Ahead of national pro bono week, Lucy Trevelyan looks at whether firms should donate client account interest

Law firms in jurisdictions such as Australia, Canada, New Zealand and the US have for years donated the interest they amass through consolidating client monies on deposit to charity. Finally, after years of lobbying from not-for-profit groups, an English firm has finally caught on.


Magic circle firm Allen & Overy has set up a form of overseas interest on lawyers’ trust account (IOLTA) schemes from which it hopes to contribute £200,000 to the London Legal Support Trust (LSST) over the next three years (see [2005] Gazette, 19 May, 6). Worthy causes such as law centres will have the chance to apply for a slice of the cash.

Most law firms, when placing client monies on deposit, can generate a return by consolidating the sums on deposit. The interest accruing exceeds the interest payable in respect of each tranche of client money. The excess over the amount payable to the client under the Solicitors Accounts Rules can be legitimately retained by the firms.


Shankari Chandran, pro bono community affairs manager at Allen & Overy, says that throughout the firm’s 14-year relationship and pro bono work with the South West London Law Centre, it has seen the effects of the funding crisis in the civil legal aid system on the poorest people in society.


She adds: ‘Given that this crisis, if not addressed properly by the government, will lead to an even greater denial of access to justice, we wanted to do more – we felt this was the right thing to do.’


The move has received widespread praise from not-for-profit groups, and other law firms are considering a similar scheme. Steve Hynes, director of the Law Centres Federation, says: ‘The decision to donate client account interest is very generous and we see it as part of the positive relationship which Allen & Overy has developed with law centres and other not-for-profit agencies over the years.


‘Any additional resource is important to the voluntary sector, but this needs to be put in perspective against, for example, the Lottery, which currently spends around £30 million in the not-for-profit advice sector. Allen & Overy’s payment will fund the equivalent of two advice workers, undoubtedly important for the agency and individuals helped, but small in the larger scheme of things.’


Mr Hynes anticipates that the biggest contribution private sector lawyers will continue to make is through pro bono work, either directly with clients or through providing legal advice to support the infrastructure of services.


He says: ‘The Law Centres Federation’s joint project with the Solicitors Pro Bono Group – LawWorks – plays an important role in promoting this type of pro bono work to lawyers and the practical support needed to establish services.


‘In general, pro bono work provides good PR for law firms and the legal profession, and is fulfilling for the lawyers who participate. Most importantly, it provides an additional service to the public to complement publicly funded work.’


Sue Bucknall, chief executive of the Solicitors Pro Bono Group, also welcomes Allen & Overy’s scheme – but warns that the government must not use such initiatives as an excuse to cut legal aid. ‘There is a danger of this happening but this should be an adjunct to, not a substitute for, proper legal funding.’


However, Mr Hynes says it is unlikely that the government would do this. He says: ‘The most important factor in making a voluntary scheme work is that it needs goodwill. The quickest way to dissipate any goodwill on the profession’s behalf would be for the government to suggest in any way that this money was going to be used to subsidise legal aid.’


Ms Chandran says: ‘The Lord Chancellor recognised the under-funding of civil legal aid in his post-election address and has a stated aim to increase funding, not cut it. Partly we believe that this aim has been promoted by the growing concern over the crisis in civil legal aid from a wider section of the community, including City law firms.’


Ms Bucknall urges all law firms that can afford it to participate in such a scheme – and warns that unless they do, the government may change the law to force such participation.


She says: ‘I wrote a paper on IOLTA schemes and took it to David Lammy [then junior minister at the Department for Constitutional Affairs] who presented it to the Office of the Deputy Prime Minister. Ross Cranston QC MP [former Solicitor-General] then asked a question about IOLTA and MPs said they hoped a voluntary system would be put in place, but if it wasn’t, they might be willing to introduce primary legislation to bring in a compulsory system.’


Ms Chandran says: ‘It would be wrong for the government to impose taxes on the legal profession unequally to those imposed on any other profession.’ She and Ms Bucknall agree that not all firms could or should be expected to participate in such a scheme.


Law Society President Edward Nally says: ‘The Law Society welcomes this excellent initiative which shows how willing solicitors are, in various ways, to provide access to justice to people who otherwise could not get legal help. But we would warn the government that the generosity of the profession does not absolve it of its duty to provide a proper legal aid system.’


He adds: ‘We would not favour a compulsory scheme and any proposal for one would have to be analysed very carefully for its impact on various sectors of the profession.’


Former Law Society President Michael Napier, the Attorney-General's pro bono envoy, also warns against compulsion and it being a substitute for legal aid. He says: ‘It is an interesting initiative by Allen & Overy, as a very positive voluntary move to channel things to the not-for-profit sector. If other firms in the City follow suit voluntarily to channel funds, that is also a positive. But there is a big difference between firms volunteering and any suggestion that this should be prescriptive.’


Ms Chandran adds: ‘Allen & Overy’s proposal suggests that voluntary contributions could be made by large law firms – for example, those with more than 20 partners. It is not aimed at smaller firms, many of whom depend on the income raised through client accounts. The scheme is not aimed at legal aid firms who go beyond the call of duty, commercial viability and their legal aid franchise to ensure that despite the lack of sufficient government funding, their clients are given a proper service.’


Ms Bucknall says: ‘I wouldn’t expect small legal aid firms to be doing this – they already give enough pro bono advice anyway. It’s an easy thing for larger law firms to do though and I hope more will follow the lead.’


She adds that smaller firms interested in implementing such as scheme could maximise the amount of money earned, in a technique used by banks, by joining together and forming a larger general client account, thereby accruing more interest. She says the pro bono market in the UK is already worth around £150 million per year, and research has shown that if every law firm in the country followed Allen & Overy’s lead, another £50 million at least could be generated, which could be of ‘huge benefit’ to the not-for-profit sector.


Crispin Rapinet, a partner at Lovells and chairman of its pro bono committee, says his firm is currently considering a move similar to Allen & Overy’s – which he describes as ‘interesting’ – and has also made a separate proposal concerning unclaimed client interest, which is being considered by the Law Society.


Mr Rapinet says: ‘If, for example, you lose touch with a client, the Law Society currently allows you to donate the interest on the client’s account to charity, as long as you have jumped through enough hoops in your attempts to track down the client.


‘However, the Law Society will only give permission for this if you get an indemnity from the charity that if the client reappears, the charity will agree to give the money back. This is pretty tough on the charity.


‘What we have proposed to the Law Society is a model similar to that used by the banks, whereby they jointly take out an insurance policy, sharing the cost between them, which covers the risk of the client coming back. That way the charity won’t have to find money that it will no doubt have spent by the time you get back to them.’


There seems little doubt that a lot of money is lying around out there – the issue now is ensuring it goes to the right places.


Lucy Trevelyan is a freelance journalist