All practitioners who maintain a general trust account should be knowledgeable with respect to the requirements for the withdrawing of funds from the general trust account in the payment of their costs and disbursements.
The legislation for these transactions, which are common in law practice trust accounts, is very prescriptive. Questions related to this legislation are regularly received by the Law Society’s Professional Support Unit & the Trust Accounts Department. In this article we will discuss this legislation.
The Legislation
Section144(2)(b) of the Legal Profession Uniform Law (NSW) (The Uniform Law) states that a law practice may “withdraw money for payment to the law practice’s account for legal costs owing to the practice if the relevant procedures or requirements specified in the Uniform Rules for the purposes of this Division are complied with.” The requirements for the withdrawal of costs from general trust accounts are set out in Rule 42 of the Legal Profession Uniform General Rules.
Rule 42 refers to four methods for the withdrawal of costs & disbursements.
Method 1: Rule 42(3) – Withdrawal on the giving of a bill to the person
This is the most common method for the withdrawal of money from the trust account for costs. The method allows for a law practice to withdraw money if the law practice has given the person a bill that:
- relates to the money and
- refers to the proposed withdrawal.
Rule 73 gives practical examples of how a bill can be given by a law practice to a client. The methods include personal delivery, postage and by electronic means, to an email address or a mobile phone.
The term “referring to the proposed withdrawal” in Rule 42(3) relates to the withdrawal of trust money for legal costs.
In order to safely satisfy the requirement of having the bill refer to the proposed withdrawal, the law practice should include in the footer of the bill, a statement expressing its intention to withdraw the funds from the trust account.[1]
Suggested wording for this statement in the bill’s footer are words to the effect of:
“Please be aware that we intend to withdraw the above amount from money held in your trust ledger at the expiration of 7 business days from the date of this bill unless an objection is received.”
Assuming the bill includes the above information, the law practice can safely withdrawal the specified trust money after seven business days after the client is given the bill, unless the client objects to the bill.
If the client objects to the amount specified in the bill within seven business days, the client must, within 30 days, refer the matter to the designated local regulatory authority (in NSW, this is the Office of the Legal Services Commissioner) or apply for costs assessment. If the client does not do either of these things, the law practice is within its right to withdraw the trust money.
Method 2: Rule 42(4) Withdrawal with authority
In certain circumstances a law practice may withdraw the trust money regardless of whether the law practice has given its client a bill relating to the money. These circumstances are:
a.) where the money is withdrawn in accordance with instructions that have been received by the law practice; and
b.) if, before effecting the withdrawal, the law practice gives or sends to the person:
i.) a request for payment, referring to the proposed withdrawal; or
ii.) a written notice of withdrawal.
Rule 42(7)(a) provides that in relation to sub rule (4), where the authorisation allows for the withdrawal of part of the money, the law practice may withdraw the money to that extent only. Rule 42(7)(b) states that the instructions, if given in writing, must be kept as a permanent record, or if not given in writing, must be confirmed in writing before, or not later than 5 working days after the law practice effects the withdrawal and a copy must be kept as a permanent record. With respect to the word “confirmed”, it is the Law Society’s view that the law practice should initiate correspondence with the client which confirms their authority to pay the money from the trust account. All correspondence should be kept by the law practice in its records.
Method 3: Rule 42(5) Withdrawals for disbursements
Method 3 allows for a law practice to withdraw money from the trust account in order to recompense itself for a disbursement already paid on behalf of client, but only if before effecting the withdrawal, the law practice gives or sends to the person:
i.) a request for payment, referring to the proposed withdrawal; or
ii.) a written notice of withdrawal.
Rule 42(8) provides that money is taken to have been paid by the law practice on behalf of the person when the relevant account of the law practice has been debited.
Take, for example, a law practice representing a client in a personal injury matter. The law practice obtains a report from an expert accident reconstruction engineer and pays this person from its office account by electronic funds transfer (EFT). After effecting this payment, monies for settlement in the personal injury matter are deposited to the law practice trust account. The law practice then seeks reimbursement for the amount previously paid to the engineer from these funds in the trust account, by sending to the client a request for payment that refers to the proposed withdrawal, or a written notice of the withdrawal. After sending either of these documents to the client, the law practice can then effect the withdrawal from the trust account.
Method 4: Rule 42(6) Withdrawal for a commercial or government client
This method applies only to matters in which the client of the law practice is a commercial or government client.[2] In such instances the law practice may withdraw the trust money in payment of their costs so long as:
a.) the money is withdrawn in accordance with a costs agreement between the law practice and the person; and
b.) the costs agreement complies with the legislation under which it is made and authorises the withdrawal; and
c) before effecting the withdrawal, the law practice gives or sends to the person a request for payment, referring to the proposed withdrawal.
Take for example, a winding up matter where the client of the law practice is a commercial liquidator and there is a valid costs agreement between the practice and this client. A clause in the costs agreement specifies that the law practice will bill its legal costs on a monthly basis and that the bills will be paid from funds held in the general trust account on behalf of the client. The law practice has a policy of sending the bill to the client by email on the first working day of each month. Each bill states that it is proposed that the total amount of the bill will be paid from funds held in the trust account. The law practice will be entitled to withdraw the amount of the bill upon the rendering of each bill to the client.
The Law Society’s Professional Support Unit provides free and confidential guidance and educational materials to legal practitioners about their obligations under the NSW legal profession legislation in the areas of costs, ethics and regulatory compliance. If you have any inquiry, please contact:
Costs [email protected] (02) 9926 0116
Ethics [email protected] (02) 9926 0114
Regulatory compliance [email protected] (02) 9926 0115
- By including such a statement, the law practice will also be in compliance with S192 of the Uniform Law, which requires the law practice to include a written statement on its bills which sets out — “(a) the avenues that are open to the client in the event of a dispute in relation to legal costs; and (b) any time limits that apply to the taking of any action referred to in paragraph (a)”.
- S170 of the Uniform Law defines “Commercial or Government” clients.
