Prior to 1964, lawyers 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. The legal regulator in Scotland found this practice of lawyers earning interest on clients’ money acceptable. The tax authorities did not. In the end, despite the Law Society’s view, the House of Lords in the case of Brown v. Commissioners of Inland Revenue,  3 All ER 119 found that the interest did not belong to the lawyer.
The Birth of the Law Foundation Concept
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.
The Law Foundation Concept Comes to BC
It was also in 1967 when Charles Braizier, QC, of Davis and Company, a then large 30-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 of British Columbia, returned home, 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. Mr. Harper travelled to Victoria by ferry to meet with Attorney General Leslie Peterson to ask him officially to change the Legal Profession Act to create the Law Foundation of BC.
In April 1969, the Law Foundation of British Columbia was formed. After receiving a loan of $100 from the Law Society of BC to buy supplies, and enlisting the administrative support of the Vancouver Foundation (the local community foundation), the Law Foundation of BC opened for business. Income in the first year was $50,031 and grants were made totalling $5,000.
The Evolution of Law Foundations in Canada
Over the 50 years since that time, law foundations, also known as “interest on lawyers trust accounts” (IOLTA) programs, have been through a number of changes in Canada:
- 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 BC began to accumulate a reserve. This reserve reached $5 million in 1981 and stands at more than $40 million as at 2017.
- In 1975, in the case of McAfee v. Law Society of British Columbia (1976), 69 DLR (3d) 554 (BCCA), the Law Foundation of BC 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, when seen to have 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 two or three Canadian jurisdictions, a percentage of the money overseen by the law foundation is allocated by statute to legal aid.
- Over $1 billion ($400 million in BC) 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.
Law Foundations in the United States
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 Tétrault. In 1961, Mr. Hebenton was an associate at the law firm Dewey Ballantine in New York City. He and Arthur England (later 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 Jamaica. On the way back, he stopped to visit his friend Justice England in 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 of BC.
Justice England took it from there, and now, some five decades later, there is a law foundation in every jurisdiction in North America.