SOLICITORS (SCOTLAND) BILL [H.L.] (Hansard, 18 May 1965)

VISCOUNT COLVILLE OF CULROSS
My Lords, I find it very easy to rejoice with the noble Lord, Lord Champion, that he has succeeded in piloting his Bill through Parliament. Sometimes I have more success in this line than others, but I hope that on the Bill I am about to introduce to your Lordships I shall have less difficulty than on other occasions. it is in fact a "little brother" to the English Solicitors Bill, with which the noble Lord, Lord Tangley, dealt 398 earlier this Session, but I am glad to be able to tell your Lordships that it is nothing like so complicated.
Clause 1 deals with a situation which so far has not been properly covered by the law. It extends the provisions in the existing Acts concerning the situation of a solicitor who becomes bankrupt to the solicitor who has a judicial factor appointed on his estate. The judicial factor, I should perhaps explain, is an officer of the court who I think could best be described as a sort of official company doctor. He is there to try to help the solicitor to put his affairs in order, although that solicitor has not yet come to such a state that he has to go bankrupt. At the moment, even when a solicitor has a judicial factor appointed he is allowed to continue to practise. I think it is probably undesirable that a solicitor whose business has got to such an embarrassing state that it has become necessary for this judicial factor to be appointed should be able to continue in practice. Therefore, with the agreement of the legal authorities in Scotland, the opportunity is now taken to prevent him from being able to do so.
The second clause of the Bill is designed to deal with a situation which I can describe only as one of pure farce. At the present moment the registrar keeps the roll of solicitors in Scotland, and he is authorised to remove from that roll the name of any solicitor who has died. But he can also send to any solicitor who has discontinued paying his retention fee a notice inquiring whether or not that solicitor wants his name to remain on the roll. If no reply is received within six months, then the registrar can take that solicitor's name off the roll; but if, as obviously quite often happens, the solicitor writes back and says that he would like his name taken off the roll, then, because of the law as it at present stands, the registrar cannot do it. This is such a strange situation, that it seems a good opportunity to put right what is an obvious nonsense.
Clause 3 is for practical purposes the same as Clause 14 of the English Bill, which was dealt with earlier on. It is designed to avoid the difficulties for clients which arise when a solicitor who practises on his own dies, and when there is in the account, which he himself has 399 run, money which belongs to a client. Obviously, if the money is tied up, as it were, at the present moment in the solicitor's bank then until Grant of Administration of the account has been taken out, which may take several weeks, the whole business of selling a house, or doing any other business on behalf of the client, comes to grief. What will happen under the clause is that the Law Society of Scotland will be able to take over that client account and deal with the matter straight away.
Clause 4, however, is the main clause of the Bill, and its object is to resolve the problems which were created by the decision in Brown v. The Commissioners of Inland Revenue. Your Lordships will probably remember that this case affirmed that there was a fiduciary relationship between a solicitor and a client, and that, as a result, a solicitor could not, without the full knowledge and free assent of his client, obtain from him any pecuniary advantage other than proper charges and disbursements. The particular point of the case was that it applied that principle to clients' money in the hands of the solicitor when the solicitor had put it on deposit in his own name, but on behalf of his clients generally, and when as a result it earned interest. It was held that the solicitors must account for the interest on all the money, irrespective of the difficulties of apportionment, and that each client's money must be given its exact due amount of interest.
It is most important to emphasise that the solicitors in Scotland are not attempting to get round this decision. On the contrary, Clause 4 really strengthens and stiffens up the powers contained in the liability to safeguard the client. What is attempted in this clause is to establish a practical way of applying the principles of the case to our day-to-day life. The position to-day is that a solicitor who receives client's monies is under an obligation to put them in a separate bank account, apart from his own money, but there is no obligation on him to put them on deposit or in any account which will earn interest. If he does this, then he must account for the interest. The difficulty in practice relates to sums which are themselves too small to be put on deposit or are held for too short a period 400 to justify their being, put on deposit. Of course, a solicitor will have in his client account a large number of small sums in respect of rents or small debts, or something like that, and these would hardly be capable of being accounted for individually. At the present moment he tends to lump them together and put them in the account. On the other hand, there is the case where there are large sums which could justifiably be put on deposit, if they were to be held for a long time, but which in fact are held for only a very short time. That happens in conveyancing, in the buying and selling of houses, when the money is in for only a few weeks.
