LAWS ON CONTROLLING AND

MANAGING SOLICITORS ACCOUNT

IN MALAYSIAN AND NEW ZEALAND
PROVISIONS IN MALAYSIA

1. Legal Profession Act 1976

2. Solicitor’s Account Rules 1990 (SAR)
3. Accountant’s Report Rules 1990 (AAR)
4. Solicitor’s Accounts (Deposit Interest) Rules
1990 (SADIR)
 PROVISIONS IN NEW ZEALAND

1. Lawyers and Conveyancers Act 2006

2. The Lawyers and Conveyancers Act (Trust Account)
Regulations 2008 (LCAR)
COMPARISON BETWEEN LPA
AND LCA
 1. Failure of compliance of retention of accounts
MALAYSIA NEW ZEALAND

- Section 78 (1) - Requirements for - Section 112 (1) (a) - requirement to

retention retention
- Section 78 (5) - noncompliance may - Section 112 (3) - Fine not exceeding
be subjected to disciplinary action $25,000
- Section 94 (2) - Penalties @
punishments
- struck off the Roll
- suspended not exceeding 5 years
- fine not exceeding RM50,000
- reprimanded or censured
 2. Definition of Misconduct
MALAYSIA NEW ZEALAND

- Section 94 (3) of the LPA - Section 7 of the LCA

● Misconduct means conduct or ● Misconduct of the lawyer
omission to act in Malaysia or including conduct that would
elsewhere by an advocate and be regarded as disgraceful,
solicitor in his professional dishonour, consist of wilful or
capacity, amounted to grave reckless failure on the part of
impropriety including: the lawyer, or any conduct
a. Conviction of criminal which is unconnected with the
offence Act.
b. Breach of duty ● The punishment for
c. Dishonest or fraudulent misconduct
conduct.
 New Zealand’s Case
The Hawke’s Bay Lawyers Standards Committee
V
Brian Richard Hancock
● The Committee took an action against Brian Richard for his misconduct as a
practitioner in managing his firm’s account including the trust account.
● The committee outlined five charges against Brian Richard which he plead guilty. The
charges include:
1. Persistently overdrawn trust account
2. Concealment of overdrawn trust account
3. False trust account compliance certificates
4. Dormant Balances - Unsatisfactory Conduct
 Cont..
● In 2007, Brian Richard trust account was audited by New Zealand Law Society
Inspector who reported that the firm’s interest in the trust account (FIT) and the
firm’s fees account were “on a combined basis frequently overdrawn”.
● Further routine trust account inspection was begun and he immediately disclosed
that he had practice of overdrawing the firm’s fees account by transferring funds
into his office bank account in excess amount available.
● He had avoided detection of these blatant breaches of the law of his professional
ethics by providing false trust account certificate for four years.
● Then, he was charged with several charges of misconduct and a charge of
unsatisfactory conduct are admitted.
 MAJLIS PEGUAM v MOHINDER KAUR D/O BALBIR
SINGH DEOL (NO. W-04-1324-2008)

The Respondent, an advocate and solicitor, was found guilty of

misconduct under s. 94(3)(n) of the Legal Profession Act 1976 (LPA)
(for gross disregard of client’s interest) and under s.94(3)(o) of the
LPA (for conduct unbefitting of an advocate and solicitor or which
brings or is calculated to bring the legal profession into disrepute).
Cont...
It had been proved that beyond reasonable doubt that the Respondent
had engaged in improper dealings of her client’s monies, namely the
said stakeholder sum of RM480,000.00 deposited initially with MSA.
Hence, respondent had done breach of s. 94(3)(n) and (o) of the LPA.
Respondent was indeed guilty of professional misconduct of a serious
nature.
 3. Usage of Words in Defining Legal Practitioner

MALAYSIA NEW ZEALAND

Section 3 of LPA Section 6 of LCA

● Legal Practitioner in Malaysia ● Legal Practitioner in New
is known as “advocate and Zealand and other non -
solicitor”. commonwealth countries, is
● Under the LPA, advocate and known as “barrister and
solicitor refers to advocate solicitor”.
and solicitor of the High Court ● Barrister was defined as a
admitted and enrolled under person enrolled as barrister
the Act. and solicitor of the High Court
by virtue of the said Act.
 4. The Obligation of Solicitor to Pay Money in Trust Account
MALAYSIA NEW ZEALAND

