Practice Watch

by Barbara Buchanan, Practice Advisor

Receiving or accepting cash — is it worth it?
How do you give cash refunds? Very carefully!
Common trust administration fee errors
Knowledge and skill in performing research
How fraudsters use your trust account -- counterfeit cheques and bank draft scams
Further information

Receiving or accepting cash -- is it worth it?

The Law Society is interpreting the "no cash" rules strictly. Consider whether you want to receive or accept cash at all. If you decide to have a no cash office, explain this to your client at the beginning of your relationship and mention it in your retainer agreement. Examples of retainer agreements are on the Law Society website.

Receiving retainers and issuing a refund:

Cash retainer under $7,500 = trust cheque

Cash retainer of $7,500 or more with refund greater than $1,000 = cash refund

Cash retainer of $7,500 or more with refund of $1,000 or less = trust cheque

If your office accepts cash, make sure that all staff who handle money understand Rules 3-51.1 (cash transactions) and 3-61.1 (records of cash transactions).

How do you give cash refunds? Very carefully!

Lawyers may only receive or accept an amount of $7,500 or more in cash in the very limited circumstances permitted under Law Society Rule 3-51.1. When a lawyer has received a cash retainer in accordance with subrule (3.1), and the client is later entitled to a refund, subrule (3.1) governs when the refund must be made in cash rather than by trust cheque.

If you receive or accept an amount of cash under $7,500 into your trust account and you need to give a refund, you would make out a trust cheque payable to the client rather than giving the client cash. However, if you receive or accept an amount of $7,500 or more in cash in the limited circumstances permitted in subrule (3.1), any refund greater than $1,000 of such money received or accepted must be made in cash. If the refund is for $1,000 or less, you would provide the refund by trust cheque payable to the client.

Here's an example of receiving retainers and issuing a refund: Jane Doe retained lawyer John Smith and gave John a $10,000 cash retainer for a litigation file. John did the work and billed the file for $10,000. Then John asked Jane to replenish his retainer by providing $2,000 to do more work for the same file. Jane gave John $2,000 in cash. Unexpectedly, the matter settled and John issued a final bill for $800. He received a total of $12,000 incash from Jane. How should John refund the $1,200 in trust to Jane? John has received a cash retainer of $7,500 or more (a total of $12,000 for this file) and the refund is greater than $1,000. The Rule requires John to refund the $1,200 to Jane in cash.

If you are providing a cash refund, it means a trip to your financial institution to make a cash withdrawal. You must not make out a trust cheque payable to "Cash" or "Bearer" (Rule 3-56(2)(b)). You can use the form of withdrawal slip provided by your financial institution to make the withdrawal. I suggest that you ask for a copy of the withdrawal slip to staple in your deposit book or to your bank statement.

When you hand over the cash to your client, have the client sign your duplicate receipt book for the cash refund just as you had the client sign your duplicate receipt book when your client originally gave you cash (Rule 3-61.1). Also, make sure that you document the cash refund in both the individual client file and the monthly trust bank reconciliation so you have a written explanation for a withdrawal made other than by way of a trust cheque.

Common trust administration fee errors

Some lawyers have been under the mistaken assumption that the trust administration fee only applies to real estate transactions. Not true! The trust administration fee applies to each client matter for which the lawyer receives any money in trust, not including fees and retainers (Rule 2-72.2). For example, whether you are acting for the plaintiff or the defendant, if you receive settlement funds into your trust account from ICBC regarding a personal injury claim, the matter attracts the fee.

What is a "client matter?"

In terms of accounting for the trust administration fee, a "client matter" means any distinct matter on which a lawyer is retained to represent or advise a client, including but not limited to (a) a transaction of any kind; (b) a claim or potential claim by or against the lawyer's client; (c) a proceeding (Rule 2-72.1 (2)). Note that only one fee is payable in respect of a single client matter in which a lawyer represents joint clients, or more than one lawyer in a law firm acts (2-72.2 (2)). However, if you act for two clients on two different client matters, you must charge the fee for each matter (e.g. $10 for the Erica Jones and Frank Liu house sale and $10 for the Erica Jones and Frank Liu condo purchase).

When should you record the trust administration fee?

You should record the fee into your accounting system upon the receipt of funds into your trust account. You should not wait to record it when you render an invoice to the client or close the file.

Can you charge the $10 trust administration fee to your client?

