Regulate law firms to protect clients' money

Aug 27, 2008
Regulate law firms to protect clients' money

I REFER to last Thursday's article "On the run" by He Zongying on the
top 10 corporate fugitives. I read with shame that six of those were
practising lawyers who profess to uphold the law and justice. Unlike
the others, they made off with clients' monies, not their own
company's income or loans. The point I wish to make is that law firms
are entrusted with holding clients' monies, but are there any legal
requirements that they must have a reserve or some insurance as a
guarantee that all monies due to their clients will be duly paid?

In Singapore, all institutions that collect and hold public monies
are regulated and audited, be it banks or charitable organisations.
Do law firms come under any such financial regulations and audit?

Further, in the purchase of property, the seller's law firm holds 4
per cent of the purchase price as stakeholders' money. I understand
that the purpose is partly to prevent frivolous purchases. The 4 per
cent in cash ensures that the buyer is serious to commit to the
purchase and the seller's law firm which has the responsibility to
allocate the sales proceeds accordingly, will have to add this amount
and allocate the full proceeds accordingly to institutions (such as
the CPF, bank mortgage balance) which are owed monies pertaining to
the property.

The practice now is that the 4 per cent of the sale price of the
property is paid to the seller's law firm to hold. Whether it is a
sole proprietorship or a group of partners, nothing can stop the law
firm from just cashing out this money and absconding.

May I suggest that the 4 per cent stakeholder money be presented as a
cashier's order in the name of the seller. A cashier's order serves
the purpose of preventing a frivolous purchase. This cashier's order
will be held by the seller's law firm until completion of the deal
where it is presented to the seller together with other monies and
documents.

In the event that the sale proceeds yield less than 4 per cent of
cash or a negative sum, the seller will bear the cost of the
cancelled cashier's order which is about $5 to $10. The seller's law
firm normally would know about two weeks prior to the completion date
how the sale proceeds would be allocated and thus would inform the
buyer's lawyer to reissue another cashier's order or a cheque to the
proper beneficiary.

Most property deals can be completed in three to four months and the
expiry of the cashier's order is six months. Should deals take longer
than the expiry of the cashier's order, a different approach could be
made such as re-issuing another cashier's order if the first one is
near expiry. This process will see no lawyer holding clients' monies,
at least pertaining to the 4 per cent stakeholder monies.

Conveyancing lawyers are engaged to see that the sale and purchase of
properties is above board. They should not be responsible for holding
large sums which serve only as temptation, and clients have no
safeguards for their money.

Justin Szeto