The Gazette 1994

GAZETTE

AUGUST/SEPTEMBER 1994

Compensa t i on Fund Risk Cont rol - The French CARPA Scheme

would bother to place small amounts in interest-earning accounts, they do earn money under the CARPA scheme because as all client monies are payable to CARPA, the accumulated total of funds, including even the smallest amounts, constitutes a very substantial sum on permanent investment. Hence, in a city having 600 avocats, the local CARPA could have a sum in the region of 250 to 300 million francs on permanent investment. Other justifications for the fact that the client forfeits his right to interest on monies deposited with his avocat are that firstly, the latter takes no personal benefit from the arrangement and secondly, the interest earned is used to improve the overall quality of service provided to the public. As already stated, CARPA is a non- profit making organisation, constituted as an association and operating very much like any other type of association with a charter, bye-laws, committee, sub-committees and Chairman (or President as he is called in France). By virtue of that status, its revenues are thus exempt from taxation even though it has a defined revenue-earning objective since its charter authorises it to place client monies on investment. There is not one but several CARPA associations, each within the jurisdiction of a local Bar Council by reason of the decentralised structure of the profession of avocat. In France there is no national Law Society. Instead, each region has its own local Bar Council (Conseil de l'Ordre) headed by a president (Batonnier) elected from the avocats attached to the local Bar. Each Bar Council has its own CARPA association. The members of the association are the individual avocats attached to the local Bar. The association is governed by a CARPA Associations

by Colm Mannin*

The efforts of the Law Society to deal with the escalation of claims on the compensation fund have focused the attention of all Irish solicitors. The sharp increase in the cost of the practising certificate for the current year will undoubtedly stimulate further reflection on what can be done to bring exposure within acceptable limits. As the problem is by no means unique to Ireland, in its efforts to deal with it, the Law Society may therefore find guidance from the practice of some of its foreign counterparts. In particular, the CARPA scheme operated by the French avocats provides a very effective means of preventing improper use of client funds. This article will describe the operation of the scheme. In preparing it, the author sought the views of a cross-section of members of the profession as to how they perceived the effect of the operation of the scheme on their respective practices. Overall impressions were very positive despite recognised administrative delays in the processing of transactions. The essence of the scheme is that instead of individual avocats or firms of avocats lodging clients monies to client accounts held in the name of the practitioner or his firm, all funds must be lodged to the bank account of the CARPA, a non-profit making association. The accumulated funds can then be placed on short, medium or even long-term investment. The proceeds are used to further the interests of the profession. The scheme has thus two significant differences compared to that which operates in Ireland. Firstly, the funds are not held in the name of the individual lawyer or firm although the The CARPA Scheme of Handling Client Funds

Colm Mannin

latter has control of the account but only by delegation from his Bar Council so that his authority can be withdrawn at any moment. Secondly, except in the case of proceeds of sale or sums recovered by sequester, interest earned on clients funds does not accrue to the benefit of the client but rather to the profession itself. In a sense, the client forfeits his right to interest in favour of the CARPA so that the latter can finance the various services provided to the profession and the public. From the client's perspective, the most important service he gets is the constant and extremely rigorous surveillance which CARPA maintains over the use of client funds. In reality therefore, the client is buying an insurance policy against misuse of his funds. It might be asked why the client should have to pay anything to protect himself against the negligence or dishonesty of his lawyer. The pragmatic answer to such an objection must be that the profession has grown such that the numbers of practitioners and the amounts of monies they handle dictate the need for tight control, the cost of which will, in one way or another, be reflected in the fees the client will be asked to pay. The efficiency of the CARPA scheme is such that the overall cost is minimal. For example, while few practitioners

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