see "Whose law society is it?" and "LSUC does help lawyers in trouble: CEO."

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