89-01 : Treasury Bills as a Form of Investment for Client Trust Funds

On March 23, 1989 the Benchers accepted a recommendation from the Constitution Committee that treasury bills ought not to be sanctioned as a permissible form of investment for client trust funds. As a result, the Benchers rescinded an earlier motion passed in May, 1988 which had given approval in principle to the use of treasury bills and had referred the matter back to the Constitution Committee to draft the appropriate Act or Rule amendments. No Act or Rule amendments were ever enacted permitting treasury bills while the Committee continued to study the matter.

The Constitution Committee debated this issue at considerable length and ultimately concluded that there are problems inherent in the nature of treasury bills which render them unsuitable as an investment for lawyers to make of client trust funds. Some of the problems noted were:

  1. Treasury bills are debt investments payable to the bearer. They cannot be requested in the client’s name, as treasury bills are purchased in large denominations from the Bank of Canada by the financial institutions. Generally a client simply obtains a partial interest in the bill from the bank which resells portions of its bills to individual customers.
  2.  The client or lawyer cannot actually obtain possession of the treasury bill. Firstly, the client usually has only a partial share of the bank’s treasury bill. Secondly, treasury bills acquired by financial institutions are actually kept at the head offices in Toronto.
  3. In some cases, clients (through their lawyer) would be purchasing “third hand” interests from brokerage houses who purchase from banks who purchase from the Bank of Canada.
  4. Since the lawyer is purchasing through an intermediary, it is not clear that the lawyer will be acquiring any direct rights against the government.

The effect of the Benchers’ decision is that treasury bills are not permitted as a form of investment of client trust funds. As a result a member or law firm cannot take instructions from a client to make such an investment.

[April 1989]

[Updated August 2022]