Solicitors' Accounts Rules 1998

Rule 14 - Client accounts

• (1)

  A solicitor who holds or receives client money must keep one or more client accounts (unless all the client money is always dealt with outside any client account in accordance with rule 9, rule 10, rule 16 or rule 17).

• (2)

  A "client account" is an account of a practice kept at a bank or building society for holding client money, in accordance with the requirements of this part of the rules.

• (3)

  The client account(s) of:

  • (a)

    a sole practitioner must be either in the solicitor's own name or in the practice name;

  • (b)

    a partnership must be in the firm name;

  • (c)

    an incorporated practice must be in the company name, or the name of the LLP;

  • (d)

    in-house solicitors must be in the name of the current principal solicitor or solicitors;

  • (e)

    trustees, where all the trustees of a trust are managers and/or employees of the same recognised body, must be either in the name of the recognised body or in the name of the trustee(s);

  and the name of the account must also include the word "client".

• (4)

  A client account must be:

  • (a)

    a bank account at a branch (or a bank's head office) in England and Wales; or

  • (b)

    a building society deposit or share account at a branch (or a society's head office) in England and Wales.

• (5)

  There are two types of client account:

  • (a)

    a "separate designated client account", which is a deposit or share account for money relating to a single client, other person or trust, and which includes in its title, in addition to the requirements of rule 14(3) above, a reference to the identity of the client, other person or trust; and

  • (b)

    a "general client account", which is any other client account.

Notes

• • (i)

    For the client accounts of an executor, trustee or nominee company owned by a practice, see rule 31.

  • (ii)

    In the case of in-house solicitors, any client account should include the names of all solicitors of the Supreme Court or registered European lawyers held out on the notepaper as principals. The names of other employees who are solicitors of the Supreme Court or registered European lawyers may also be included if so desired. Any person whose name is included will be subject to the full Compensation Fund contribution and his or her name will have to be included on the accountant's report.

  • (iii)

    "Bank" and "building society" are defined in rule 2(2)(c) and (d) respectively.

  • (iv)

    A practice may have any number of separate designated client accounts and general client accounts.

  • (v)

    The word "client" must appear in full; an abbreviation is not acceptable.

  • (vi)

    Compliance with rule 14(1) to (4) ensures that clients, as well as the bank or building society, have the protection afforded by section 85 of the Solicitors Act 1974.

  • (vii)

    Money held in a client account must be immediately available, even at the sacrifice of interest, unless the client otherwise instructs, or the circumstances clearly indicate otherwise.

Rule 15 - Use of a client account

• (1)

  Client money must without delay be paid into a client account, and must be held in a client account, except when the rules provide to the contrary (see rules 9, 10, 16, 17, 19 and 21).

• (2)

  Only client money may be paid into or held in a client account, except:

  • (a)

    an amount of the solicitor's own money required to open or maintain the account;

  • (b)

    an advance from the solicitor to fund a payment on behalf of a client or trust in excess of funds held for that client or trust; the sum becomes client money on payment into the account (for interest on client money, see rule 24(3)(e);

  • (c)

    money to replace any sum which for any reason has been drawn from the account in breach of rule 22 ; the replacement money becomes client money on payment into the account; and

  • (d)

    a sum in lieu of interest which is paid into a client account to enable the solicitor to make payment from the client account of all money owed to the client as an alternative to making separate payments from the office and client accounts;

  and except when the rules provide to the contrary (see note (iv) below).

• (3)

  Client money must be returned to the client (or other person on whose behalf the money is held) promptly, as soon as there is no longer any proper reason to retain those funds. Payments received after the solicitor has already accounted to the client, for example by way of a refund, must be paid to the client promptly.

• (4)

  A solicitor must promptly inform a client (or other person on whose behalf the money is held) in writing of the amount of any client money retained at the end of a matter (or the substantial conclusion of a matter), and the reason for that retention. The solicitor must inform the client (or other person) in writing at least once every twelve months thereafter of the amount of client money still held and the reason for the retention, for as long as the solicitor continues to hold that money.

Notes

• • (i)

    See rule 13 and notes for the definition and examples of client money.

  • (ii)

    "Without delay" is defined in rule 2(2)(z).

