Robin Hood and Spite Rights

1
Robin Hood and Spite Rights Interest on
Lawyers Trust Accounts (IOLTA)Reid Mortensen
T.C. BEIRNE SCHOOL OF LAW
FACULTY OF BUSINESS, ECONOMICS AND LAW
2
Outline

• 1 Australian IOLTA schemes
• 2 Usage of IOLTA in Australia
• 3 The public ethics of IOLTA in Australia
• 4 The possibilities for the moral salvage of
• IOLTA in Australia

T.C. BEIRNE SCHOOL OF LAW
FACULTY OF BUSINESS, ECONOMICS AND LAW
3
Australian IOLTA Schemes (5-6)

• 1 Statutory deposit schemes
• 2 Residual balances schemes

T.C. BEIRNE SCHOOL OF LAW
FACULTY OF BUSINESS, ECONOMICS AND LAW
4
Australian IOLTA Schemes Statutory deposit
schemes (6-17)

• Clients and Solicitor1
• other beneficiaries Trust Account
• Clients and Solicitor2
• other beneficiaries Trust Account
• Clients and Solicitor3
• other beneficiaries Trust Account

2/3 previous year
2/3 previous year
2/3 previous year
T.C. BEIRNE SCHOOL OF LAW
FACULTY OF BUSINESS, ECONOMICS AND LAW
5
Australian IOLTA Schemes Statutory deposit
schemes (6-17)

• Clients and Solicitor1 IOLTA Trustee QLS
• other beneficiaries Trust Account Statutory
  deposit account
• Clients and Solicitor2
• other beneficiaries Trust Account
• Clients and Solicitor3
• other beneficiaries Trust Account
• Interest

T.C. BEIRNE SCHOOL OF LAW
FACULTY OF BUSINESS, ECONOMICS AND LAW
6
Australian IOLTA Schemes Residual balances
schemes (17-20)

• Clients and Solicitor1 Agreement
• other beneficiaries Trust Account IOLTA Trustee
  QLS Banks
• Clients and Solicitor2
• other beneficiaries Trust Account
• Clients and Solicitor3
• other beneficiaries Trust Account
• Interest

2/3 previous year
2/3 previous year
2/3 previous year
T.C. BEIRNE SCHOOL OF LAW
FACULTY OF BUSINESS, ECONOMICS AND LAW
7
Usage of IOLTA in Australia

• Two patterns of allocation (26)
• 1 Legislated proportions to be allocated to
  various
• programs (eg, Qld to 2004)
• 2 IOLTA Trustee (with government control or
  input)
• has discretion as to how IOLTA is allocated
  (eg, Qld from 2004)
• Common uses why IOLTA is a Robin Hood taking
  (25-34)
• 1 Legal aid in State matters (over 30 million
  per annum) (31-2)
• 2 Fidelity funds administration, and
  maintenance of corpus
• 3 Community legal centres, PLT, CLE, law
  reform, etc - Supreme
• Court Library (Qld only)

T.C. BEIRNE SCHOOL OF LAW
FACULTY OF BUSINESS, ECONOMICS AND LAW
8
The public ethics of IOLTA

• Two misconceptions
• 1 Trust account deposits are sterile IOLTA
  creates value (20-1)

T.C. BEIRNE SCHOOL OF LAW
FACULTY OF BUSINESS, ECONOMICS AND LAW
9
The public ethics of IOLTA

• Two misconceptions
• Trust account deposits are sterile IOLTA creates
  value (20-1)
• Claims to interest are uncoupled from claims to
  capital (36-7) eg
• I, for one, wholeheartedly support that
  application of interest which at present is not
  of any benefit to anyone client, solicitor, or
  the owner of the money
• Percy Smith MLA, Queensland Legislative
  Assembly, 2 December 1964

T.C. BEIRNE SCHOOL OF LAW
FACULTY OF BUSINESS, ECONOMICS AND LAW
10
The public ethics of IOLTA

