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Solicitor S Account Assignment Malaysia S Solicitor S Accounts Rules Does It Provide Enough
Solicitor S Account Assignment Malaysia S Solicitor S Accounts Rules Does It Provide Enough
Solicitor S Account Assignment Malaysia S Solicitor S Accounts Rules Does It Provide Enough
1
UNIVERSITI TEKNOLOGI MARA MALAYSIA
BACHELOR OF LAWS (HONOURS)
2009/2010 SESSION
BY
PREPARED FOR:
BACHELOR OF LAWS (HONOURS)
LAW 545 | SOLICITORS’ ACCOUNT | GROUP B
M. NORAZIAH ABU BAKAR
1 February 2010
2
________________________________________________________
TABLE OF CONTENTS
STRUCTURE / APPROACH
INTRODUCTION
SINGAPORE
HONG KONG
UNITED KINGDOM
NEW ZEALAND
REFERENCES
3
________________________________________________________
STRUCTURE / APPROACH
In examining the effectiveness and adequacy of law governing the management of clients’
money by solicitors, we will look into the position in Malaysia, and then into the position
adopted by other countries. The comparison will be a helpful balancing tool to see into both
looking at the effectiveness and weaknesses can it answer the issue on hand; whether our law
is adequate / provide enough protection to clients’ interest. Besides, the comparison will help
in getting ideas from other countries to be adopted in Malaysia as an effort to strengthen our
good in a country might not be good in another country. After that, series of recommendation
to strengthen the law in regards to the protection of clients’ interest will follow.
4
________________________________________________________
INTRODUCTION
Solicitor and client relationship is created in the course of solicitors rendering their services
for the client. In rendering the services, there will be remuneration expected from the service.
Besides remuneration which is exclusive as a payment to the solicitors i.e the legal fees, there
is also the existence of another category of money payable by client for disbursement in the
course of preparing legal documentation, and the settlement of transaction which is distinct
In certain transaction, lawyers will be trusted with a big sum of money to be held temporarily
before being channeled to the rightful receiver. The sum of money will rest temporarily with
the lawyers before certain required procedures are undertaken. This is the exact stage
As example, in a land purchase transaction, purchaser/client will need to pay a sum of money
to be forwarded to the vendor. But it cannot be transferred directly to the vendor before
required action is settled, such as the preparation of necessary documents, and necessary
5
actions to be undertaken which involves the land office etc. In that period of time the money
will be in the possession of the solicitors. Another category of money paid by the client is that
of which will be disbursed in the course of handling a transaction, for example in disbursing
Generally, the money paid by client will be stored in an account specifically maintained for
client distinct from that of the firm. Any expenses used for the firm’s purpose must be from
the firm’s account which is also known as the office account. Withdrawal from client’s
account is prohibited if it is to be channeled for the firm’s purpose, except of course the legal
It was the 19th century which sees the era of fraud and embezzlement that a committee was
set up in the United Kingdom to tackle this problem and then to regulate solicitors’ account.
• That solicitors should keep full and accurate accounts, periodically balanced.
• That client money should be kept separate, possibly in a separate bank account.
We can see that all countries have been adopting the keeping of separate account for client
money as of today. The rationale and importance of this is that clients’ money will not be
mixed with other money such as firm’s money which is used for the operation of the firm.
Besides, in a case of a solicitor who died insolvent, clients’ account is helpful in that it being
1
RA Chandler, “Regulating reluctant profession; holding solicitor’s to account”, Science Direct,
available at http://sciencedirect.com, accessed on 30 January 2010.
6
of a trust account will not be allowed to be claimed by creditors etc2. The existence of
separate account will provide reduce confusion on the operation and status of the money, to
It is important that the operation of clients’ money is jealously guarded form the conduct of
errant solicitors.
The solicitor-client relationship should be based on trust. In regard to the reality, free trust is
almost inexistent (but of course with exception), how then a client is assured that their money
is in safe possession? There is no such thing as absolute assurance; however the existence of
statute to govern the operation of solicitors in regards to the clients’ moneys will certainly
add to the assurance. It is common sense that killing is wrong but people will not feel safe if
there is no law to punish such act. The same goes here. We do have statute to govern the
However, the alarming numbers of headlines in the newspaper highlighting criminal breach
of trust and mismanagement of clients’ moneys by lawyers has really casted bad reputation to
Bernama
Lawyer arrested after two years6 The Malay Mail Fri / 28 Aug 2009
2
Ibid
3
“Labuan lawyer claims trial to CBT” available at http://www.malaysianbar.org.my/index2.php?option
=com_content&do_pdf=1&id=17945, accessed on 30 January 2010.
4
“Lawyer jailed for CBT”, The Star Online, 26 November 2009, available at http://thestar.com.my/news/
story.asp?file=/2009/11/26/nation/20091126130122&sec=nation, accessed on 29 January 2010.