  • (iii)

    Exceptions to rule 15(1)(client money must be paid into a client account) can be found in:

    
    
    • rule 9 – liquidators, trustees in bankruptcy, Court of Protection deputies and trustees of occupational pension schemes;
    • rule 10 – joint accounts;
    • rule 16 - client's instructions;
    • rule 17 - cash paid straight to client, beneficiary or third party;
      • cheque endorsed to client, beneficiary or third party;
      • money withheld from client account on the SRA’s authority;
      • money withheld from client account in accordance with a trustee's powers;
    • rule 19(1)(b) - receipt and transfer of costs;
    • rule 21(1) - payments by the Legal Services Commission.
  • (iv)

    Rule 15(2)(a) to (d) provides for exceptions to the principle that only client money may be paid into a client account. Additional exceptions can be found in:

    • rule 19(1)(c) – receipt and transfer of costs;
    • rule 20(2)(b) - receipt of mixed payments;
    • rule 21(2)(c)(ii) – transfer to client account of a sum for unpaid professional disbursements, where the solicitor receives regular payments from the Legal Services Commission.
  • (v)

    Only a nominal sum will be required to open or maintain an account. In practice, banks will usually open (and, if instructed, keep open) accounts with nil balances.

  • (vi)

    [deleted]

  • (vii)

    If client money is invested in the purchase of assets other than money - such as stocks or shares - it ceases to be client money, because it is no longer money held by the solicitor. If the investment is subsequently sold, the money received is, again, client money. The records kept under rule 32 must include entries to show the purchase or sale of investments.

  • (viii)

    Some schemes proposed by banks would aggregate the sums held in a number of client accounts, including one or more separate designated client accounts, in order to maximise the interest payable. This is acceptable only if:

    • each client account remains a separate account;
    • the rate of interest applied by the bank is the same for each client account; and
    • the bank credits the total amount of the interest earned in respect of each separate designated client account to that account (see rule 24(1)), and credits the interest earned on any general client account to the office account (see note (xi)(b) to rule 13).
  • (ix)

    In the case of Wood and Burdett (case number 8669/2002 filed on 13 January 2004), the Solicitors Disciplinary Tribunal said that it is not a proper part of a solicitor’s everyday business or practice to operate a banking facility for third parties, whether they are clients of the firm or not. Solicitors should not, therefore, provide banking facilities through a client account. Further, solicitors are likely to lose the exemption under the Financial Services and Markets Act 2000 if a deposit is taken in circumstances which do not form part of a solicitor’s practice. It should also be borne in mind that there are criminal sanctions against assisting money launderers.

  • (x)

    As with rule 7 (Duty to remedy breaches), "promptly" in rule 15(3) and (4) is not defined but should be given its natural meaning in the particular circumstances. Accounting to a client for any surplus funds will often fall naturally at the end of a matter. Other retainers may be more protracted and, even when the principal work has been completed, funds may still be needed, for example, to cover outstanding work in a conveyancing transaction or to meet a tax liability.

  • (xi)

    There may be some instances when, during the course of a retainer, the specific purpose for which particular funds were paid no longer exists, for example, the need to instruct counsel or a medical expert. Rule 15(3) is concerned with returning funds to clients at the end of a matter (or the substantial conclusion of a matter) and is not intended to apply to ongoing retainers. However, solicitors must always act in the best interests of their clients and may need to take instructions in such circumstances to ascertain, for instance, whether the money should be returned to the client or retained to cover the general funding or other aspects of the case.

  • (xii)

    (See rule 22(1)(ga)-(h) for withdrawals from a client account when the rightful owner of funds cannot be traced.)

Rule 16 - Client money withheld from client account on client's instructions

• (1)

  Client money may be:

  • (a)

    held by the solicitor outside a client account by, for example, retaining it in the solicitor's safe in the form of cash, or placing it in an account in the solicitor's name which is not a client account, such as an account outside England and Wales; or

  • (b)

    paid into an account at a bank, building society or other financial institution opened in the name of the client or of a person designated by the client;

  but only if the client instructs the solicitor to that effect for the client's own convenience, and only if the instructions are given in writing, or are given by other means and confirmed by the solicitor to the client in writing.

• (2)

  It is improper to seek blanket agreements, through standard terms of business or otherwise, to hold client money outside a client account.

Notes

• • (i)

    For advance payments from the Legal Services Commission, withheld from a client account on the Commission's instructions, see rule 21(1)(a).

  • (ii)

    If a client instructs the solicitor to hold part only of a payment in accordance with rule 16(1)(a) or (b), the entire payment must first be placed in a client account. The relevant part can then be transferred out and dealt with in accordance with the client's instructions.

  • (iii)

    Money withheld from a client account under rule 16(1)(a) remains client money, and the record-keeping provisions of rule 32, including monthly reconciliations, must be complied with.