• Two misconceptions
• Trust account deposits are sterile IOLTA creates
  value (20-1)
• Claims to interest are uncoupled from claims to
  capital (36-9) cf
• Phillips v Washington Legal Foundation, 524 US
  156 (1998)
• Brown v Legal Foundation of Washington, 123 S Ct
  1406 (2003)
• Brown v Inland Revenue Commissioners 1965 AC
  244

T.C. BEIRNE SCHOOL OF LAW
FACULTY OF BUSINESS, ECONOMICS AND LAW
11
The public ethics of IOLTA (39-41)

• Lord Justice sic Upjohn said
• A practice whereby the solicitor uses his
  clients money, too small in individual amounts
  or held for too short a time to make individual
  investment worthwhile on behalf of the individual
  client but which, in the aggregate, amounts to a
  large floating sum, to earn interest for him is
  an entirely innocent and commonsense practice
  which harms no one and probably indirectly
  benefits the general body of clients.
• The only organization or individual to lose
  anything by reason of this legislation will be
  the bankers.
• McCaw AG, NSW Legislative Assembly, 15 March
  1967

T.C. BEIRNE SCHOOL OF LAW
FACULTY OF BUSINESS, ECONOMICS AND LAW
12
The public ethics of IOLTA (39-41)

• Lord Upjohn said
• A practice whereby the solicitor uses his
  clients money, too small in individual amounts
  or held for too short a time to make individual
  investment worthwhile on behalf of the individual
  client but which, in the aggregate, amounts to a
  large floating sum, to earn interest for him is
  an entirely innocent and commonsense practice
  which harms no one and probably indirectly
  benefits the general body of clients. But this
  interest belongs collectively to the clients and
  not to the solicitor and equity has always
  regarded, and rightly regarded, the fiduciary
  relationship of client and adviser as subject to
  such strict rules of conduct that its retention
  by the solicitor cannot be justified in law
  without the clients consent. So the solicitor
  must explain the matter to his client and obtain
  his consent thereto.

T.C. BEIRNE SCHOOL OF LAW
FACULTY OF BUSINESS, ECONOMICS AND LAW
13
The public ethics of IOLTA

• Three further issues
• 1 The assumption that the trust account does not
  hold investable amounts (41-4)
• No duty in Australia to advise a client to have
  investable amounts placed in controlled money
  (ie, savings) accounts
• cf Brown v Legal Foundation of Washington, 123
  S Ct 1406 (2003)
• Ample evidence that investable amounts are
  routinely held in trust accounts

T.C. BEIRNE SCHOOL OF LAW
FACULTY OF BUSINESS, ECONOMICS AND LAW
14
The public ethics of IOLTA

• Three further issues
• 1 The assumption that the trust account does not
  hold investable amounts (41-4)
• 2 The absence of a duty to disclose that the
  trust account does not earn the client any
  interest, and that interest is used to fund
  public programs - the clients consequential
  spite right (44-6)

T.C. BEIRNE SCHOOL OF LAW
FACULTY OF BUSINESS, ECONOMICS AND LAW
15
The public ethics of IOLTA

• Three further issues
• 1 The assumption that the trust account does not
  hold investable amounts (41-4)
• 2 The absence of a duty to disclose that the
  trust account does not earn the client any
  interest, and that interest is used to fund
  public programs - the clients consequential
  spite right (44-6)
• 3 Interested, private associations as agents of
  distributive justice
• (47-8)

T.C. BEIRNE SCHOOL OF LAW
FACULTY OF BUSINESS, ECONOMICS AND LAW
16
The possibilities for moral salvage

• Three reforms (50)
• 1 An expressed solicitor's duty to advise
  clients that amounts capable of earning net
  interest be placed in controlled money accounts
• 2 An expressed solicitors duty to disclose that
  money in the trust account does not earn the
  client any interest, and that interest is used to
  fund public programs
• 3 The transfer of IOLTA trusteeship to the
  Government

T.C. BEIRNE SCHOOL OF LAW
FACULTY OF BUSINESS, ECONOMICS AND LAW
17
Robin Hood and Spite Rights Interest on
Lawyers Trust Accounts (IOLTA)Reid Mortensen
T.C. BEIRNE SCHOOL OF LAW
FACULTY OF BUSINESS, ECONOMICS AND LAW