1 Introduction
1.1 Who should read this practice note?
All solicitors who arrange telegraphic transfers of funds on behalf of clients in the course of their business.
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1.2 What is the issue?
A recent Solicitors Disciplinary Tribunal (SDT) decision found against the partners of a practice for concealing profit costs from their clients by referring to a telegraphic transfer fee as a disbursement.
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1.3 Professional conduct
The following sections of the SRA Handbook are relevant:
The Principles:
1. Uphold the rule of law and the proper administration of justice
2. Act with integrity
4. Act in the best interests of each client
5. Provide a proper standard of service to your clients
6. Behave in a way that maintains the trust the public places in you and in the provision of legal services
SRA Code of Conduct 2011:
Outcome 1.13, ensuring that clients receive the best possible information about the likely overall cost of their matter.
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1.4 Status of this practice note
Practice notes are issued by the Law Society for the use and benefit of its members. They represent the Law Society's view of good practice in a particular area. They are not intended to be the only standard of good practice that solicitors can follow. You are not required to follow them, but doing so will make it easier to account to oversight bodies for your actions.
Practice notes are not legal advice, nor do they necessarily provide a defence to complaints of misconduct or of inadequate professional service. While care has been taken to ensure that they are accurate, up to date and useful, the Law Society will not accept any legal liability in relation to them.
For queries or comments on this practice note contact the Law Society's Practice Advice Service.
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1.5 Terminology in this practice note
Must - a specific requirement in the Solicitors' Code of Conduct or legislation. You must comply, unless there are specific exemptions or defences provided for in the code of conduct or relevant legislation.
Should - good practice for most situations in the Law Society's view. If you do not follow this, you should be able to justify to oversight bodies why the alternative approach you have taken is appropriate, either for your practice, or in the particular retainer.
May - a non-exhaustive list of options for meeting your obligations. Which option you choose is determined by the risk profile of the individual practice, client or retainer. You must be able to justify why this was an appropriate option to oversight bodies.
SDT – Solicitors Disciplinary Tribunal
TT – Telegraphic transfer
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2 Charging for telegraphic transfers
2.1 What is a disbursement?
The Solicitors Accounts Rules define a disbursement as 'an expense'.
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2.2 Is a telegraphic transfer fee a disbursement?
A TT fee is an expense but some practices charge more than the cost of the transfer under the heading disbursement, thereby concealing profit costs from clients.
The SDT has found that this clearly breaches rule 1 of the code of conduct, particularly in relation to the solicitor's duty to act with integrity and in the best interests of the client.
This conduct is also likely to be in breach of rule 2, client care, if any amount over the cost of the transfer is not explicitly declared to the client as profit costs.
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2.3 How should telegraphic transfers be charged?
You must advise the client of the basis and terms of your charges.
You should tell your client that you are charging them the fee that has been charged to the practice by the financial institution executing the telegraphic transfer, and that this fee is a disbursement.
You must charge VAT on the fee that has been charged to the practice by the financial institution executing the telegraphic transfer, even if no VAT is charged to you. For more information see Costs passed on to clients - disbursements - and VAT on the HM Revenue and Customs website.
You must not include any profit cost element as a disbursement. For example, you must not include a fixed monthly charge by the bank for having an in-house terminal, or any internal staff costs.
If you charge the client an administration fee for arranging the telegraphic transfer you must inform the client and charge it as profit cost.
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3 The Solicitors Disciplinary Tribunal (SDT) ruling
An SDT case reported in June 2008 clearly demonstrates the implications of referring to a mixed charge partially comprising a profit costs element and including a telegraphic transfer fee as 'a disbursement'.
3.1 The facts
The practice charged the client £30 plus VAT for a TT as a disbursement. The practice only paid £10 to its bank for each TT.
The client care letter sent to clients under rule 15 (now rule 2) of the code of conduct did not explain that the practice would only pay on £10 and that the balance amounted to profit costs for the practice.
It did not explain that the additional fee related to work undertaken in arranging the TT.
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3.2 The allegations
Claiming the TT fee as a disbursement of £30 was misleading to the client. The balance over the actual disbursement was additional income and profit to the practice.
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3.3 The findings
- The respondents had acted in breach of rule 1 and rule 2 of the code of conduct.
- The practice's invoices did not reflect the telegraphic transfer fee and the true position was not addressed in the letters addressed to the clients. The clients had therefore been misled.
- A fee charged to the client by the practice had been described as a disbursement met by the practice which was inaccurate. This hid the fee for handling a transfer in addition to the bank's charges.
- In all of the circumstances of the case, the STD considered it appropriate and proportionate to fine each respondent £1,500.
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4 More information
4.1 Law Society publications
4.2 Training and events
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