New Zealand Law Society - Misleading billing practices breach professional standards
A Standards Committee found that a lawyer’s billing practices were misleading and lacking in transparency, leading to a determination of unsatisfactory conduct. The Committee directed anonymous publication of its determination for educative purposes.
The Committee had commenced an investigation into the invoicing practices of the lawyer following a review of his incorporated law firm’s trust account by the Inspectorate of the New Zealand Law Society | Te Kāhui Ture o Aotearoa.
When examining the lawyer’s invoices, the Inspectorate found that he had charged agency fees to his clients even though his firm did not operate a separate agency firm. That is, there was no agent. The Committee said that “to charge for a service not rendered is clearly misleading conduct and is a breach of [what is now Rule 10.9]” of the Conduct and Client Care Rules. Rule 10.9 provides that a lawyer must not engage in conduct that is misleading or deceptive or likely to mislead or deceive anyone on any aspect of the lawyer’s practice.
The Committee said charging a fee for a service not rendered was also not fair or reasonable, in breach of Rule 9.
The Committee also concluded that the lawyer had recorded as disbursements what were in reality internal office costs. The Committee gave as an example “LINZ Licensing and Compliance fees”. “These charges are effectively a further fee of the firm and are not direct payment to any party” the Committee said.
The Committee went on to clarify the difference. It noted that a disbursement is an “out of pocket” expense paid on behalf of the client to a third party. In contrast, it said, office charges are effectively an additional fee, being a payment from the client to the firm on the basis that the firm wishes to recover some of its costs of operation.
The Committee emphasised that, “Office expenses are not disbursements.”
It held that to try to recover a portion of costs such as licencing fees and insurance premiums as a disbursement breaches Rule 11.1.
The Committee also considered that the lawyer had failed to provide to his clients, within his terms of engagement, clear and transparent information on his billing practices, in particular how office service fees or expenses would be charged. The Committee concluded that amounted to a breach of Rule 3.4(a). Rule 3.4 sets out the information a lawyer must provide, in advance, to their client.
The Committee noted that the Law Society has previously published guidance on these issues. An example of such guidance can be seen here.
The lawyer argued that he was not obliged to provide the Inspectorate with his and his firm’s personal financial and business records and that the demand was a breach of his privacy.
Despite his position, he did ultimately provide the records requested. The Committee nevertheless went on to respond to, and disagree with, his argument.
The Committee noted that s 30(1)(a) of the Lawyers and Conveyancers Act (Trust Account) Regulations 2008 provides that as part of a review of a trust account by the Inspectorate “every practice must, on the inspectorate’s written request, make available to the inspectorate all personal financial records and business records of the practice and, if required by the inspectorate, its partners and voting shareholders.” It considered that requirement is expressed in wide terms, without and qualification or ambiguity.
The Standards Committee determined that the practitioner’s conduct in relation to his billing practices, which breached rules 3.4(a), 9 and 11.1, amounted to unsatisfactory conduct. He was ordered to pay $500 in costs.