Below are examples of how we assess claims for compensation for loss of trust money or trust property. These examples are based on real claims we have previously assessed. Some details have been changed to protect the privacy of the claimants.
Lisa hires a lawyer in a family law matter than involves commencing proceedings in the Federal Circuit Court. As part of that retainer, she deposits $10,000 into her lawyer's trust account for anticipated legal costs, court filing fees for court, and barrister's fees.
Lisa isn't aware that her lawyer has a gambling problem and is in heavy debt. Without Lisa's permission her lawyer transfers the $10,000 into a personal bank account so it can be used for gambling. Her lawyer was hoping to recoup previous losses and hoped this would allow him to return the $10,000 to the trust account at a later stage. Meanwhile Lisa's lawyer tells her that her matter is progressing even though no work has been done, and even worse, all her money has been gambled away.
In this scenario, Lisa's claim on the Fidelity Fund would be wholly allowed because her loss was as a direct result of her lawyer's dishonest and fraudulent behaviour.
Mary has $1million in savings and wants to invest that money in high interest-earning investment schemes. Her lawyer manages various hedge funds, and tells her that a profit is guaranteed if she invests in these hedge funds. Mary transfers all of her savings to the lawyer's trust account and authorises her lawyer to invest the money in any hedge fund that he sees fit. Instead of investing the money in the hedge funds as promised, her lawyer invests Mary's money in high-risk shares that saw the $1million reduced to $100,000.
If Mary lodged a Fidelity Fund claim to recover the $900,000 that was lost, that claim would be wholly disallowed. This is because Mary had given her entire savings to her lawyer for investment purposes and so the Fidelity Fund is not liable.
Claim partly allowed
Adam is the executor of a deceased estate valued at $500,000. He hired a lawyer to apply for grant of probate and distribute the estate funds. The $500,000 was deposited into his lawyer's trust account pending its distribution in 6 months time. Adam instructed his lawyer to invest that sum in an interest bearing account for the next 6 months and he assumed this investment would have yielded $12,000 in interest.
Adam's lawyer did not follow those instructions and instead withdrew the $500,000 for personal spending. After 6 months, Adam tried to contact his lawyer to call the distribution of the estate funds, but the lawyer's phone has been switched off and the firms office has closed down.
Adam lodged a claim on the Fidelity Fund for $512,000, representing the estate funds and the interest that the estate would have received if those funds were invested as he asked.
Here, the claim would only be partly allowed in the sum of $500,000 because this loss arose from the dishonest and fraudulent act of the lawyer. However, the Fidelity Fund would not compensate Adam the potential interest that could have accrued because the Fidelity Fund only compensates for actual loss suffered.