Advance payments to lawyers under fixed fee agreements are trust funds, says B.C. Court of Appeal

The British Columbia Court of Appeal has dismissed the appeal of a lawyer who allegedly committed professional misconduct in handling advance payments from her clients.

In Law Society of British Columbia v. Guo, 2022 BCCA 154, the Law Society of British Columbia found evidence that Richmond, B.C., lawyer Hong Guo mismanaged her trust accounts after a forensic investigation of her books and records. The society obtained an interim order prohibiting Guo from being a signatory to any trust account and operating a trust account in her name or in the name of her law firm.

Despite the interim order, Guo received money from six clients and deposited it in her general account before commencing work or issuing bills under fixed-fee agreements. The law society asserted that the advance payments were trust funds within the meaning of the Law Society Rules and that Guo committed professional misconduct by disregarding the interim order and failing to deposit the money into a trust account.

Guo contended that the advance payments were not impressed with a trust at the time she received them because advances become the lawyer’s property even though the services have not yet been provided. She drew an analogy to cases involving deposits paid by customers for goods or services that were not considered to have been received in trust. She said that the law society rules did not define “trust funds” broadly enough to include advance payments under fixed-fee agreements and such payments are not impressed with a trust at common law. She also said that the law society committed an error in finding that she had mishandled the funds and that the mishandling rose to the level of professional misconduct.

The court disagreed with Guo, finding that the cash advances constituted trust funds. Under the law society rules, trust funds include money “received from a client for services to be performed,” unless the clients expressly agreed to treat the payment as the lawyer’s property on receipt. The court noted that the six clients did not provide such informed agreement to Guo.

The court further said that the law draws a distinction between commercial relationships and lawyer-client relationships in respect of fee agreements. The court emphasized that the law imposes fiduciary responsibilities on lawyers, which include the duty to advise clients of the terms of conventional retainers or fixed fee agreements fully and fairly and to obtain the client’s informed agreement. The court further pointed out that given the importance of the duty to disclose and to obtain informed agreement from a client, lawyers may not accept any advance payment from a client as their own funds without the client’s informed agreement to do so. Without such an agreement from the client, the advance payments must be received by the lawyer in trust.

The rules governing the handling of client funds is a central component of the law society’s regulation of lawyers. The court concluded that Guo’s actions constituted a “marked departure” from the conduct the law society expects from lawyers and amounted to unprofessional conduct.