Therefore, the difficulties of working out a practical solution of this problem are, first, the size of the monies belonging to the client; and, secondly, the time for which those monies stay in the solicitor's hands. As I said, my Lords, at the moment what he usually does is to say that it will be safe to put, say, a third or a quarter of the total monies he has on account; and then Brown's case makes him account for each individual amount of interest to each individual client. The only thing that he would be able to do, following the decision in Brown's case, if this Bill were not to become law, would be not to put any of the money on deposit at all. And in that event the only person who would gain would be the bank, who would pay no interest on this money. The client would not gain; the solicitor would not gain.
The remedy proposed is that, where it is fair to the client, money shall be put on deposit in the name of that client, or on his behalf, and there will be a legal obligation to put the money on deposit in this way in the right and proper case where it is fair. It is also proposed that if the solicitor does not put the money on deposit in a case where he should have done, then he will still be bound to account to the client for the amount of interest that would have been earned if the money had been put on deposit.
I have made reference to these two factors—the amount of the sum, and the length of time it is held. The means which are proposed to deal with this are Clause 4, coupled with rules which will be made—in fact, they have already been made in draft—which will make it mandatory upon the Law Society to put into 401 effect a scheme contained in those rules. These rules will be brought into effect simultaneously with the coming into force of the Bill on January 1, 1966. These rules have to be approved by the Lord President of the Court of Session. In fact, I think I am allowed to say that the Lord President has seen them and approved them. The rules provide that if the two limits of £500 or two months are exceeded—that is to say, if the sum is £500 or more, or if money is held for two months or more—then there should be an absolute liability to put the money on deposit and pay interest to the client. It, on the other hand, it is reasonable and fair to the client, even with sums below those limits, that the money should be put on deposit, there is equally an obligation.
There are three sanctions in this matter. The first and obvious one is that the court has the last word on the matter, if it comes to that. Secondly, there is a new sanction that is to be included in the rule, that the Law Society may be asked by the client to give a certificate as to whether the solicitor was right or wrong in not accounting for interest or in not putting the money on deposit. Lastly, there is the accountant's certificate which the solicitor has to produce before he can get a practising certificate, and that accountant's report must certify that the accounts rules have been complied with.
There are only two differences in this scheme from that which is being introduced under the English Bill and the rules under that. The first is this. The clause in the English Bill dealing with client's money makes special reference to money subject to a trust. This is required in England because such monies are dealt with under separate trust accounts rules and these are distinct from the accounts rules. In Scotland all such monies are covered by the accounts rules.
The second difference between this clause and the English one is that this clause extends the solicitor's liability for interest not merely to the amount of any sum received on behalf of a client, but also to any balance held for the client. This has the result of making even more stringent the liability of the solicitor to place a client's money on deposit receipt, to make good to the client a sum 402 equivalent to the interest which would have been secured if the money had been so placed on deposit receipt. The slight difference has been introduced because in fact the Scottish solicitor acts to a somewhat greater degree than his English colleague as a man of business in relation to his client's affairs, and he has these balances, made up of small sums resulting from different transactions, belonging to the same client at any one time. Clause 5 is machinery. I hope I have succeeded in explaining the Bill to your Lordships, with clarity. I also hope your Lordships will agree that it is a good Bill, and should be given a Second Reading. I therefore beg to move that this Bill be now read a second time.

§ LORD HUGHES
My Lords, the noble Viscount, Lord Colville of Culross, has explained this Bill with his usual admirable clarity, and that makes my task a very easy one indeed. As he said, the principal provision is in Clause 4, which is essentially the same as the corresponding clause in the Solicitors Bill which your Lordships examined and approved earlier this year. The other provisions—and one of the examples he gave was a singularly apt one—merely plug up some gaps in previous legislation.
I think it would be correct to say that the Bill clarifies the law. As your Lordships know, this is one of the prime objects of Government policy, and we can therefore treat it as an admirable purpose. I wish I could go further than that and predict a safe passage for the Bill, not merely in this House but in another place, but there is perhaps something even more involved under examination there at the moment. I hope that the Bill will go steadily on its course but, of course, I can make no promises beyond the fullest co-operation in your Lordships' House.

VISCOUNT COLVILLE OF CULROSS
I am very grateful to the noble Lord, Lord Hughes. I know he will do everything he can to help, and it gives me great encouragement to hear what he says. I am very much obliged to him.