Hong v Auckland Standards Committee No 5
[2020] NZHC 1599
•7 July 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-441
CIV-2020-404-639 [2020] NZHC 1599
UNDER the Lawyers and Conveyancers Act 2006 IN THE MATTER
of an appeal against a decision of the Lawyers and conveyancers Disciplinary Tribunal
BETWEEN
BOON GUNN HONG
Appellant
AND
AUCKLAND STANDARDS COMMITTEE NO. 5
Respondent
Hearing: 17 June 2020 Appearances:
Appellant on own behalf
P Collins for the Respondent
Judgment:
7 July 2020
JUDGMENT OF GORDON J
This judgment was delivered by me on 7 July 2020 at 2.30 pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
Solicitors: B G Hong Law Firm, Auckland
New Zealand Law Society, Auckland
Counsel: P Collins, Auckland
HONG v AUCKLAND STANDARDS COMMITTEE NO. 5 [2020] NZHC 1599 [7 July 2020]
Introduction
[1] The appellant, Boon Hong, appeals against two decisions of the New Zealand Lawyers and Conveyancers Disciplinary Tribunal (the Tribunal). The first is the Tribunal’s decision of 10 February 2020 finding Mr Hong guilty of professional misconduct on three charges.1 The second is the Tribunal’s decision of 29 April 2020 striking Mr Hong off the roll of barristers and solicitors, ordering him to pay costs and awarding compensation to his former client.2
Factual background
[2] Mr Hong’s client, who was at the centre of events, is a businessman, Mr K. The two had met through mutual friends in the early 1990s. Mr Hong acted for Mr K on one matter in the 1990s. From 2001 to 2010, Mr Hong was Mr K’s lawyer acting for him personally and for his business interests.
[3] The Ks’ Family Trust, CLT, was settled by deed dated 30 October 2001. The CLT Trust Deed was prepared by Mr Hong. Mr Hong was an independent trustee from that time until he was replaced by his trustee company, BGH Trusteeship Ltd, on 13 June 2007. Mr K’s (then) wife, Ms D, continued as the other trustee at that time.
[4] On 27 September 2005, CLT entered into an agreement to purchase a property at X Road, Z (the property) for $630,000. Mr Hong acted for CLT in this transaction.
[5] Also on 27 September 2005, after the agreement had been signed, Mr Hong advised Mr K that the vendor had received another offer for $645,000 (thus giving CLT three working days under a clause in the agreement to meet that price). The Ks agreed to do that and Mr K communicated directly with the vendor on that issue. On 3 October 2005, Mr K, for CLT, paid a deposit of $40,000 direct to the vendor as a deposit. Settlement was due to occur on 4 November 2005. Shortly before that date Mr K deposited $5000 in Mr Hong’s trust account to top up CLT’s cash contribution to the purchase.
1 Auckland Standards Committee 5 v Hong [2020] NZLCDT 5 (liability decision).
2 Auckland Standards Committee 5 v Hong [2020] NZLCDT 12 (penalty decision).
[6] Completion of settlement was delayed over an extended period because of a caveat lodged by the competing purchaser and because of issues with the vendor over the purchase price. Mr Hong acted for CLT throughout that period. The competing purchaser’s caveat was discharged in June 2006 following litigation over the issue. In the meantime, CLT had entered into an agreement to purchase another property as the family home in M.3
[7] Against that background, Mr Hong became personally involved in the completion of the purchase of the property. Mr Hong denied that he “offered” to become personally involved. Rather, he said, Mr K asked him if he could assist. The Tribunal’s decision records that Mr K and Ms D described the “offer” as a joint venture proposal. The decision further notes that Mr Hong denied that statement but that he did not deny his personal involvement in financing the property purchase and the events that led to his status as the sole legal owner of the property.
[8] There was nothing in writing at the time about the said joint venture proposal (or to use a more neutral term, the “purchase arrangement”). Mr K’s evidence is that it was communicated to him by Mr Hong in a single phone call which occurred sometime before CLT went unconditional on the M purchase. That purchase settled on 30 June 2006.
[9] The balance of the purchase price for the property of approximately $585,000 was provided by Mr Hong personally or through Orano Developments Ltd, a company under his control, on 1 August 2006. But the transfer did not occur for another two years. The purchase of the property by CLT was finally settled on 31 July 2008.4
[10] In the meantime, the Ks, having sold the property they had purchased in M, moved into the property. They paid rent into Mr Hong’s trust account.
[11]At the time of the transfer of the property on 31 July 2008, the two trustees of
3 Which was later sold by the Trust in May 2007.
4 There were issues over the amount paid on settlement ($630,000) by Mr Hong resulting in litigation over $15,000, being the balance of the purchase price of $645,000.
CLT were Ms D and BGH Trusteeship Ltd, which by then had replaced Mr Hong as independent trustee. However, Mr Hong effected the transfer to Ms D and himself as the registered proprietors recorded on the title. Mr Hong explains this saying that what was used was a hard copy of a transfer that had been sent to the vendor in 2005 in readiness for settlement on 4 November 2005.
[12] On 6 August 2008, Mr Hong effected a transfer of the property into the sole ownership of BGH Trusteeship Ltd.
[13] The Tribunal’s decision records that this occurred without any advice or explanation to the clients. Ms D signed the necessary documentation and her evidence was that Mr Hong did not give her any reason, only saying that she needed to trust him and that it was the right thing to do. She accepted that at that time.
[14] Mr Hong’s position is that the property was transferred to his trustee company as that was agreed at the outset, pending the K’s redemption of the property from him “by repaying my advance so I control such …”.
