Jaggers and the Law Society rule governing trust accounts

Fans of Charles Dickens’ novels will know that his lawyers are practitioners of an obscure art.  In that regard, they are plot devices, agents of change in the course of principal characters’ lives.  None is more iconic than Jaggers, or Mr. Jaggers, in Great Expectations.  The trustee of a sum of money left by an anonymous benefactor to the orphaned working-class boy Pip, Jaggers is instructed to disburse funds necessary to make Pip a gentleman.  The secret identity of the benefactor, not revealed until nearly the story’s end, is the source of a significant malentendu that drives Pip’s actions and character development.

No one in Dickens’ world would ever question the propriety of Jaggers’ role in the operation of the trust account.  Indeed, the history-starved collective wisdom of the Canadian Bar, dominated disproportionately by litigators, may not be aware that lawyers’ trust accounts have been used since the time of Dickens as banks of convenience – and mostly for perfectly legitimate purposes.  In the Law Society’s bylaws relating to the mechanical issues surrounding trust deposits and withdrawals, a well as client verification requirements when the retainer involves the handling of trust money outside of contexts such as litigation settlements, this traditional part of the practice has been tacitly acknowledged.  Solicitor-client privilege, which Jaggers honoured in the letter and the spirit, impressed the trust with an added level of moral security for the depositor.  It was also this privilege that made lawyers’ trust accounts attractive to criminals.

In 2011, the Law Society of Upper Canada amended its Rules of Professional Conduct under public pressure to ensure lawyer trust accounts were not used to launder the proceeds of crime or to facilitate mortgage fraud.  The current rule 3.2-7.3 reads:

A lawyer shall not use their trust account for purposes not related to the provision of legal services.

The commentary to the rule explains the policy behind it, to target money laundering and mortgage fraud.  Would Jaggers’ role in Great Expectations have been possible, had his law practice been subject to this rule?  The breadth of the rule is such that his use of the trust account might undergo Law Society investigation.  As with many issues surrounding the legal profession, what constitutes ‘legal services’ is often tautological.  If Jaggers’ role was that of a lawyer, then his handling of Pip’s trust fund was a legal service.  However, it was not related to a tangible service such as litigation or the sale of property.  So reading the text of the rule in isolation leaves the question unanswered.

Not surprisingly, there is little case law on this point.  The rule is often cited in the context of misappropriation and actual criminal activity, but so far it does not appear to have been considered in cases where a lawyer’s trust account is used by a legitimate client for above-board purposes albeit unrelated to the other legal services provided to the client.  Tarek El-Hennawy et al. v. The Law Society of Upper Canada, 2014 ONSC 375 (Ont. Div. Ct.), on judicial review of the Law Society’s Compensation Fund Committee in a client’s application for indemnity for the lawyer’s unlawful misuse of trust funds, the court upheld (at para. 38) the Law Society’s ruling that a “history of legal services” provided to the client allowed the Committee to deem the “bank of convenience” practice to be a legal service in the case of some of the deposits.

The El-Hennawy decision is not entirely satisfactory, because the client engaged the lawyer’s service for legitimate family business purposes, as a means of sidestepping chartered banks’ tightening of international transfers after the September 11 World Trade Centre attacks.  Part of a solicitor’s role for a client is to facilitate transactions and to resolve difficulties posed by financial institutions and governments, provided the client’s aims are themselves lawful.  The fact that rules are private instead of public does not make the lawyer’s role less legal or less professional.  Certainly in this instance, the private rules implemented by banks to respond to public and regulatory concerns were every bit “legal” as those of a private administrative tribunal, arbitration, or human resources policy.

Getting back to Jaggers – his ostensible role was to be a bank of convenience.  As trustee of a minor’s elevation to the status of a gentleman, however, the trust was impressed with discretion and the requirement to keep solicitor-client confidentiality.  Jaggers’ handling of the trust funds involved “application of legal principles and legal judgment with regard to the circumstances or objectives of a person,” as defined in the Law Society Act, s. 1(5), in relation to his anonymous client. Thus, scratching beneath the surface of his role, there are elements of legal service in every aspect even though the role itself may not seem to entail legal services as understood by our increasingly specialized profession.  If Jaggers were brought before his regulator’s discipline body, under rule 3.2-7.3, we would be right to defend him.

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