Zhao v Otago Standards Committee No.1.
| Jurisdiction | New Zealand |
| Judge | Judge D F Clarkson,Mr W Chapman,Ms S Fitzgerald,Mr M Gough,Ms C Rowe |
| Judgment Date | 19 August 2016 |
| Neutral Citation | [2016] NZLCDT 22 |
| Docket Number | LCDT 042/14 |
| Court | Lawyers and Conveyancers’ Disciplinary Tribunal |
| Date | 19 August 2016 |
Under the Lawyers and Conveyancers Act 2006
[2016] NZLCDT 22
Judge D F Clarkson
Mr W Chapman
Ms S Fitzgerald
Mr M Gough
Ms C Rowe
Hearing at Auckland Specialist Courts and Tribunals Centre
LCDT 042/14
NEW ZEALAND LAWYERS AND CONVEYANCERS DISCIPLINARY TRIBUNAL
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.
Mr J Shaw for the Standards Committee
Mr F Deliu for the Respondent
Mr Zhao faces a single charge of “misconduct”, the charge is pleaded with two alternatives, namely “negligence or incompetence”, or “unsatisfactory conduct”.
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.
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.
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.
Oral determinations for each of these were given with the reasons reserved.
The issues for determination in this matter are as follows:
1.Is the test in Saxmere 1 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 constitute
5.If not, does 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?
6.If not, was Mr Zhao's conduct negligent or incompetent to the degree pleaded?
7.If not, is there unsatisfactory conduct, as a result of the acknowledged breaches of the Act and Rules?
The charge relates to the client relationship Mr Zhao had with a Ms L who was referred to Mr Zhao by a family friend, A, for assistance with family, immigration and other issues, from March 2013. Ms L came originally from China and had been living in Malaysia for a long period.
Following some initial telephone contact during March 2013, Mr Zhao travelled to China where he met Ms L for the first time on 28 March. At that meeting they agreed about the legal work to be undertaken by Mr Zhao, which included some research and related work in China and thereafter Family Court and immigration applications in New Zealand.
At this first meeting Mr Zhao handed Ms L a folder containing various information including a client engagement letter which summarised the work to be done, and their agreement that Ms L “would make an initial deposit of $50,000 with us for fees, expenses and other payments to be used on your behalf.” The letter also contained Mr Zhao's estimate of total fees between $50,000 and $100,000 for the “intended action plans”. Prior to that meeting in China, Mr Zhao had in telephone discussion with Ms L given her a rough idea of a fee range, but had not discussed a deposit or retainer. 4
Before returning from China to New Zealand, Mr Zhao, either directly or through his friend A, gave Ms L the details of his personal bank account into which the $50,000 deposit was to be paid. Mr Zhao says he did this because Ms L wanted to pay the money in cash before he left China. This was unacceptable to Mr Zhao and he did not have his trust account details with him, and was about to catch a flight. Mr Zhao accepted that there were other options for arranging the payment which would have satisfied the Trust Account rules.
Mr Zhao had completed both the Stepping Up and Trust Account Supervisors course around a year before these events took place, and is aware of his responsibilities as Trust Account Supervisor. But his mindset at the time was that it did not matter for a few days or a couple of weeks where the funds were paid. 5 He admits it was a breach of trust account rules to direct fees for legal work to his personal bank account, even on a temporary basis.
While Mr Zhao was and remains Trust Account Supervisor, he depended on his wife Catherine Zhao, a trained accountant, for management of the trust account. In a Statutory Declaration in evidence Catherine Zhao declared on 15 April 2014 that she was solely responsible for managing the 5 bank accounts she and her husband held with ANZ; and that she was the sole person holding logins and passwords for all bank
On or around 11 April 2013, after Mr Zhao had returned to New Zealand, Ms L deposited $49,975 (the $50,000 agreed retainer or deposit minus a bank fee) into Mr Zhao's “Freedom” account with ANZ. On the same day Mrs Zhao transferred these funds to a “Serious Saver” account in the name of Mr Zhao and his wife. Mr Zhao's reason for not immediately transferring the funds to his trust account was that he was not aware any payment had been made by Ms L; that he was particularly busy at the time; that he did not really pay that much attention to Ms L (he said he has a thousand on his client list) 6; and that it was his wife who attended to these matters, and she may not have known about Ms L. From 1 May 2013 the funds from Ms L were transferred through various of Mr Zhao's personal accounts, including interest-earning accounts, in a number of transactions.
Mr Zhao accepts that he knew from his Trust Account training that these funds could not properly be held in any of his or his wife's personal bank accounts. When he did become aware in late April/early May that Ms L had paid the deposit, he did not turn his mind to promptly ensuring the monies were directed to the trust account. The funds were eventually transferred to the trust account of Richard Zhao Lawyers Limited (Mr Zhao's firm) on 27 May, six and a half weeks after having been received from Ms L. This was apparently not an isolated incident. Mr Zhao's evidence in relation to trust account balances was that it was at the time when he and his wife did the billing that they made sure everything was done properly. 7
On 30 April 2013, the ANZ bank deposited $767.75 as interest earned into Mr Zhao's “Serious Saver” account. A portion of this interest was attributable to Ms L's funds, and has not been paid to date. Mr Zhao has pleaded that he has always been ready, willing and able to pay Ms L whatever interest she is entitled to, and indeed has
For the practitioner, Mr Deliu argued that payment of interest was within the discretion under s 114(a) or (b) of the Act which includes the smallness of the amount and the shortness of the period. (The relevant amount was estimated to be somewhere between $100 and $316). But Mr Zhao did not claim to have...
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