  • (iv)

    Once money has been paid into an account set up under rule 16(1)(b), it ceases to be client money. Until that time, the money is client money and a record must therefore be kept of the solicitor's receipt of the money, and its payment into the account in the name of the client or designated person, in accordance with rule 32. If the solicitor can operate the account, the solicitor must comply with rule 11 (operating a client's own account) and rule 33 (accounting records for clients' own accounts). In the absence of instructions to the contrary, any money withdrawn must be paid into a client account - see rule 15(1).

  • (v)

    Clients' instructions under rule 16(1) must be kept for at least six years - see rule 32(9)(d).

  • (vi)

    A payment on account of costs received from a person who is funding all or part of the solicitor's fees may be withheld from a client account on the instructions of that person given in accordance with rule 16(1) and (2).

  • (vii)

    For payment of interest, see rule 24(6) and notes (ii) and (iii) to rule 24.

Rule 17 - Other client money withheld from a client account

The following categories of client money may be withheld from a client account:

• • (a)

    cash received and without delay paid in cash in the ordinary course of business to the client or, on the client's behalf, to a third party, or paid in cash in the execution of a trust to a beneficiary or third party;

  • (b)

    a cheque or draft received and endorsed over in the ordinary course of business to the client or, on the client's behalf, to a third party, or without delay endorsed over in the execution of a trust to a beneficiary or third party;

  • (c)

    money withheld from a client account on instructions under rule 16;

  • (ca)

    money which, in accordance with a trustee's powers, is paid into or retained in an account of the trustee which is not a client account (for example, an account outside England and Wales), or properly retained in cash in the performance of the trustee's duties;

  • (d)

    unpaid professional disbursements included in a payment of costs dealt with under rule 19(1)(b);

  • (e)
    • (i)

      advance payments from the Legal Services Commission withheld from client account (see rule 21(1)(a)); and

    • (ii)

      unpaid professional disbursements included in a payment of costs from the Legal Services Commission (see rule 21(1)(b)); and

  • (f)

    money withheld from a client account on the written authorisation of the SRA. The SRA may impose a condition that the solicitor pay the money to a charity which gives an indemnity against any legitimate claim subsequently made for the sum received.

Notes

• • (i)

    "Without delay" is defined in rule 2(2)(z).

  • (ii)

    If money is withheld from a client account under rule 17(a) or (b), rule 32 requires records to be kept of the receipt of the money and the payment out.

  • (iia)

    If money is withheld from a client account under rule 17(ca), rule 32 requires a record to be kept of the receipt of the money, and requires the inclusion of the money in the monthly reconciliations.

  • (iii)

    It makes no difference, for the purpose of the rules, whether an endorsement is effected by signature in the normal way or by some other arrangement with the bank.

  • (iv)

    The circumstances in which authorisation would be given under rule 17(f) must be extremely rare. Applications for authorisation should be made to the Professional Ethics Guidance Team.

Rule 18 - [repealed]

Rule 19 - Receipt and transfer of costs

• (1)

  A solicitor who receives money paid in full or part settlement of the solicitor's bill (or other notification of costs) must follow one of the following four options:

  • (a)

    determine the composition of the payment without delay, and deal with the money accordingly:

    • (i)

      if the sum comprises office money only, it must be placed in an office account;

    • (ii)

      if the sum comprises only client money (for example an unpaid professional disbursement - see rule 2(2)(s), and note (v) to rule 2), the entire sum must be placed in a client account;

    • (iii)

      if the sum includes both office money and client money (such as unpaid professional disbursements; purchase money; or payments in advance for court fees, stamp duty land tax, Land Registry registration fees or telegraphic transfer fees), the solicitor must follow rule 20 (receipt of mixed payments); or

  • (b)

    ascertain that the payment comprises only office money, and/or client money in the form of professional disbursements incurred but not yet paid, and deal with the payment as follows:

    • (i)

      place the entire sum in an office account at a bank or building society branch (or head office) in England and Wales; and

    • (ii)

      by the end of the second working day following receipt, either pay any unpaid professional disbursement, or transfer a sum for its settlement to a client account; or

  • (c)

    pay the entire sum into a client account (regardless of its composition), and transfer any office money out of the client account within 14 days of receipt; or

  • (d)

    on receipt of costs from the Legal Services Commission, follow the option in rule 21(1)(b).

• (2)

  A solicitor who properly requires payment of his or her fees from money held for a client or trust in a client account must first give or send a bill of costs, or other written notification of the costs incurred, to the client or the paying party.

