What is a trust account deficiency?

S. 259 of the Legal Profession Act 2007 ("the Act") provides that a practitioner must not cause a deficiency in any trust account or trust ledger account.

Traditionally, we have understood the term "deficiency" to mean a shortfall in trust funds.

Example 1 - a law practice held $1,000 in trust for client A but inadvertently, or intentionally, paid the sum of $2,000 from trust for client A. There is a shortfall (deficiency) of trust funds to the extent of $1,000. This is a general trust account deficiency in that the shortfall (deficiency) of $1,000 has been proportionately funded by all the remaining clients on whose behalf money was held in the trust account. The loss is borne proportionately by all of them.

Example 2 - funds were held in trust for one client and were misapplied for the benefit of another client. $20,000 was held in trust for client B and a practitioner paid the sum of $10,000 from client B's funds for the benefit of client C, without client B's authority. This is a specific trust account deficiency. The loss is borne in full by Client B.

Example 3 - funds were received for deposit to a trust bank account but were stolen by a practitioner and deposited to the practitioner's personal bank account. This is another example of a specific trust account deficiency. The loss is borne in full by the client on whose behalf the money was received.

Ss 259(3) of the Act provides that a deficiency in a trust account or trust ledger, includes the non-inclusion, or exclusion, of the whole or any part of an amount that is required to be included in the account.

A fraudulent payment of $100,000 from a trust account to a practitioner, or some other person or entity, not entitled to receive the payment, in circumstances where the payment is not recorded in the trust accounting records, is an example of such a deficiency. It is a general deficiency in that there is a general shortfall (deficiency) of $100,000 that is borne proportionately by all the clients on whose behalf money was held in the trust account at the time the payment was made.

Ss 259(3) merely gives 2 examples of deficiencies. It does not provide a definition of the term.