5
“Former lawyer gets seven years for CBT”,
7
(missapropriating clients’ money)
Lawyer found guilty of CBT7 The Star / Bernama Fri / 21 Aug 2009
Fugitive lawyer claims trial to CBT8 The Star Wed / 12 Aug 2009
Lawyer charged with CBT9 New Straits Time Thurs / 29 Jan 2009
Lawyer claims trial to five CBT charges10 Malaysian Bar / Thurs / 21 Aug 2008
The Star
Lawyer charged in RM637,500 CBT case11 Malaysian Bar / Sat / 26 Jan 2008
It does not help that almost all the conducted surveys’ result has always spotted the word
‘lawyer’ among other professions when the subject matter is of ‘least trusted professions’.
This should send a wave to the legal profession that the negative portrayal might have been
contributed by the number of news reported on lawyers mismanaging the clients’ moneys,
We have the Legal Profession Act 1976 as the main Act which governs the legal profession
in general. Section 78 of the said Act permits the Bar Council to make rules in regard to the
handling of clients’ moneys. The rules made under the conferred power are Solicitors’
Account Rules 1990 (“SAR 1990”) and Solicitors’ Accounts (Deposit Interest) Rules 1990,
among few other relevant rules. It must be noted that the primary objective of this rule is to
“regulate the proper conduct and practice in the opening, maintaining and operating of
6
“Lawyer arrested after two years”, Malay Mail, 28 August 2009, available at http://www.mmail.
com.my/content/11879-lawyer-arrested-after-two-years, accessed on 30 January 2010.
7
“Lawyer found guilty of CBT”, The Star, 21 August 2009, available at http://thestar.com.my/news/story.
asp?file=/2009/8/21/nation/20090821175643&sec=nation, accessed on 30 January 2010.
8
“Fugitive lawyer claims trial to CBT”, The Star Online, 12 August 2009, available at http://thestar.com.
my/news/story.asp?file=/2009/8/12/nation/20090812120422&sec=nation, accessed on 29 January 2010.
9
“Lawyer charged with CBT”, New Straits Time, 29 January 2009, available at http://www.nst.com.my/
Current_News/NST/Thursday/National/2465329/Article/index_html, accessed on 20 January 2010.
10
“Lawyer claims trial to five CBT charges”, available at http://www.malaysianbar.org.my/bar_news/
berita_badan_peguam/lawyer_claims_trial_to_five_cbt_charges.html, accessed on 30 January 2010.
11
“Lawyer charged in RM637,500 CBT case”, available at http://www.malaysianbar.org.my/bar_news/
berita_badan_peguam/lawyer_charged_in_rm637500_cbt_case.html, accessed on 30 January 2010.
8
clients’ moneys in the clients’ account” 12. This comes back to the primary objective of the
The news cited above has impliedly throws the legal profession a problem to be addressed;
While we have law to govern the operation of clients’ money, does the law
As protection of clients’ interest is the primary objective of the SAR 1990 (and other relevant
aiding rules), it will be ironic if the application to real life is a contradiction and nothing to be
________________________________________________________
12
Noraziah Abu Bakar, Manual on Solicitors’ Account.
9
The relevant law governing the legal profession in Malaysia in regards to the protection of
clients’ money can generally be found under the Solicitors’ Account Rules 1990 (“SAR
1990”), which basically regulates the manner in which the solicitor can deal with clients’
money. It is as observed in a research by Noraziah Abu Bakar 13, that the component of the
SAR 1990 can be divided into five main segments, which are; (1) Duty to open client’s
account, (2) Duty to pay money into client’s account, (3) Drawing money from client’s
account, (4) Duty to keep record of account; and (5) Mechanisms for enforcement of SAR
1990.
Rule 3 of SAR 1990 lay down duty to solicitor who holds or receives money by client to pay
Client account means a current or deposit account at a bank in the name of the solicitor in the
title of which the word “client” appears. For practical understanding, it is the solicitor who
will open up the account for the purpose of storing clients’ money. The solicitor will be the
owner of the account - having signatory power to withdraw and deal with the account. His
power to deal with the account is however subject to restriction as he holds and owns the
account on trust on behalf of the client. Money can’t be withdrawn arbitrarily but must be in
13
Ibid, (noraziah)
10
The moneys to be paid into client account is trust money, solicitor’s money for maintenance
and opening of the account, replacement for money mistakenly withdrawn and cheque or
draft received in which solicitor is entitled to split but did not. 14 This should be deposited into
the client account without delay. In certain cases however, there is no obligation for the
solicitor to pay money into the account if the money received is to be paid to a third party
within a short period of time, on request of client for his convenience, among others 15. This is
to avoid unnecessary hassle to deposit and then to withdraw back the money when the time
gap is too short that depositing will be impractical. Balance must be strike between strictness
Solicitor also has duty to keep account book which records the transaction and dealing
affected in regard of the client account. Every six month, the client bank statement must be
reconciled with the balance of clients’ cash book. The record is important to check that
No other money than stipulated under rule 5 of SAR 1990 should be paid into clients’
account, the discovery of which must follow with the withdrawal of such money without
delay.17 Out there, client account can be set up in an account which provides for interest. This
interest however is not stipulated under rule 5, of moneys to be paid into client account. By
virtue of rule 6, other moneys must be without delay to be withdrawn on discovery. Whose
money does the interest belongs to then? To this, we may refer to the Solicitors’ Accounts
(Deposit Interest) Rules 1990, which is in regard to the placing of clients’ money for purpose
of earning interest.
