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19 December, 2007  
Lawyers as pirates

Overcharging is the most common form of lawyer fraud … yet the system protects the racket. To actually get into jail a lawyer has to be caught faking a costs agreement – like Leon Nikolaidis

imageUS economics professor Peter Leeson (pic) recently wrote a paper on The Law and Economics of Pirate Organization.

Pirates created highly successful criminal organisations, and Leeson says that:

“Contrary to most people’s images of pirate crews, they were quite large. Based on figures from 37 pirate ships between 1716 and 1726, it appears the average crew had about 80 members … crews of 150-200 were not uncommon…

“Unlike the swash-buckling psychopaths of fiction, historical pirates displayed sophisticated organization and coordination… They successfully cooperated with hundreds of other rogues. Amidst ubiquitous potential for conflict, they rarely fought, stole from, or deceived one another.”

Leeson also observes that pirates considered theft aboard their ships especially heinous, and he quotes an observer who said, “great robbers as they are to all besides, [pirates] are precisely just among themselves”.

Modern law firms invite comparisons with these pirate organisations, with law firms appearing to have improved the business model.

imageLeeson says his definition of a criminal organisation is similar to that of Professor Michele Polo (Bocconi University, Milan, pic). A criminal organisation is:

“One that cannot rely on the external enforcement of the judicial institutions and whose behaviour and possibilities are not constrained by the law.”

Modern lawyer piracy is not constrained by the law either, but for different reasons.

Lawyer/pirates control the wording of the law. They make sure it can’t easily reach out to them.

On top of that they are in charge of decisions to prosecute. Better still, unlike ordinary pirates, lawyers CAN rely on the judicial institutions to help them.

The judiciary is full of “successful” former lawyer pirates, who find it difficult to criticise others for doing what they themselves used to do.

There is a lot of camaraderie and “collegiality” in the legal profession, but perhaps the best devices of the lot are “disciplinary tribunals” actually dominated by current or former lawyer pirates, which contain a smattering of “lay” people to support claims of independence from the profession.

When lawyers are caught committing lawyering crimes, they can be shunted off to friendly tribunals instead of the ordinary criminal courts.

imageLast month NSW lawyer Leon Nikolaidis was sentenced to two years jail for criminal fraud, having been found guilty by a jury in an ordinary criminal court.

Unusually, this jailing of a lawyer was not for a trust account defalcation. NSW Legal Services Commissioner Steve Mark (pic) said it was one of the few occasions when a solicitor had been convicted of criminal fraud within a legal practice. He said:

“There is a perception that a lawyer acting in a professional capacity attracts conduct charges, but not criminal charges… Even serious misconduct issues almost never lead to criminal prosecutions.”

There is one big exception. As with those old time pirates, thieving off other lawyers is regarded as particularly heinous.

Theft by lawyers from trust accounts is a bit like thieving off other lawyers, since it frequently results in claims against fidelity funds which the other lawyers have to keep topped up from their own pockets.

On February 17, 2004 Kate Hamond, then the Victorian Legal Ombudsman, was asked: “How many lawyers, say each year in Victoria, would be removed from practice for disciplinary reasons?” She replied:

“It’s possibly in the area of 10 or 12. Usually that’s related to trust account breaches, defalcations, in other words, taking money, improperly using money from the trust account of their clients. That is seen as a very serious act, and that is certainly the vast majority of the reason for striking off.”

When lawyers appear in the criminal courts for matters arising out of their law practices, it will almost always be for flogging money out of the trust account.

However, by far the most common form of lawyer fraud is overcharging.

In Victoria, according to The Sunday Age (December 3, 2006), overcharging is the main complaint clients make against their lawyers.

The same probably goes for other Australian jurisdictions. I doubt whether there has ever been a criminal prosecution of a lawyer for overcharging, and yet it usually amounts to obtaining by false pretences, the false pretence being the dishonest bill.

Of course, a lawyer-friendly judiciary can and will get around that sort of law by sophistry (lack of proof of intent) and that is sufficient excuse not to launch prosecutions.

Yes, says the lawyer, I did accidentally bill five times what was owed, and yes, I would have kept the money, but I never did it with intent to defraud you.

Supermarkets are routinely criminally prosecuted for overcharging. For example, on May 29, 2001 The Age reported:

“Supermarket giant Coles was yesterday fined $15,000 after admitting it offered for sale hundreds of underweight pre-packaged meat traysFor the most part these discrepancies amounted to ‘a potential overcharge to the consumer of between three cents and six cents’.”

Overcharging by lawyers is not actually a disciplinary offence, although prohibitions on the charging of “excessive legal costs” do create that impression, and are no doubt meant to, e.g. NSW Legal Profession Act 2004 – s.498)

imageIn reality, disciplinary tribunals will require proof not just of overcharging, but of “gross overcharging”. No one knows what that means.

Kate Hamond (pic) said on The Law Report:

“Gross overcharging … is a very difficult one, because we don’t have a simple formula, I don’t think anyone in Australia does, for the difference between overcharging and gross overcharging, but certainly in our Act, gross overcharging is considered a disciplinary offence.”

Unfortunately, because of her fearless forays against lawyer piracy she herself was later made to walk the plank, but that is another story.

Nearly all lawyers know that lawyers’ time sheets contain a lot of fiction.

imageIn 2005 Linda Julian (pic), from the Australian law firm strategic practice development company Julian Midwinter and Associates, said that some firms’ charging policies and practices were...

“creating a situation where to actually meet the firm’s requirements, people are going to have to produce fraudulent time sheets… It goes on, and it doesn’t just happen sometimes.”

Lawyers are so powerful that they don’t even need to deny what they are up to.

The American Bar Association Journal of August 1994 (p.62) observes:

“Sixty hour days, documents that don’t exist, clerical work that fetches $300 an hour. It’s not an Alice in Wonderland fantasy, but a peek through the looking glass into the kaleidoscope world of law firm over-billing.”

Its fraud. Its routine. And no lawyer goes to jail for it. Or is even prosecuted.

Nikolaidis’ fraud involved faking a costs agreement letter. That was a very risky thing to do. Incidentally in a different matter, on August 25, 2005, the Administrative Decisions Tribunal of New South Wales found him “guilty” of deliberately charging grossly excessive costs ($28,365.60 instead of $5,820.60).

He asked the NSW Court of Appeal to chuck that disciplinary verdict out, and it obligingly did so, in June this year, by a 2:1 majority.

There was a lot of argument over the word ‘deliberate’. The bill went out under his name, and he was going to get the money, but the CA said if he was “guilty” of anything, it was for ineffectively supervising the employee who wrote up the bill (and he hadn’t been “charged” with that).

imageJustice Margaret Beazley (the dissenter) said Nikolaidis HAD deliberately overcharged, and suggested that if his defence succeeded…

”[S]olicitors would always have their costs prepared by someone else.”

Justice McColl, a former president of the NSW barristers’ union (pic), said:

“I cannot, with respect, agree with Beazley JA’s conclusion … that if a solicitor could defend a charge of deliberate overcharging on the basis the bill was prepared by another, it is unlikely professional misconduct would ever be established.”

Nikolaidis was the “captain” of his law firm. If he had been a pirate captain back in the 1700s I wonder how far he would have got with a defence to a charge of piracy based on “it was the crew that did it, not me”?


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