• (3)

  Once the solicitor has complied with paragraph (2) above, the money earmarked for costs becomes office money and must be transferred out of the client account within 14 days.

• (4)

  A payment on account of costs generally is client money, and must be held in a client account until the solicitor has complied with paragraph (2) above. (For an exception in the case of legal aid payments, see rule 21(1)(a).)

• (5)

  A payment for an agreed fee must be paid into an office account. An "agreed fee" is one that is fixed - not a fee that can be varied upwards, nor a fee that is dependent on the transaction being completed. An agreed fee must be evidenced in writing.

Notes

• • (i)

    For the definition and further examples of office and client money, see rule 13 and notes.

  • (ii)
    • Money received for paid disbursements is office money.
    • Money received for unpaid professional disbursements is client money.
    • Money received for other unpaid disbursements for which the solicitor has incurred a liability to the payee (for example, travel agents' charges, taxi fares, courier charges or Land Registry search fees, payable on credit) is office money.
    • Money received for disbursements anticipated but not yet incurred is a payment on account, and is therefore client money.
  • (iii)

    The option in rule 19(1)(a) allows a solicitor to place all payments in the correct account in the first instance. The option in rule 19(1)(b) allows the prompt banking into an office account of an invoice payment when the only uncertainty is whether or not the payment includes some client money in the form of unpaid professional disbursements. The option in rule 19(1)(c) allows the prompt banking into a client account of any invoice payment in advance of determining whether the payment is a mixture of office and client money (of whatever description) or is only office money.

  • (iv)

    A solicitor who is not in a position to comply with the requirements of rule 19(1)(b) cannot take advantage of that option.

  • (v)

    The option in rule 19(1)(b) cannot be used if the money received includes a payment on account - for example, a payment for a professional disbursement anticipated but not yet incurred.

  • (vi)

    In order to be able to use the option in rule 19(1)(b) for electronic payments or other direct transfers from clients, a solicitor may choose to establish a system whereby clients are given an office account number for payment of costs. The system must be capable of ensuring that, when invoices are sent to the client, no request is made for any client money, with the sole exception of money for professional disbursements already incurred but not yet paid.

  • (vii)

    Rule 19(1)(c) allows clients to be given a single account number for making direct payments by electronic or other means - under this option, it has to be a client account.

  • (viii)

    A solicitor will not be in breach of rule 19 as a result of a misdirected electronic payment or other direct transfer, provided:

    • (A)

      appropriate systems are in place to ensure compliance;

    • (B)

      appropriate instructions were given to the client;

    • (C)

      the client's mistake is remedied promptly upon discovery; and

    • (D)

      appropriate steps are taken to avoid future errors by the client.

  • (ix)

    "Properly" in rule 19(2) implies that the work has actually been done, whether at the end of the matter or at an interim stage, and that the solicitor is entitled to appropriate the money for costs.

  • (x)

    Costs transferred out of a client account in accordance with rule 19(2) and (3) must be specific sums relating to the bill or other written notification of costs, and covered by the amount held for the particular client or trust. Round sum withdrawals on account of costs will be a breach of the rules.

  • (xi)

    In the case of a trust of which the only trustee(s) are within the firm, the paying party will be the trustee(s) themselves. The solicitor must keep the original bill or notification of costs on the file, in addition to complying with rule 32(8) (central record or file of copy bills, etc.).

  • (xii)

    Undrawn costs must not remain in a client account as a "cushion" against any future errors which could result in a shortage on that account, and cannot be regarded as available to set off against any general shortage on client account.

  • (xiii)

    The rules do not require a bill of costs for an agreed fee, although a solicitor's VAT position may mean that in practice a bill is needed. If there is no bill, the written evidence of the agreement must be filed as a written notification of costs under rule 32(8)(b).

Rule 20 - Receipt of mixed payments

• (1)

  A "mixed payment" is one which includes client money as well as office money.

• (2)

  A mixed payment must either:

  • (a)

    be split between a client account and office account as appropriate; or

  • (b)

    be placed without delay in a client account.

• (3)

  If the entire payment is placed in a client account, all office money must be transferred out of the client account within 14 days of receipt.

• (4)

  See rule 19(1)(b) and (c) for additional ways of dealing with (among other things) mixed payments received in response to a bill or other notification of costs.

• (5)

  See rule 21(1)(b) for (among other things) mixed payments received from the Legal Services Commission.

Note

• • "Without delay" is defined in rule 2(2)(z).