14
Rule 5 of Solicitors’ Account Rule 1990.
15
Rule 9 of Solicitors’ Account Rule 1990.
16
Rule 11 of Solicitors’ Account Rule 1990.
17
Rule 6 of Solicitors’ Account Rule 1990. See also rule 7(d).
11
Here, the solicitor can charge the client for fees for the interest being earned for the client
which is then subjected to the Sixth Schedule to the Solicitors’ Remuneration Order 1980.
For example, written arrangement can be made between the solicitor and client that an
amount of money been put in an account which provide interest that the interest will be given
to the client but certain fee is imposed in the placing of the money in that account for purpose
of earning profit. It can be something like a rental fee. Solicitors’ must account to the client
the interest made if the principal amount is more than RM500018, and the solicitor can earn by
charging fair and reasonable fees. This answers the question on whose money the interest
belongs to. The client has a right towards it though it is not being stipulated as client money
under SAR 1990, but at the same time solicitor can charge separate fee for the opportunity it
Solicitor cannot arbitrarily withdraw money from the client account. Money can only be
withdrawn if it is to be used for required payment on behalf of the client, for the execution of
trust if it is trust money, debt due to solicitor, money drawn on clients’ authority, towards
payment of bill of cost, and money of which is mistakenly deposited 19. Manner of withdrawal
is also provided for. Money to be paid to the solicitor, for maintenance of account, and
mistakenly deposited money can only be withdrawn by way of a cheque in favour of the
solicitor or a transfer to the solicitor’s account.20 Other withdrawal than permitted can only be
done with the written approval of the Bar Council. 21 The reason of the restriction must have
been grounded in the protection of clients’ interest, to avoid unnecessary withdrawal by the
solicitor.
18
Rule 2 of Solicitors’ Accounts (Deposit Interest) Rule 1990.
19
Rule 7 of Solicitors’ Account Rule 1990.
20
Rule 8(1) of Solicitors’ Account Rule 1990.
21
Rule 8(2) of Solicitors’ Account Rule 1990.
12
For client whose money has been misappropriated by the solicitor, they may mitigate the loss
by applying for compensation under the Compensation Fund provided under section 80(8) of
the Legal Profession Act 1976. Nevertheless, the provision seems to be inadequate to protect
the client’s interest as when there is a sudden surge of huge claims, the client’s might not get
Under rule 7(1) of the Accountant’s Report Rules 1990, the accountant will prepare an
accountant’s report every end of calendar year. A solicitor must first obtain a Sijil Annual
under Advocates and Solicitors (Issue of Sijil Annual) Rules 1978 to apply for a practising
certificate. In the application for the Sijil Annual, an Accountant’s Report is needed by the
Bar Council as one of the pre-requisite before issuance of Sijil Annual to any partner of the
firm.
This might help in the protection of clients’ money. There is requirement for the account to
be audited by an accountant, the report being prerequisite to obtain Sijil Annual, without
which the solicitor cannot renew their practising certificate. Solicitor cannot practice without
renewal of the practice certificate, thus the requirement of such audit process provides a
mode of check and balance to the operation and handling of clients’ money by the solicitor.
clients’ money can be an offence of criminal breach of trust under section 405 of the Penal
Code. Disciplinary action can also be taken against errant solicitors by the Bar Council, the
ground of which can root back into criminal offence and also non-compliance of rules. This
13
includes the striking off of the solicitors which result of the solicitors not being able to
practice anymore.
In the case, Choong Yik Son v Majlis Peguam Malaysia, 22an advocate and solicitor was found
guilty of misappropriating funds in clients’ account. In this case, the appellant had taken the
moneys out from teh clients’ accountb of the Taiping branch office and utilised the same to
cover the medicals bill incurred by the appellant and his late wife. The court stated that it is
permissable to draw money from the client’s account provided it complies with the
requirements set out in rule 7 of the SAR 1990. The court dismissed the appeal and order the
appellant be struck off the role, as recommended by the disciplinary commitee, and as
________________________________________________________
22
(2008) 10 CLJ
14
SINGAPORE
Prior to 2004 amendment, Singapore Solicitor’s Account Rule shares similar provision with
our SAR 1990. Rule 3 of the Singapore Solicitors' Accounts Rules prescribed a mandatory
requirement that the client's funds be placed into a separate account. The purpose of these
rules was to protect the public and to instil public confidence in solicitors.
Rule 8(4) of the Rule, on how to drawn money from the clients account, stated that no money
shall be drawn from a client account by a cash cheque except with the written authority of the
client. Sub rule (4A) further stated that no money shall be drawn from a client account by
means of any automated teller machine, telephone banking service or online banking service.
In other words, it restricts the means of transferring money from client’s accounts by
automated teller machine, telephone banking service or by online banking service. This might
be grounded in the reason that this kind of technologies may attract fraudulent transaction.