[15] On 11 February 2009, Mr K and Ms D paid Mr Hong $50,000. They say it was a further contribution towards the purchase of the trust’s share of the property. Mr Hong says it was for rent.
[16] There were two subsequent transfers of the property; from BGH Trusteeship Ltd to Nominees and Trustees Ltd (another of Mr Hong’s companies5) on 4 August 2011; and from that company to Mr Hong personally on 12 December 2012. Mr Hong remains the sole legal owner of the property, which is subject to a caveat by Mr K and a mortgage to ASB Bank Ltd. The ASB mortgage secured personal borrowing by Mr Hong to pay legal fees in litigation in which he was a party personally.
[17]As a result of the transfers, Mr Hong became Mr K’s landlord. In 2014,
5 Mr Hong is the sole shareholder and director.
Mr Hong unsuccessfully attempted to evict Mr K (Mr K and Ms D had separated in 2011 or 2012).6 Mr K continues to live in the property.
[18] Mr K stopped paying rent directly to Mr Hong in 2016. Instead he opened a separate bank account into which he paid rent. Mr K’s evidence was that he has used those funds for maintenance and repairs on the property. Mr Hong’s position is that he was owed $138,965 in rent up to the end of September 2019.
[19] As a consequence of their separation, Mr K replaced Ms D as the trustee of CLT on 16 August 2017. BGH Trusteeship Ltd remained a trustee at that time. Mr Hong’s position is that he issued a resignation notice to the Ks’ new lawyers in 2010 and, from that time, BGH Trusteeship Ltd had no further dealings with CLT.
The charges
[20] There are three charges. Charge 1 relates to conduct that occurred before 1 August 2008. It is brought under s 351(1) of the Lawyers and Conveyancers Act 2006 (the Act). The relevant rules are the Rules of Professional Conduct for Barristers and Solicitors (RPC) which applied until 31 July 2008. Charges 2 and 3 relate to conduct from 1 August 2008. They are brought under ss 7(1)(a)(i) and/or (ii) and 241(a) of the Act. The relevant rules are the Conduct and Client Care Rules (CCCR).
[21]Charge 1 reads as follows:
Charge One: engaging in a transaction personally with clients contrary to Rules 1.03, 1.04, and 1.07 of the Rules of Professional Conduct for Barristers and Solicitors (RPC).
[22] This charge concerns events occurring before 1 August 2008 and is brought under s 351(1) of the Act.
[23] The charge alleges misconduct on the part of Mr Hong in his professional capacity; or in the alternative, conduct unbecoming; or in the further alternative,
6 Mr K and Ms D give different dates for their separation.
negligence or incompetence in his professional capacity of such a degree as to reflect on his fitness to practise as a solicitor or as to tend to bring the profession into disrepute.
[24]Charge 2 reads as follows:
Charge Two: acting in transfers of Z property after 31 July 2008 for own benefit, contrary to Rules 5, 5.1, 5.2, 5.4, 5.4.2, 5.4.3, 5.4.4, 5.4.5, 6 and 6.1 of the Conduct and Client Care Rules (CCCR).
[25] The charge alleges misconduct pursuant to ss 7(1)(a)(i) and/or (ii) and 241(a) of the Act; or, in the alternative, unsatisfactory conduct that was not so gross, wilful, or reckless as to amount to misconduct, pursuant to ss 12(a), (b) and/or (c) and s 241(b) of the Act; or in the further alternative, negligence or incompetence of such a degree as to reflect on his fitness to practise or as to bring his profession into disrepute, pursuant to s 241(c) of the Act.
[26]Charge 3 reads as follows:
Charge Three: procuring a personal advantage to the detriments of his clients contrary to s 4(d) of the Act.
[27]The same three alternatives are advanced as for charge 2.
[28] There are detailed particulars for charges 1 and 2 and to a lesser extent for charge 3.
The Tribunal’s liability decision
[29] First, on charge 1, the Tribunal noted that the charge was centred around the provision of $585,000 by Mr Hong personally to his clients to enable them to settle the purchase of the property. The Tribunal referred to Mr Hong’s admission that he personally advanced funds to assist the Ks to settle the property. The Tribunal said that in doing so it was indisputable that rr 1.03 and 1.04 became immediately applicable. The Tribunal said that there was no evidence that Mr Hong advised his clients about any conflict of interest or advised them to take independent advice.
[30] The Committee then referred to Mr Hong’s defence to the charge (and to charges 2 and 3) as follows:
[21] Mr Hong’s defence to this charge and to charges two and three is that the RPC and the CCR rules are not applicable to him and to the circumstances of his making personal funds available to his clients. He set out his reasons as being:
(a)He stepped in to assist the Ks and had nothing to gain by doing so.
(b)His assistance to the Ks was on a Conscience to Conscience basis which did not involve a conflict of interest.
(c)His advance to the Ks was part of his Benevolence on the Conscience Loan Fund which he had established to assist longstanding clients who found themselves in financial difficulty.
(d)That his advance to the Ks was on the basis that:
(i)they would reimburse him the interest that he would have been earning on his funds on term deposit;
(ii)that he would take an assignment of the Z property until repayment of the advance;
(iii)that the Z property would be sold in the event of failure to repay the advance and that he was to control the sale.
[31] The Tribunal referred to Mr Hong’s evidence under cross-examination when he confirmed his position that he had done nothing professionally wrong when he personally took title to the property and borrowed money against it. He also said that, having acquainted himself with the relevant rules, he had not infringed any of the rules of professional conduct, whether they were the old rules or the current rules.
