Can a law practice hold trust money as stakeholder without acting for a party to the relevant transaction?

It has long been our view that a law practice cannot receive money into its trust account unless it acts for one of the parties to the relevant transaction - i.e. the law practice can not simply act as a stakeholder.

The decision of Schmidt AJ in the Supreme Court of New South Wales on 20 February 2009 in the matter of Wang -v- Council of the Law Society of New South Wales [2009] NSWSC 67 (20 February 2009) establishes that our long held view is wrong http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWSC/2009/67.html?query=^wang.

In this case, the only involvement of the practitioner, Lui, in the matter was to hold money as trustee for one of the parties, Li, with the related condition that in certain circumstances, Li was to refund the money to Wang.

Schmidt AJ determined:

• This did not constitute work done or business transacted in the ordinary course of legal practice.
• The act of holding money as a trustee was not within the realm of activities which may only be undertaken by legal practitioners.
• Any person may hold money on trust.
• Lui was simply holding money with no associated provision of legal services.
• Lui held the money on trust as a stakeholder and there is nothing illegal about a solicitor acting in such a capacity.
• If a solicitor agrees to hold money on trust as a stakeholder, I can see no basis on which it may properly be concluded that the solicitor is doing so other than in the ordinary course of that solicitor's practice, unless it be the case that the solicitor received the money in the course of some other business entirely.
• While services of a stakeholder need not be provided by a solicitor, such services are within the range of services which they customarily provide in the course of their practice.

The effect of the decision is that a solicitor (law practice) can receive money as a stakeholder in connection with a matter in respect of which he is not providing legal services and the money received by the solicitor (law practice) as stakeholder is trust money.