In Malaysia, our SAR 1990 is silent with regard to the withdrawal from client account by
way of automated teller machine, telephone banking service, and online banking service. For
an exact and clear position of this, courts’ interpretation is needed whether it is indeed true
that construction of our SAR 1990 may include such manner of withdrawal. It is fair to
15
The Singapore provision in regard of that, has clarify the manner of withdrawal which is
permitted and prohibited, and thus the interpretation of court is no longer needed. The
Malaysian Solicitor’s Account Rule 1990 should have attempted to amend the said rules as
according to the recent developments of the technologies and also to clarify the means to
withdraw the money. In this aspect, Malaysia seems to lag off behind the changes in
technology. SAR 1990 has yet to tackle the new development in the banking and financial
industry and to ensure that the law is working side by side with current technology.
Another difference between Malaysia and Singapore can be seen in the requirement of
reconciliation of clients’ cash books and bank statement. Rule 11 (4) of Singapore’s
11(4) of our SAR 1990 requires reconciliation to be made every six (6) month. Six (6)
months can be said to be quite extensive period. Errant solicitor may also have the chance to
misuse the client’s money or even ran away with the client’s money as they do not have to
show reconciliation with the client bank statement regularly. There will be higher possibility
of fraud and misuse of clients’ money by errant, dishonest and corrupted solicitors.
Rule 5 of Singapore’s Solicitors’ Account Rule provides that no cheque or other instruction
effecting withdrawal exceeding $5000 from a client account shall be drawn except signed by
2 solicitors unless the solicitor has engaged or employed a book-keeper to keep his books and
accounts written up and reconciled. The requirement of two signatory can provide check and
balance when a sum to be withdrawn exceeds certain amount. Errant solicitor is restricted
from arbitrary withdrawal of money since it must be signed by another person before
withdrawal can be affected. A solicitor who is a sole-proprietor may engage a book keeper to
keep his books and accounts and reconciled as required by the Rules. The provision provided
16
for minimum professional qualification and experience criteria for book keeper. Rule 11A of
Singapore Solicitor’s Account Rule provides that the solicitor shall obtain a written approval
of the Council to engage a book-keeper. The book keeper has a duty to notify the Law
Society of Singapore of any irregularities in the said account. This is to ensure a proper
recording of accounting data in a client account and provides the check of balance.
This tightens supervision of the client account in one of 2 ways which is through a second
solicitor signatory or by ensuring recording of essential accounting data with the engagement
essential data on client’s money. Malaysia has neither requirement for two signatory to affect
Singapore also have Panel Bank which is approved by the Law Society so that the financial
institution can closely work together in ensuring that the maintenance and operation of client
account is in line with the SAR.23 This is however lacking in Malaysia as banking institution
do not have the duty to ensure that solicitors’ conduct in the operation and maintenance of
On misconduct of solicitors, court may took strict approach relating to the misconduct and
dishonesty of the solicitor where the court may impose the ultimate punishment by striking
This can be seen in the case of Law Society of Singapore v Tay Eng Kwee Edwin (2007) 4
SLR 171. This case relates to the failure to maintain accounts where the respondent who in
this case is the solicitor that had been in practise for 12 years and had been declared bankrupt
23
Noraziah Abu Bakar, Manual on Solicitors’ Account.
17
at the end of the December 2004 as he failed to settle his debts with a bank. The Law Society
of Singapore call him for a meeting when they were informed about the respondent
bankruptcy proceeding and later the respondent disclosed that he had not maintained any
book of the accounts that was require by the Solicitor Accounts Rule 2004 since January
2004. It was held that the respondent had committed a serious breach of his obligations as an
advocate and solicitor and therefore he was struck off his role.Any advocate and solicitor
caught meddling with the client’s account must face the wrath of the law.
Prior to amendment, we share very similar provision with Singapore. However, Singapore
has taken steps to amend their SAR in order to control the conduct of the solicitor in the
handling of client’s money and also to reduce the act of misconduct among the solicitors and
therefore provides disciplinary measure to punish the errant lot as discussed above.
HONG KONG
Hong Kong’s Solicitors’ Account Rules was latest being amended in 2002 through the
The Solicitors’ Accounts Rules of Hong Kong seems to be more stringent than Malaysia in
scrutinizing the manner in which client’s money is to be withdrawn from the client account.
The Rules in Hong Kong has a specific provision which requires authority before client’s
money can be withdrawn from the client account and this can be seen by looking at rule 7A
of the Hong Kong Solicitors’ Accounts Rules. This provision has been added in 2002 after
18
According to rule 7A of the Hong Kong Solicitors’ Accounts Rules, in order to withdraw
client’s money from the client account for the purposes provided under rule 7 which is in pari
materia with rule 7 of the Solicitors’ Account Rule 1990, the authorization of one of the
persons stated in the rule must be obtained and such authorization must be granted in writing.
Among the persons who may authorized the withdrawal of client’s money is the solicitor in
whose name the client account is kept or any solicitor, partner, consultant, or foreign lawyer
in a firm when the client account is kept in the name of a firm. Besides that, a certified public
accountant that is still practicing as an accountant may also authorized the withdrawal of such
money. Lastly, such authorization can also be obtained from a person approved by the Hong
Kong Bar Council in exceptional circumstances as the Hong Kong Bar Council thinks fit.
Our SAR 1990 does not provide specifically for the authorization of the solicitor or any party
in order to withdraw client’s money from the client account. Authorization is only needed
when the withdrawal does not fall within purposes permitted under rule 7 of SAR 1990.