[32] On charge 2, the Tribunal noted, first in relation to rr 5, 5.1 and 5.2, the argument for the Standards Committee was that Mr Hong lacked any conceivable notion of independence and abandoned professional standards when he dealt with the property as if it was his own. This continued when he acted in the transfers of the property and received a further substantial payment of $50,000, all of which occurred after 1 August 2008.
[33] As to the breach of r 5.4, the Tribunal noted that the allegation was that Mr Hong continued to act in his dealings with the property by which he gained sole control of the property to the detriment of the Ks’ interests.
[34] In terms of r 5.4.2, the allegation was this was breached when he acquired an interest in the property because of his personal loan, such that his interest as a lawyer and that of his client did not correspond in all respects.
[35] The allegation regarding r 5.4.3 arose by reason of Mr Hong transferring the property into the sole ownership of BGH Trusteeship Ltd and when he received
$50,000 from CLT. The allegation was that these transactions were to the detriment of the Ks’ interests and should be seen as being undertaken in their own right and not only as a continuation of a relationship entered into earlier.
[36] Rule 5.4.4 requires that a client must be advised of the right to receive independent advice in respect of any matter where the lawyer enters into a financial, business or property transaction or relationship with his client. The Tribunal noted that Mr Hong had accepted that he did not advise the Ks of their right to receive independent advice.
[37] The next allegation under the second charge was that Mr Hong was a party to the transaction as defined by r 5.4.5. Mr Hong was the sole director and shareholder of both BGH Trusteeship Ltd and Nominees and Trustees Ltd. He was personally the final transferee of the property. It was therefore alleged that Mr Hong was deemed to personally be a party to all those transactions.
[38] The final allegation under the second charge was that Mr Hong had acted in breach of rr 6 and 6.1, which relate to acting for more than one client on a matter. The allegation was that the situation whereby Mr Hong, acted for himself and for the Ks after 31 July 2008, created a more than negligible risk that he would be unable to discharge the obligations he owed to the Ks. There was no informed consent.
[39] The Tribunal noted that Mr Hong’s reasons for defending charge 2 were those as set out in [21] of its decision which I have quoted in [30] above.
[40] Finally, on charge 3, the allegation was that Mr Hong failed to protect the interests of his client by procuring a personal advantage for himself.
[41]In its discussion, the Tribunal grouped the three charges together saying:
[37] Mr Hong has, by his response to [sic] charges and throughout his evidence, resolutely maintained that the relevant rules do not apply to him in this matter albeit that he has acknowledged that his personal loan to the Ks was an “adjunct to his legal practice”.
[38] Mr Hong cannot be correct. He is a lawyer of many years standing. He is required to know and observe the rules relating to professional conduct. He has acknowledged becoming aware of them but continues to maintain that they are not applicable to him. Notwithstanding that his reasons for his actions stem from a “conscience” point of view, his refusal to accept that the rules apply to his conduct in this case is obdurate. As counsel for the Committee has submitted Mr Hong has:
(a)Displayed a disregard for any professional issues arising from his dealings with the Ks.
(b)Lacked appreciation of any kind of need for his clients to receive independent advice.
(c)Assumed ownership and control of the property in question without regard to the professional issues that he was required to address.
[39] Given the admission of facts by Mr Hong and the resolute stand that he has taken to these proceedings, we have not found it necessary to address in detail all the particulars that have been put before us.
[42] The Tribunal found that charge 1 was proved and had reached the level of misconduct on the part of Mr Hong in his professional capacity under s 112(1)(a) of the Law Practitioners Act 1982.
[43] The Tribunal also made findings of misconduct under s 7(1)(a)(i) and (ii) of the Act in respect of charges 2 and 3.
Grounds of appeal – liability decision
[44] Mr Hong has filed a detailed notice of appeal and similarly detailed submissions. His arguments may be summarised as follows.
[45] On the first charge, Mr Hong submits the Tribunal erred and incorrectly interpreted the meaning and application of conflict of interest on the facts and circumstances and accordingly the consequent need for the Ks to be independently advised. He says there was no joint venture. The Tribunal erred in accepting the evidence of the Ks without proper consideration of his evidence on that issue. He had nothing to gain by his financial assistance to the Ks. It was a loan advance purely to help them and was intended to be for a short term only. The advance had to be repaid and he had to be protected until repaid. Mr Hong says his interest was only to financially assist the Ks and that coincided with their interests. In those circumstances there was no conflict of interest nor was there a potential conflict of interest. The Tribunal was concerned with the form of the rules rather than their substance.
[46] On the second charge, the Tribunal erred and incorrectly interpreted the meaning and application of the need for independence; to be free of compromising influences; and to act in the best interests and for the benefit of the Ks. He says the Tribunal erred in inferring that the further payment of $50,000 by the Ks to him in 2009 was a capital payment towards the property. The payment, Mr Hong says, was for the purpose of clearing arrears of rent that had been agreed to be paid to his trust account to cover him for interest. He says the Tribunal erred when determining the Ks had been financially disadvantaged. They could not have been on the facts, as they had no equity left in the property.
[47] On the third charge, the Tribunal erred and incorrectly determined facts when it found he had, by his dealings in the property, procured a personal advantage. He repeats that the Ks had no equity left in the property and they had withheld rent payments properly owing to him.
[48] Additionally, Mr Hong submits the Tribunal’s decision is biased, unreasonable and not in accordance with the rule of law. The Tribunal failed to provide its reasons for preferring the Ks evidence to his evidence.
