He v Huang
[2013] NZHC 2665
•11 October 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2013-404-001576 [2013] NZHC 2665
BETWEEN YAO WEI HE Plaintiff AND
JIANWEN HUANG Defendant
Hearing: 10 October 2013 Appearances:
C S Henry for the Plaintiff
C J R Baird and A V Shinkarenko for the DefendantJudgment:
11 October 2013
JUDGMENT OF GILBERT J
This judgment was delivered by me on 11 October 2013 at 4.30 pm
Pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date:………………
YAO WEI HE v JIANWEN HUANG [2013] NZHC 2665 [11 October 2013]
Introduction
[1] The defendant, Mr Huang, applies for an order disqualifying his former solicitor, Mr Hong, from continuing to act as Mr He’s solicitor in this proceeding. Mr Huang seeks a similar order in relation to Mr Banbrook, who was formerly retained as counsel for Mr He. However, that part of the application does not need to be dealt with because Mr Henry advises that Mr Banbrook is no longer retained and will not have any continuing involvement with the matter.
[2] The primary basis for the application is that Mr Hong holds confidential information concerning Mr Huang, which he obtained while acting for him as his solicitor. Mr Huang submits that there is a real risk that he will misuse this information to benefit Mr He in the proceeding, in breach of his obligations to Mr Huang. Mr Huang also contends that Mr Hong could be required to give evidence at the trial. He argues that Mr Hong should be disqualified on that ground as well.
Preliminary issue
[3] Mr Henry raises a preliminary issue. He argues that the Court lacks jurisdiction to make any order disqualifying Mr Hong from acting for Mr He because Mr Hong has not been served with the application. He acknowledges that the application was served on Mr He at the offices of Mr Hong and that Mr Hong is plainly aware of the application, having filed a number of documents in opposition to it. However, Mr Henry contends that the rules require that the application be served separately on Mr Hong because he is affected by it.
[4] I do not accept this submission. Mr Hong is well aware of the application. He could have asked to be heard separately in relation to it, in which case he should have appointed counsel to act for him.
[5] In any event, for the reasons given by the Court of Appeal in Black v Taylor,1 it is not necessary to bring separate proceedings naming the solicitor. The issue concerns the rights of the parties to the litigation and it is appropriate that it be determined in an interlocutory application. McKay J stated:2
Further submissions were made on the subject of jurisdiction directed to the way in which the matter was brought before the Court. It was submitted that the Court had no jurisdiction to make an order against Mr Gazley on an interlocutory application brought in proceedings between the present parties, and that the proper approach would have been for the respondent to issue separate proceedings seeking relief on breach of confidence principles. No doubt proceedings could be brought directly against the barrister for a declaration or quia timet injunction where he was threatening the disclosure or misuse of confidential information. It does not follow, however, that the Court’s power to ensure the proper conduct of its business is limited to such cases. The application in the present case is concerned with the rights of the parties to the litigation. On the one hand, there is the right of the respondent party to a fair hearing and to avoid being opposed by counsel who is in possession of confidential information so that justice may not be done or may not be seen to be done. On the other hand, there is the right of the appellants to the counsel of their choice. These issues are quite properly raised by an interlocutory application in the course of the proceedings.
[6] For these reasons, I reject Mr Henry’s submission that the Court lacks
jurisdiction to determine the question of disqualification on the present application.
Background
[7] In February 2007, Mr Huang agreed to purchase a property in St Vincent Avenue, Remuera. Mr He was the real estate agent acting for the vendor on the sale. After the agreement was signed, Mr He introduced Mr Huang to Mr Hong. Mr Hong has acted for Mr He for many years. Mr Hong agreed to act for Mr Huang on the purchase which was settled on 21 March 2007.
[8] Mr Hong subsequently acted for Mr Huang on three other property transactions.
[9] On 27 August 2012, Mr Hong wrote to Mr Huang advising that he had accepted instructions to pursue a claim against him on behalf of Mr He who claimed
1 Black v Taylor [1993] 3 NZLR 403 (CA).
2 At 419.
that he owned a 50 per cent share of the St Vincent Avenue property. Mr Hong apparently did not turn his mind to the potential conflict of interest although it is clear that he recalled that he had acted for Mr Huang on the purchase of this property. Mr Hong did not seek Mr Huang’s consent before accepting Mr He’s instructions. He wrote to Mr Huang:
You may recall that I acted for you in the purchase of the above property back in March 2007.
