TRUST ACCOUNTS.

Timaru Herald, Volume XCVIII, Issue 18084, 21 November 1924, Page 3

TRUST ACCOUNTS.

SOLICITORS’ NEC LIG ENCE. Two cases in which local law practitioners appeared as defendants, wmo hoard beiure AJ r it. JL Alosley, b.AI., at the Timaru Magistrate s Court yesterday morning) wnen Martin Josepn U linen and Joint William White wore separately proceeded against on liiioiillations laid by tlie Canterbury Latv Society, tor breaches ol the Law liactnioners’ Act. Charged tnat m June, 1924, lie knowingly did not hold all monies received ov him for and on behalt pi persons, exclusively for such persons in a bank, in a general or -eparate trust account, Martin J. O’Brien, who was represented by Mr Emslie, pleaded not ]?. tv. Johnston appeared for the Law Society. , • • Air Johnston stated that such cases were lortuiiately very rare. It was also fortunate that the present case cud not involve a charge of defrauding, but merely of failing to hold trust monies exclusively lor the persons concerned in a trust account Under the statute, however, it was the privilege of the Society to exercise disciplinary powers over its members, and where oreaches occurred, they were obliged to prosecute without tear or favoui. lJStendant had been a member of the hrm of White and O’Brien, and up to the time that the partnership had been dissolved, he had kept the. firm s books J.ll the previous year irregularities luicl been allowed to occur, and the atteu- ’ tion of the firm was drawn to it bv the Society. O’Brien took all the blame for the irregularity, and White had admitted that he had unwittingly drawn on trust monies. Both parties had then expressed regret for their negligence, and undertook to take every care that no further breach was committed. The partnership was afterwards dissolved, and when the books were audited as required, it was found that the trust account which should have been in credit to the amount of £795 12s, was only in credit to the amount, of £474 16s. As against that the firm had paid out of trust accounts the sum of £635 5s od on account ol various persons who were not in credit with the firm. Accumulated costs against trust accounts had also amounted up to the value of £3lo 19s. O’Brien, who was in charge of the books, sought to explain a deficit in one estate by his omission to present a cheque which had been signed by the trustees and handed to him. The irregularities concerned not one account, but fifteen of twenty different accounts, which had been drawn upon for amounts which should not have been paid out. He would submit that as far as O’Brien was concerned it could not have been done unknowingly. All cheques were signed by O’Brien, until after the assurance given by the firm to the Society, when'White signed the cheques. The trust fund was used for paying fees out of pocket and monies on account of clients, instead of those monies being paid out of the general account, which at that time, although not in debit, was not very , much in credit. Regarding trust accounts, the Society took a very strong attitude. Money might be advanced out' of trust’ to a man in a good position, but circumstances might easily arise that would reverse that man’s position, and the trust account be the loser. It was imperative that solicitors shquld find the capital .for carryin g on, (their ; businesses, or else - arrange an overdraft lor their general account. W. D. Revell, public accountant, gave evidence as to auditing the trust account. He stated that a special audit of the account was madd when the. partnership was 'dissolved; He found that there was £795 12s 5d duo to clients according to the books, and the trust account, including some cash cn hand,, amounted to £474 16s. This was at December 31, 1923. At that date there had been paid out £636 15s scl to clients, who had no credit in the trust account. Against the trust monies there w r as tlie sum of £315 19s, representing undrawn costs which left a deficiency, of £320 16s scl, which should have been accounted for. He checked the costs as far as he could without making too elaborate an inquirv. Payments were got in to reduce the deficiency, and the trust account was then in credit.

To Mr Epislie: He would not call defendant an expert accountant. It would be quite possible for mistakes to be made. There were about fifteen or twenty accounts overdrawn. It was quit© possible to draw on trust accounts for tlie amount of costs standing against the trust account, but it was a very dangerous practice to overdraw trust accounts.

His Worship: Not only dangerous, hut an abominable practice that should not be tolerated.

Mr Emslie: It is simply a matter of book-keeping. His Worship: Solicitors should bo very careful about their book-keeping. 1 have been in practice long enough to realise the importance of that. Mr Revell : Air Whit© stated that he could draw a cheque to adjust the overdrawn cheques at any time, lhe accounts were now in order. This concluded the case lor the prosecution.

Mr Emslie said that his client was not trying to escape the consequence of his negligence. He had charge of the books, and it was not a question of trying to throw the blame on someone else. His negligence mostly lay in thinking that as long as money was owing to them from trust accounts, he could overdraw to that extent. .When he found certain accounts were oveidrawn, lie squared them up. His Worship: The whole thing was wrong. Trust monies were used to pay people who had no credit in the trust account. The fact still remains that there was a deficiency of £320 16s sd. Mr Emslie said that he quite agreed that juggling with trust monies was quite wrong, but defendant, knowing that he had money in hand, could not sec that. Dclendant pleaded not guilty in order that the lacts of the caso could be fully presented. Nobody had lost anything over the matter, and everything had been squared up. Eennedy’s account had caused the vholo trouble. Jf lie had drawn a cheque and placed it to the credit ol the account, which ha had negligently omitted to do, the trust account would have been in funds. He would now withdraw his plea of not guilty, ami plead guilty, now that the facts had been fully stated. lie would ask that the penalty be kept as low as possible, ’lhe Law society were not asking for a heavy pen alty. His Worship said such cases were very painful to the Court, and also to the Law Society, which had disciplinary power over its members, and was compelled, to exercise it. A solicitor u trust account was of the utmost mipoitance, and on no account should there lie any juggling, or the slightest tinkering with it, however justifiable it migijt seem. At that particular time that firm had been able to meet then liabilities, and no one had suliered. He was strongly of the opinion that all trust accounts should he audited bj Government 'auditors. However, the present system of private audit was a big advance in the supervision ol trust accounts. In the present case nregularities of a very serious nature were disclosed, hut he was quite sure that there were not many such irregularities in the firms of South Canteihury or North Canterbury. Several men he had known had got themselves into gaol. l’hev were men who uoie undoubtedly honest, hut they allowed things to drift, and that policy ot drifting had p.ot them into holes that lhey could not got out of, and had trouble come to them. A fine of L'-’o and coals was imposed.

