Unit N

Question 1

Rule 23.1

Answer 1

The interest paid must be a fair and reasonable sum calculated over the whole period for which the money is held (p.89).

Question 2

Rule 23 Guidance Note (i)

Answer 2

You will usually account to the client for interest at the conclusion of the client’s matter, but might in some cases consider it appropriate to account to the client at intervals throughout.

Question 3

Rule 23 Guidance Note (ii)

Answer 3

The sum paid by way of interest need not necessarily reflect the highest rate of interest obtainable but it is unlikely to be appropriate to look only at the lowest rate of interest obtainable. A firm’s policy on the calculation of interest will need to take into account factors such as:

a. the amount held;
b. the length of time for which cleared funds were held;
c. the need for instant access to the funds;
d. the rate of interest payable on the amount held in an instant access account at the bank or building society where the client account is kept
e. the practice of the bank or building society where the client account is kept in relation to how often interest is compounded.

Question 4

Rule 22.1

Answer 4

When you hold money in a client account for a client, or for a person funding all or part of your fees, or for a trust, you must account to the client or that person or trust for interest when it is fair and reasonable to do so in all the circumstances.

Question 5

Rule 22.2

Answer 5

You are not required to pay interest:

a. on money held for the payment of a professional disbursement, once counseletc has requested a delay in settlement
b. on money held for the Legal Services Commission;
c. on an advance from you under rule 14.2(b) to fund a payment on behalf of the client or trust in excess of funds held for that client or trust; or
d. if there is an agreement to contract out of the provisions of this rule under rule 25.

Question 6

Rule 22.3

Answer 6

You must have a written policy on the payment of interest, which seeks to provide a fair outcome. The terms of the policy must be drawn to the attention of the client at the outset of a retainer, unless it is inappropriate to do so in the circumstances.

Question 7

Rule 22 Guidance note i(d)

Answer 7

…In practice however, a firm which wishes to retain any part of the interest earned on client money will need to hold that money in a general client account and continue to have interest paid to the office account….tax regime….this makes it impracticable for firms to retain any part of the interest earned on a separate designated client account.

Question 8

Rule 22 guidance note i(e)

Answer 8

De minimis approach - £20 or less no interest payable.

Question 9

Rule 24.1

Answer 9

Interest on stakeholder money - when you hold money as stakeholder, you must pay interest on the basis set out in rule 22 to the person to whom the stake is paid, unless the parties have contracted out of this provision.

Question 10

Rule 25.1

Answer 10

In appropriate circumstances you and your client may be a written agreement come to a different arrangement as to the matters dealt with in rule 22.

Question 11

Rule 25.2

Answer 11

You must act fairly towards your clients when entering into an agreement to depart from the interest provisions, including providing sufficient information at the outset to enable them to give informed consent.