Michael Lynn and Thomas Byrne, solicitors

1. Nobody in the solicitors’ profession is happy with the situations revealed in the practices of Mr. Lynn and Mr. Byrne.

2. It is alleged that they managed to borrow money from a substantial range of banks and building societies without furnishing proper security for the borrowings in the form of mortgages on their own property. Mr. Lynn, it appears, was building a substantial property portfolio using, it appears, those borrowings. He also had received deposits from property investors who expected to buy developed properties from him in due course. This latter business is not solicitor’s business and he would have been carrying that on his own account like any businessman.

3. The media have conflated Mr. Lynn’s case and Mr. Byrne’s case. They are separate. There is no connection between them. If there is, it is no more than the connection they each have to the other members of the profession; i.e. membership of the Law Society of Ireland.

4. The Law Society of Ireland has alleged there is a substantial deficit in Mr. Lynn’s solicitor’s client account. Mr. Byrne’s practice has been closed by the Law Society and he has not presented himself, as yet, to the High Court in the proceedings initiated by the Law Society against him. The Law Society’s proceedings are taken under the Solicitors’ Acts and currently are in the nature of applications for interim relief.

5. In the case of Mr. Lynn, given his use of the client account for his property company dealings, it would have been better if the Law Society had completed its audit of the accounts before reaching its conclusion that there was a deficit in the client account. According to the Law Society findings he was raising and receiving finance in his own name but paying it into the client account. In those circumstances the deficit may not be real.

6. The difficulties immediately presenting themselves, in the lending institutions’ court proceedings, is the absence in many cases of executed (or registered) mortgages on the properties on which the loans were advanced.

7. The current estimate of liabilities of the two solicitors, taken together exceeds, it appears, €100 million.

8. A High Court judge has described the applications to court of the lending institutions as “rushing to judgementâ€?.

9. To date, the media reports fail to address important underlying aspects:

a. Who is a client? A client is a person retaining, by agreement of the solicitor, the services of a solicitor. Section 2 of the Solicitors (Amendment) Act 1994 further defines a client as including:
“…the personal representative of a client and any person on whose behalf the person who gave instructions was acting in relation to any matter in which a solicitor or his firm had been instructed; and includes a beneficiary to an estate under a will, intestacy or trust.â€?
Regulation 2 (1) of the Solicitors Accounts Regulations 1984 defines client’s money as:

Client’s Money” shall mean money held or received by a solicitor on account of a person for whom he is acting in relation to the holding or receipt of such money either as a solicitor or, in connection with his practice as a solicitor, as agent, stakeholder or in any other capacity;…

b. Thus, the receipt of money as stakeholder, for instance, will mean the solicitor will be in receipt of client money and therefore the owner of that money (usually the client of another solicitor) is a client.

c. Who is not a client? Section 21 (17) of the Solicitors Act 1960 (as inserted by Section 29 of the Solicitors (Amendment) Act 1994) stipulates; “a solicitor or a body corporate beneficially owned by that solicitor shall not be a client of a solicitor’s practice in which he is the sole practitioner or in which he is a partner.â€? A lending institution advancing finance to a solicitor, acting for a client in conveyancing, is not a client; its relationship with the solicitor is defined by the undertaking, furnished by the solicitor, for the application of the finance to the subject property and the assurance of good and marketable title.. All the stronger, therefore, a lending institution advancing finance to a solicitor, acting for himself or his property company, in conveyancing, is not a client; its relationship with the solicitor is defined by the finance facilities letter and/or the undertaking, furnished by the solicitor, for the application of the finance to the subject property and the assurance of good and marketable title. The reason why Regulation 2 (1) of the Solicitors Accounts Regulations 1984 does not have the effect of making the lending institution a client is that the release to the solicitor of the finance is the release to the client (the borrower). In other words, the solicitor is the client’s agent to receive the money.

d. The solicitors’ profession maintains a Compensation Fund pursuant to Section 21 of the Solicitors Act 1960 (as inserted by Section 29 of the Solicitors (Amendment) Act 1994). This is to provide compensation to clients suffering loss arising from the dishonesty of a solicitor. The section provides:

Where it is proved to the satisfaction of the Society that any client of a solicitor has sustained loss in consequence of dishonesty on the part of that solicitor or any clerk or servant of that solicitor arising from that solicitor’s practice as a solicitor within the jurisdiction of the State, then, subject to the provisions of this section, the Society shall make a grant to that client out of the Fund.

e. Therefore only a client of the solicitor may make a claim on the Compensation Fund (and the client must have exhausted all other avenues of recovery). A claim must be lodged within three months of the discovery of the loss.

f. Solicitors must maintain professional indemnity insurance, pursuant to Section 26 of the Solicitors (Amendment) Act 1994.This is to provide indemnity to the solicitor for claims for compensation for loss “arising from his practice as a solicitorâ€? in respect of any description of civil liability. Normally, the policy of insurance does not cover claims based on fraud. (Gray v Barr (Prudential Assurance Co. Ltd., third party [1971] 2 QB 554.)

g. Where the solicitor is not acting as a solicitor, but in a personal capacity, losses are not covered by the Compensation Fund or the professional indemnity insurance.

10. Do Mr. Lynn’s liabilities exceed his assets? We do not know; the Law Society proceedings to date are being consistently adjourned to continue with the investigation into the files and the accounts. Indeed, we cannot yet say if that exercise will answer the question; the point of the Law Society’s investigation is directed elsewhere.

11. What happens if a solicitor’s liabilities exceed his assets? He will, like everybody else, be open to the risk of the service on him of a Bankruptcy Summons from the High Court seeking to have him made a bankrupt. If a solicitor is bankrupted he is not permitted to remain in practice. More importantly, special rules apply if he is bankrupted. The money in the client account does not form part of the property divisible among the creditors. (Section 68 of the Solicitors Act 1954 and Incorporated Law Society of Ireland v Owens, Duffy & Reilly IEHC 11th January 1989). This is logical; that money belongs to the client and is trust money. Each client is a beneficiary of the trust in respect of his/her money.

12. What happens if there is a deficit on the client account? The clients share the available money rateably in proportion to the money they are entitled to.

13. What liabilities arise where a solicitor gives an undertaking? With rare exceptions, the High Court will compel a solicitor to comply with an undertaking to the extent, if necessary, of attaching the solicitor (committing him to jail). So, assuming a solicitor, giving an undertaking in respect of his own borrowings (that is, he is both the “clientâ€? and the solicitor), is liable on the undertaking as well as the borrowing liability, the court will enforce the undertaking against the solicitor. A solicitor is entitled to a reasonable period of time to deliver on the undertaking.