Refund in Third Party Payer Situation

Question

My client is a company. Its director put up the $3,500 retainer we required to take the case. The client has now terminated the transaction and wants us to pay them the unearned portion of the retainer, about $3,000. May we do that?

This is a typical "third-party payer situation". You need to be very careful when deal with refunding, as the retainer you received was from a third party rather than the client.

Rules of the Law Society of Alberta, 2022, ss 2, 119.21 (2)-(3), provides:

(2) In the event another person provides money to the lawyer, to be held in trust on behalf of or for the benefit of a client, the lawyer must obtain an agreement from the other person and the client with regard to any conditions upon which the money is to be held in trust, the use of the funds during the retainer and the manner in which any excess trust money will be disbursed, either at the conclusion of the client’s legal matter or upon termination of the retainer.

(3) In the absence of an agreement pursuant to subrule (2), money, provided by another person to be held in trust on behalf of or for the benefit of a client, must be held in trust until the conclusion of the client’s legal matter, may only be transferred or withdrawn for payment of a billing for fees, disbursements and expenses associated with the client’s legal matter, and the person who provided the money is entitled to any refund of unused trust money at the conclusion of the legal work for which the money was provided or upon termination of the retainer.

Summary

The suggested practice is to have the client and the third party payer consent in writing how to deal with the situation when the trust funds need to be refunded. Here is an example of the third party's acknowledgement and consent.

If such agreement is absent, then rules require the funds to be refunded to the third party payer.