In Hong Kong, the Hong Kong Society of Accountants has issued formal guideline on
Malaysia is that the auditors are not well versed with our SAR 1990.24
When withdrawal of money needs authorization, this will add hassle towards the manner in
which the money is to be withdrawn. So, client’s money in the client account will not be
withdrawn arbitrarily and this will ensure that the solicitor who kept the money will act
24
Noraziah Abu Bakar, Manual on Solicitors’ Account.
19
In Hong Kong, after the amendment of the Solicitors’ Accounts Rules of Hong Kong, the
provision of rule 9A has been introduced to include the duty to remedy breaches. According
to rule 9A(1) of the Solicitors’ Accounts Rules of Hong Kong, if the solicitor has breached
his duty not to misappropriate client’s money or any duties stated under the Solicitors’
Account Rules of Hong Kong, the solicitor must remedy the breach immediately upon
discovery of such breach. The remedy includes the replacement of any money which was
withheld or withdrawn improperly from a client account. In addition, rule 9A(2) also
provides that each principal of a firm which means a sole practitioner or a partner of a firm
will be jointly and severally liable to remedy any breach occurred and this duty to remedy
breaches includes replacing client’s money from the principal’s own money even if the
By looking at the position in Hong Kong, it can be suggested that there will be fewer
problems in compensating the client whose money has been misappropriated with. This is
because, whenever a breach has been done, the solicitor himself has to remedy the breach
even though the breach was not done by the particular solicitor. As long as the
misappropriation had been done, the principal of the firm will be held personally liable to the
breach and therefore, the problem of limited amount of money available in the Compensation
The provision with regards to the obligation of the solicitor to keep accounts can also be
highlighted. Rule 11(2) of the Solicitors’ Account Rules 1990, rule 10(2) of the Solicitors’
Account Rules of Hong Kong provides that all dealings must be recorded within three
working days after the date of such dealings. This is commendable as it could avoid the
solicitor from sleeping on his duty and subsequently forgetting to record such dealings. The
time-frame given provide clear instruction and will ensure that the solicitor will act
20
responsibly to record all the dealings within the period stipulated under rule 10(2) of the
Rule 11(2) of our SAR 1990, in contrast, provides that all dealing required for, inclusive the
dealings of client’s money held, received or paid by the solicitor and other money dealt with
by the solicitor through a client account, shall be recorded. Nonetheless, it is silent over the
issue of when the solicitor shall record all those dealings. This is risky as the lack of clear
instruction brings possibility that the solicitor might sleep on his duty to record the
The provision in Hong Kong is different than our SAR 1990 which provides in a way that by
distinguishing between profit costs and disbursements, the solicitor will know which money
is to be used for the purpose of doing and completing legal documentations as instructed by
the client and which money are the solicitor’s profit costs.
Additionally, as opposed to the Solicitors’ Account Rules 1990, the Hong Kong Rules also
provides for the bills of costs to be recorded. The record of the bills of costs will ensure that
the solicitor has a clear record of the money paid to him by the client. Nevertheless, the
provision to include the record of the bills of costs is not included in SAR 1990.
Another difference is that Hong Kong Solicitors’ Accounts Rules offers a more
comprehensive provision with regards to reconciliation. According to rule 10A of the Hong
Kong Rules which was added in 2002, the solicitor must reconcile between the balance
shown on clients’ cash book with the balances shown on the statements of all client accounts
21
Besides that, at the same day the solicitor reconcile his account, he must also prepare a
reconciliation statement where if there is a difference between the clients’ cash book and the
statements of all client accounts, he must show the cause of the difference. Rule 10A of the
Hong Kong Rules shows that the solicitor has a huge responsibility to ensure that the client
account is always balanced and reconciled. This provision may also prevent the client’s
money from being misappropriated by the solicitor as the account is always checked and
patched up. The position in Malaysia is that reconciliation is required it to be done once in six
(6) month.
UNITED KINGDOM
There are some comparison can be made between SAR 1990 of Malaysia and SAR 1998 of
United Kingdom. The first difference is regarding the rules on depositing of client’s money.
Under SAR 1998 of United Kingdom, the rule on depositing of client’s money is discussed as
in rule 15. According to this rule, client money and controlled trust money must without
delay be paid into a client account, and must be held in a client account. 25 Compared with
Malaysia’s SAR 1990, United Kingdom’s SAR 1998 has given the interpretation on the term
‘without delay’ under its interpretation rule. Under this rule, ‘without delay’ is defined as, in
normal circumstances, either on the day of receipt or on the next working day. 26 Therefore,
25
Rule 15(1) of Solicitors’ Account Rules 1998
26
Rule 2(2)(z) of the Solicitors’ Account Rules 1998
22
we can see that the SAR 1998 of United Kingdom is more comprehensive in the
interpretation of the term ‘without delay’ thus, it makes more easier to know when is exactly
the specific time as to the maximum length of period allowed for solicitor to deposit the
money received into the client’s account. The only weakness is that, it is not clear as to the
situation that would amount to normal circumstances stated in the definition of ‘without
delay’ itself.