[49] Mr Hong further submits that the decision is a travesty of justice as he had bent over backwards to help the Ks and did not charge them for his work apart from work
undertaken by his legal executive. He was the one who had suffered, not his former clients.
[50] Finally, Mr Hong says that cultural considerations should be taken into account. He refers to a study undertaken by Ms Mai Chen.7 Mr Hong relies on a statement in the paper as to the perception, corroborated by a literature review, that people of Chinese ethnicity are more likely to conduct business by a “handshake”, on the basis of a trusting relationship, than to complete transactions with written agreements. Mr Hong says he undertook the loan to the Ks by a mere handshake in accordance with his culture. He said this should have been taken into account.
Respondent’s response – liability decision
[51] Mr Collins for the respondent, Auckland Standards Committee No. 5 (Standards Committee), submits that the appeal against the misconduct finding should be dismissed. In summary he says that Mr Hong’s intervention in the proprietary and financial affairs of his clients when they were experiencing difficulty in completing the purchase of the property, was premised on a misguided notion of charity in which Mr Hong did not accept that he was bound by professional rules or standards at all. The notion of charity was misguided because it failed to acknowledge Mr Hong’s paramount professional responsibilities.
[52] Mr Collins submits that the manner in which Mr Hong took control of the property, through to and including his sole personal ownership and his status as his former clients’ landlord, involved serious breaches of the rules restraining lawyers from personally entering into proprietary and financial dealings with their clients.
[53] Mr Collins submits that a finding at a level of culpability less than misconduct would not have adequately reflected the nature and extent of Mr Hong’s professional failings.
7 Mai Chen Culturally and Linguistically Diverse Parties in the Courts: a Chinese Case Study
(November 2019).
Approach on appeal
[54] An appeal to this Court under s 253 of the Act from a decision of the Tribunal must be by way of rehearing.8 Whether the appeal is against a finding of misconduct or against penalty (with the exception of costs) the appeal is a general appeal.9
[55] The appellate court considers the merits of the case afresh.10 It must be persuaded that the decision under appeal is wrong11 but the weight the appellate court gives to the reasoning of the court or tribunal below is a matter for the appellate court’s assessment.12 The appellate court may consider it appropriate to give due regard to a specialist tribunal’s assessment.13
[56] The parties to the appeal are entitled to judgment in accordance with the opinion of the appellate court, even where that opinion is an assessment of fact and degree and entails a value judgment.14 If the appellate court’s opinion is different from the conclusion of the court or tribunal below, then the decision under appeal is wrong in the only sense that matters, even if it was a conclusion on which minds might reasonably differ.15
Transactions or financial dealings with clients
[57] In his submissions, Mr Collins provides a helpful summary of the established principles in relation to lawyers entering into transactions or financial dealings with their clients. Mr Hong has no issue with the principles as summarised by Mr Collins.
8 Section 253(3)(a).
9 Sisson v Standards Committee (2) of the Canterbury-Westland Branch of the New Zealand Law Society [2013] NZHC 349, [2012] NZAR 416 at [15]; and Davidson v Auckland Standards Committee 3 [2013] NZHC 2315, [2013] NZAR 1519 at [6]-[9].
10 Kacem v Bashir [2010] NZSC 112, [2011] 2 NZLR 1 at [31].
11 Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 2013, [2008] 2 NZLR 141 at [13].
12 Kacem v Bashir, above n 10, at [31]. No deference is required beyond the customary caution when seeing the witnesses gives an advantage when credibility is important (Austin, Nichols & Co Inc v Stichting Lodestar, above n 11, at [13]).
13 Orlov v New Zealand Lawyers and Conveyancers Disciplinary Tribunal [2014] NZHC 1987, [2015] 2 NZLR 606 at [191]; and Young v National Standards Committee [2019] NZHC 2268 at [34].
14 Davidson v Auckland Standards Committee, above n 9, at [6]-[9].
15 Austin, Nichols & Co Inc v Stichting Lodestar, above n 11, at [16]; and Kacem v Bashir, above n 12 at [32].
It is the Tribunal’s application of those principles to the facts that Mr Hong argues was wrong.
[58] It is fundamental that all lawyers have a professional duty to avoid conflicts between their own interests and those of their clients. That duty is expressed fiduciary terms:16
The general principles are well settled. A solicitor has a fiduciary duty in equity to his client. The relationship between solicitor and client carries with it obligations on the solicitor’s part to act with absolute fairness and openness towards his client. Like any other agent, but to a higher degree because of his position as an officer of the Court and the privileges which the law attaches to legal professional confidence, he is bound to observe the utmost good faith towards his client.
[59] It is a breach of a lawyer’s professional and fiduciary duties to act for a client in a matter in which the lawyer has an interest, without proper disclosure and informed consent.17 Both the RPC (r 1.03) and the CCCR (r 5.4) impose an absolute prohibition on lawyers acting or continuing to act for a client in any matter in which the lawyer has an interest unless the matter is uncontentious and the interests of the lawyer and the client correspond in all respects.
