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Managing the receipt and payment of trust money is not a simple administrative task and needs careful attention by practitioners to avoid claims.

Before receiving and releasing trust money, it is important to determine who you are holding the trust money for, the purpose for which you are holding it, and on what basis the funds can be released. Practitioners should not assume that the client is the person or only person on whose behalf the money is held.

LPLC sees many claims made against firms that have, in error, paid trust money to clients as instructed but without first checking whether the clients are in fact entitled to receive the funds.

Transferring trust funds without proper authority from the rightful beneficiary — even by mistake — can result in liability for breach of fiduciary duties and breach of trust, as well as contravention of the Legal Profession Uniform Law (Victoria) and Uniform General Rules and liability to pay pecuniary penalties. Further, if the wrongful recipient is unable or not prepared to repay the funds, the firm may be sued for breach of trust and liable to restore the trust.

Payments of trust money can only be made in the circumstances prescribed by the Legal Profession Uniform Law and General Rules including:

1. under the direction of the person who is beneficially entitled to the money [1].

If the money is held on trust on behalf of more than one person or entity i.e., joint beneficiaries, each and every person or entity must consent to the withdrawal of money from the trust account;

2. making an authorised payment for the practitioner’s legal costs; or [2]

3. under an order of a court or authorised by law[3].

In the first scenario, a practitioner receives money into trust from a third party to pay the deposit for the purchase by the client. After the client’s purchase did not proceed, a dispute over the trust money arose between the third-party and client, with both of them claiming return of the deposit money. The practitioner mistakenly considered they were obliged to follow the client’s instructions and released the deposit to the client without properly considering the rights of the third party. They didn’t realise it was the third party who was in fact lawfully entitled to repayment of the money.

In the second scenario, a firm was acting for a wife in a family law proceeding commenced by her former husband. The court made interim property orders (the interim orders) for the sale of the matrimonial home, with a specified percentage of the net proceeds of the sale to be held in trust by the wife’s solicitors on behalf of both the husband and wife. The husband and wife subsequently made claims against each other for the net proceeds of sale by way of property settlement.

There were repeated failures by the husband to comply with court orders, as a result of which the court dismissed his application for a property settlement on procedural grounds. However the wife’s application remained on foot. The Court did not discharge the interim orders and the proceeding remained alive.

Believing the dismissal of the husband’s application entitled the wife to the money, the firm then transferred the sale proceeds from their trust account to the wife. The practitioner did not seek orders from the court for the release of the trust money, nor did they notify the husband’s solicitors or seek the husband’s consent to paying the money to the wife.

Upon later learning the funds had been paid to the wife the husband brought a claim against the wife’s solicitor for breaching the interim orders and for breach of trust. The husband sought orders for the solicitor to restore the trust.

Ultimately, the solicitors had to repay the trust money as well as interest and damages to the husband at the firm’s own expense. A common law restitution claim for money ‘had and received’ against the client could not be pursued as she had received the money in good faith, had allegedly spent all of it on the basis of the solicitor’s advice that she was free to do so, and in any event had limited assets from which any judgment could be recovered.

For more examples on how the release of trust money can go wrong, see LIJ article Misplaced Trust.

These two scenarios are a timely reminder that solicitors do not always hold trust money only on behalf of their client.

By following some key steps, breach of trust claims can be avoided.

  1. Always consider the terms of the trust on which money is held. At the outset, before receiving money in trust always give careful thought to who you will be holding the trust money for and the basis on which the funds are to be held and released. As part of this process, obtain written confirmation from the client and relevant beneficiaries, and record this information in both the trust account or controlled money ledger and on the matter file. Ensure that the creditor listed in the ledger is the intended beneficiary.
  2. Before releasing trust money, always revisit and check the terms of the trust and the basis on which the money is to be released. Don’t solely rely on the client’s instructions as to who is entitled to the trust money.
  3. Where payment of trust money is to follow a specified event, check that all relevant parties are satisfied that event has in fact occurred before disbursing funds and obtain consent and authorities for payment in writing.
  4. Where trust money is being held pursuant to a court order and the orders are unclear, don’t release the trust money without obtaining direct clarification or a further specific order from the court for the release of the money.


[1] s138 (1) Legal Profession Uniform Law (Victoria)

[2] Rule 42 Legal Profession Uniform General Rules 2015; s 144 (2) (b) Legal Profession Uniform Law

[3] s138 (2) Legal Profession Uniform Law