Mr He has asked me to help him resolve his investment in this property with you.
…
[10] Mr Huang engaged his present solicitors to reject Mr He’s claim that he was a
50 per cent owner of the property. This drew an aggressive response from Mr Hong on 26 September 2012:
…
My client was shocked by your client’s denial of his half share interest in the subject property.
I suggest that you direct your client’s attention to section 229 of the Crimes
Act – criminal breach of trust.
…
[11] Counsel for Mr Huang replied the same day suggesting that s 229 was not relevant but the blackmail provisions in s 237 of the Crimes Act 1961 could apply:
…
I am compelled to say that I am most surprised that you would write in the manner you have this morning making reference to an irrelevant provision of the Crimes Act (s 229), for the apparent purpose of obtaining a desired result from Mr Huang. The dispute between our respective clients is simply a commercial dispute. There is and has been no criminal conduct on the part of Mr Huang in breach of s 229 of the Crimes Act. The dispute does not even involve a Trust, so the section cannot apply at all.
I refer you to s 237 of the Crimes Act 1961, which provides as follows:
…
You are hereby on notice that if you persist in making false allegations of criminal conduct on the part of Mr Huang to try and obtain a deserted [sic] result for your client Mr He, the matter may have to be referred to the
appropriate body as a complaint against you. I do trust that will not be necessary because you will refrain in future from making the same kinds of allegation you made in writing this morning.
[12] On 7 January 2013, Mr Hong lodged a caveat against the title to the St Vincent Avenue property acting on instructions from Mr He. Mr Hong did not clearly identify the basis for the interest claimed in the land, describing it as follows:
Estate or Interest claimed
As cestui que trust as to one half beneficial and equitable share and interest in the land held by the registered proprietor as trustee for the caveator under a resulting trust at the time the registered proprietor purchased and settled the purchase of the land and/or constructive trust thereafter.
[13] A notice to lapse the caveat pursuant to s 145A of the Land Transfer Act 1952 was issued by Land Information New Zealand on 15 February 2013. Mr Hong prepared an application to sustain the caveat and he swore an affidavit in support of it. Mr Hong attached to his affidavit confidential information belonging to Mr Huang. Mr Hong makes the surprising claim that the documents would be discoverable in due course and that “Mr Huang’s non consent to such release or refusal of waiver is just irrelevant”.
[14] Mr Huang consented to the caveat being sustained on an interim basis.
[15] This proceeding, which commenced on 25 March 2013, will determine whether or not Mr He is a 50 per cent beneficial owner of the property. Mr Hong is the solicitor on the record and has taken an active role in the proceeding, including preparing many of the documents that have been filed.
[16] Mr Hong has also led the opposition to the present application seeking his disqualification. He prepared and swore the affidavit in opposition to it. This document is replete with inappropriate opinion evidence and argument. Despite being a witness, and despite the fact that the application concerns his own conduct, Mr Hong also drafted and signed the submissions in opposition.
[17] By contrast, Mr He has not filed any affidavit in this proceeding. This may be partly because Mr Hong is funding the claim on behalf of Mr He.
[18] The present application was filed on 18 June 2013. The proceeding is currently stayed pending its disposal.3 The parties therefore seek an urgent determination to enable them to progress the proceeding and ensure that it is ready to be heard on 7 April 2014, when the trial is scheduled to commence.
Legal principles
[19] A solicitor has an obligation to a client, including a former client, to protect that client’s confidential information. The obligation continues indefinitely. A solicitor may be disqualified from acting for a client against a former client where there is a real or appreciable risk that in doing so the solicitor will misuse confidential information belonging to the former client to the advantage of the existing client.