In our SAR 1990, the rule on depositing of client’s money is discussed on rule 3. It is stated
in the rule, any client’s money must, without delay, be deposited into a client account. 27 There
is no definition regarding the term ‘without delay’ in this rule. Thus, the term can be
considered as too general since there is no specific time mentioned as to the maximum length
of period allowed for solicitor to deposit the money received into the client’s account. This
The second comparison can be made is regarding the rule on reconciliation. Basically the
main purpose of reconciliation is to ascertain the total amount of firm’s liabilities to clients’
cash book balances and clients’ account bank statement together with other clients’ ledger,
invoices and other relevant books of account. Process of reconciliation is also including
examining the amount of money withdrawn and its purpose. It is important to detect and curb
any violation of the clients’ interest such as an unauthorised withdrawal and highlight
The rule on reconciliation is discussed under rule 11(4) of our SAR 1990. The rule provides
for the reconciliation of the clients’ account. This sub-rule states that the balance of the client
cash book must be reconciled with the clients’ bank statement at least once in every six
27
Rule 3(1) of the Solicitors’ Account Rules 1990
23
months.28 This rule is different compared with the rule provided under the SAR 1998 of
United Kingdom. It is provided under the SAR 1998 of United Kingdom that for the trust
account and the accounts’ reconciliation must be made within fourteen weeks and five weeks
for other types of money.29 This time for conciliation is much shorter than the rule under our
SAR 1990.
Next, our SAR 1990 provides rule for account books to be kept. According to the rule, every
solicitor shall at all time keep properly written up in the National or English Language such
books and accounts.30 SAR 1998 of United Kingdom also provides for the same rule but it is
called as accounting record which stated that a solicitor must at all times keep accounting
The other comparison is regarding the requirement to produce books of account. Under the
Malaysian law, the Bar Council may require any solicitor to produce books of account, bank
pass books, loose-leaf bank statements, and statements of account, vouchers and any other
necessary documents for the inspection in order to ascertain as whether the rules in SAR
1990 has been complied with.32 However, this requirement is not mandatory since it depends
on the request of Bar Council. The word ‘may’ shows that it is only declaratory. This rule is
very different with SAR 1998 of United Kingdom whereby it is a must to deliver to the
Society an accountant’s report for that accounting period within six months of the end of the
accounting period.33 Therefore, this is a mandatory rule under the United Kingdom’s position.
28
Rule 11(4) of Solicitors Account Rules 1990
29
Rule 32(7) Of Solicitors’ Account Rules 1998
30
Rule 11(1) of Solicitors Account Rules 1990
31
Rule 32(1) of Solicitors Account Rules 1998
32
Rule 14(1) of Solicitors Account Rules 1990
33
Rule 35 of Solicitors Account Rules 1998
24
The SAR 1998 of United Kingdom provides that a solicitor must account to the client for all
interest earned when a solicitor holds money in a separate designated client account for a
client, or for a person funding all or part of the solicitor’s fees. 34 Our SAR 1990 does not
provide for such rule. However, such rule is given in the Solicitors’ Accounts (Deposit
Interest) Rules 1990 (SADP 1990) whereby it states the solicitor shall entitle to charge a
separate fee which is fair and reasonable in the event interest is paid and or earned for the
client by the solicitor.35 The rule is silent on the rate of interest that the solicitor should pay to
the client. Compared to United Kingdom, the amount of interest is discussed in rule 25 of
SAR 1998. It does not provide the exact amount but on the way how to calculate the interest.
In regard to the effect of misconduct by an employee to the SAR 1998 of United Kingdom, it
can lead to an order of the Solicitors’ Disciplinary Tribunal under section 43 of the Solicitors
Act 1974 imposing restrictions on his or her employment. Under Malaysian law, non-
compliance with this rules resulted the person been brought to the Disciplinary Board which
would do the investigation and recommend the appropriate penalty or punishment towards
the non-compliance.
There are several cases which regard to the breach of the Solicitors Account Rules. The first
to be discussed is an English case, Bolton v Law Society36. In this case, a solicitor acted for a
transaction to sell a flat belongs to his wife to her brother. The solicitor had received a cheque
for £45,000 from the building society but did not place the money in his client account but
disbursed the whole sum. The court held that the solicitor had to expect severe sanctions to be
imposed on the solicitor by the Solicitors Disciplinary Tribunal. The court also made a strong
34
Rule 24(1) of Solicitors Account Rules 1990
35
Rule 3 of Solicitors’ Accounts (Deposit Interest) Rules 1990
36
(1994) 2 All ER 484
25
remarks againts the solicitor who failed discharge his professional duties without intergrity,
probity and trustworthiness by taking client’s money for his own personal purpose.
NEW ZEALAND
particularly with the passage in 1908, of a provision requiring solicitors to deposit client
funds into bank trust accounts. This was followed in 1913 with amendments empowering the
New Zealand Law Society to make rules requiring audits of solicitors' trust accounts. Despite
these provisions, losses by defaulting solicitors came to the attention of the New Zealand
Parliament in 1926, and the Attorney General, who recommended that the New Zealand Law
Society draft and introduce legislation regarding solicitors' accounting of client trust funds.
