Brown v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judge | Lord Reid,Lord Evershed,Lord Guest,Lord Upjohn,Lord Donovan |
| Judgment Date | 28 July 1964 |
| Judgment citation (vLex) | [1964] UKHL J0728-4 |
| Court | House of Lords |
| Docket Number | No. 11. |
| Date | 28 July 1964 |
[1964] UKHL J0728-4
House of Lords
Lord Reid
Lord Evershed
Lord Guest
Lord Upjohn
Lord Donovan
After hearing Counsel as well on Tuesday the 26th as on Wednesday the 27th, days of May last, upon the Petition and Appeal of Charles Grant Brown practising under the firm name of Burnett & Reid, Advocates, of 12 Golden Square, Aberdeen, praying, That the matter of the Interlocutor set forth in the Schedule thereto, namely an Interlocutor of the Lords of Session in Scotland of the First Division of the 28th of June 1963, might be reviewed before Her Majesty the Queen, in Her Court of Parliament, and that the said Interlocutor might be reversed, varied or altered, or that the Petitioner might have such other relief in the premises as to Her Majesty the Queen, in Her Court of Parliament, might seem meet; as also upon the Case of the Commissioners of Inland Revenue, lodged in answer to the said Appeal; and due consideration had this day of what was offered on either side in this Cause:
It is Ordered and Adjudged, by the Lords Spiritual and Temporal, in the Court of Parliament of Her Majesty the Queen assembled, That the said Interlocutor of the 28th day of June 1963, complained of in the said Appeal, be, and the same is hereby, Affirmed, and that the said Petition and Appeal be, and the same is hereby, dismissed this House: And it is further Ordered, That the Appellant do pay, or cause to be paid, to the said Respondents the Costs incurred by them in respect of the said Appeal, the amount thereof to be certified by the Clerk of the Parliaments: And it is also further Ordered, That unless the Costs, certified as aforesaid, shall be paid to the parties entitled to the same within one calendar month from the date of the Certificate thereof, the Cause shall be, and the same is hereby, remitted back to the Court of Session in Scotland, or to the Judge acting as Vacation Judge, to issue such Summary Process or Diligence for the recovery of such Costs as shall be lawful and necessary.
My Lords,
The Appellant is the sole partner of the firm of Burnett and Reid, Advocates in Aberdeen. In addition to doing the ordinary work of a solicitor the firm act as factors for numerous estates and as secretary of various companies and they do stockbroking business and sell property and timber. In the course of this work they receive on behalf of their clients numerous sums of money, some large and some small, and they pay these sums on receipt into a separate current account "for clients". From this account they pay outgoings due by their clients. In the aggregate they generally hold at least £30,000 of their clients' money and at times the amount is considerably greater. Of course they keep separate ledger accounts for each client and when the Appellant sees that there is a considerable sum at the credit of any client and judges that it, or part of it, is not likely to be required for any purpose for some time, he puts that part on Deposit Receipt earmarked as belonging to that client. No question arises about these cases. When the Deposit Receipt is uplifted the accrued interest is credited to the particular client.
But there still remain large sums which the Appellant does not consider it appropriate to deal with in that way. The sum at the credit of a particular client may be small, or, if large, it may be likely to be wanted within a comparatively short time. In such cases there might well be no net gain to the client by putting it on Deposit Receipt earmarked for him. The General Commissioners appear to have thought that he should have put more of his clients' money on Deposit Receipt earmarked for particular clients but I need not consider that matter. For the purpose of this appeal I can assume that there would have been no net gain to any client if he had done this because the trouble and therefore the expense involved would have exceeded any interest likely to accrue if it had been done.
The practice of the Appellant was to wait until the aggregate sum in the clients' general current account approached £10,000 and then to put £5,000 of this on Deposit Receipt in name of Burnett & Reid for clients. Normally there would be several such Deposit Receipts in existence and when appropriate one of them was uplifted and the £5,000 paid back into the clients' current account. But the interest which had accrued was paid into the firm's own account and was regarded by the Appellant as belonging to him and as going to increase the profits of the business.
