TAF will help the Law Society do its job better
Ralston S. Alexander , QC
Mindful of the interest the profession has expressed in the Trust Administration Fee (known as the TAF), I thought it appropriate to provide a report to you on the early returns.
In case it’s helpful, here is a reminder of what the TAF is and why we have it. As a lawyer, if you maintain one or more trust accounts, you are required to remit to the Law Society a $10 trust administration fee for each client matter that results in a deposit to trust (other than for legal fees or a retainer).
If Martin Wirick taught us anything, it was that the Law Society needed to be much more effective in the way we review and regulate lawyer trust account activities. We needed a beefed- up trust compliance program, and a way to pay for it. Neither lawyers nor members of the public could sustain another financial hit of any magnitude. As Benchers, we were convinced we should do everything in our power to prevent “another Wirick.”
One option was to increase fees generally for that purpose. Yet we did not want BC lawyers to face the double-whammy of ongoing Special Compensation Fund assessments (to pay for the Wirick claims) along with increased fees to prevent new claims.
Moreover, simply raising the fees of all lawyers to cover the cost of trust administration did not seem equitable. The Benchers believe that, because the risk of misappropriation arises in the course of trust transactions, it is fair to ask lawyers who are handling trust funds in the private practice of law to take greater responsibility for the cost of this program. A Trust Administration Fee made sense to us because it is directly connected to the operation of trust accounts. In brief, it allows the cost of trust administration to be apportioned in relation to the risk. This relieves lawyers who do few or no trust transactions — such as members of the criminal bar — from most of the burden.
We are taking a “blended” approach to funding trust administration, by using revenue from the TAF and any additional funds from practice fee increases. Given the strong revenues that TAF has produced over the past six months, a general fee increase for this purpose is probably unnecessary.
On an annual basis, it now appears the TAF will generate as much as $3 – 3.5 million. This is higher than our original estimates (of $1.5 million). The original estimate was intentionally conservative, in part because we found law firms did not track the type of information that would have proved helpful in projecting revenues.
If you are wondering whether the Law Society needs such high revenues, the answer is yes, if we are to make trust reform a priority.
At their October meeting, the Benchers confirmed their commitment to account separately for TAF revenues and to use these only for trust assurance purposes, including a new trust compliance program. They will not be used for any part of the Wirick claims. We do soon expect to discuss just what other (non-Wirick) trust, audit, investigation and custodianship expenses may be appropriate to pay from TAF revenues, in 2005 or beyond.
It’s important to note that the cost of these programs has traditionally been defrayed by the Special Compensation Fund because they are programs closely connected with the prevention, investigation and aftermath of defalcation claims. That Fund will play a much more limited role in future years, and the Benchers have decided that these costs will be covered by the General Fund. (For more on the future role of the Special Compensation Fund, see page 9.)
Once the Wirick claims are completed, the fees that BC lawyers pay to the Special Compensation Fund will be greatly reduced. Defalcation claims now come under Part B of our liability insurance program. Lawyers pay for that coverage primarily through the insurance assessment, although a General Fund contribution is possible down the road. Depending on the future strength of TAF revenues, the Benchers could also consider a contribution of TAF to the Part B coverage, if needed. This was a use we contemplated early on.
As a funding mechanism for insurance, the TAF is not without precedent. The Law Society in Ontario levies a fee on certain court and registry filings, although its purpose is different from ours — to provide revenue to help fund negligence claims involving real estate and civil litigation.
I pause here to point out that our Part B insurance coverage is designed to provide the public with an entitlement to compensation when a lawyer has misappropriated money in the course of a legal retainer. Part B insurance has several characteristics that are an improvement over the Special Compensation Fund. In particular, the policy affords greater certainty of payment — including the payment of interest and costs — within the global limits of the coverage.
Turning once again to the future of our trust compliance program, I am without doubt a passionate advocate for this reform. That is because it will better protect the public from the harm of catastrophic loss, and will consequently protect all lawyers from the cost of large compensation claims.
The Benchers have yet to decide the structure of the new trust compliance program — there are a number of options to explore and they will want to draw on the most recent experience from other jurisdictions. I am happy that the program will be a priority for adoption in 2006 — and that I am leaving it in good hands as my term as President winds down at the end of the year. I expect the Benchers to embrace a comprehensive program that includes more frequent audits, with an eye to the early detection and prevention of misappropriation.
The Law Society will also be diligent about reporting to BC lawyers on how TAF revenues are used to fund this and other trust-related programs — so that everyone knows the fee is used properly and effectively.
With the success of the TAF, the Law Society will be able to implement all its proposals for trust reform. We can do that confident that we are on the right track and within our means.