[20] The Court of Appeal explained the proper approach to take when considering such an issue in Russell McVeagh McKenzie Bartleet & Co v Tower Corporation.4
It is necessary to go back to the basic issue, which is the protection of confidential information from disclosure. In our view this issue should be addressed by the Court applying a principled approach, for which it is neither necessary nor desirable to lay down a series of propositions covering a variety of different hypothetical situations, which are likely some time later to be found non-exhaustive. Three questions emerge. The first is whether confidential information is held which if disclosed is likely to affect the concerned (former) client’s interests adversely. The second is whether in the particular factual circumstances, viewed objectively there is a real or appreciable risk that the confidential information will be disclosed. The third, which arises if the first two questions are answered affirmatively, is whether recognising the significance and importance of the special fiduciary relationship which gives rise to the duty of protection, the Court’s discretionary power to disqualify should be exercised.
All three questions will frequently overlap. The nature and sensitivity of the information, the extent of the risk, and the adverse effect of possible disclosure are likely to affect all three enquiries. In making a final determination as to whether enjoinder in the nature of disqualification is appropriate, the Court will also need to take into account the competing factors of a person’s right to the services of a solicitor of choice, and the corresponding right of the solicitor to offer his or her services to the public generally. Mobility within the profession, as it is sometimes termed, is relevant. Access to specialist services and market competition are also matters relevant to the public interest. A balancing exercise of this kind,
3 Minute of David Gendall J dated 27 June 2013.
4 Russell McVeagh McKenzie Bartleet & Co v Tower Corporation [1998] 3 NZLR 641 (CA) at 651.
which is mindful of the interests of all directly concerned, but does not undermine the integrity of the fiduciary relationship, is more likely to meet the overall ends of justice than rigid rules imposed by the Court.
[21] I will now address these three questions.
Does Mr Hong hold confidential information belonging to Mr Huang which, if
disclosed, is likely to adversely affect Mr Huang’s interests?
[22] Unlike the situation in Russell McVeagh v Tower, Mr Hong acted for Mr Huang on the very transaction which the current proceeding concerns. There is no dispute that Mr Hong holds confidential information belonging to Mr Huang relating to this transaction. Mr Hong disclosed some of this information in his affidavit supporting Mr He’s application to sustain the caveat. Mr Hong also holds confidential information belonging to Mr Huang in relation to the other property transactions in which he acted for him. Mr Hong has also disclosed some of this information to assist Mr He in the present proceeding.
[23] Mr Hong apparently considers that he was duty bound to disclose this confidential information to Mr He for reasons he explained in his memorandum to the Court in relation to the present application.5 After quoting the response from Mr Huang’s counsel referred to in [11] above, Mr Hong stated:
In my view, this threat by counsel for the Defendant is in itself a breach of our rules, the motive of which is to suppress me and in doing hope that through me my client Plaintiff would not pursue some criminality aspects of this case and thereby in my view by itself, an attempt to assist with the perversion of the course of justice.
The documents so disclosed was not confidential as alleged in that the Plaintiff was the salesperson (who acted for the vendor and not the Defendant) as noted on the auction agreement, filled in by the Plaintiff and was thus aware of full details thereof and the settlement statement and my trust records were required to be checked through and verified the amount that came in to settle the purchase, the fact that there had been two bank cheques and one being the $50,000 the Plaintiff had procured.
[24] Mr Hong apparently considers that he was also obliged to disclose to Mr He
details from his file relating to Mr Huang’s other property transactions because of
Mr He’s “aversion to the criminal commission of a breach of trust upon him”.
5 Memorandum dated 29 May 2013.
Mr Hong claims that he has undertaken a “very thorough investigation” and “reviewed heaps of documents” as a result of which he “can say that there is overwhelming evidence in support of my client’s pleadings”.
[25] Mr Hong states in his affidavit in opposition to the present application that he was required to consult the other property files held for Mr Huang so that he could prepare Mr He’s reply to Mr Huang’s statement of defence:
When I was first instructed by Mr HE on his Claim, I had only perused my file on the St Vincent Ave conveyance to have established the veracity of Mr HE’s Claim. When Mr Huang in his statement of defence referred to the McQuoids Rd property and denied the existence of the Syndicate, Mr HE instructed me that the above three properties had been properties that the Syndicate had considered and for the preparation of Mr HE’s Statement of Reply to Mr Huang’s statement of defence I have had to pull out and examine my conveyance files on the other two properties.
