New Zealand Law Society - Overcharging and failing to send invoices leads to six-month suspension and order not to practise on own account

Overcharging and failing to send invoices leads to six-month suspension and order not to practise on own account

Auckland lawyer Philip Sheat admitted two charges of misconduct before the New Zealand Lawyers and Conveyancers Disciplinary Tribunal. The first related to generating five invoices over a 14-month period which were inflated by $19,500 excluding GST. The second related to failing to send the invoices to the client and deducting the fees from a sum held in his trust account. The Tribunal found the conduct was serious and that it must make orders that sufficiently marked its disapprobation. The Tribunal suspended Mr Sheat for six months, censured him and ordered him to pay compensation to the client and costs.

By way of background,  Mr Sheat retained $56,000 in his trust account for his client. Between June 2018 and October 2019, he generated five invoices totaling $37,500 (excluding GST and disbursements). He had done work on behalf of the client, but not to the value of his invoices. Mr Sheat accepted that these invoices were inflated by $19,500, meaning he essentially doubled the proper fee. Furthermore, Mr Sheat did not send the invoices to the client. The client was therefore unaware of the overcharging until he asked for his funds and found that only a few dollars over $2,500 remained. Mr Sheat said he withheld the invoices because he was aware that the client was unwell, but the Tribunal noted that he was not aware of his client’s terminal condition until after the third invoice. The Tribunal held that Mr Sheat’s exculpatory observation was, at best, self-deceptive.

In assessing the gravity of the conduct, the Tribunal found that “any concealment of charging and unauthorised deduction of funds is serious; the concealment of overcharging adds to the gravity”.  The Tribunal noted that there was nothing wrong with a lawyer holding funds on account for a client, but this puts the client in a vulnerable position. Overcharging breaches the trust placed in the lawyer and “subsequent failures to alert the client about the invoices and the serial, unauthorised transfers of funds capitalised on that vulnerability”. The Tribunal held that Mr Sheat cannot “avoid the inference that he deliberately concealed his incremental depletion of his client’s capital by withholding the invoices”. The Tribunal described the conduct as involving “over-reach and concealment”, which allowed Mr Sheat to personally enrich himself from his client’s funds. It held this course of conduct was serious.

In considering the aggravating factors, the Tribunal noted that Mr Sheat had only repaid the inflated fees a month before the penalty hearing. Therefore, the loss to the client continued for more than four years. It noted that M Sheat had elected not to refund the GST component of the fees, suggesting that his client had not suffered any loss of that portion. The Tribunal commented it did not understand why Mr Sheat should have the benefit of notional GST on the overcharged portion and inferred that the “reparation has been grudging and minimalised”. Mr Sheat also had two previous findings of unsatisfactory conduct, including one from 2017 for overcharging a client. The Tribunal observed that while Mr Sheat had practised soundly for most of four decades, there were signs of wear in the past eight years and it had concerns for future clients in respect of “the detailed burdens of running a practice”.

The Tribunal acknowledged Mr Sheat’s lengthy career as a mitigating factor, along with his contribution to the profession and the positive character references that he had submitted. It also noted that Mr Sheat had been adversely affected by the recent floods in Auckland which had added to his stresses. It found that he was remorseful to some extent, but still harboured some sense that he was entitled to the fees. 

The Tribunal considered strike off was engaged as a possible penalty response, but that it was possible to achieve a proportionate outcome short of strike off. Instead, it ordered that Mr Sheat be suspended for six months. It also made an order that Mr Sheat is not able to practise on his own account without authorisation of the Tribunal. It noted that given Mr Sheat’s stage of life, this meant that he will likely never again practice as a principal because of the concern that there needs to be oversight of his billing and trust account practices by an independent supervisor. Mr Sheat was also censured, ordered to pay his client compensation and ordered to pay costs.