Rule 21 - Treatment of payments to legal aid practitioners

Payments from the Legal Services Commission

• (1)

  Two special dispensations apply to payments (other than regular payments) from the Legal Services Commission:

  • (a)

    An advance payment in anticipation of work to be carried out, although client money, may be placed in an office account, provided the Commission instructs in writing that this may be done.

  • (b)

    A payment for costs (interim and/or final) may be paid into an office account at a bank or building society branch (or head office) in England and Wales, regardless of whether it consists wholly of office money, or is mixed with client money in the form of:

    • (i)

      advance payments for fees or disbursements; or

    • (ii)

      money for unpaid professional disbursements;

    provided all money for payment of disbursements is transferred to a client account (or the disbursements paid) within 14 days of receipt.

• (2)

  The following provisions apply to regular payments from the Legal Services Commission:

  • (a)

    "Regular payments" (which are office money) are:

    • (i)

      standard monthly payments paid by the Commission under the civil legal aid contracting arrangements;

    • (ii)

      monthly payments paid by the Commission under the criminal legal aid contracting arrangements; and

    • (iii)

      any other payments for work done or to be done received from the Commission under an arrangement for payments on a regular basis.

  • (b)

    Regular payments must be paid into an office account at a bank or building society branch (or head office) in England and Wales.

  • (c)

    A solicitor must within 28 days of submitting a report to the Commission, notifying completion of a matter, either:

    • (i)

      pay any unpaid professional disbursement(s), or

    • (ii)

      transfer to a client account a sum equivalent to the amount of any unpaid professional disbursement(s),

    relating to that matter.

  • (d)

    In cases where the Commission permits solicitors to submit reports at various stages during a matter rather than only at the end of a matter, the requirement in paragraph (c) above applies to any unpaid professional disbursement(s) included in each report so submitted.

Payments from a third party

• (3)

  If the Legal Services Commission has paid any costs to a solicitor or a previously nominated solicitor in a matter (advice and assistance or legal help costs, advance payments or interim costs), or has paid professional disbursements direct, and costs are subsequently settled by a third party:

  • (a)

    The entire third party payment must be paid into a client account.

  • (b)

    A sum representing the payments made by the Commission must be retained in the client account.

  • (c)

    Any balance belonging to the solicitor must be transferred to an office account within 14 days of the solicitor sending a report to the Commission containing details of the third party payment.

  • (d)

    The sum retained in the client account as representing payments made by the Commission must be:

    • (i)

      either recorded in the individual client's ledger account, and identified as the Commission's money;

    • (ii)

      or recorded in a ledger account in the Commission's name, and identified by reference to the client or matter;

    and kept in the client account until notification from the Commission that it has recouped an equivalent sum from subsequent payments due to the solicitor. The retained sum must be transferred to an office account within 14 days of notification.

Notes

• • (i)

    This rule deals with matters which specifically affect legal aid practitioners. It should not be read in isolation from the remainder of the rules which apply to all solicitors, including legal aid practitioners.

  • (ii)

    Franchised firms can apply for advance payments on the issue of a certificate. The Legal Services Commission has issued instructions that these payments may be placed in office account. For regular payments, see notes (vii)-(x) below.

  • (iii)

    Rule 21(1)(b) deals with the specific problems of legal aid practitioners by allowing a mixed or indeterminate payment of costs (or even a payment consisting entirely of unpaid professional disbursements) to be paid into an office account, which for the purpose of rule 21(1)(b) must be an account at a bank or building society. However, it is always open to the solicitor to comply with rule 19(1)(a) to (c), which are the options for all solicitors for the receipt of costs. For regular payments, see notes (vii) – (x) below.

  • (iv)

    Solicitors are required by the Legal Services Commission to report promptly to the Commission on receipt of costs from a third party. It is advisable to keep a copy of the report on the file as proof of compliance with the Commission's requirements, as well as to demonstrate compliance with the rule.

  • (v)

    A third party payment may also include unpaid professional disbursements or outstanding costs of the client's previous solicitor. This part of the payment is client money and must be kept in a client account until the solicitor pays the professional disbursement or outstanding costs.

  • (vi)

    In rule 21, and elsewhere in the rules, references to the Legal Services Commission are to be read, where appropriate, as including the Legal Aid Board.

  • (vii)

    Regular payments are office money and are defined as such in the rules (rule 13, note (xi)(e)). They are neither advance payments nor payments of costs for the purposes of the rules. Regular payments must be paid into an office account which for the purpose of rule 21(2)(b) must be an account at a bank or building society.