You may choose to charge the $10 fee to your client as a disbursement, similar to other charges such as photocopying charges and third party filing fees, if you have provided for it in your retainer agreement. Alternatively, you may decide to pay the fee as part of general administrative expenses in the same way that you pay for other general expenditures for your firm.

When do you make your quarterly remittances?

Lawyers are responsible for making the trust administration fee remittances to the Law Society quarterly by April 30, July 31, October 31 and January 31 of each year (Rule 2-72.2 (3)). Each remittance covers the three-month period ending March 30, June 30, September 30 and December 31 respectively. Quarterly remittances should have been made since the trust administration fee came into effect on March 1, 2005; however, you are not required to file a nil return for a quarter where no trust money has been received. Refer to Rules 2-72.1 through 2-72.5 for more detailed information about the trust administration fee. You can also contact a Trust Assurance Auditor ( for specific questions.

Knowledge and skill in performing research

Lawyers are cautioned against relying on non-legal, general search engines and internet sites, such as Google and Wikipedia, as a primary research strategy. These sites are limited by their non-legal focus and unreliability in terms of authority, currency and scope. When using sites and search engines as part of their research strategy, lawyers must evaluate the quality of information that appears online. Is it complete and up to date? Relevant to BC? Do you need historical perspective? Did you know that the information on BC's free Revised Statutes and Consolidated Regulations website is more than a year out of date?

Relying on research results obtained from general non-legal sites may jeopardize a client's case and put the lawyer at risk of an insurance claim and a complaint. A lawyer must acquire and maintain adequate skills to represent a client's interest effectively (Professional Conduct Handbook, Chapter 1, Rule 1 (c)).

When conducting research, remember the many services and guides provided by the BC Courthouse Library Society. You can use the Courthouse Library website as a jumping off point for finding free legal research websites that you might not discover through Google. It's possible to piece together a current BC statute using free internet resources (see the BC Courthouse Library's online guide, Searching B.C. Statutes & Regulations on the Internet) but it's much faster to contact the Courthouse Library staff for assistance with this and other internet research issues.

How fraudsters use your trust account — counterfeit cheques and bank draft scams

Many scams are making the rounds and some street-smart lawyers are picking up the scent and not getting burned; however,some fraudsters are hard to detect.

One ruse to make use of your trust account involves a new client, located outside of Canada, requesting your assistance to recover a debt from a Canadian company. At first instance, this seems like an ordinary request; however, you are asked to provide little in the way of legal services. When you send a demand letter and quickly receive a bank draft or certified cheque for the full amount from the alleged debtor payable to your firm in trust, the instrument looks completely authentic but it's not. If you call the telephone number printed on the cheque or draft, the call is answered professionally and the instrument is declared valid. The client may then ask you to transfer the money electronically.

How can you protect yourself? Below are some steps that you can take to protect yourself:

  • Verify the identity of your new client. The model client identification and verification rules posted March 31, 2008 on the Federation of Law Societies of Canada website provide assistance. Determine how you can verify a client's identity through the use of an agent when the client is not present in Canada. All Canadian law societies have undertaken to adopt local rules mirroring the substance of the model rules. The Law Society of BC's client identification and verification rules will come into effect on November 1, 2008. The new rules are designed to codify the steps prudent legal counsel would take in the normal course to verify the identity of a new client. The rules will also outline the records lawyers must keep to demonstrate compliance with the rules. More information about BC's rules will be forthcoming.
  • Ask why the client particularly chose you to act. Does it make sense? Don't succumb to flattery; check out the information.
  • Verify telephone numbers independently. Relying on a telephone number given to you by your "client" may not expose the scam. Look up telephone numbers independently from the numbers your client gives you and the numbers that appear on payment instruments to find out if the numbers are legitimate.
  • Contact your banker and ask him or her to contact the bank issuing the certified cheque or bank draft to verify the instrument's authenticity and to confirm that the funds have been cleared. If you draw from your trust account without the certified cheque or bank draft being verified or cleared, your firm may be exposed to loss.
  • Don't pay out hastily when it's not necessary. Just because a client is anxious to get his or her money does not mean that the pay-out has to be immediate.
  • Know the electronic transfer rules. Remember that Law Society Rule 3-56(3.1)(a) only permits electronic transfers when the amount is over $25 million.
Further information

Feel free to contact Barbara Buchanan at 604-607-5816 or for confidential advice or further information regarding any items in Practice Watch.