Richard Zhao Lawyers Ltd v Family Court at Auckland and Another

JurisdictionNew Zealand
CourtCourt of Appeal
JudgeBrewer J
Judgment Date10 Feb 2017
Neutral Citation[2017] NZCA 6
Docket NumberCA502/2015

[2017] NZCA 6

IN THE COURT OF APPEAL OF NEW ZEALAND

Court:

Winkelmann, Brewer and Toogood JJ

CA502/2015

CA293/2016

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
Counsel:

F C Deliu for Appellants

Respondent Family Court at Auckland abides

P F Chambers for Respondent Chen

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.

Held: In the exercise of his discretion, Asher J had reached a result which was open to him. He had to determine costs against a background of proceedings in the FC which were a procedural tangle. Asher J plainly considered that with proper compromise the HC litigation would have been unnecessary. The Judge's task was to assess costs in accordance with the background and the HCR.

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

That background included a refusal by Z to engage formally with the FC. Z took exception to the procedure adopted by the FC, refused to engage with the FC and instead applied to the High Court for judicial review. Z's refusal to engage with the FC extended to failing to comply with a direction of the FC that he appear to explain why he should not be held in contempt.

None of the specific grounds in r 14.7(a)–(f) HCR applied to this case. However, those grounds were not exhaustive. Rule 14.7(g) provided that the Court could reduce the costs otherwise payable under the Rules if some other reason existed which justified the court refusing costs or reducing costs despite the principle that the determination of costs should be predictable and expeditious.

Asher J addressed the competing aspects of the case which needed to be recognised in the exercise of his discretion to award costs. He correctly gave more weight to the success by the appellants than he did the background to the FC's decisions and the underlying merit of C's position. His modest costs award of $4,000 was open to him and clearly appropriate.

Appeal dismissed.

The appeals against the decisions of Associate Judge Bell had no merit. Clearly, RZL held money obtained from C which was available to be used to set off the proven indebtedness of C to RZL. Section 113 Lawyers and Conveyancers Act 2006 and Shand v M J Atkinson Ltd (in liq) supported the conclusion that a set-off was available. A solicitor had a right to set off the costs of one matter from trust monies received in other transactions (Shand). In calculating the indebtedness of C to RZL it was wholly appropriate to have regard to the funds RZL held on trust for C.

The Associate Judge chose to regard the report of an experienced family lawyer, retained by the Law Society, as being a starting point for C's liability for fees. He stressed that it was a minimum liability. He required C to pay the difference between the calculated minimum indebtedness and the sum held already by RZL. That was done. There was no reason why the Associate Judge should not then dismiss the bankruptcy application.

Any error was in RZL's favour. The Associate Judge treated the $4,185 recommended by the reviewer as payable by C for Z's work as a minimum amount for which C was liable for that work. But it was not a debt due, as were the two costs orders. Section 161 of the Lawyers and Conveyancers Act 2006 prohibited proceedings for the recovery of the claimed $13,402 until after C's complaint was finally disposed of.

As to the appeal against Associate Judge Bell's award of costs, the Judge had to consider costs against a background of considerable litigation between the parties and procedural complications. While the award of costs in a related proceeding was not relevant to the award of costs in the particular case, it could not be said that Associate Judge Bell erred in deciding to classify the particular application for bankruptcy as a simple and uncomplicated application. The debt was a modest order of costs made by the HC and all that was at issue was whether the money held by RZL was available as a set-off for C's minimum total indebtedness.

The Associate Judge was not wrong to order a stay with no application. Rule 14.1(1) HCR provided that all matters were at the discretion of the Court if they related to costs. The question on appeal was whether the grant of a stay was an objectionable exercise of this discretion. The approach adopted by the Associate Judge to be sensible in the circumstances.

The award of costs was within the discretion of the Associate Judge. There was no reason to intervene.

Appeals dismissed.

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...

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1 cases
  • Erwood v Holmes
    • New Zealand
    • High Court
    • 20 Agosto 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. 6......