T.C. BEIRNE SCHOOL OF LAW FACULTY OF BUSINESS, ECONOMICS AND LAW Robin Hood and Spite Rights – Interest on Lawyers’ Trust Accounts (IOLTA) Reid Mortensen

T.C. BEIRNE SCHOOL OF LAW FACULTY OF BUSINESS, ECONOMICS AND LAW Outline 1 Australian IOLTA schemes 2 Usage of IOLTA in Australia 3 The public ethics of IOLTA in Australia 4 The possibilities for the moral salvage of IOLTA in Australia

T.C. BEIRNE SCHOOL OF LAW FACULTY OF BUSINESS, ECONOMICS AND LAW Australian IOLTA Schemes (5-6) 1 Statutory deposit schemes 2 Residual balances schemes

T.C. BEIRNE SCHOOL OF LAW FACULTY OF BUSINESS, ECONOMICS AND LAW Australian IOLTA Schemes Statutory deposit schemes (6-17) Clients andSolicitor 1 other beneficiariesTrust Account $ Clients andSolicitor 2 other beneficiariesTrust Account $ Clients andSolicitor 3 other beneficiariesTrust Account $ 2/3 previous year

T.C. BEIRNE SCHOOL OF LAW FACULTY OF BUSINESS, ECONOMICS AND LAW Australian IOLTA Schemes Statutory deposit schemes (6-17) Clients andSolicitor 1 IOLTA Trustee [QLS] other beneficiariesTrust AccountStatutory deposit account $ Clients andSolicitor 2 other beneficiariesTrust Account $ Clients andSolicitor 3 other beneficiariesTrust Account $Interest

T.C. BEIRNE SCHOOL OF LAW FACULTY OF BUSINESS, ECONOMICS AND LAW Australian IOLTA Schemes Residual balances schemes (17-20) Clients andSolicitor 1 Agreement other beneficiariesTrust AccountIOLTA Trustee [QLS] & Banks $ Clients andSolicitor 2 other beneficiariesTrust Account $ Clients andSolicitor 3 other beneficiariesTrust Account $Interest 2/3 previous year

T.C. BEIRNE SCHOOL OF LAW FACULTY OF BUSINESS, ECONOMICS AND LAW Usage of IOLTA in Australia Two patterns of allocation (26): 1Legislated proportions to be allocated to various programs (eg, Qld to 2004) 2 IOLTA Trustee (with government control or input) has discretion as to how IOLTA is allocated (eg, Qld from 2004) Common uses – why IOLTA is ‘a Robin Hood taking’ (25-34): 1 Legal aid in State matters (over $30 million per annum) (31-2) 2 Fidelity funds: administration, and maintenance of corpus 3 Community legal centres, PLT, CLE, law reform, etc - Supreme Court Library (Qld only)

T.C. BEIRNE SCHOOL OF LAW FACULTY OF BUSINESS, ECONOMICS AND LAW The public ethics of IOLTA Two misconceptions – 1 Trust account deposits are sterile; IOLTA creates value (20-1)

T.C. BEIRNE SCHOOL OF LAW FACULTY OF BUSINESS, ECONOMICS AND LAW The public ethics of IOLTA Two misconceptions – 1Trust account deposits are sterile; IOLTA creates value (20-1) 2Claims to interest are uncoupled from claims to capital (36-7); eg – ‘I, for one, wholeheartedly support that application of interest … which at present is not of any benefit to anyone – client, solicitor, or the owner of the money’ Percy Smith MLA, Queensland Legislative Assembly, 2 December 1964

T.C. BEIRNE SCHOOL OF LAW FACULTY OF BUSINESS, ECONOMICS AND LAW The public ethics of IOLTA Two misconceptions – 1Trust account deposits are sterile; IOLTA creates value (20-1) 2Claims to interest are uncoupled from claims to capital (36-9); cf – Phillips v Washington Legal Foundation, 524 US 156 (1998) Brown v Legal Foundation of Washington, 123 S Ct 1406 (2003) Brown v Inland Revenue Commissioners [1965] AC 244

T.C. BEIRNE SCHOOL OF LAW FACULTY OF BUSINESS, ECONOMICS AND LAW The public ethics of IOLTA (39-41) ‘Lord Justice [sic] Upjohn said … ”A practice whereby the solicitor uses his clients’ money, too small in individual amounts or held for too short a time to make individual investment worthwhile on behalf of the individual client but which, in the aggregate, amounts to a large floating sum, to earn interest for him is an entirely innocent and commonsense practice which harms no one and probably indirectly benefits the general body of clients.” The only organization or individual to lose anything by reason of this legislation will be the bankers.’ McCaw AG, NSW Legislative Assembly, 15 March 1967

T.C. BEIRNE SCHOOL OF LAW FACULTY OF BUSINESS, ECONOMICS AND LAW The public ethics of IOLTA (39-41) Lord Upjohn said … ”A practice whereby the solicitor uses his clients’ money, too small in individual amounts or held for too short a time to make individual investment worthwhile on behalf of the individual client but which, in the aggregate, amounts to a large floating sum, to earn interest for him is an entirely innocent and commonsense practice which harms no one and probably indirectly benefits the general body of clients. But this interest belongs collectively to the clients and not to the solicitor and equity has always regarded, and rightly regarded, the fiduciary relationship of client and adviser as subject to such strict rules of conduct that its retention by the solicitor cannot be justified in law without the client’s consent. So the solicitor must explain the matter to his client and obtain his consent thereto.”

T.C. BEIRNE SCHOOL OF LAW FACULTY OF BUSINESS, ECONOMICS AND LAW The public ethics of IOLTA Three further issues: 1 The assumption that the trust account does not hold ‘investable amounts’ (41-4) No duty in Australia to advise a client to have investable amounts placed in controlled money (ie, savings) accounts cf Brown v Legal Foundation of Washington, 123 S Ct 1406 (2003 ) Ample evidence that investable amounts are routinely held in trust accounts

T.C. BEIRNE SCHOOL OF LAW FACULTY OF BUSINESS, ECONOMICS AND LAW The public ethics of IOLTA Three further issues: 1 The assumption that the trust account does not hold ‘investable amounts’ (41-4) 2 The absence of a duty to disclose that the trust account does not earn the client any interest, and that interest is used to fund public programs - the client’s consequential ‘spite right’ (44-6)

T.C. BEIRNE SCHOOL OF LAW FACULTY OF BUSINESS, ECONOMICS AND LAW The public ethics of IOLTA Three further issues: 1 The assumption that the trust account does not hold ‘investable amounts’ (41-4) 2 The absence of a duty to disclose that the trust account does not earn the client any interest, and that interest is used to fund public programs - the client’s consequential ‘spite right’ (44-6) 3 Interested, private associations as agents of distributive justice (47-8)

T.C. BEIRNE SCHOOL OF LAW FACULTY OF BUSINESS, ECONOMICS AND LAW The possibilities for moral salvage Three reforms (50): 1 An expressed solicitor's duty to advise clients that amounts capable of earning net interest be placed in controlled money accounts 2 An expressed solicitor’s duty to disclose that money in the trust account does not earn the client any interest, and that interest is used to fund public programs 3 The transfer of IOLTA trusteeship to the Government

T.C. BEIRNE SCHOOL OF LAW FACULTY OF BUSINESS, ECONOMICS AND LAW Robin Hood and Spite Rights – Interest on Lawyers’ Trust Accounts (IOLTA) Reid Mortensen