February 13, 2003

Please find in this email bulletin:

1. notice of amendments to Law Society Rule 3-56 to allow BC lawyers to make trust withdrawals of over $25 million electronically under specified conditions;

2. an alert to lawyers that, as a matter of practice, they should confirm the receipt and irrevocability of any electronic trust deposits they receive before dealing with the funds; and

3. notice of new Law Society Rules 3-88 and 3-89, which affect real estate transactions closing on or after March 1, 2003. These rules will require BC lawyers to report to the Law Society failure by a mortgagee to provide a registrable mortgage discharge within 60 days of completion of a transaction, or another lawyer's or a notary's failure to register a discharge within that 60-day period.


1) Law Society rule allows lawyers to make large trust withdrawals electronically

On February 7 the Benchers approved changes to Law Society Rule 3-56 to allow BC lawyers to make trust withdrawals of over $25 million electronically under specified conditions. Rule 3-56 had previously required that lawyers make all trust withdrawals by cheque.

As amended, Rule 3-56 effectively allows lawyers to make trust payments through the "Large Value Transfer System (LVTS)" of the Canadian Payments Association (CPA). The LVTS is the CPA's electronic same-day settlement system for wire payments. Since February 3, the CPA has required that all payments for sums in excess of $25 million CDN be made by electronic transfer through this system, rather than by cheque, bank draft or other traditional paper-based payment instrument. While the Canadian Payments Association has apparently extended a grace period (to August 3) for financial institutions to comply with the new requirement, lawyers should check with their own financial institutions to determine in what way this grace period is extended to customers.

Law Society Rule 3-56(3.1) now provides that a lawyer may make or authorize the withdrawal of funds from a pooled or separate trust account by electronic transfer, provided specified conditions are met.

The first condition is that the transfer must be for more than $25,000,000.

[Note: Rule 3-56 continues to require that a lawyer's withdrawal from trust of an amount less that $25 million be by trust cheque.]

Second, the transfer system must be one that will produce, not later than the next banking day, a confirmation form from the financial institution.

That form should confirm the details of the transfer, including: 1) date of the transfer; 2) source trust account information, including account name, financial institution and account number; 3) destination account information, including account name, financial institution, financial institution address and account number, 4) name of the person authorizing the transfer and 5) amount of the transfer.

As a final condition, the lawyer must complete and personally sign a requisition for the transfer in a form approved by the Discipline Committee (a Large Value Transfer System (LVTS) Electronic Transfer Form), submit the original requisition to the appropriate financial institution, retain a copy of the requisition in the lawyer's records, obtain the confirmation from the financial institution, retain a hard copy of the confirmation in the lawyer's records and, immediately on receipt of the confirmation, verify that the money was drawn from the trust account as specified in the requisition.

BC lawyers who may be involved in trust transactions of over $25 million are urged to review the full text of Law Society Rule 3-56, as amended, and a copy of the LVTS Electronic Transfer Form: for details, see "What's New" on the Law Society website at www.lawsociety.bc.ca.

Questions can be directed to Don Terrillon, Auditor, (dterrillon@lsbc.org) at the Law Society office.


2) Lawyers should verify electronic deposits made to their trust accounts

BC lawyers who receive trust deposits by electronic transfer should exercise caution by confirming with their respective financial institutions that the deposits are valid and cannot be reversed before the lawyers deal with the funds.

The Benchers have become aware of instances in which lawyers received deposits in their trust accounts by electronic transfer (their financial institutions had reflected the funds as credited to their trust accounts).

The deposits, however, were subsequently reversed. If a lawyer were to have paid out any of the funds by trust cheque prior to the funds being reversed, the trust cheque would have been dishonoured and the lawyer in breach of undertaking. The Law Society is looking further into this issue with the Canadian Payments Association to determine what problems may arise in wire transfers and what constitutes the best practice for lawyers to follow when receiving funds electronically.

Lawyers who have experienced any similar issues are invited to contact Don Terrillon, Auditor, (dterrillon@lsbc.org) at the Law Society office.


3) New rule will require lawyers to report failures in mortgage discharges

Law Society Rules, Part 3 "Protection of the Public," has a new Division 9 comprising new Rules 3-88 and 3-89. These Rules will require a BC lawyer to report to the Law Society the failure of a mortgagee to provide a registrable discharge of mortgage within 60 days of the closing date of the transaction. The new rules will also require a lawyer to report to the Law Society the failure of another lawyer or a notary to provide satisfactory evidence that he or she has filed a registrable discharge of mortgage as a pending application at the Land Title Office within that 60-day period. A lawyer has five business days to report in a form to be prescribed by the Law Society, under the new rules.

The new rules apply to transactions that close on March 1, 2003 or later.

Accordingly, the earliest that a need to file a report would arise is April 30, 2003, with the report due five business days thereafter. A reporting form will be available on the Law Society website as of March 1, and it is intended that lawyers will submit the form electronically.

In addition to ordinary mortgages, the new reporting rules apply to debentures and trust deeds containing a fixed charge on land or an interest in land.

These new provisions have been collectively termed the "30-30 rule" by the Law Society's Conveyancing Practices Task Force. This term reflects the expectation that a financial institution would typically have 30 days after a mortgage repayment in which to issue a discharge, and the lawyer responsible for the discharge (usually the vendor's lawyer) would have a further 30 days to register the discharge.

Reports filed under the new rules are intended to provide the Law Society information on 1) the business processes of financial institutions and the practices of the profession, and whether certain institutions are unable to discharge mortgages within a particular timeframe and 2) whether there are situations that require attention or intervention from the Law Society.

The Society will not draw adverse inferences against a lawyer by reason of his or her failure to obtain a discharge of a repaid mortgage from a financial institution, in the absence of evidence of a breach of undertaking or defalcation.

The Benchers passed Rules 3-88 and 3-89 on February 7, following the recommendations of the Conveyancing Practices Task Force. For background, see the November-December, 2002 Benchers' Bulletin and "What's New" on the Law Society website at www.lawsociety.bc.ca.

For more information on the rules, please contact David Newell, Corporate Secretary (dnewell@lsbc.org).