Richard Zhao Lawyers Ltd v Family Court at Auckland and Another

JurisdictionNew Zealand
JudgeBrewer J
Judgment Date10 February 2017
Neutral Citation[2017] NZCA 6
Docket NumberCA502/2015
CourtCourt of Appeal
Date10 February 2017
Between
Richard Zhao Lawyers Limited
First Appellant
Richard Zhao
Second Appellant
and
The Family Court at Auckland
First Respondent
Jie Ping Chen
Second Respondent
Between
Richard Zhao Lawyers Limited
Appellant
and
Jie Ping Chen
Respondent

[2017] NZCA 6

Court:

Winkelmann, Brewer and Toogood JJ

CA502/2015

CA293/2016

IN THE COURT OF APPEAL OF NEW ZEALAND

Appeal by a solicitor and his firm against the quantum of a costs order made in the appellants' favour in the High Court (HC); and against decisions of an Associate Judge dismissing a bankruptcy application against the second respondent — the appellants successfully applied for review of a Family Court (FC) order that they transfer funds held pursuant to an undertaking and a lien claim to a the respondent's new solicitors — rather than remitting the matter to the FC, a negotiated agreement was then reached whereby the appellants retained sufficient funds to cover the lien and the rest of the money was released to the new solicitors — however, notwithstanding the appellants success, the HC only awarded modest costs, finding that the behaviour of the appellants had left the respondent with no choice but to defend the proceedings — an Associate Judge then refused the appellants' bankruptcy application, allowing set-off of the amount retained under the agreement and payment by the respondent of the shortfall — whether the HC Judge had erred in considering pre-litigation conduct of the parties — whether the Associate Judge should not have regarded the held funds as being available to offset the respondent's indebtedness — whether the Associate judge erred in fixing the minimum amount owing by to the appellants by reference to a reviewer's report.

Counsel:

F C Deliu for Appellants

Respondent Family Court at Auckland abides

P F Chambers for Respondent Chen

JUDGMENT OF THE COURT

A The appeals are dismissed.

B The appellants must pay the respondent Chen's costs for a standard appeal on a band A basis and usual disbursements.

REASONS OF THE COURT

(Given by Brewer J)

Introduction
1

The appellants appeal against:

  • (a) the quantum of a costs order made by Asher J in their favour in the High Court at Auckland; 1 and

  • (b) three decisions of Associate Judge Bell dismissing a bankruptcy application against Ms Chen, 2 refusing to recall his judgment in light of fresh evidence, 3 and granting costs. 4

2

We heard the appeals together on the application of the appellants because the application to bankrupt Ms Chen was made in reliance upon Asher J's costs order.

Justice Asher's judgments
3

Justice Asher dealt with an application by Mr Zhao for judicial review of four decisions of the Family Court at Auckland. 5 Mr Zhao is a director of Richard Zhao Lawyers Ltd. Mr Zhao had acted for Ms Chen in a relationship property matter. In that capacity he gave an undertaking to hold sale proceeds until the division of relationship property was resolved. He also claimed a lien for costs.

4

Ms Chen dispensed with Mr Zhao's services and discord arose. Ms Chen complained to the New Zealand Law Society. Mr Deliu was involved on the part of Mr Zhao.

5

On 23 December 2014 Judge Burns in the Family Court directed Richard Zhao Lawyers Ltd to transfer the funds held pursuant to Mr Zhao's undertaking to another firm of lawyers. Mr Zhao did not comply. The judgment was sealed. On 5 March 2015 Judge Burns issued a minute on an application that Richard Zhao Lawyers Ltd be held in contempt. On 10 March 2015 Judge Burns issued a further minute confirming that the contempt hearing would proceed and that Mr Zhao must appear.

6

The applications for judicial review related to the above events.

7

Justice Asher concluded that Mr Zhao should have been given an opportunity to be heard by Judge Burns before the Judge made his decision of 23 December 2014. 6 That was because Mr Zhao claimed a lien over the funds in respect of unpaid costs and had also given an undertaking to hold the funds. There was therefore a breach of the audi alteram partem rule and a breach of natural justice. 7

8

The three additional applications for judicial review related to the decisions flowing from Judge Burns' decision of 23 December 2014. They, perforce, could not stand.