During the four years with which this case is concerned this interest amounted to nearly £6,000 and the case arises because the Appellant claimed that this was part of his earned income. The Commissioners and the Court of Session held that it was not. It appears to me that the first question to be decided is whether this interest ever belonged to the Appellant. If it did not it could not be part of his income and the question of earned or unearned does not arise.
The general principle is well settled. A solicitor has a fiduciary duty to his clients and any person who has such a duty "shall not take any secret remuneration or any financial benefit not authorised by the law, or by his contract, or by the trust deed under which he acts, as the case may be" (per Lord Normand in Dale v. C.I.R. (1952) 34 T.C. 468 at p. 491). If the person in a fiduciary position does gain or receive any financial benefit arising out of the use of the property of the beneficiary he cannot keep it unless he can shew such authority.
This interest was earned by using clients' money. It may be true that it could only have been earned by aggregating the money of a large number of clients and could not have been earned for each client by using the money of that client alone. But that does not appear to me to make any difference in law though it may remove any possible suggestion that the solicitor was simply appropriating for himself money which he could and should have credited to his clients. I can see that if clients' money is dealt with in this way it may be quite impracticable to determine with any accuracy what share of the interest should be credited to any particular client. One might, it is true, begin by assuming that if half the money in the clients' general current account is put on Deposit Receipt then half the money at the credit of each client is to be regarded as included in the sum put on Deposit Receipt. But the position changes from day to day. The whole of the money then at the credit of certain clients may have been paid out by the solicitor long before the Deposit Receipt is uplifted, the general current account having been kept in credit by money coming in from other clients. So notionally the ownership of the £5,000 on Deposit Receipt will change from day to day. No doubt an accountant could devise a fair method of apportioning the interest. But to make even a rough approximation might well cost more than the whole of the accrued interest. On the other hand if the solicitor is deterred by this difficulty from putting such money on Deposit Receipt it must just remain on current account. No interest will be earned and the only gainer will be the Bank.
So it is not very surprising that a similar practice has been followed for a long time not only by the Appellant's firm but by a number of other solicitors. The Commissioners accepted the evidence of an accountant employed by the Law Society that it was fairly common in his experience but by no means universal. Unfortunately we do not know what was the practice of those who did not follow this practice. The Appellant founds on a passage in the Report of the Council of the Law Society of Scotland for 1951:
"The Council have also been asked for their views regarding the question of the disposal of interest on Deposit Receipts or deposits with Savings Banks for unnamed clients. They have expressed the opinion that if the allocation of interest on a general sum taken out of the client account and placed on Deposit Receipt or with a Savings Bank is so difficult or involves so much work as to be substantially impracticable, the solicitor is entitled to retain the interest in the form of a general charge against clients for the work involved in keeping the clients' Banking Account(s)."
This opinion, coming from so responsible a body, negatives any possible suggestion of professional malpractice by the Appellant or any other solicitor who has acted in accordance with it. But it was not argued that it has any binding force and I do not think that it can be supported in law. I do not see how the difficulty in discovering who is the owner can make the money the property of the solicitor. Nor am I aware of any authority for making a general or collective charge against clients.
The Appellant supports his contention on the grounds of custom and implied agreement. On the facts found in the Case he cannot succeed on custom if only because the practice is by no means universal and I shall not consider what the position would be if there were a custom in the legal sense. As regards implied agreement I do not doubt that clients could agree, if they so chose, to their solicitor making profit out of their money by using it in certain ways in certain circumstances. The fact that a solicitor is in a fiduciary position does not prevent him from making agreements with clients who are sui juris and are fully aware of the facts. And there might be circumstances from which such an agreement could be implied. But here the Commissioners have made a finding:
"It was also submitted that the acceptance of interest on unnamed clients' D/R's depended on agreement between the Solicitor and the client express or implied. There was no evidence to support any such proposition. The only evidence there was was that when each D/R for...
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