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(1) A solicitor who receives money paid in full or part settlement of the solicitor’s bill (or other notification of costs) must follow one of the following four options:

(i) if the sum comprises office money only, it must be placed in an office

account;

 

(ii) if the sum comprises only client money (for example an unpaid professional disbursement – see rule 2(2)(s), and note (v) to rule 2), the entire sum must be placed in a client account;

 

(iii) if the sum includes both office money and client money (such as unpaid professional disbursements; purchase money; or payments in advance for court fees, stamp duty, Land Registry registration fees or telegraphic transfer fees), the solicitor must follow rule 20 (receipt of mixed payments); or

(i) place the entire sum in an office account at a bank or building society branch (or head office) in England and Wales; and

 

(ii) by the end of the second working day following receipt, either pay any unpaid professional disbursement, or transfer a sum for its settlement to a client account; or

(c) pay the entire sum into a client account (regardless of its composition), and transfer any office money out of the client account within 14 days of receipt; or

 

(d) on receipt of costs from the Legal Aid Board, follow the option in rule 21(1)(b).

(2) A solicitor who properly requires payment of his or her fees from money held for the client or controlled trust in a client account must first give or send a bill of costs, or other written notification of the costs incurred, to the client or the paying party.

(3) Once the solicitor has complied with paragraph (2) above, the money earmarked for costs becomes office money and must be transferred out of the client account within 14 days.

(4) A payment on account of costs generally is client money, and must be held in a client account until the solicitor has complied with paragraph (2) above. (For an exception in the case of legal aid payments, see rule 21(1)(a).)

(5) A payment for an agreed fee must be paid into an office account. An "agreed fee" is one that is fixed – not a fee that can be varied upwards, nor a fee that is dependent on the transaction being completed. An agreed fee must be evidenced in writing.

Notes

 

(i) For the definition and further examples of office and client money, see rule 13 and notes.

 

(ii) Money received for paid disbursements is office money.

 

• Money received for unpaid professional disbursements is client money.

 

• Money received for other unpaid disbursements for which the solicitor has incurred a liability to the payee (for example, travel agents’ charges, taxi fares, courier charges or Land Registry search fees, payable on credit) is office money.

 

• Money received for disbursements anticipated but not yet incurred is a payment on account, and is therefore client money.

 

(iii) The option in rule 19(1)(a) allows a solicitor to place all payments in the correct account in the first instance. The option in rule 19(1)(b) allows the prompt banking into an office account of an invoice payment when the only uncertainty is whether or not the payment includes some client money in the form of unpaid professional disbursements. The option in rule 19(1)(c) allows the prompt banking into a client account of any invoice payment in advance of determining whether the payment is a mixture of office and client money (of whatever description) or is only office money.

 

(iv) A solicitor who is not in a position to comply with the requirements of rule 19(1)(b) cannot take advantage of that option.

 

(v) The option in rule 19(1)(b) cannot be used if the money received includes a payment on account – for example, a payment for a professional disbursement anticipated but not yet incurred.

 

(vi) In order to be able to use the option in rule 19(1)(b) for electronic payments or other direct transfers from clients, a solicitor may choose to establish a system whereby clients are given an office account number for payment of costs. The system must be capable of ensuring that, when invoices are sent to the client, no request is made for any client money, with the sole exception of money for professional disbursements already incurred but not yet paid.

 

(vii) Rule 19(1)(c) allows clients to be given a single account number for making direct payments by electronic or other means – under this option, it has to be a client account.

 

(viii) A solicitor will not be in breach of rule 19 as a result of a misdirected electronicpayment or other direct transfer, provided:

 

(A) appropriate systems are in place to ensure compliance;

 

(B) appropriate instructions were given to the client;

 

(C) the client’s mistake is remedied promptly upon discovery; and

 

(D) appropriate steps are taken to avoid future errors by the client.

 

(ix) "Properly" in rule 19(2) implies that the work has actually been done, whether at the end of the matter or at an interim stage, and that the solicitor is entitled to appropriate the money for costs.

 

(x) Costs transferred out of a client account in accordance with rule 19(2) and (3) must be specific sums relating to the bill or other written notification of costs, and covered by the amount held for the particular client or controlled trust. Round sum withdrawals on account of costs will be a breach of the rules.

 

(xi) In the case of a controlled trust, the paying party will be the controlled trustee(s) themselves. The solicitor must keep the original bill or notification of costs on the file, in addition to complying with rule 32(8) (central record or file of copy bills, etc.).

 

(xii) Undrawn costs must not remain in a client account as a "cushion" against any future errors which could result in a shortage on that account, and cannot be regarded as available to set off against any general shortage on client account.

 

(xiii) The rules do not require a bill of costs for an agreed fee, although a solicitor’s VAT position may mean that in practice a bill is needed. If there is no bill, the written evidence of the agreement must be filed as a written notification of costs under rule 32(8)(b).

 

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