Fourteen days were allowed in which to pay tlie fine. A similar charge wps then preferred against John William White, lor whom are \\ . H. Campbell appeared. Mr Johnston said that the case against tills defendant was somewhat autereiit, m that it was largely a lack of knowledge ol what was going on. When acquainted with the irregularities of the previous year defendant hud given an undertaking that such irregularities would not occur again. However, a cheque tor £IOO tor costs had since been myawn against a trust account when other monies should have been there on account of clients. .Had AJ.r White been a younger and more virile- /man, and not having to depend more on others, possibly tne other irregularities would not nave occurred. On var.ous dates between October and .December delenaant had drawn various cheques to the firm tor costs .against tlie trust account, which was already more depleted than it should have been. Whether defendant was aware of that he did not know. Certain lacts were formally admitted, and evidence as to the .audit of books tv as given by W. D. Revell. •To Air Campbell: At Aiarcfi 31st of last year tne trust account was not in credit. At that tune O’iSnen told him that his partner (White) was not aware of that tact.

1-lis Worship : Oil that date would not both partners be tunfished with a balance ?

Air Johnston: To be quite fair to defendant, i would explain that the balance was not taken until J une.

Air Revell: Cheques had been drawn for costs, and out ot pocket lees, etc., and mostly against, lvennedy’s estate. His Worship: for example if £IU was owing to Jones, a cheque would bo drawn on tlie trust account to pay Jones.

Air Revell: The cheques drawn on the trust account were mostly for clients accounts. The actual trust account at the bank was never m debit. Some time after December defendant asked him li he would be justified in paying out money to a client to whom a credit was standing, and he advised him that the client was entitled to receive the sum standing to his credit. Amounts paid in to trust account had squared up, 1 and in June it was £2 Ills in credit.

Mr Campbell said that when his client’s attention ha<l been drawn to the previous irregularity lie had taken steps to prevent further trouble by signing all cheques himself, and also referring to Air Revell. As Jong as the b.ank account was in credit and each trust account in credit defendant thought that he was quite all right, although the practice ot taking costs from the trust account was wrong in principle. At defendants very advanced age he had to leave a lot to his partner, who had .been with him a long while, and m whom he placed the greatest confidence.

Continuing, Air Campbell stated that in regard to the cheque for £IOO, the trustees had met and agreed that tlqit amount was due in costs to the firm. Defendant considered that providing there was money m the account to meet that sum he was quite entitled to take his costs out of the trust account and pay it into the general fund. The ordinary or capital account, should be the account operated on for expenses. Defendant stated that he was first aware of the previous irregularities through a communication received fi c m the bank stating that the account had been overdrawn. Several other communications had been sent to that effect but defendant 1 had not seen them. Ho asked the bank for copies and ap proached O’Brien and asked him why he had not shown them to him. O’Brien told him that lie did not want to bother defendant about them. Defendant then instructed the. bank not to accept any other signature but his. That occurred in September of last year, and from that time he signed all cheques. The cheques were filled m by O’Brien, but defendant examined the vouchers to satisfy himself that the amounts were actually due to the persons whom they were made out to. He took particular care that no cheques on the trust account tv ere signed that could not he met. He was given to- understand by O’Brien that if all the clients had asked for their money, the trust .account would be in credit. He iiad every confidence in O’Brien, and had taken him into partnership without any cost. As showing the confidence lie possessed in lnni ho had made him a trustee under lus will. Lie himself had been practising for over 57 years, and had never been called to question. His Worship that a breach of the Law Practitioners Act had been committed. He was perfectly satisfied with defendant’s explanation, and also that the accounts were now in order. He was also satisfied tlyit at the _ time the breach of the Act was committed, the accounts were in the process oi being put right. It was defendant’s bounden duty when drawing the cheque for £IOO from tlie trust account to place to his credit in the general account, to ascertain if there was sufficient money in tlie trust account to pay all creditors. It did" not seem to strike defendant, that that precaution was necessary. Ho was afraid that .although defendant was a good law practitioner, lie was not a good accountant. Again it was the policy of drift. He was glad, however. to see that the accounts were now quite in order. It was a very disagreeable duty for tlie Court to have to ! ear a case against dclendant, who- must be the senior member of the. Bar .n New Zealand, and who had had a long and honourable career. The offence of which he was technically guilty was not one of the most serious, and refleered not on Ills skill as a practitioner, but i pon his knowledge of business. He ."is glad to think that was so. It was his duty to carry out the law, and he had come to the conclusion that he must hold deiendant guilty of a breach of the Act. Defendant was convicted and fined £lO and costs.