Failed to place client funds on interest- bearing deposit
A lawyer, D, who failed to place client funds on interest-bearing deposit has been fined $7,000 by a lawyers standards committee.
The issue arose when the New Zealand Law Society Inspectorate completed a trust account review of the firm D was a director of.
“The Inspectorate report indicated that there are five affected estates with average account balances in the trust account of $237,000 over periods ranging from 13 to 20 months,” the committee noted.
Section 114 of the Lawyers and Conveyances Act 2006 (LCA) provides that it is a duty of practitioners to ensure that, wherever practicable, all money held on behalf of any person, related person, entity or incorporated firm earns interest for the benefit of that person (with some exceptions, such as when the person instructs otherwise).
D initially advised the Inspectorate that he understood it was not possible to put monies held in the trust account on deposit unless he had an Inland Revenue number for the person or entity concerned. He also said the trustees had “lacked enthusiasm” to bring funds into the tax net.
D subsequently said the firm’s accountant had checked and it was possible to put funds on interest-bearing deposit without providing details of an IRD number. He also said it would be appropriate for his firm to compensate clients for the loss.
“In the committee’s view, s 114 of the [LCA] is clear and there was an obligation on [D] to ensure that the money he held on behalf of various estates earned interest unless it is not reasonable or [is] impractical to do so,” the committee said.
“In this instance, there was no reason not to earn interest and [D]’s failure to do so was in breach of s 114.”
The committee found unsatisfactory conduct on D’s part.
As well as the fine, the committee ordered D to rectify, at his own expense, the omission by compensating each client the amount of gross interest they would have been entitled to earn had the money been placed on interest-bearing deposit at the outset.
D was also ordered to make trust accounting education part of his CPD planning for the next year and undertake that training, and to pay $1,000 costs.
Last updated on the 27th September 2016