Prior to 1964, lawyers (solicitors) in England and Scotland kept money they were holding on behalf of clients in an account marked “for clients.” The lawyers kept the interest that was paid on those accounts. (As a side note, it appears that the lawyers were also in the business of loaning out their clients’ money to others, earning interest in that way as well.) The Council of the Law Society of Scotland found the practise of lawyers earning interest on clients’ money acceptable, but the tax authorities did not. In the end, despite the Law Society’s view, the House of Lords in the case of Brown vs Inland Revenue Commissioners– 3 ALL E. R. 119 found that the interest did not belong to the lawyer.
Subsequent to the Brown decision, common law jurisdictions around the world had to find a way of complying with this new statement of the law. In New South Wales, Australia, they decided to deal with the issue by creating a Law Foundation to receive the interest and use it for legal aid, legal education and legal research purposes. The Law Foundation of New South Wales was established in 1967.
It was also in 1967, when Charles Braizier, QC, of Davis and Company, a then large 30 (now over 100) lawyer firm in Vancouver, went to Australia and learned of how New South Wales had dealt with this issue. When Mr. Braizier, who later became Treasurer of the Law Society, returned to British Columbia, he informed his friends Arthur Harper, QC, and Kenneth Meredith (later Justice Meredith), about what New South Wales had done. They decided to recommend to the government that a Law Foundation be formed in British Columbia to collect and distribute the interest on lawyers’ trust accounts in the province and Mr. Harper travelled to Victoria by ferry to meet with Attorney General Les Peterson to ask him officially to change the Legal Profession Act to create the Law Foundation.
In April, 1969, The Law Foundation of British Columbia was formed. After receiving a loan of $100 from the Law Society to buy supplies and enlisting the administrative support of the Vancouver Foundation (the local community foundation), the Law Foundation of British Columbia opened for business. Income in the first year was $50,031 and grants were made totalling $5,000.
Over the 40 years since that time, Law Foundations or Interest on Lawyers Trust Accounts (‘IOLTA’) programs in Canada have been through a number of changes:
- From 1971 to 1986, Law Foundations were formed in all other Canadian jurisdictions, all by statute, all with significant support from the legal profession.
- In 1973, the Law Foundation of British Columbia began to accumulate a reserve, this reached $5 million in 1981 and stands at more than $30 million as at 2012.
- In 1975, in the case of McAfee vs. The Law Society of British Columbia, 1975-57-DLR (3rd) 730, the Law Foundation survived a challenge to its existence.
- Law Foundations were originally voluntary, but soon switched to become mandatory.
- In the beginning, Law Foundations received a set rate of interest on the money that was held; more recently the return has been pegged to the prime rate.
- On a couple of occasions, Canadian law foundations, who had too much money on deposit, have had money taken from them by government for their own purposes.
- Some jurisdictions have provisions that forbid banks from charging service charges on IOLTA/Law Foundation funds.
- In 2 or 3 Canadian jurisdictions, a percentage of the money is allocated by statute to legal aid.
- Over $1 billion ($400 million in B.C.) has been granted by Canadian Law Foundations since their inception in their mandated areas of legal aid, legal education, legal research, law reform and law libraries.
The story of how the Law Foundation, or IOLTA concept came to the United States is one that involves a senior lawyer in Vancouver, Sholto Hebenton, QC, of the law firm McCarthy, Tetrault. In 1961, Mr. Hebenton was an associate at the law firm Dewey, Ballantine in New York City. He and Arthur England, now Justice England, were both associates at that firm and became friends. Later that decade, Mr. Hebenton returned to Vancouver to practice law and Mr. England moved to Florida, where he became a judge and eventually Chief Justice of the state. In 1975, Mr. Hebenton attended a Canadian Bar Association meeting in Ocho Rios, Jamaica. On the way back, he stopped to visit his friend, Justice England in Tallahassee, Florida. Over a glass of wine, and in response to a question about what was new in the legal profession in British Columbia, Mr. Hebenton described the Law Foundation.
Justice England took it from there, and now, 35 years later, there is a Law Foundation in every jurisdiction in North America.