Zhao v Otago Standards Committee No.1.

 
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[2016] NZLCDT 22

NEW ZEALAND LAWYERS AND CONVEYANCERS DISCIPLINARY TRIBUNAL

CHAIR

Judge D F Clarkson

MEMBERS OF TRIBUNAL

Mr W Chapman

Ms S Fitzgerald

Mr M Gough

Ms C Rowe

Hearing at Auckland Specialist Courts and Tribunals Centre

LCDT 042/14

Under the Lawyers and Conveyancers Act 2006

BETWEEN
Richard Zhao
Applicant
and
Otago Standards Committee No. 1
Respondent
counsel:

Mr J Shaw for the Standards Committee

Mr F Deliu for the Respondent

The applicant (lawyer) faced a single charge of “misconduct” with two alternatives, namely “negligence or incompetence”, or “unsatisfactory conduct” under the Lawyers and Conveyancers Act 2006 (“LCA”) and Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 — the applicant had flown to China to meet with his client — the charges concerned: failure to pay client money into a trust account; failure to ensure client money earned interest; personally earning interest from client monies and failure to act upon a request to uplift client documents — the applicant sought to have the Chair and two of the members who had sat on the Lawyers and Conveyancers Tribunal recused and a document (a transcription of an audio recording made by the client) to be disclosed which a Standards Committee witness claimed was confidential and privileged — whether the test of bias in Saxmere Company v Wool Board Disestablishment Company had been met — whether the document sought was subject to either litigation or solicitor/client privilege (or confidentiality) so as to exclude it from consideration — whether the applicant had met the threshold of establishing an abuse of process such as to warrant a permanent stay of the proceedings — whether the undisputed conduct was “wilful or reckless” breach of the LCA or Rules to constitute misconduct — if not, did the additional default of a one-year delay, (before sending the client's documents to Immigration New Zealand) compound behaviour to reach the level of misconduct — whether, because a breach of s110 LCA (obligation to pay money received into trust account at bank) amounted to an offence, it was outside the Tribunal's jurisdiction — whether because the events occurred in China, the Tribunal did not have jurisdiction.

The issues were: whether the test of bias in Saxmere Company v Wool Board Disestablishment Company had been met; whether the document sought was subject to either litigation or solicitor/client privilege (or confidentiality) so as to exclude it from consideration; whether the applicant had met the threshold of establishing an abuse of process such as to warrant a permanent stay of the proceedings; whether the undisputed conduct was a “wilful or reckless” breach of the LCA or Rules to constitute misconduct; if not, did the additional default of a one-year delay (before sending the client's documents to Immigration New Zealand) compound behaviour to reach the level of misconduct; whether because a breach of s110 LCA (obligation to pay money received into trust account at bank) amounted to an offence, it was outside the Tribunal's jurisdiction; and whether because the events occurred in China the Tribunal did not have jurisdiction.

Held: The mere fact that a Court or Tribunal had decided a matter in one manner, albeit found to be in error (as to penalty only), on appeal, could not of itself be a ground for imputed bias. Asserting that an approach taken in one case implied a pre-disposition to another disregarded the judicial oath. Applying the test in Saxmere there were no grounds for the Chair's recusal. The Disciplinary Tribunal did not have an appellate or supervisory role in relation to Standards Committees.

The test for litigation privilege was that the dominant purpose of the document's preparation is for use or assistance in legal proceedings; and those legal proceedings were reasonably apprehended at the time of the document's creation. For proceedings to be reasonably apprehended, their commencement needed to be probable rather than merely possible. Although one of the document's purposes may have been for use in the proceedings, that was not its dominant purpose. The document was not a solicitor/client communication between Ms L and B, and while it was a record of such a communication between Ms L and Z, there was no suggestion that it was privileged, for the purposes of this hearing at least, on the basis of that solicitor/client relationship. Proceedings had not been reasonably apprehended at the time of the document's creation.