Rule 3 of SAR Section 110 of LCA

● Stated briefly that the solicitor who ● Lay down separately the
receives client’s money shall pay obligation to pay client’s money by
without delay into the said client’s the solicitor or incorporated firm.
account. ● Include ruling for solicitor or
● Refers only to client’s account incorporated firm to receive money
from other person than the client,
under certain circumstances.
● Refers to trust account which hold
the same principle as client’s
account.
 5. Records of Trust Account
MALAYSIA NEW ZEALAND

Rule 11 of SAR Section 112 of LCA

● The dealing of solicitor with client’s ● The practitioner should keep trust
money shall be keep properly in account in a manner that enable it
writing, in books and accounts if to be conveniently and properly
necessary. audited or inspected.
● It may recorded in cash book, or
and a separate client’s ledger in
order to distinguish such money of
each account.
SIMILARITIES SAR BETWEEN
MALAYSIA AND NEW ZEALAND
 Keeping Client’s Book Account For
Track Backing purposes
MALAYSIA NEW ZEALAND
● Rule 11 (5) of SAR • Regulation 11 (5) of LCAR

At least 6 years from the date when Must be retained for a period of at
the file or matter concerned is closed least 6 years from the date of the last
or no further pending business transaction
● There are few similarities that we can see between SAR
and LCAR. First, solicitors are advised to keep client’s
book account as to track back all the dealings and
transactions made through the account.
● Hence, there are similarities between these two laws
regarding the period storage of client’s account record.
In Malaysia, it is stated under Rule 11(5) of SAR.
● Similarly the position of trust account in New Zealand under
Regulation 11(5) of LCAR states that,it can be clearly seen
that under these two laws, both countries allow for a period
of at least 6 years with regards to the storage of a client’s
account record.
● Solicitor must be responsible in keeping track of the trust
account records for audit purposes among other reasons.
Therefore, it is incredibly important that the records are
being tracked accurately from time to time.
 Management Of Client’s Account

MALAYSIA NEW ZEALAND

• Rule 7(a) • Regulation 7(1)

Only circumstances provided under Restrictions on solicitor in

this rule authorizes the solicitor to withdrawing client’s money
withdraw client’s money
 CHOONG YIK SON v MAJLIS PEGUAM MALAYSIA [2008] 7
MLJ 215
It is, of course, permissible to draw money from the client's account
provided it complies with the requirements set out in Rule 7 of the
Solicitors' Account Rules. However, unfortunately the withdrawals
of the moneys from the client's account by the appellant was to
defray the medical bills of both the appellant and his late wife and
that ran counter to Rule 7 of the Solicitors' Account Rules
The second similarity under the laws governing solicitor’s
account between Malaysia and New Zealand is with
regards to the management of client’s accounts. Solicitors
are authorized to some extent to withdraw client’s money.

Both countries Malaysia and New Zealand permit solicitors

to deal with client’s money according to the limitations
provided. In Malaysia, drawing money from client’s
account is provided in Rule 7(a) of SAR, while New Zealand
uses Regulation 7(1) of LCAR.
 COMPARISON SAR BETWEEN
MALAYSIA AND NEW ZEALAND
 RECONCILIATION OF
ACCOUNTS

MALAYSIA NEW ZEALAND

-RULE 11 (4) SAR 1990 -REGULATION 14 (1) OF
LCAR 2008
● Every once in 6
months ● Every once in a
month
Reconciling accounts is either proving or documenting that an
account balance is correct. The object of such reconciliation is to
ensure that the client’s money in the account have the correct
balance after all it has been used. This is to ensure that the client’s
money is protected and is not been used unlawfully.

Thus, in Malaysia, the Rule required that the account be reconciled

once every 6 months while as i New Zealand, it requires the account to
be reconciled every once in a month and have to make sure that the
reconciliation is done by the tenth working day of the following month.

It can be seen that New Zealand enforces to check up on the clients’

account more often than Malaysia, hence providing a safer and more
protected service towards their clients.
 KEEPING TRACK OF
ACCOUNTS

MALAYSIA NEW ZEALAND

-RULE 11 (5) SAR 1990
● Retention for at least -REGULATION 11 (5) OF
6 years LCAR 2008
● 6 years, retained
-RULE 12 (1) SAR 1990 for first 3 years
● Books, accounts, ● Microfilm, imaging
ledger, records, loose-
leaf books
As solicitors are required to keep properly written up, such as
in books and accounts in order show to his dealings with the
clients’ money, they are required for retention of the account.
However, even though both of the countries required the
account to be hold on retention for at least 6 years, New
Zealand gave their solicitors the advantage to keep the
accounts for only the first 3 years in books and for the next 3
years, to be kept using microfilm or imaging.
 COMPARISON ARR
BETWEEN MALAYSIA AND
NEW ZEALAND
QUALIFICATION OF AN ACCOUNTANT