  • (viii)

    Firms in receipt of regular payments must deal with unpaid professional disbursements in the way prescribed by rule 21(2)(c). The rule permits a solicitor who is required to transfer an amount to cover unpaid professional disbursements into a client account to make the transfer from his or her own resources if the regular payments are insufficient.

  • (ix)

    The 28 day time limit for paying, or transferring an amount to a client account for, unpaid professional disbursements is for the purposes of these rules only. An earlier deadline may be imposed by contract with the Commission or with counsel, agents or experts. On the other hand, a solicitor may have agreed to pay later than 28 days from the submission of the report notifying completion of a matter, in which case rule 21(2)(c) will require a transfer of the appropriate amount to a client account (but not payment) within 28 days. Solicitors are reminded of their professional obligation to pay the fees of foreign lawyers (see rule 10.07 of the Solicitors’ Code of Conduct).

  • (x)

    For the appropriate accounting records for regular payments, see note (v) to rule 32.

Rule 22 - Withdrawals from a client account

• (1)

  Client money may only be withdrawn from a client account when it is:

  • (a)

    properly required for a payment to or on behalf of the client (or other person on whose behalf the money is being held);

  • (aa)

    properly required for a payment in the execution of a particular trust, including the purchase of an investment (other than money) in accordance with the trustee's powers;

  • (b)

    properly required for payment of a disbursement on behalf of the client or trust;

  • (c)

    properly required in full or partial reimbursement of money spent by the solicitor on behalf of the client or trust;

  • (d)

    transferred to another client account;

  • (e)

    withdrawn on the client's instructions, provided the instructions are for the client's convenience and are given in writing, or are given by other means and confirmed by the solicitor to the client in writing;

  • (ea)

    transferred to an account other than a client account (such as an account outside England and Wales), or retained in cash, by a trustee in the proper performance of his or her duties;

  • (f)

    a refund to the solicitor of an advance no longer required to fund a payment on behalf of a client or trust (see rule 15(2)(b));

  • (g)

    money which has been paid into the account in breach of the rules (for example, money paid into the wrong separate designated client account) - see paragraph (4) below;

  • (ga)

    money not covered by (a) to (g) above, where the solicitor complies with the conditions set out in rule 22(2A); or

  • (h)

    money not covered by (a) to (g) above, withdrawn from the account on the written authorisation of the SRA. The SRA may impose a condition that the solicitor pay the money to a charity which gives an indemnity against any legitimate claim subsequently made for the sum received.

• (2)

  [deleted]

• (2A)

  A withdrawal of client money under paragraph (1)(ga) above may be made only where the amount withdrawn does not exceed £50 in relation to any one individual client or trust matter and the solicitor:

  • (a)

    establishes the identity of the owner of the money, or makes reasonable attempts to do so;

  • (b)

    makes adequate attempts to ascertain the proper destination of the money, and to return it to the rightful owner, unless the reasonable costs of doing so are likely to be excessive in relation to the amount held;

  • (c)

    pays the funds to a charity;

  • (d)

    records the steps taken in accordance with paragraphs (a)-(c) above and retains those records, together with all relevant documentation (including receipts from the charity), in accordance with rule 32(8A) and (9)(a); and

  • (e)

    keeps a central register in accordance with rule 32(13A).

• (3)

  Office money may only be withdrawn from a client account when it is:

  • (a)

    money properly paid into the account to open or maintain it under rule 15(2)(a);

  • (b)

    properly required for payment of the solicitor's costs under rule 19(2) and (3);

  • (c)

    the whole or part of a payment into a client account under rule 19(1)(c);

  • (d)

    part of a mixed payment placed in a client account under rule 20(2)(b); or

  • (e)

    money which has been paid into a client account in breach of the rules (for example, interest wrongly credited to a general client account) - see paragraph (4) below.

• (4)

  Money which has been paid into a client account in breach of the rules must be withdrawn from the client account promptly upon discovery.

• (5)

  Money withdrawn in relation to a particular client or trust from a general client account must not exceed the money held on behalf of that client or trust in all the solicitor's general client accounts (except as provided in paragraph (6) below).

• (6)

  A solicitor may make a payment in respect of a particular client or trust out of a general client account, even if no money (or insufficient money) is held for that client or trust in the solicitor's general client account(s), provided:

  • (a)

    sufficient money is held for that client or trust in a separate designated client account; and

  • (b)

    the appropriate transfer from the separate designated client account to a general client account is made immediately.