1927, providing: that this Conference brings before the Law Society the necessity of
that, the Law Society provides a guarantee fund to admitted solicitors similar to the guarantee
The law that governs the solicitors’ account is the New Zealand Solicitors’ Trust Account
Rules 1996 (NZSTAR) which can be found under the Law Practitioners Act 1982 (LPA).
26
Under Rule 3(1) of the NZSTAR, unless otherwise required by law, a solicitor must deal with
client assets only in accordance with the instructions of the client (in particular, may not pay,
transfer, or change any client assets except in accordance with such instructions). This is a
good provision where the solicitor has to follow the instructions of their client as the solicitor
is dealing with their money. However in Malaysia, rule 3 of the Solicitor’s Account Rules
(SAR) 1990, every solicitor who holds or receives client’s money, or money which under rule
4 he is permitted and elects to pay into a client account, shall without delay pay such money
into a client account. This provision is quite general because the Rule does not provide the
meaning of “without delay” which is vague and uncertain in order to determine the
Rule7 and rule 8 of the SAR 1990 provides specifically on drawing money from client
account, and the latter laid down the manner of drawing money from the client account.
Rule 4(6) of the NZSTAR stated that the trust account records relating to a client must be
retained for a period of at least 6 years from the date of the last transaction recorded in them.
This provision is similar to rule 11(5) of the SAR 1990. However, NZSTAR also includes
that after the first 3 years, retention may be in the form of microfilm, imaging or other similar
In the New Zealand’s Act, it is provided that every receipt, payment, transfer and balance of
trust money must be recorded in a trust account ledger with a separate ledger account for each
client. Thus, each solicitor shall provide to each client for whom trust money is held a
complete and understandable statement of all trust money handled for the client, all
27
transactions in the client’s account and the balance of the client’s account, as laid down in
rule 5(8) of the NZSTAR. A lawyer is obliged to provide his client every transaction which
concerns with the trust money. The meaning of trust money can be seen in rule 2, which
means all money that is, when received by a solicitor, subject to the provisions of R.89 of the
According to rule 6 of the NZSTAR, each solicitor must ensure that each trust bank account
is reconciled with the ledger as at the end of every month. These reconciliations must be
completed by the 10th working day of the following month (except in January, when they
must be completed by the 20th working day). While in Malaysia, the SAR, provides that the
solicitor must reconcile his account once in every six months which is stated in rule 11(4).
This shows that the NZSTAR is more effective in respect of reconciliation of the client’s
money as the inspection of client’s money is very important to avoid misuse of money.
The NZSTAR also provide that there must a trust account partner, stated in rule 16(1). Rule
16(2) is the provision that requires every firm of solicitors must at all times have a trust
account partner for each office of the firm having separate trust account records, and that trust
account partner must be a person appointed as such by the partners of the firms. Every trust
account partner is responsible for the administration of the trust accounting of the solicitor or
firm, and responsible for ensuring that the provisions of the Act relating to trust accounts and
etc, are complied with by the solicitor or firm, and he must take appropriate measure to verify
the correctness of, and sign, all reports required by these Rules. In other words, a trust
28
account partner acts as an internal auditor of the firm and he is responsible for the
administration of the trust accounting and ensure the provisions of the rules are complied
with, and take appropriate measures to verify the correctness of, and sign, all reports required
by the Rule.
by the trust account partner. Rule 17(1) stated that every trust account partner must certify to
the Executive Director in writing, by the 10th working day of each month (or in January, the
15th working day) which the trust account partner must make a periodic reporting to the
Executive Director of the New Zealand Law Society (NZLS). He needs to certify that the
trust ledger was correctly reconciled with the corresponding trust bank accounts for both the
general trust account and interest bearing deposit account. Second, the trust accounts records
were a complete and accurate record of transaction during the month and of each client’s
position, and whether he or she is satisfied that during the month concerned. Third, the trust
account transactions during the month have been in accordance with client instructions and
where completed, properly accounted for to clients; and all the rules are complied with.
The periodic reporting of the accounts direct to the Executive Director of the NZLS can
ensure early detection for any mismanagement of the client’s money by the solicitor or the
firm.
NZLS also included in the NZSTAR the Trust Account Partner Course and Refresher Course
where at the end of the course each participant has to undergo an examination and be
conferred with a certificate for passing the examination. This is provided in the Para 3 of the
Appendix A of the NZSTAR. The course includes training and examination or assessment in
29
each of the following elements; Observation Report, Trust Accounting, Financial
Management, Ethics (workshop), Fraud (workshop) and etc. A solicitor must furnish himself
with these knowledge as he will be dealing with the client’s money most of the time and
Reconciliation Every six (6) Every month Every month • by the 10th
of client cash months working day of the
book and bank following month
statement (except January,
by the 20th
working day).
30
can be held
jointly liable
Relationship • Formal
between SAR guideline for
and accountancy accountant to
audit in line
with the SAR
________________________________________________________
The rules in Malaysia is very basic in regards to the protection of clients’ money. The
separate account is of course of advantage as clients’ money will not be mixed together with
31
other money and thus cannot be arbitrarily used. Confusion can be reduced. However, many
areas can still be improved as our rules provides very basic provisions.
