Purpose of the QLS Fidelity Fund

Tuesday, June 27, 2017

All solicitors in Queensland are required by law to:

  • hold a current practising certificate which is issued annually by the Queensland Law Society (“QLS”),
  • maintain insurance with a monopoly insurer owned by the QLS, and
  • pay an annual levy to the QLS to maintain a fund known as the Fidelity Fund.

The compulsory insurance policy with the monopoly insurer covers solicitors for most acts of negligence in their professional work, thus ensuring that clients have a source of insurance to claim against.  The insurance does not cover fraudulent actions by a solicitor; that’s where the Fidelity Fund comes in.

The purpose of the Fidelity Fund is to reimburse clients whose money is stolen by rogue solicitors.  The Fidelity Fund has been maintained for many decades by the financial contributions of Queensland solicitors.

It is crucial to the efficient operation of commerce, and especially for real estate transactions to be able to occur efficiently, that solicitors operate trust accounts for the purpose of holding clients’ money.  The funds held by solicitors in their trust account can often be hundreds of thousands of dollars, or even millions of dollars, for a single transaction.

Funds collected in deceased estates or family law property settlements, and payments in settlement of litigation, also form a significant source of funds held in solicitors’ trust accounts.

It is therefore essential that the public must have confidence in entrusting their funds to solicitors to be held in their trust accounts.

Reductions of Annual Levies in 2015 and 2016

In 2015 and 2016 the QLS gave surprising good news to Queensland’s solicitors by repeatedly reducing the amount of the annual Fidelity Fund levy.

The reason for these reductions was that the Fidelity Fund was, and is, to put it bluntly, rich.  The fund is in such good shape that it has a surplus of more than $20 million, AFTER allowing for all known claims.

Fraud by Biddle

Russell Biddle was a Queensland solicitor who ripped off a deceased estate to the tune of more than a million dollars.  Shortly before his fraudulent activity was detected, he sold his legal practice and moved to NSW.

The administrator of the estate whose funds were stolen by Biddle instructed Quinn & Scattini Lawyers (“Q&S“) to represent the estate in claiming reimbursement from the Fidelity Fund.

The cap on payments

The Legal Profession Act places a cap of $200,000 per claim on payments from the Fidelity Fund.  But that law also gives the QLS the discretion to pay claims in full regardless of the cap.

Despite the fund being so wealthy that it has a surplus of millions of dollars, and despite the ability of the QLS to increase the annual levies on solicitors if the Fidelity Fund needs more money, the QLS decided to impose the cap on the claims made on behalf of the estate.

Courier-Mail article

On 6 March 2017 the Courier-Mail reported on this travesty. 

The Courier-Mail article stated:

“Lawyers are receiving discount fees for a multimillion-dollar ‘fidelity guarantee fund’ while refusing to fully refund victims ripped off by the profession’s rogues.”

QLS president Christine Smyth said… ‘the QLS had to ensure the fund remained healthy so ‘victims of illegal acts are protected’.

However, senior legal figures, including Q&S Director Russell Leneham, are aghast victims aren’t being fully refunded.

Attorney-General Yvette D’Ath said… ‘I am writing to the Queensland Law Society about this issue’.”

Clearly the community is not satisfied by the conduct of the QLS.  Nor are solicitors.  The QLS is not properly representing the interests of solicitors on this issue.

Response by QLS

Two days after the Courier-Mail article was published, the QLS issued the following statement to solicitors:

“A recent article in the print media has criticised the Fidelity Guarantee Fund.  That criticism was unfair.

The fund has been in place for many years.  It is an initiative promulgated by the goodwill and personal funds of thousands of Queensland solicitors.  It is not funded by government, it is not funded by members of the public – it is your money.  It is responsibly managed by Queensland Law Society to properly reflect our profession’s concerns for the crimes of defrauding lawyers.

Any prudent fund must have caps, and while our sympathies go to those who are affected by criminal conduct, we simply cannot be expected to be a guarantor of every criminal defalcation that might occur.

The Society prudently manages the fund and at all times acts with complete integrity. There will be from time to time disappointed beneficiaries.  The Society must operate for the overall protection of the broader public to the extent which is appropriate and manageable.  The Society takes this responsibility very seriously, and while our fund management committee has empathy for victims, it must ensure future victims are also protected.”  (Emphasis added.)

Rebuttal of QLS response

That response simply does not stack up to a logical analysis, for the following reasons:

  1. Yes, the Fidelity Fund is composed of money contributed personally by Queensland solicitors.  Therefore the fund should be managed in the interests of Queensland solicitors.  And what is their interest?  It is in the interests of Queensland solicitors to maintain public confidence in placing funds in solicitors’ trust accounts.  That confidence is eroded by the current attitude of the QLS.
  2. Yes, the Fidelity Fund must remain healthy so that claims by future victims can be redressed.  But when the Fidelity Fund is so healthy that it has capacity to pay all known claims AND maintain a surplus of more than $20 million AND reduce the annual levies paid by solicitors, then it is clear that all current claims can and should be paid in full.

In short, the Courier-Mail’s criticism of the Queensland Law Society was entirely justified.  The QLS is more interested in protecting its bundle of cash, for no good reason, than it is in ensuring that the Fidelity Fund is used for the purpose for which it exists, namely to pay victims of fraud.

Q&S’s Director, Russell Leneham, is a solicitor with 28 years experience practising law in Queensland.  He is an Accredited Specialist in Wills & Estates and a Registered Trust & Estate Practitioner with the Society of Trust & Estate Practitioners.

Russell and his expert Wills & Estates Team can assist with all your estate needs, including estate planning, estate management, and estate disputes.

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