TMI Blog1964 (5) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... gregate 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 remains 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 pract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 ? 5,000 was turned over, the interest was credited to the interest account as part of the appellant's income. There was no evidence to suggest that any of the clients knew anything about the practice at all. I can therefore find no ground on which it could be held that this interest ever became the property of the appellant. The case also involves smaller sums received by the appellant as interest on loans made by him to clients out of the general clients' current account, but this does not raise any different issue in law and I need not deal with it in detail. I recognise that a decision by this House that this interest did not belong to the appellant may have rather wide repercussions and may give rise to some practical difficulties. But on the facts as stated I think that it is inevitable. I would therefore dismiss this appeal. LORD EVERSHED. My Lords, in my opinion, there is no answer to the judgments and reasoning of the Lord President an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... now discontinued) and a similar claim is made in respect of any excess of the gross interest paid by any such borrowers over the gross interest paid to any of the clients whose moneys were used for the purposes of the loans. It appears to have been entirely within the appellant's discretion whether in any particular case he charged interest to the borrower or allowed interest to the client whose moneys were used for the loans; but when any interest had been charged the borrower paid it, in accordance with ordinary practice, after deduction of income tax. The appellant's claim in respect of the latter items, referred to in the case as category B items, relates for the years in question to only about one-eighth in amount of the total of the appellant's claim. As regards the larger subject-matter of the appellant's claim, the category A items, it appears to my mind inescapable, on the facts as I have briefly stated them, that the sums of interest received from the deposit receipts, which were, as I have said, labelled in the name of the firm but with the pregnant addition of the words for clients were, as stated by the Inner House, in the hands of the appellant pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the conclusion of the Inner House appears to me, as I have said, inevitable. As regards the category A items it is indisputable that the deposit receipts being in the name of the firm but with the added words for clients were the property of the clients, that is to say, of all of those clients whose money had in fact been utilised in making the deposit receipts; so that although the income tax was properly payable in respect of the interest by the appellant's firm pursuant to section 148 of the Act the property in the interest when received prima facie remained that of the clients; and I have been unable to find any basis on the facts of this case upon which could be founded a transfer of that proprietary interest to the appellant. It follows equally, in my opinion, that the interest paid by any borrowing client (a category B case) was the property of the client whose money had in fact been lent, and again there seems to be no basis upon the facts proved in the present case upon which a transfer of the property in the interest to the appellant could be founded. There was before the General Commissioners and before the Inner House and your Lordships an extract from the 1951 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de that- ......like all other customs, it must be strictly proved. It must be so notorious that everybody in the trade enters into a contract with that usage as an implied term. It must be uniform as well as reasonable, and it must have quite as much certainty as the written contract itself ). I confess, therefore, for my part, to feeling doubt upon principle whether a custom such as that which has been here invoked would be recognised by the law of Scotland or the law of England. In the present case, however, it is not necessary for me to express a final conclusion on this matter of principle for, as I have already stated, in the present case not only was the alleged practice not, according to the evidence, uniform but further the General Commissioners were not satisfied as a fact that the difficulty of allocation of the interest with which the present claims are concerned was so substantial as to found the premise for the conclusion suggested by the council of the Law Society. I therefore agree that this appeal must be dismissed. LORD GUEST. My Lords, the only question in this appeal is whether the appellant, a solicitor by profession, is entitled to earned income re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfy the strict requirements laid down by Jessel M.R. in Nelson v. Dahl [1879] 12 Ch. D. 568, 575, C.A.. The only other matter to which I desire to refer is the passage excerpted from the annual report of the council of the Law Society of Scotland for 1951 at page 19, which reads as follows: 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). In view of this guidance solicitors who followed the advice cannot be blamed, but I cannot see how the difficulty or impracticability of allocating the interest can entitle the solicitor to retain the interest on what is client's money. Whether the firm make a general charge for work involved in keeping ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that lawyers are not bankers. The appellant does not dispute that finding and, therefore, admits at once that the whole of these sums held on deposit are moneys which remain the property of his clients which they had entrusted to him and do not belong to him. However, he claims that he is entitled to retain the interest earned on these deposit receipts and that it is his earned income as defined in section 525(1)(c) of the Income Tax Act, 1952, so that he is entitled to relief under section 211 of that Act as amended. This claim has been disallowed by the commissioners and an appeal to the Inner House has been refused, and now comes before your Lordships' House. The first step in the appellant's argument to establish his claim is that the interest from these deposit receipts belongs to him and not to his clients. If it does belong to him, the second step is to establish that it is his earned income. As, in my opinion, the appellant fails to surmount the first step I shall not consider the second. One of the most settled principles of the law of Scotland, as of the law of England, is that a person who is in a fiduciary relationship to another may not make a profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en established, could be said to be so notorious and widespread that the lay client entrusting his money to his solicitor must be taken to know of it and impliedly assent to it, is a question which it is not necessary to decide today. Finally, it was said that, having regard to the way in which the appellant's general account was kept, it would have been laborious and, indeed, impossible to allocate interest on these deposit receipts formed by transfers from the clients' current account among individual clients. The commissioners did not accept the submission of the appellant that it was, on the facts of this case, impossible for him to do so. But let it be assumed that in some cases it may be established that the allocation of such interest among clients is so difficult or involves so much work as to be substantially impracticable, I still find much difficulty in seeing how that circumstance entitles the adviser to retain the interest due to his clients. Much reliance was placed on an extract from the annual report for the year 1951 by the council of the Law Society of Scotland when they were asked to deal with this very question. They replied: They have express ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... favour of such clients who had had money with him for some time, but the allocation of such interest bore no relationship whatever to the moneys lent and such credits seem from a legal point of view to be an unjustifiable concession by the appellant and, in my view, must be entirely disregarded. However, that matters not, for I cannot understand how the appellant can claim to receive, and keep for his own, any part of the interest which he has charged to his clients to whom he has lent money which does not belong to him. For these reasons I would dismiss this appeal. LORD DONOVAN. My Lords, the appellant claims that certain deposit and loan interest which he received is part of his professional income, and qualifies for the earned income allowance. The short answer to the claim is that on the facts proved none of the interest is his income at all, but that of his clients to whom the capital, upon which the interest was paid, belongs. Nothing has been proved by way of assignment, contract or otherwise shifting the beneficial ownership of that income from such clients to the appellant. In the circumstances it becomes unnecessary to consider whether the interest would, if it b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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