Committee might as well been set up which involves practitioners being solicitors involving
with partnership and also sole-proprieters so that each interest can be addressed. But this will
not be enough without involvement of other parties not directly involved with the legal
profession which can sit on behalf of client so that the consideration can be grounded in
different perspectives. It is Bar Council’s power to make rule in regards of this. It must be
noted that these are group of solicitors which of course in the course of making law to protect
clients’ interest will also consider their standing too and thus might not want unnecessary
hassle in the operation of their ordinary dealing. The Bar Council members include the
advocates and solicitors; therefore we can say that the rules made are in the interest of the
members and strict restriction to the manner of the solicitor in handling their accounts will
not be generally welcomed. Thus, independent party can help to balance this situation by
requiring involvement of others than the legal professional in the discussion of improving the
current law. The interference of government might also be helpful for the interest of public in
money to provide increased protection in avoiding clients’ money from being absconded by
errant solicitors.
First, by way adding the requirement of two signatory for withdrawal of money exceeding
certain amount as being adopted in Singapore. For sole-proprietor, the requirement of two-
signatory rule can be replaced by employing a bookkeeper which will report to the bar
32
council on any questionable dealing. Reaction from Malaysian solicitors who is a sole-
proprietor is not in support of this proposal to require the appointment of bookkeeper as can
be observed in the Bar Council’s website. However, it must be noted that in the case of
OCBC Bank (M) Bhd v Lee Lee Fah, sole-proprietor can easily abscond with clients’ money
While this proposal of requireing the appointment of bookkeeper might not sit well with the
sole-proprietors for the extra hassle it will create, it is the concern whether the rules provide
enough protection which is to be of a concern here. To avoid such easy breach of clients’
interest by sole proprietor as is evident in the OCBC case, the requirement for appointment of
bookkeeper to check on the sole-proprietor might have been the answer. Two signatory rule
Next, is on regard of reconciliation of client cashbook and bank statement. From the
comparison, Malaysia seems to be the less stringent in regards to the requirement. Six months
is very long that in such time, errant solicitors will have ample time to mishandle clients’
money and run with it. Short period of time should be adopted to require a more regular
reconciliation. Any mismanagement can be revealed and tackled earlier, and in a case where
such mismanagement still occurs, the seriousness of such can be reduced because there’s
nothing much that can be done in a month compared to a six month period.
Our rules should also be amended for it to cater the recent changes and development in the
banking industry especially the current rise of online banking etc. Our rules has not been
amended to catch up with times. It is time for this to be improved. Restricting withdrawal
through ATM, telephone, and online banking will be elpful to strengthen protection of
33
clients’ money. This technology although good, might attracts fraud and can be hacked into
It is helpful also for the Bar Council to create good network with the accountant society so
that the audit process will be in line with the requirement in SAR. In this respect, Hong
Kong’s formal guideline on auditing process has build good relationship between the two
profession to work closely and effectively with each other. Audit process is done to ensure
that operation of client money is in accordance with SAR, but if the accountant is not familiar
with SAR, the objective will not be achieved. Thus a close network is very important.
It is also recommended to strengthen our rules in regard to the Compensation Fund to remedy
its limited application on disbursing client when there is misuse of money. Curently, the
application is limited for that if big amount of money is involved, client might not get full
lawyer might not be sufficient since aggrieved client might not be satisfied only with the
solicitors being punished but they want their loss to be compensated, the remedy of which is
somehow lacking currently. We need to lay down duty to remedy breaches in Solicitors
Account Rules 1990 in order to compensate the aggrieved client in the event solicitor
Auditing requirement is generally on the clients’ account. It might as weel been good for the
protection of clients’ money that all the accounts of a firm is to be audited. This is because
amounts that should have been paid into the client's account might be diverted into the firm's
account and thus the mere audit on clients’ account might not reveal such breaches. It is
suggested that a system of independent auditors appointed by the Bar Council to carry out
34
random checks of both the client's and the firms' accounts would lead to a more efficient and
REFERENCES
“Fugitive lawyer claims trial to CBT”, The Star Online, 12 August 2009, available at
http://thestar.com. my/news/story.asp?file=/2009/8/12/nation/20090812120422&sec=nation,
accessed on 29 January 2010.
“Lawyer arrested after two years”, Malay Mail, 28 August 2009, available at
http://www.mmail. com.my/content/11879-lawyer-arrested-after-two-years, accessed on 30
January 2010.
“Lawyer charged with CBT”, New Straits Time, 29 January 2009, available at
http://www.nst.com.my/
Current_News/NST/Thursday/National/2465329/Article/index_html, accessed on 20 January
2010.
37
S Sothi Rachagan, “The Role Of Lawyers And The Bar Council In Society”, [1995] 2 MLJA 29
35
“Lawyer claims trial to five CBT charges”, available at
http://www.malaysianbar.org.my/bar_news/berita_badan_peguam/lawyer_claims_trial_to_fiv
e_cbt_charges.html, accessed on 30 January 2010.
“Lawyer jailed for CBT”, The Star Online, 26 November 2009, available at
http://thestar.com.my/news/ story.asp?file=/2009/11/26/nation/20091126130122&sec=nation,
accessed on 29 January 2010.
S Sothi Rachagan, “The Role Of Lawyers And The Bar Council In Society”, [1995] 2 MLJA
29
36
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