[60] Foresight is required. Rule 5.4.3 provides that a lawyer must not enter into any financial, business or property transaction or relationship with a client even where there is a possibility of the relationship of confidence and trust between lawyer and client being compromised. The principle of undivided loyalty has been expressed as follows:18
The solicitor must be dedicated to the best interests of the client. If the solicitor is to have business dealings with the client the requirements of the law are rigorous. That is not simply because of the opportunity that exists in such a case for the confusion of roles. Rather it is because the solicitor is presumed to be in a position of special influence over the client. A client must be able to place complete reliance on the professional advice of the solicitor and is entitled to expect that the solicitor will serve and protect the client’s interests at all times. Wherever there is potential for conflict of interest, there
16 Farrington v Rowe McBride & Partners [1985] 1 NZLR 83 (CA) at [89].
17 Day v Mead [1987] 2 NZLR 443 (CA).
18 Simms v Craig, Bell & Bond [1991] 3 NZLR 535 (CA) at 543-544.
is a risk that the advice of the solicitor may be influenced insidiously or even unconsciously by the prospect of benefit (other than professional remuneration) to the solicitor from the transaction which the solicitor is retained to carry through. If the client is to be in a position to make an informed decision about the proposed transaction he or she must be fully informed by the solicitor of the transaction and of all the implications for the client of entering into it. In short the client must be made aware of every circumstance relevant to his or her decision.
[61] Circumstances may change during the course of the retainer. Even where the lawyer considers he or she may continue to act, he or she must advise the client of the right to receive independent advice and explain to the client that, should a conflict arise, the lawyer must cease to act (r 5.4.4, CCCR).
[62] The concept of informed consent arises under r 1.04, RPC and rr 5.4.4 and 6.1.1, CCCR. The requirement of informed consent involves the following steps in which the lawyer must:19
(a)recognise a conflict of interest, or a real possibility of one;
(b)explain to the client what the conflict is;
(c)also explain to the client the implications of that conflict (for instance, it may be that the lawyer could not give advice which ordinarily the lawyer would give);
(d)ensure that the client has a proper appreciation of the conflict, and its implications;
(e)advise the client to take independent advice and arrange such advice if required; and
(f)obtain the informed consent.
19 Taylor v Schofield Petersen [1999] 3 NZLR 434 (HC) at 440.
[63]“Informed consent” means:20
… consent given in the knowledge that there is a conflict between the parties and that as a result the solicitor may be disabled from disclosing to each party the full knowledge which he possesses as to the transaction or may be disabled from giving advice to one party which conflicts with the interests of the other.
Did the rules apply to Mr Hong?
[64] Before I consider each of the charges and the individual rules upon which the charges are based, I address Mr Hong’s over-arching submission that the rules did not apply to him on the facts. As is apparent from Mr Hong’s responses to questions from the Chair and members of the Tribunal and under cross-examination, his position was (and continues to be) the rules did not apply because the arrangement with his clients was not a joint venture. It was simply a loan, intended to be short-term to assist them with their property purchase. He adds that it was the clients who have taken advantage of him by abusing his assistance, and not the other way around. An example of some of Mr Hong’s responses to questions are as follows:
The Chair to Mr Hong
QCan I just make sure that I’m understanding you, in that is it your position that the rules do not apply to this matter because I was giving personal help?
AThat’s right, I step in to assist them then to settle but of course I need my funds to be repaid and protected and it was as simple as that.
…
Q So can I summarise it then by (1) – by saying, “I’m going to have my funds protected (a) by transferring the property to the …”
A BGH Trusteeship Limited holding.
…
Q And then?
A Yeah, so I could then decide how long am I prepared, you know, to allow the funds, allow them, you know, to better their financial situation, yeah.
20 Clark Boyce v Mouat [1993] 3 NZLR 641 (PC) at 646.
[65]Then there was the following in cross-examination by Mr Collins:
Cross-examination Mr Collins
QMr Hong is it your position that in all the events surrounding the purchase of the Kerikeri property from the time the agreement was entered into in September 2005 … through to the time when you personally took title [sic] that property and borrowed money against it is it your position that you have done nothing professionally wrong in any of these events?
A Yes.
Q That is your position?
A That’s right.
QAnd because of this case you’ve been confronted with some rules, the old rules of professional conduct and the current conduct in [sic] client care rules about conflicts and dealing with matters where lawyers go into dealings with their own clients, you’ve acquainted yourself with those rules, haven’t you?
A Yes.
QAnd you consider that you have not infringed any of those rules at any of the events we’re looking at today?
A No.
QOkay. And the reason for the absence of any duty to people like the Ks when you’re entering into a transaction with them is because you’re doing it to help them, is that basically sound?
A That’s right. That’s right.
[66]There was the following question from a Tribunal member:
Q But your position on those conflict of interest rules is that they didn’t apply to you in this situation?
A That’s right because I’ve nothing to gain. Now if you enter into a business arrangement and you’ve got a profit motivation which is in writing and enforceable against, you know, the client, then yes, then a conflict.
[67]And, finally, there were the following questions from the Chair:
QMr Hong, I just want to conclude our discussion today by just noting that you told Mr Collins in his very first question to you that from the
beginning of all of this to the end your view was that you had done nothing professionally wrong?
A No.
Q And so, and you consider that you have not infringed any of the rules because you were doing something to help your then clients and that you were acting out of conscience?
A Yes.
QI just want to confirm the fact that I recorded your position with you and that, and ask, is it still your position then that “The rules do not apply to this matter because I was giving personal help and that was needed, but I needed my funds to be protected”?
A Repeat, yes that’s right.
Q And either by transferring the property to the trustee BGH? A Yes.
Q And then, if necessary, from your point of view, selling to get the property to get back the funds that you have advanced?
A That’s right.
[68] In the context of his evidence as to his charitable motives for assisting his former clients, Mr Hong made reference to his “Benevolence on the Conscience Fund” which was mentioned in a judgment in this Court,21 and on appeal from that decision in the Court of Appeal.22 That case was concerned with Mr Hong’s unsuccessful attempt to claim unpaid loans as tax deductible losses for his legal practice.