9

Justice Asher also included in his judgment a later decision of Judge Burns delivered on 23 April 2015 in which he held Mr Zhao to be in contempt of court and referred his conduct to the New Zealand Law Society. It was accepted that this decision, because it also lay downstream from the decision of 23 December 2014, must also be quashed. 8

10

There was, finally, the issue of what should be done with the money held by Mr Zhao pursuant to his undertaking and in reliance on his lien. Justice Asher noted that if Mr Zhao retained security for the fees that he claimed of $13,402.25 and was released from his undertaking, he would have no objection to the balance of the

funds being paid to Ms Chen's new lawyers. 9 Counsel agreed that Asher J could direct that $94,274.84 be paid to Ms Chen's lawyers. 10
11

On 5 August 2015 Asher J gave his judgment on costs. He had previously received extensive submissions from both parties. Justice Asher's approach to assessing costs can be taken from the following passages: 11

[5] It is true as Mr Deliu has pointed out that costs reflect how the parties acted during the litigation and not before it. However, I do not accept that the background to the proceedings can never be relevant. In Paper Reclaim the Court of Appeal said it was wrong to take into account pre-litigation conduct as a specific factor in assessing costs. It did not say that the reasonableness of conduct during litigation is to be assessed in a vacuum detached from the context of events leading up to litigation. It would be unrealistic to ignore context in certain cases, especially when (as here) the issue is the extent to which the outcome of the proceeding can be seen as a practical solution, and the effect that should have on costs. That can only be assessed by considering what the parties could have reasonably achieved outside the litigation context.

[6] Here the underlying quarrel was that Ms [Chen] sought to obtain the release of monies to which she was entitled (save for the lien and undertaking) and plainly needed. That was her motivation for seeking the impugned orders from the Family Court. Due to errors on the part of both sides, as outlined in my judgment, the release of the monies was plagued by a procedural tangle. Although procedural errors are not relevant in a strict sense in judicial review proceedings such as these, I take the view that the background tangle left Ms Chen with little alternative but to oppose the proceedings. If she had not done so, given the unbending position (at that stage) of Mr Zhao, the result would have been the monies to which she was entitled could have been tied up indefinitely. Having regard to that background Ms Chen acted reasonably in electing to defend the proceeding.

12

Justice Asher made a modest order for costs in Mr Zhao's favour of $4,000, inclusive of disbursements. 12 He did so observing that while he could not ignore the success of Mr Zhao, neither could he ignore the merit of Ms Chen's claim to have her monies released to her. 13 The latter had been recognised by counsel and a practical compromise was reached which led to the direction that $94,274.84 be paid to Ms Chen's new lawyers.

The appellants' challenge
13

Mr Deliu's submissions on behalf of the appellants can be summarised as follows:

  • (a) The appellants succeeded in their claims for judicial review: costs should follow the event.

  • (b) The agreement to pay money to Ms Chen was a pragmatic solution to the underlying dispute and was negotiated by counsel. It was not part of the claims for judicial review.

  • (c) Justice Asher should not have taken into account the pre-litigation conduct of the parties. However, to the extent the Judge was entitled to do so, he should have concluded that Mr Zhao was sinned against greatly by Ms Chen and by the Family Court.

  • (d) The High Court Rules acknowledge that the award of costs is discretionary, but the discretion is fettered by the Rules. Justice Asher appears to have chosen $4,000 as an appropriate award of costs without giving reasons related to the accepted principles.

Discussion
14

Justice Asher had to determine costs against a background of proceedings in the Family Court which were, as his Honour put it, “plagued by a procedural tangle”. 14 Justice Asher plainly considered that with proper compromise the High Court litigation would have been unnecessary. The Judge's task was to assess costs in accordance with the background and the High Court Rules. The issue in this appeal is whether in the exercise of his discretion he reached a result which was open to him. 15

15

Pre-litigation conduct of the parties is not per se to be the subject of costs decisions. But here the claims brought were for judicial review of decisions made by the Family Court. Justice Asher was entitled, when deciding costs, to look at the background to those decisions and to the overall outcome of the case upon which he adjudicated.

16

In this case, as Asher J set out in his first decision, that background included a refusal by Mr Zhao to engage formally with the Family Court. 16 Mr Deliu, in his written submissions to us, confirmed that Mr Zhao took exception to the procedure adopted by the Family Court, refused to engage with the Family Court and instead applied to the High Court for judicial review.

17

We note, as did Asher J, that Mr Zhao's refusal to engage with the Family Court extended to failing to comply with a direction of the Family Court that he appear to explain why he should not be held in contempt.

18

We acknowledge that although r 14.1 of the High Court Rules provides that all matters are at the discretion of...

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1 cases
  • Erwood v Holmes
    • New Zealand
    • High Court
    • 20 August 2019
    ...1982, s 140. 67 Section 89(4). See also Shand v M J Atkinson Ltd (in liquidation) [1966] NZLR 551 (CA); Richard Zhao Lawyers Ltd v Chen [2017] NZCA 6 at [32]; and Anne Shirley, “Deducting Fees from Trust Accounts” [2009] NZLJ 425. 68 Mr Erwood raised the same complaint later in the trial. ......

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