• (7)

  Money held for a client or trust in a separate designated client account must not be used for payments for another client or trust.

• (8)

  A client account must not be overdrawn, except in the following circumstances:

  • (a)

    A separate designated client account of solicitor-trustee(s) can be overdrawn if the trustee(s) make payments on behalf of the trust (for example, inheritance tax) before realising sufficient assets to cover the payments.

  • (b)

    If a sole practitioner dies and his or her client accounts are frozen, the solicitor-manager can operate client accounts which are overdrawn to the extent of the money held in the frozen accounts.

Notes

• Withdrawals in favour of solicitor, and for payment of disbursements
  • (i)

    Disbursements to be paid direct from a client account, or already paid out of the solicitor's own money, can be withdrawn under rule 22(1)(b) or (c) (or rule 22(2)(b) or (c)) in advance of preparing a bill of costs. Money to be withdrawn from a client account for the payment of costs (fees and disbursements) under rule 19(2) and (3) becomes office money and is dealt with under rule 22(3)(b).

  • (ii)

    Money is "spent" under rule 22(1)(c) (or rule 22(2)(c)) at the time when the solicitor despatches a cheque, unless the cheque is to be held to the solicitor's order. Money is also regarded as "spent" by the use of a credit account, so that, for example, search fees, taxi fares and courier charges incurred in this way may be transferred to the solicitor's office account.

  • (iii)

    See rule 23(3) for the way in which a withdrawal from a client account in favour of the solicitor must be effected.

• Cheques payable to banks, building societies, etc.
  • (iv)

    In order to protect client money against misappropriation when cheques are made payable to banks, building societies or other large institutions, it is strongly recommended that solicitors add the name and number of the account after the payee's name.

• Drawing against uncleared cheques
  • (v)

    A solicitor should use discretion in drawing against a cheque received from or on behalf of a client before it has been cleared. If the cheque is not met, other clients' money will have been used to make the payment in breach of the rules. See rule 7 (duty to remedy breaches). A solicitor may be able to avoid a breach of the rules by instructing the bank or building society to charge all unpaid credits to the solicitor's office or personal account.

• Non-receipt of telegraphic transfer
  • (vi)

    If a solicitor acting for a client withdraws money from a general client account on the strength of information that a telegraphic transfer is on its way, but the telegraphic transfer does not arrive, the solicitor will have used other clients' money in breach of the rules. See also rule 7 (duty to remedy breaches).

• Withdrawals on instructions
  • (vii)

    One of the reasons why a client might authorise a withdrawal under rule 22(1)(e) might be to have the money transferred to a type of account other than a client account. If so, the requirements of rule 16 must be complied with.

• Withdrawals where the rightful owner cannot be traced, on the SRA’s authorisation and without SRA authorisation
  • (viii)

    Applications for authorisation under rule 22(1)(h) should be made to the Professional Ethics Guidance Team, who can advise on the criteria which must normally be met for authorisation to be given. Solicitors may under rule 22(1)(ga) pay to a charity sums of £50 or less per client or trust matter without the SRA’s authorisation, provided the safeguards set out in rule 22(2A) are followed. Solicitors may, however, if they prefer, apply to the SRA for prior authorisation in all cases.

  • (viiia)

    Solicitors will need to apply to the SRA, whatever the amount involved, if the money to be withdrawn is not to be paid to a charity. This situation might arise, for example, if a solicitor has been unable to deliver a bill of costs because the client has become untraceable and so cannot make a transfer from client account to office account in accordance with rule 19(2)-(3).

  • (ix)

    After a practice has been wound up, banks sometimes discover unclaimed balances in an old client account. This money remains subject to rule 22 and rule 23. An application can be made to the SRA under rule 22(1)(h).

  • (x)

    See rule 15(3) and notes (x)–(xi) to rule 15 on the return of client money when there is no longer any reason for its continued retention. See also rule 15(4) on reporting to the client when client money is retained at the end of a matter.

Rule 23 - Method of and authority for withdrawals from client account

• (1)

  A withdrawal from a client account may be made only after a specific authority in respect of that withdrawal has been signed by at least one of the following:

  • (a)

    a solicitor who holds a current practising certificate or a registered European lawyer;

  • (b)

    a Fellow of the Institute of Legal Executives or licensed conveyancer who is a manager of the practice, where the practice is a recognised body;

  • (c)

    a Fellow of the Institute of Legal Executives or licensed conveyancer who is an employee of the practice, where the practice is a recognised body or recognised sole practitioner;

  • (d)

    a registered foreign lawyer who is a manager of the practice, where the practice is a recognised body; or

  • (e)

    any other individual who is a manager of the practice.