[69] Under cross-examination during the Tribunal hearing, Mr Hong accepted that his loan to the Ks was another example of the kind of loans under consideration in the earlier case. I note that in the High Court, Jagose J made the observation that Mr Hong’s loans to clients raised professional issues for him:23
[20] Last, there is no sufficient connection between Mr Hong’s legal services business, and the financial arrangements he seeks to deduct as bad debts. That the two loans at issue happen to be to his clients is not enough.
21 Hong v Commissioner of Inland Revenue [2018] NZHC 2539.
22 Hong v Commissioner of Inland Revenue [2019] NZCA 336.
23 At [20].
The two services do not naturally or easily co-exist. Mr Hong lending money to his clients raises significant issues under the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 – specifically, in addressing conflicting interests – about which there is no indication Mr Hong is aware or has addressed. …
[70]Then on appeal the Court of Appeal said:24
[45] In our view, Mr Hong cannot have matters both ways. If the loans are advanced to clients (whether through his firm or through a separate entity such as his company Orano Holdings Ltd), there is the potential for a conflict of interest and Mr Hong would be required to comply with the relevant rules requiring independence, including a prohibition on engaging in conflicting business activities. Prioritising the benevolent aspect of the lending over the financial aspect does not remove that risk and, as we have already noted, tells against it being a normal business activity.
[71] I accept that Mr Hong’s conduct under scrutiny in this case occurred before the above judgments in the High Court and Court of Appeal, but the point is that Mr Hong was aware of those judgments at the time of the hearing in this case before the Tribunal.
[72] Nevertheless, he persisted in his view that the rules did not apply to him. That argument cannot be sustained as a matter of principle. He was acting for a client on a transaction that involved the purchase of a property. Mr Hong provided funds to enable the purchase to be completed. He acted for both himself and the client. There can be no doubt that the rules applied. And they applied regardless of whether there was to be joint ownership or an absence of any profit motive on the part of Mr Hong. But, in any event, there was evidence that contradicts Mr Hong’s assertion there was no “profit motivation” and his assertion there was to be no joint ownership. That leads me to the next section of this judgment in which I address Mr Hong’s criticisms of the Tribunal’s factual findings.
24 At [45].
Tribunal’s factual findings
[73] The Tribunal made only a limited number of factual findings. It considered that it was not necessary to address in detail all the particulars of the charges given the facts that Mr Hong did admit and “the resolute stand he has taken to these proceedings”.25 In my view that was an appropriate approach.
[74] The limited factual findings that were made in the liability decision were not inconsistent with Mr Hong’s evidence. The Tribunal did not make a finding on whether the arrangement was a “joint venture” or a loan. It simply noted the respective positions of Mr K and Mr Hong. And it was not necessary for the Tribunal to make a finding on this issue for the purpose of considering whether or not the charges were proven.
[75] Similarly, in the liability decision the Tribunal did not make a finding as to whether Mr Hong entered into the arrangement with a profit motive in mind. Again it was not necessary to determine that issue in order to decide if the charges were proven. However, in the penalty decision the Tribunal referred to Mr Collins’ submission that Mr Hong entered into “a personal transaction with clients where he had an eye to personal profit”.26 The Tribunal said it adopted Mr Collins’ submissions as its reasons for the orders it made.
[76] I therefore turn to the evidence on that issue and the issue of an alleged joint venture which is bound up with it.
[77] The proposal at the outset, as described by Mr K, included that the property would be settled under the joint ownership of CLT and Mr Hong personally or an entity under his control. Ownership was to be in equal shares between the parties. Once the property was under the joint ownership of CLT and Mr Hong, it would either be sold
25 Auckland Standards Committee 5 v Hong, above n 1, at [39].
26 Auckland Standards Committee 5 v Hong, above n 2, at [12](a).
for a profit on the then rising market or held to earn rental income. The joint owners would share in any income or any capital gain when it was sold. When CLT was in a position to do so, it would purchase its half interest from Mr Hong.
[78] In the absence of any documentation at the time the arrangement was entered into, the best evidence is in communications by Mr Hong prior to any issues about his conduct arising.
[79] On 27 November 2007, Mr Hong sent an email to the Ks concerning the intended settlement of the purchase of the property and his suggestion that the Ks could buy him out at that time. The email reads as follows:
The caveats have come off the property. We can now transfer the property to ourselves in equal half shares. If you guys want the house as your homestead, you could take me out with a good offer I hope.
Otherwise arrange for a Westpac mortgage and inform Westpac …
[80] This email supports Mr K’s evidence that the arrangement was to be for joint ownership of the property as between CLT and Mr Hong. It also indicates that Mr Hong was seeking to make money out of the arrangement.
[81] Second, in an email to the Ks’ accountant on 20 August 2009, Mr Hong referred to the arrangement for the purchase of the property. The email included the following:
… I have had to step in to assist, took an assignment of the agreement and settled. I am hoping the Trust will be able to repurchase the property from me once it is in a better financial situation after getting rid of all its loss [sic] businesses. If not then we could go half share each. Unfortunately the client could not raise ½ of the funds, at this stage either.
If client could not purchase then it may be that I will have to resell it. On the sale thereof and if there is a gain, the net proceeds will first be applied towards an adjustment taking into account rental income received, interest at Westpac’s home lending rate (which the client would be charged at, had it been able to raise the funds) on the loan I advanced and any expenses. Any gain will then be equally divided and the same goes with any losses.
