New Zealand Law Society - Lawyers must keep accurate time records and communicate with clients prior to undertaking work when changes to fees are expected

Lawyers must keep accurate time records and communicate with clients prior to undertaking work when changes to fees are expected

A Standards Committee (Committee) has determined a lawyer’s practices and fees rendered in respect of a “straightforward” and “conventional” property relationship matter breached rr 9.1, 3.4, 7.2 and 10.9 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (Rules).

The lawyer acted for the ex-husband in proceedings relating to the division of relationship property, payment of spousal maintenance, care of children and protection order matters. The letter of engagement included an employee of the lawyer’s practice on the file with reasonable charging rates of $485+GST and $350+GST per hour for the lawyer and the employee respectively. At the end of the retainer, four invoices were issued by the lawyer totalling $211,358.82 (including GST and disbursements). The first two invoices were reasonable and paid by the ex-husband, the third for $150,000+GST was part-paid and queried (third invoice), and the fourth invoice was unpaid pending clarification of the third invoice.

The ex-husband requested a copy of the lawyer’s time records on 13 occasions directly and through his own counsel. The lawyer provided a breakdown of the third invoice as $106,325 (excl GST) for time and attendances, and $48,325 (excl GST) for “other fee criteria”. The fees breakdown also showed the employee’s rate was being charged at $385+GST and the lawyer’s rate was charged at $550+GST, higher than recorded in the letter of engagement. The lawyer also provided their time records for the third invoice which did not clearly record time and attendances.

The ex-husband's counsel provided an authority to uplift files from the lawyer and subsequently filed a complaint with the New Zealand Law Society Te Kāhui Ture o Aotearoa that the lawyer’s fees were not fair and reasonable for the services provided and that the files requested were not provided.

Following receipt of the complaint from the client’s own lawyer, the Committee resolved to inquire into the matter and appoint a costs assessor to investigate the fairness and reasonableness of the invoices rendered.

The Committee agreed with the costs assessor that the third invoice was “inordinately high” for 245 hours in a four-week period, and noted there was an absence of time records to verify the hours worked, which further meant the lawyer’s claim that their increased rates were not passed on to the ex-husband could not be confirmed and that it was otherwise “impossible to verify whether there was duplication between the work” of the lawyer and their employee.

The Committee found that 245 hours was excessive given the matters were not complex or weighty and that the lawyer and their employee had the necessary skill and specialised knowledge in a boutique firm to handle the matter.

The Committee found the third invoice was not fair and reasonable when considering the factors in r 9.1 of the Rules and expressed surprise the final invoice was uplifted by the lawyer by some 50 per cent. In finding the lawyer had breached their obligation to charge a fair and reasonable fee, the Committee ordered a reduction of the third invoice from $150,000 to $80,000 and held the lawyer was guilty of unsatisfactory conduct.

The Committee also found the lawyer had not included reference to a possible uplift to their invoices in the letter of engagement which resulted in a finding of breach of r 3.4 of the Rules as a failure to provide sufficient information in respect of fees to be charged, including that there may be an uplift, how it would be calculated and its justification.

The Committee further noted the ex-husband's numerous requests for information regarding the third invoice and did not accept the lawyer’s explanation that some were handwritten and subsequently destroyed, stored in Actionstep or otherwise being inaccessible due to the COVID-19 lockdown. These explanations were “implausible” and the Committee found the lawyer had further breached r 7.2 of the Rules in failing to answer client questions promptly. Moreover, the Committee took note that the lawyer had made representations to the ex-husband to the effect that the time records did exists and considered this was a breach of r 10.9 of the Rules as misleading or deceptive conduct.

The combined breaches of rr 3.4, 7.2 and 10.9 resulted in the Committee further finding the lawyer’s failures amounted to unsatisfactory conduct.

The Committee concluded; “the extent of overcharging in respect of [the third] invoice was significant. In charging $70,000 more than a fair and reasonable fee, [the lawyer] had charged nearly double what they should have.” The Committee was “satisfied that the conduct was towards the high end of the range and the fee approached the threshold of gross overcharging which could warrant a referral to the Lawyers and Conveyancers Tribunal” and noted the lawyer had avoided referral by a slim margin.

The Committee agreed, however, that the lawyer’s claim to a lien over the ex-husband's files when his counsel provided an authority to uplift because of the unpaid invoices was allowable within the scope of r 4.4.1 of the Rules. In the circumstances prior to the complaint being considered by the Committee, the matter of the high fees did not preclude the lawyer from relying on a lien over the ex-husband's files and was not a breach of r 4.4.1.

The Committee therefore ordered the lawyer reduce the amount of fees in the third invoice from $150,000 (exclusive of GST and disbursements) to $80,000 (exclusive of GST and disbursements), to pay a fine of $5,000 and to pay $1,500 in costs to the Law Society.