The threshold for a stay in such circumstances was extremely high. Evidence of bad faith or an improper motive was not a precondition to a stay being granted. Inconsistency of treatment between practitioners in similar fact situations, without more, did not reach the necessary threshold. Fairness to the accused was not the yardstick, particularly where decisions were made on complaints by a number of different Standards Committees around the country, made up of a range of different members, which would lead to inconsistent outcomes from time to time. This was not the only case where a practitioner had been charged at the Disciplinary Tribunal level for a delay in depositing client funds into the trust account. A stay was not for disciplinary purposes, nor to reflect a court's view that a prosecution should not have been brought.

For misconduct to be established, the admitted breaches of the LCA and Rules, must have been “wilful or reckless” under s7(1)(a)(ii) LCA (misconduct defined). The charge was a single one, so the particulars could be considered either separately, or cumulatively to have reached the level of conduct. Z had knowingly provided a client with a personal account number and the funds had been wrongly held in his personal accounts for a period of more than six weeks, which was a lengthy period in the context of this case. Z was a trained Trust Account Supervisor and should have been aware of the need to monitor the funds coming in and to ensure that they were directed to the trust account. There had been sufficient disregard by Z of his professional and fiduciary obligations, to be classified as “reckless”. Even if wrong, cumulatively, the remaining particulars intensified the level of wrongdoing. That Z had earned interest on his client's money, wrongly held, was an aggravating feature, even if the amount itself was not high. An offer to recompense did not provide a defence and the failure to promptly return the client's full file further exacerbated the overall conduct. If Z had genuine concern as to use the client's documents would be put to, he had other options. Had the conduct been the subject of a standalone charge, it was likely to have been seen as unsatisfactory conduct only.

The statutory definition of misconduct in s7 LCA included a wilful or reckless contravention of any provision of the Act. There were no exclusions and s110 LCA (obligation to pay money received into trust account at bank) was a provision of the Act. A wilful or reckless breach of it could therefore amount to misconduct.

The funds were received into a New Zealand bank account, and the omission/failure to transfer them promptly into Z's trust account had taken place in New Zealand. The fact that the initial meeting and the request for funds had taken place in China, did not mean that the Tribunal could not consider and rule on the issues.

Finding of misconduct established.

RESERVED DECISION OF THE TRIBUNAL
Introduction
1

Mr Zhao faces a single charge of “misconduct”, the charge is pleaded with two alternatives, namely “negligence or incompetence”, or “unsatisfactory conduct”.

2

The charge is framed so as to set out four different categories of default:

  • 1.Failure to pay client money into a trust account;

  • 2.Failure to ensure client money earned interest;

  • 3.Personally earning interest from client monies;

  • 4.Failure to act upon a request to uplift client documents.

3

The facts are largely undisputed, and the defaults acknowledged. The hearing was required because Mr Zhao disputed the level of seriousness claimed by the Standards Committee. In addition, Mr Zhao raised several defences, some of which were abandoned, or not strongly advanced, following the evidence. We shall only deal with those advanced by his counsel in closing submissions.

4

Two preliminary issues arose for determination:

  • 1.Mr Deliu sought, on Mr ;Zhao's behalf, to have the Chair and two of the members recused.

  • 2.A document came to light, in respect of which a Standards Committee witness claimed confidentiality and privilege.

5

Oral determinations for each of these were given with the reasons reserved.

Issues
6

The issues for determination in this matter are as follows:

  • 1.Is the test in Saxmere1 met, so as to require the recusal of the Chair or the named members?

  • 2.Is the document held by Mr B, subject to either litigation or solicitor/client privilege (or confidentiality) so as to exclude it from consideration?

  • 3.Has Mr Zhao met the threshold of establishing an abuse of process such as to warrant a permanent stay of the proceedings?

  • 4.Is Mr Zhao's undisputed conduct, in relation to his handling of Ms L's funds such a “wilful or reckless” breach of the Act, 2 or Rules 3 misconduct? as to...

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