MALAYSIA NEW ZEALAND

● Rule 3 (1) of ARR ● Regulation 16(1) of the LCAR

● •“An accountant shall be qualified to ○ “Trust account supervisor means a
give an account’s report on behalf partner appointed as a trust
of a solicitor if he is an approved account supervisor or in the case of
company auditor as defined in the a sole practitioner who is not in
Companies Act 1965, and he has partnership, that practitioner or in
neither been at any time during the the case of an incorporated firm
accounting period, nor subsequently, appointed as a trust account
before giving his report, become a supervisor.”
partner, clerk or servant of such
solicitor or of any partner of his,
and he is not subject to notice of
disqualification.”
 MALAYSIA
❖ Section 2 of Companies Act defines approved company auditor as a
person who has been approved under Section 263 as an auditor and
whose approval has not been revoked.
❖ Section 263 (1) states that any person may apply to the Minister
charged with the responsibility for finance to be approved as a
company auditor for the purpose of this Act.
❖ Section 263 (2) states that Minister may, if he satisfied that the
applicant is of good character and competent to perform the duties of
an auditor under this Act, upon payment of the prescribed fee, approve
the applicant as a company auditor.
 NEW ZEALAND

● The New Zealand’s equivalent to accountant is the trust account

supervisor.
● While the Malaysia’s ARR 1990 clearly prohibits any person related to
the firm from becoming one, the New Zealand’s LCAR 2008 does not
provide provision for such matter.
● In fact, based on the literal interpretation of Regulation 16 (1) of the
LCAR, the trust account supervisor is any partner of the firm that is
appointed to do the job.
 COMPARISON SADIR
BETWEEN MALAYSIA AND
NEW ZEALAND
OBLIGATION TO EARN
INTEREST FOR THE
BENEFIT OF CLIENT
NEW ZEALAND [Section 114 of LCA]
MALAYSIA [Rule 2(1) of SA(DI)R]
•confers the duty for practitioners to
•solicitors must deposit the fund
ensure that client's money earns
received into fixed deposit or any
interest for the benefit of that person.
income-bearing deposit account for the
•Otherwise the practitioners must:
benefit of their client.
1. compensate the amount of
•Otherwise the solicitors must
gross interest
reimburse the amount of interest that
2. be subjected to pay fines
would have been gained.
3. other consequences that the
NZLS may deem necessary.
 CIRCUMSTANCES WHICH
SOLICITORS ARE OBLIGED
TO EARN INTEREST FOR
CLIENT. NEW ZEALAND [Section 114(b)
MALAYSIA [Rule 2(1)(b) of of LCA]
SA(DI)R] •wherever ‘practicable’ or
'reasonable’
•In receipt of more than RM •Does not provide any
5,000 specific definition or
•The money is expected to indication on:
remain in the accounts for -the amount of money
not less than 4 months -period of time (the
money is expected to
remain in the accounts)
EXCEPTION
MALAYSIA
Rule 4 of SA(DI)R
•any written agreement NEW ZEALAND
between client and
Section 114 (a) of LCA
solicitor will not be
affected • on instruction of
•trust money of which the client
solicitor is a trustee.
WEAKNESS OF SOLICITOR
ACCOUNT RULES 1990
 WEAKNESS OF SAR 1990
No. Rule Content Weakness

1. Rule 3 Duty of solicitor in holding ● The term ‘without delay’ is too

client’s money where the general. One may have different
solicitor is needed to pay such understanding upon the period of
money into the said client’s time. It may be days, a week or
account ‘without delay’. even a month.
● Such lacuna may raise an issue on
management of client’s money.

2. Rule 13 Duty of solicitors to notify the ● No sanction or punishment provided

Bar Council regarding to their by this rule if solicitors fail to comply
client and changes to the with the said duty.
clients account. ● Although it is mandatory to notify the
Bar Council, but there might be an
issue since there is no sanction
provided under this rule.
No. Rule Content Weakness

3. Rule 7A Signatories to a client account. ● Does not include the effect of

contravention of the rule, which
indicates that the said rule is no
exhaustive.
● The repercussion of the
contravention is important to deter a
person from conducting a fraudulent
act against the client.

4. Rule 8 Manner of withdrawal of ● Does not provide sanction for

client’s money. unauthorized manner of withdrawal
of client’s money.
● This may lead to dishonesty towards
the client.
● No remedies available for the client
if there is dishonesty occurs.