(emphasis added)
[82] This email again indicates Mr Hong intended to profit from the arrangement. It also mentions a half share in the property as between CLT and him.
[83] Third, the Court of Appeal, referring to Mr Hong’s evidence before the Taxation Review Authority, said this:27
… In his evidence to the Authority he explained that the fund was used to help clients whom he considered would benefit from his assistance. His criteria for access to the fund were as follows:
(a)it was to help longstanding clients;
(b)the clients were people who were in financial difficulty but whom he was “confident” could overcome their difficulties with his help;
(c)the clients had to be “good people”; and
(d)the need for assistance must be related to a matter that came up in the course of acting for the client.
[8] In return he says the clients had to agree to “do right” by him and pay not just interest, but also a bonus once he had got them out of their dilemma.
(emphasis added)
[84] Mr Hong acknowledged that the loan to the Ks was in the same category as the loans under consideration in the High Court and Court of Appeal taxation case. Mr Hong said the following in his evidence:
QAnd, finally, in return the clients had to, quote, “To do right by you and pay not just interest but also a bonus”.
A Yes.
Q Is that correct?
A That’s right.
Q So those terms applied to the [Ks], did they? A On the conscience, yes.
27 Hong v Commissioner of Inland Revenue, above n 22, at [7].
[85] Although Mr Hong says the bonus requirement did not apply in this case, the evidence referred to above, in my view, contains an acknowledgment that there was to be a bonus payment at the end of the arrangement.
[86] And fourth, in taking personal control of the property, Mr Hong was able to use it to his own advantage by offering it as security for a loan to pay personal legal fees.
[87] In my view the above evidence shows that, contrary to his assertions before the Tribunal and again in this Court, Mr Hong did intend to profit from the arrangement with the Ks and that the arrangement was to be for joint ownership as between himself and CLT.
[88] Mr Hong also challenges what he asserts is a factual inference that the $50,000 payment made to him by Mr K on 11 February 2009 was a capital payment, as opposed (he says) to payment of rent.
[89] There was disagreement between Mr K and Mr Hong later in 2009 over the nature of the payment. In an email dated 20 August 2009, which Mr Hong sent to the trust’s accountant, copying in Mr K and Ms D, Mr Hong described the payment as rent. Having seen the email, Mr K telephoned Mr Hong, as he was unhappy about it. Mr K said he told Mr Hong that the payment of $50,000 was not for rent, but it was a part-payment for the trust’s interest in the property. He said Mr Hong replied only by saying that the Ks needed to make him a fair offer for the property.
[90] In the absence of any documentation at the time the payment was made and in the absence of any cross-examination on this issue, it is not possible to reach a view on what the payment was for.
[91]In its liability decision, the Tribunal simply referred to CLT paying a further
$50,000 to Mr Hong. Then in the context of its discussion of the alleged breach of r 5.4.3 it again referred to Mr Hong receiving $50,000 from CLT. It did not make a
finding on whether this was a capital payment or payment of rent. It was not necessary for it to do so. It was a payment by a client of a substantial sum without any associated documentation. The lack of clarity as to whether this was a rental or capital payment, underscores the perils that the rules are designed to avoid. I do not accept Mr Hong’s criticism of the way in which the Tribunal referred to this evidence.
[92] Mr Hong also takes issue with the Tribunal’s statement that he had procured a personal advantage. I do not accept there was an error in this regard. Mr Hong gained title to a property which his clients had contracted to buy. He was later able to use the property as security for personal borrowings.
[93]I now turn to address each of the charges and the relevant rules.
Charge 1: r 1.03
1.03A practitioner must not act or continue to act for any person where there is a conflict of interest between the practitioner on the one hand, and an existing or prospective client on the other hand.
[94] A key plank of Mr Hong’s argument in this Court was that there was no joint venture. I have found there was an arrangement proposed for the trust and Mr Hong to own the property together. But in the end it does not really matter for the purposes of the rules if it was a “joint venture” or some other financing arrangement.
[95]This is what Mr Hong said in his affidavit when describing the arrangement:
1st August 2006: Based on their representations to me [a] they will repay me as soon as they are able to provide their financial accounts to Westpac to uplift their mortgage with them [b] they will reimburse me the interest I had my funds on with Westpac [c] the [Z] property was to be sold, put on the market
[d] they will start to pay rent to me at 400/week and [e] we will do a final adjustment when my funds were repaid and [f] the [Z] property was to be assigned on to me, the title transferred on to BGHTL to await their redemption from me such to have protected my funds.
[96] What Mr Hong describes is a financing arrangement with a client for the purchase of a property. The CLT had already paid a deposit to the vendor, a further sum of $5,000 to Mr Hong’s trust account and Mr Hong was to personally participate
in the property purchase, providing funding to complete the purchase. He was to acquire an ownership interest (he said as security for the loan).
[97] I have found that the documentary evidence supports Mr K’s evidence that there was to be joint ownership with the aim on Mr Hong’s part of making a gain from the transaction. But in the end, even on Mr Hong’s version, this was a financing arrangement (in which he provided funds either personally or through a company he controlled) with a client.
[98] From the time the arrangement was discussed between Mr Hong and the Ks, he was acting for both his own interests and Ks’ interests. Even on his version, those interests were in conflict. He was to take ownership in circumstances where the Ks’ trust had paid a deposit towards the purchase price. As the Ks’ lawyer, he had a duty to protect and advise them about the terms and implications of the proposed arrangement. At the same time he was advancing his own interests. He had a responsibility to advise the Ks of the consequences of default on their part in circumstances where he was intending to acquire ownership of the home that the Ks family trust was purchasing.
