When an Administrative Error Becomes a Legal Risk: Lessons from Travelex and Who Bears the Cost
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Published: 18 November 2025 | Reviewed: 18 November 2025
(3-minute read)
Case Summary - Facts, Reasoning, Principles
In Federal Commissioner of Taxation v Travelex Ltd [2021] HCA 8, the High Court resolved a long-running dispute about whether the Commissioner was obliged to pay Travelex interest on what had been treated as a Running Balance Account (RBA) surplus. Central to the appeal was whether an amount mistakenly allocated to an RBA, without statutory authority, could still generate a legal entitlement.
The Court held it could not. At the heart of the reasoning is a concise and decisive sentence:
“The short question in this appeal is whether an RBA surplus can result from the Commissioner allocating… an amount that the Commissioner is not obliged to pay… The answer is that it cannot.” (Kiefel CJ, Gageler, Keane, Gordon and Edelman JJ at [3])
Travelex had notified a positive GST net amount in 2009. After Travelex (No 1) clarified GST-free supplies, Travelex asked the Commissioner to “amend” that return. But the statutory scheme at the time offered no power to amend GST returns in that way. Because the Commissioner lacked authority, the purported “amended self-assessed amount” could not create a true RBA surplus.
As Derrington J put it in the Full Court (whose reasoning the High Court preferred), a surplus cannot arise from an amount that does not reflect any underlying statutory entitlement.
The outcome flowed from a basic administrative law principle: legal effectiveness does not arise from administrative error, even if the parties assume otherwise.
Why It Still Matters -
Modern Relevance and Client Risk
Travelex is a tax case, but its logic resonates across litigation more broadly:
When a decision-maker makes a mistake, the downstream financial consequences often fall not on the decision-maker - but on the party who relied on that mistake.
The same dynamic occurs routinely between clients and their lawyers. When legal work is done based on a misunderstanding, misstep, or unnecessary work, the financial burden usually lands on the client, not the lawyer. And just as Travelex discovered, it can take years to untangle a mistake that started with an incorrect assumption.
Most clients feel the same practical constraint:
pursuing a secondary dispute, against your own lawyer, is rarely commercially or emotionally attractive. Changing lawyers carries delay, duplication, and cost. Many clients choose to “push on” rather than challenge billing or strategy, even when they suspect error.
That power imbalance is precisely what escrow is designed to prevent.
How to Avoid the Same Trap -
Client-Controlled Escrow Funding
Your note captures the dilemma cleanly:
People make mistakes all the time. The real question is who bears the consequences, and whether it is economically and practically realistic to hold someone accountable for those mistakes.
In the traditional model, a client funds the litigation through the lawyer’s trust account.
Once funds are deposited, the lawyer decides when to draw on them. If charges are excessive or work was unnecessary, the client faces a difficult fork: commence a fresh dispute about fees, or change lawyers, often at additional cost and delay.
Most choose neither, and the mistake simply becomes a sunk cost.
Clean Law’s model addresses this by reversing the power dynamic:
Escrow keeps the pen in the client’s hand, not the lawyer’s.
Funds sit in an independently supervised escrow account.
Nothing is released until the client approves the stage, with full visibility over what work is proposed and why.
This makes accountability simple, low-conflict, and practical:
If a stage of work is unclear, clients can ask us for independent cost justification before funds move.
If a client wants to change lawyers, escrow preserves portability, the file is released when the stage is complete and the bill is issued.
If additional work is proposed, the client can decline, ask for alternatives, or pause without financial penalty.
Justice Kirby has long emphasised structural fairness, clarity of legal obligations, and transparency in professional practice. An escrow system, where control is auditable, decisions are documented, and no professional can unilaterally spend client funds, aligns with those principles.
Reflection
Travelex shows what happens when an administrative error gains momentum: years of litigation, contested assumptions, and heavy cost burdens. By placing funding control directly with the client, escrow prevents those cascading risks before they begin.
When power dynamics favour clarity rather than complexity, clients gain predictability, not surprise.
The Travelex dispute turned on the consequences of an incorrect allocation. Escrow exists so clients never have to bear the weight of someone else’s mistake.
For people managing litigation risk, it helps to see the systems that keep lawyers accountable: external audits, ACNC governance, and no referral fees or shared profits.
See how Clean Law’s structure aligns with client outcomes
By Nicky Wang
Principal Solicitor
Legal Liaison Ltd (trading as Clean Law)
Prepared in accordance with public-interest governance,
annual Law Society trust-account audits, and ACNC-reported standards.
Disclaimer: This page is intended to provide general information only and is not legal advice. The contents may not reflect the most current legal developments and do not take into account your individual circumstances. You should not act or refrain from acting on the basis of this information without obtaining legal advice tailored to your situation.
