This article covers several issues that have been the source of recent inquiries.
Bureau services
One alternative for maintaining the required trust accounting records is to use a recognised bureau service.
Although available as a solution for all sizes of legal practice, this is particularly well suited to sole practitioners or firms with a small number of partners. Bureau services can range from simple outsourced administrative support for busy legal professionals, to a cost effective alternative to managing the trust account records in-house, through to fully managing all financial records and processes of a legal practice.
For those who are finding the trust account administration burdensome or are wishing to migrate from a manual system to a fully computerised package at minimal cost and risk, using a bureau is a safe step. A number of general accounting bureau services are offered in New Zealand. The Inspectorate can assist with a list of firms but cannot recommend a particular firm.
Professional indemnity insurance
As required by rule 3.4(b) of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (RCCC) lawyers must provide disclosure of their professional indemnity insurance (PI) in the standard terms of engagement issued to all clients or advise if they do not hold any PI cover.
The object of such disclosure is to provide full information to allow a prospective client to make an informed decision about whether or not to engage a lawyer’s services.
PI insurance, although highly recommended, is not compulsory for lawyers practising in New Zealand. If a lawyer has no PI cover or PI cover that does not meet the set minimum standards, disclosure of this is required.
If a lawyer has limited cover which does not meet the set minimum standards then the disclosure requirements are considered to be met by the lawyer providing details of their insurance, the indemnity limits, whether the limit applies to each claim or on an aggregate basis and the excess payable.
If the minimum standards are met, it is sufficient to disclose that professional indemnity insurance is held.
The minimum standards were issued in July 2008 by the New Zealand Law Society and are outlined on the NZLS website at www.lawsociety.org.nz/for-lawyers/regulatory-requirements/insurance-disclosure.
As an example, in order to meet these minimum standards then:
1. A sole practitioner needs:
a. at least $1 million indemnity cover; and
b. this indemnity cover of $1m would have at least one annual automatic reinstatement – in other words there is enough cover available for at least two large claims for up to $1m each; and
c. the excess or deductible payable does not exceed $10,000 (being 1% of the indemnity cover of $1m).
2. A four-partner firm would need:
a. at least $3 million indemnity cover (being $750,000 for each partner); and
b. this indemnity cover of $3m would have at least one annual automatic reinstatement – in other words there is enough cover available for at least two large claims of up to $3m each; and
c. the excess or deductible payable does not exceed $30,000 (being 1% of the indemnity cover of $3m).
Deduction of fees
If a lawyer wishes to handle client monies, that lawyer must operate a trust account as required under s110 of the Lawyers and Conveyancers Act 2006 (LCA). Where an arrangement exists for a lawyer to receive fees in advance, the lawyer will need to operate a trust account to facilitate this.
The rendering of an invoice by the lawyer to the client, either on or before the monies are received, in advance of completing the work, does not relieve the lawyer from this obligation. The only situation when the payment of fees is not required to go into a trust account is where the invoice has been issued and the services have been concluded.
In order to take fees by deduction from a client’s balance within the trust account, a lawyer must have either a specific authority from the client to do so for the work carried out, or the arrangement for deduction of fees must be part of the standard terms/letter of engagement issued to the client. All lawyers should refer to RCCC Chapter 9 Fees for the rules and further assistance over fee-related matters.
Barristers may only receive funds in advance if the funds are held in the trust account of their instructing solicitor.
Suspicious transactions reporting
Under s15 of the Financial Transactions Reporting Act 1996 lawyers have an obligation to report any suspicious transactions to the Commissioner, Financial Intelligence Unit. Contact details are:
- 04 474 9499
- New Zealand Police, Police National Headquarters, Wellington
- www.police.govt.nz/advice/businesses-and-organisations/fiu/about.
If lawyers are unsure whether a matter needs to be reported, in the first instance it may be advisable to call the FIU and discuss the details in confidence. There is no requirement when recording a suspicious transaction to notify the Law Society.
If anyone has further questions or requires any assistance please contact the Law Society’s Inspectorate through the Financial Assurance Manager jeremy.kennerley@lawsociety.org.nz, phone (04) 463 2936.