________________________________________________________

PROTECTION OF CLIENTS’ MONEYS IN MALAYSIA:

DOES THE LAW PROVIDE ENOUGH?

1
 UNIVERSITI TEKNOLOGI MARA MALAYSIA
BACHELOR OF LAWS (HONOURS)
2009/2010 SESSION

PROTECTION OF CLIENTS’ MONEYS IN MALAYSIA:

DOES THE LAW PROVIDE ENOUGH?

BY

(ZAZA ISZARUL & CO)

FATIMAH ZAHIRAH BT MOHD DAMANHURI / 2009146873
ISABILLA NAJAH BT ZAINI / 2009980267
KHAIRUL IDZWAN BIN KAMARUDZAMAN / 2009763133
SITI NURZAFIRAH BT MOHD PADZIL / 2009966827
SITI SAFURA BT AB RAHMAN / 2009304031

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

SOLICITORS’ ACCOUNT: POSITION IN MALAYSIA

COMPARISON WITH OTHER COUNTRIES

SINGAPORE

HONG KONG

UNITED KINGDOM

NEW ZEALAND

RECOMMENDATIONS & CONCLUSION: THE EFFECTIVENESS & SPACE FOR

IMPROVEMENT

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

effectiveness and weaknesses of the law in Malaysia. This is important as it is through

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

law. Of course practicability of such an adoption will be considered, as something which is

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

from legal fees.

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

concerned; whether the money is properly managed or not.

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

the fee to conduct title search etc.

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

fees which belongs exclusively to the solicitors as their remuneration.

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.

Recommendations were made in 1907, inter alia1:

• That solicitors should keep full and accurate accounts, periodically balanced.

• That client money should be kept separate, possibly in a separate bank account.

• Interest on client money should be accounted for to the client.

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

which it belongs and thus somehow smoothen the operation.

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

operation of clients’ moneys.

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

the legal profession in the eyes of the public;

Headline Newspaper Day / Date

Labuan lawyer claims trial to CBT3 Malaysian Bar Fri / 21 Aug 2010
Lawyer jailed for CBT4 The Star Thurs / 26 Nov 2009
Former lawyer gets seven years for CBT5 Malaysian Insider / Thurs / 26 Nov 2009

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

New Straits Time

Table 1: Some Newspaper Headlines on Lawyers’ Misconduct towards Clients’ Moneys

*CBT = Criminal Breach of Trust

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,

among other things.

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

rules which is on the protection of clients’ interest.

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

actually provides enough for its protection?

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

desired of, something of which will be examined later on.

________________________________________________________

SOLICITORS’ ACCOUNT: POSITION IN MALAYSIA

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

it into client account without delay.

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

accordance with the provision of the SAR 1990.

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

in clients’ protection and the practical aspect of it.

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

clients money is not being used on other purpose than is permitted.16

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

gives to the client to earn profit.

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

a full compensation due to the limited amount of money in the fund.

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.

Compliance of the rules can be grounded in few modes of punishment. Misappropriating of

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

affirmed by the disciplinary board.

________________________________________________________

COMPARISON WITH OTHER COUNTRIES

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

assume that without clear prohibition, such withdrawal is permitted in Malaysia.

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

Solicitors’ Account Rule requires monthly reconciliation. As compared to Malaysia, rule

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

or employment of a book-keeper with a duty to notify council of difficulties in maintaining

essential data on client’s money. Malaysia has neither requirement for two signatory to affect

withdrawal nor for bookkeeper to be employed in case of sole proprietor.

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

client account is in line with our SAR 1990.

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

off their roll as solicitor.

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

Solicitors’ Accounts (Amendment) Rules 2002.

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

the amendment made in that year.

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

procedure to conduct a thorough audit on solicitors’ account, while possible problem in

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

responsibly in keeping the client’s money.

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

misappropriation of client’s money was not done by the principal himself.

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

Fund can be evaded.

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

Solicitors’ Account Rules of Hong Kong.

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

transactions and therefore lead to an irregular client account.

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

at least once a month.

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

In United Kingdom is the relevant rule in regard of solicitors’ account is governed by

Solicitors’ Account Rules 1998 (SAR 1998).

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

can be seen as one of weaknesses of our solicitors’ account rules.

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

instances of fraudulent practice.

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

records properly written up to show the solicitors’ dealings.31

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

New Zealand emerged as a leader in the development of client protection remedies,

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.

The Association of New Zealand Chambers of Commerce presented a resolution in February

1927, providing: that this Conference brings before the Law Society the necessity of

Solicitors handling trust moneys, subscribing to an adequate indemnity insurance, or failing

that, the Law Society provides a guarantee fund to admitted solicitors similar to the guarantee

funds provided by the banks.

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

reasonable time within the meaning of the Rule.

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

technology, which our Act is silent on this matter.

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

New Zealand’s LPA.

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.

Reconciliation of account is an important accounting safeguard to ensure that no fraudulent

practice or abuse of clients’ money had taken place.

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.

NZSTAR is more comprehensive as it provides a provision that requires a periodic reporting

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

should be able to handle the basic financial management of his firm.

Malaysia Singapore Hong Kong United Kingdom New Zealand

Depositing of  No exact  “without

money definition of delay” is
‘without defined as in
delay’ normal
circumstance,
either on the
day of receipt
or on the next
working day

Withdrawal of  Two (2)  Authorization

money signatory for in writing by
withdrawal solicitor,
exceeding partner,
$5000 consultant, or
foreign,
 Employment of certified
book keeper for public
sole -proprietor accountant
person
 Restricts approved by
withdrawal Hong Kong
through ATM, Bar Council
telephone and
online banking

Record of  Silent on  Within three • Within

dealing the time- (3) days of the fourteen (14)
frame dealing or fifteen (15)
weeks

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).

Compensation  Partner of firm

30
 can be held
jointly liable

Requirement to • Declaratory • Mandatory,

produce books every six
of account months

Relationship • Formal
between SAR guideline for
and accountancy accountant to
audit in line
with the SAR

Panel Bank • Panel Bank

approved by
the Law
Society

Table 2 : Comparison of (Relevant) Position in other Countries

________________________________________________________

RECOMMENDATIONS AND CONCLUSION:

THE EFFECTIVENESS AND SPACE FOR IMPROVEMENT

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

the setting up of the committe.

It is recommended that amendment is affected to further scrutinize the rules on withdrawal of

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

for the lack of proper check and balance.

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

is when the firm is of partnership.

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

thus retriction to be clearly stipulated will reduce fraudulent transaction.

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

compensation. Punishment, criminal liability, and disciplinary proceeding towards errant

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

breaches the duty.

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

thorough auditing system.37

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.

“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.

“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 in RM637,500 CBT case”, available at

http://www.malaysianbar.org.my/bar_news/berita_badan_peguam/lawyer_charged_in_rm637
500_cbt_case.html, 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 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.

“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.

Noraziah Abu Bakar, Manual on Solicitors’ Account.

RA Chandler, “Regulating reluctant profession; holding solicitor’s to account”, Science

Direct, available at http://sciencedirect.com, accessed on 30 January 2010.

S Sothi Rachagan, “The Role Of Lawyers And The Bar Council In Society”, [1995] 2 MLJA
29

36
37