Transferring Trust Funds Electronically

by David J Bilinsky

The Benchers of the Law Society on July 10, 2009 amended the Law Society Rule 3-56 (3.1 ) to allow any amount of trust funds to be transferred by electronic transfer. Previously, electronic transfers had to be $25,000,000 or more in order to be done electronically. This change now allows lawyers to be able to transfer funds between lawyers and from lawyer’s trust accounts to clients, financial institutions and the like electronically.

Allowing lawyers to now transfer funds by electronic means rather than by cheque is an important commercial development as well as an important anti-fraud provision. There has been much activity as of late involving fraudulent cheques, bank drafts and certified cheques. Transferring funds electronically should help to avoid some of the difficulties created by potentially fraudulent instruments. Notwithstanding that it helps prevent problems with trust accounts; lawyers have been somewhat resistant in certifying their trust cheques at the request of another lawyer. Allowing funds to be transferred electronically rather than by cheque should avoid the cost and delay resulting from one lawyer wanting another law firm’s trust cheque to be certified.

Of course being able to transfer funds electronically will not avoid the difficulties arising from clients sending in fraudulent or NSF cheques to law firms. We are all familiar now with the “collection scam” where a client seeks to use a lawyer to collect a commercial debt – which is paid surprisingly quickly by a “certified” financial instrument of some sort. The client then wants the paid debtor funds to be transferred to them quickly – “since the cheque is in certified funds.” Unfortunately, the cheque is fraudulent and the fraudulent client is simply trying to clean out the lawyer’s trust account. There have been firms that have been “stung” by this fraud. The appropriate remedy is to enforce a minimum waiting period on ALL cheques, bank drafts and money orders prior to paying.

With the change to the Rules, it is important for lawyers and law firms to familiarize themselves with the provisions of Rule 3-56 (3.1) in order that they are transferring trust funds by electronic means in accordance with the process and documentation set forth in the Law Society’s Rules. They should check with their financial institution to ensure that their processes and procedures comply with the Law Society’s requirements as well as those of the Bank. It would also be important for law firms to draw up a formal policy on how funds are to be transferred electronically in order to document that they have not only complied with the Rules but they ensure that their staff know and understand the proper steps to be taken in the circumstances. It is suggested that a requisition, a confirmation and a verification (that the funds were in fact transferred in accordance with the requisition) be completed and placed in the file to document that the transfer was in accordance with the Rules.

David J. Bilinsky Blog: www.thoughtfullaw.com.

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This article originally appeared in the August 2009 issue of BarTalk and is reproduced here with permission of both the author and the Canadian Bar Association, British Columbia Branch.