  • (2)

    There is no need to comply with paragraph (1) above when transferring money from one general client account to another general client account at the same bank or building society.

  • (3)

    A withdrawal from a client account in favour of the solicitor or the practice must be either by way of a cheque to the solicitor or practice, or by way of a transfer to the office account or to the solicitor's personal account. The withdrawal must not be made in cash.

Notes

• • (a)

    Reference should also be made to paragraph 4.1.A of the Guidelines for accounting procedures and systems at Appendix 3.

  • (i)

    Instructions to the bank or building society to withdraw money from a client account (rule 23(1)) may be given over the telephone, provided a specific authority has been signed in accordance with this rule before the instructions are given. If a solicitor decides to take advantage of this arrangement, it is of paramount importance that the scheme has appropriate in-built safeguards, such as passwords, to give the greatest protection possible for client money. Suitable safeguards will also be needed for practices which operate a CHAPS terminal.

  • (ii)

    In the case of a withdrawal by cheque, the specific authority (rule 23(1)) is usually a signature on the cheque itself. Signing a blank cheque is not a specific authority.

  • (iii)

    A withdrawal from a client account by way of a private loan from one client to another can only be made if the provisions of rule 30(2) are complied with.

  • (iv)

    It is advisable that a withdrawal for payment to or on behalf of a client (or on behalf of a trust) be made by way of a crossed cheque whenever possible.

  • (v)

    Solicitor-trustees who instruct an outside administrator to run, or continue to run, on a day to day basis, the business or property portfolio of an estate or trust will not need to comply with rule 23(1), provided all cheques are retained in accordance with rule 32(10). (See also rule 32, note (ii)(d).)

  • (vi)

    Where the sum due to the client is sufficiently large, the solicitor should consider whether it should not appropriately be transferred to the client by direct bank transfer. For doing this, the solicitor would be entitled to make a modest administrative charge in addition to any charge made by the bank in connection with the transfer.

  • Land Registry application fees paid by direct debit
  • (vii)

    Solicitors may set up a direct debit system of payment for Land Registry application fees on either the office account or a client account. If a direct debit payment is to be taken from a client account for the payment of Land Registry application fees, the signature of a person, within one of the categories listed in rule 23(1), on the application for registration will constitute the specific authority required by rule 23(1). As with any other payment method, care must be taken to ensure that sufficient uncommitted funds are held in the client account for the particular client before signing the authority. Solicitors should also bear in mind that should the Land Registry take an incorrect amount in error from a firm’s client account (for example, a duplicate payment), the firm will be in breach of the rules if other clients’ money has been used as a result.

  • (viii)

    If a solicitor fails to specify the correct Land Registry fee on the application for registration (either by specifying a lesser amount than that actually due, or failing to specify any fee at all), the solicitor will be in breach of rule 23(1) if the Land Registry takes a sum from the solicitor’s client account greater than that specified on the application, without a specific authority for the revised sum being in place as required by rule 23. In order that the solicitor can comply with the rules, the Land Registry will need to contact the solicitor before taking the revised amount, so that the necessary authority may be signed prior to the revised amount being taken.

  • (ix)

    Where the Land Registry contacts the solicitor by telephone, and the solicitor wishes to authorise an immediate payment by direct debit over the telephone, the solicitor will first need to check that there is sufficient money held in client account for the client and, if there is, that it is not committed to some other purpose.

  • (x)

    The specific authority required by rule 23(1) can be signed after the telephone call has ended but must be signed before the additional payment (or correct full payment) is taken by the Land Registry. It is advisable to sign the authority promptly and, in any event, on the same day as the telephone instruction is given to the Land Registry to take the additional (or correct full) amount. If the solicitor decides to fund any extra amount from the office account, the transfer of office money to the client account would need to be made, preferably on the same day but, in any event, before the direct debit is taken. The solicitor’s internal procedures would need to make it clear to unqualified staff how to deal with such situations; for example, who they should consult before a direct debit for an amount other than that specified on the application can be authorised, and the mechanism for ensuring the new authority is signed by a person within one of the categories listed in rule 23(1).

  • (xi)

    A solicitor may decide to set up a direct debit system of payment on the office account because, for example, he or she does not wish to allow the Land Registry to have access to the firm’s client account. Provided the solicitor is in funds, a transfer from the client account to the office account may be made under rule 22(1)(c) to reimburse the solicitor as soon as the direct debit has been taken.