[26] Mr Hong also states in his affidavit that because Mr Huang denied Mr He’s
claim, he is:
required to release even confidential information…I have to do so in the administration of justice as if I did not I could be seen assisting Mr Huang aiding and abetting him in his attempt to deprive Mr He of his Claim thereby perverting the course of justice.
[27] Mr Henry argues that there is now no need to disqualify Mr Hong because he has already disclosed all relevant confidential information. Mr Henry submits that “the horse has bolted” and the Court cannot now intervene to disqualify Mr Hong from acting because there is no risk of disclosure of any further confidential information. Mr Hong made the same point in his affidavit under a heading “Horse had bolted”.
[28] This is an unattractive proposition. It also does not accord with the evidence. Mr Huang deposes that, quite apart from the confidential information in documentary form held by Mr Hong on his files, he told Mr Hong various things during the course of the solicitor/client relationship which he believes could be deployed against him to Mr He’s advantage for the purposes of the current proceeding. Mr Huang deposes that during the course of the solicitor/client relationship he confided in Mr Hong on various matters including:
Detailed information as to my personal and private financial affairs, financial information and financial position, and that of my family;
My business affairs and those of my father; The way I approach and conduct business; and
Other private and strictly confidential information disclosed by me to
Mr Hong as my solicitor in confidence of the solicitor-client relationship.
[29] Mr Hong disputes this in his affidavit and then argues, in his submissions, that his credibility should be preferred to that of Mr Huang. Mr Hong is apparently unaware of the fact that it is inappropriate for him to participate in this application as both witness and counsel, particularly given that the application concerns his own conduct. He states in his submissions:
To assist the Court with the assessment of the credibility of the evidence before the Court… BGH [Mr Hong] had deposed that Mr HE is financially cash strapped, BGH is overworked and that he would be relieved if he is not required to work for Mr HE on this Claim against Mr Huang and if Mr HE could afford to retain some other counsel. Mr HE had replied he could not. There is as such no vested interest in BGH not wanting to state the truth, the whole truth and nothing but the truth, as he had deposed to in BGH’s AFF.
[30] Mr Hong has acted for Mr Huang on four property transactions, including the purchase that is the subject of the present proceeding. Mr Hong holds confidential information belonging to Mr Huang relating to these purchases. For the purposes of the present application, I am prepared to accept Mr Huang’s sworn statement that this confidential information includes information given orally in the course of the solicitor/client relationship. I am also prepared to accept that Mr Huang has a genuine concern that this information could be used in the present proceeding to his disadvantage.
Is there a real or appreciable risk that Mr Hong will disclose this information to
Mr He?
[31] Mr Hong has demonstrated that he has little regard for his obligation to respect client confidentiality. He seems to have had no hesitation in disclosing confidential information belonging to Mr Huang for the purpose of assisting Mr He with his claim. This appears to have been a flagrant breach of his obligation to
Mr Huang. In the circumstances, I have no confidence that Mr Hong will not make
further disclosure of Mr Huang’s confidential information.
Should Mr Hong be disqualified from acting for Mr He?
[32] Mr Henry argues that I should not disqualify Mr Hong from continuing to act for Mr He in this proceeding because Mr He has done nothing wrong and should not be put to the cost and inconvenience of having to instruct a replacement solicitor. I accept that Mr He cannot be criticised for what Mr Hong has done. However, Mr Huang’s rights must be protected. In my view, Mr Hong should not have accepted instructions to act for Mr He in this matter. The conflict of interest should have been apparent from the outset.
[33] While it is perhaps unfortunate that Mr He will have to engage another solicitor to act for him at this stage, I consider that this is unavoidable. Mr Hong cannot properly continue to act for Mr He in this proceeding and he must be disqualified from doing so. This will enable both parties to focus their attention on the substantive dispute, rather than being distracted, as they have been for some time now, by the issue as to representation.
[34] It follows that I do not need to consider the separate ground for disqualification relating to the prospect that Mr Hong could be required to give evidence at the trial.
Result
[35] I make an order disqualifying Mr Hong from continuing to act for Mr He in this proceeding.
[36] The stay of proceeding directed by David Gendall J is lifted.
[37] If the issue of costs cannot be resolved, application should be made by memorandum within 14 days with any submissions in reply to be filed and served
within 14 days thereafter.
M A Gilbert J
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