[99] Mr Hong should have ceased acting for the Ks as soon as the joint financing (and ownership) arrangement was discussed.
[100]There was a breach of r 1.03.
Charge 1: r 1.04
1.04A practitioner shall not act for more than one party in the same transaction or matter without the prior informed consent of both or all parties.
[101] The allegation is that Mr Hong breached this rule because he acted for more than one party in the same transaction, namely himself and his clients, without informed consent.
[102] The evidence of the Ks was that at no time throughout the arrangement were they told by Mr Hong to take independent legal advice.
[103] In his affidavit, Mr Hong said, “this allegation that I failed to advise the Ks to take independent legal advice cannot stand …”. He did not however identify any evidence that he did advise the Ks to take independent legal advice. Rather, in his affidavit, he went on to say that he had bent over backwards and had acted to protect the Ks but could not further compromise his own situation. He insists it was the Ks who had abused his assistance.
[104] Mr Hong completely misses the point. The fact he considered he was helping the Ks in circumstances when he was acting both for himself and for their interests in the purchase of their home is no answer to the requirements of the rules. He did not advise the Ks to take independent legal advice and they did not give their prior informed consent.
[105]There was a breach of r 1.04.
Charge 1: r 1.07
1.07In the event of a conflict or likely conflict of interest among clients, a practitioner shall forthwith take the following steps:
(i)advise all clients involved of the areas of conflict or potential conflict;
(ii)advise the clients involved that they should take independent advice, and arrange such advice if required;
(iii)decline to act further for any party in the matter where so acting would or would be likely to disadvantage any of the clients involved.
[106] The allegation is that Mr Hong breached r 1.07 because there was a conflict or likely conflict between his interests and his clients’ interests in circumstances where he was acting for himself and he failed to take the necessary steps under the rule.
[107] Mr K’s evidence was that at the time the proposal was discussed with Mr Hong, they trusted him implicitly and were appreciative of his help. Mr K further said:
I was not conscious of and did not put my mind to the professional issues that arose when Mr Hong became personally involved in the settlement of [the property] because I trusted Mr Hong, as my lawyer, completely and I never
thought to question whether he was doing anything wrong or failing in his duties to me and my family.
[108]Ms D’s evidence was that:
As I have explained, I trusted and respected Mr Hong as our lawyer and did not have any reason to question his motives or his professionalism at the time of the joint venture proposal. I did not think to obtain independent legal advice, since I thought that was what he was meant to be doing, and he did not advise me to do so. He never mentioned it in my presence and, so far as I am aware, he did not suggest it to [Mr K] either.
[109] From the time of the proposed funding arrangement, there was a conflict or likely conflict of interest between Mr Hong and the Ks. None of the steps required in r 1.07 was taken by Mr Hong. He breached this rule.
Charge 2: rr 5, 5.1 and 5.2
5A lawyer must be independent and free from compromising influences or loyalties when providing services to his or her clients.
Independent judgement and advice
5.1The relationship between lawyer and client is one of confidence and trust that must never be abused.
5.2The professional judgement of a lawyer must at all times be exercised within the bounds of the law and the professional obligations of the lawyer solely for the benefit of the client.
[110] The allegation under these rules is that Mr Hong lacked independence when he dealt with the property as if it were his own. The key issue here is independence.
[111] As will be recalled, the transfer which finally occurred on 31 July 2008 was to Ms D and Mr Hong. On one view of the matter it could perhaps be said that the intention was to transfer the property to the trustees of CLT. Although Mr Hong was no longer a trustee, having been replaced by BGH Trusteeship Ltd on 13 June 2007, he gave his explanation for this (at [11] above).
[112]However the transfer that followed on 6 August 2008 to BGH Trusteeship Ltd
was inconsistent with the ownership of the property by the trustees. Ms D continued as a trustee at that time. Under cross-examination Mr Hong’s explanation was as follows:
Q… what was the justification for the transfer to BGH Trusteeship Ltd as the sole owner in your recollection of it?
A Say?
Q What was the justification for that?
AMy recollection is very clear. I was to control the sale, right, if they do not sell, as to how long I leave the funds in to allow them to restructure and all that.
Q All right. A Yeah.
Q So this was implementing the assignment concept?
AThat’s right the assignment of the property to me. It was purely, right, to have the funds repaid.
QSo it was, to put it in plain terms, to give you the unilateral power to sell the property if you weren’t being repaid or if the Ks were not honouring their agreement?
A Yeah, because it was agreed at the very beginning, right, from the tenancy agreement, we were to sell the property to repay me back ASAP.
QAnd is it your evidence that that does not put you into a conflicting relationship with your clients?
ANo, as I said my interpretation of conflict of interest is this, if you are going to benefit from a transaction or business deal –
…
QAnd your answer is … that you do not consider that you had a conflict when you became the only person in control of the title?
A No, no.
[113]Ms D’s evidence was that:
… Less than a week later, on 6 August 2008, the title records the transfer of the property to the sole ownership of BGH Trusteeship Ltd. Mr Hong told me about this but did not give me any reasons, only saying that I needed to trust him and that it was the right thing to do. … While [Mr Hong’s replacement by BGH Trusteeship Ltd] may explain the need for the company to be on the title,
rather than Mr Hong personally, it does not explain why I was removed from the title. I was a trustee throughout that time. I remember [Mr K] telling me that I should trust Mr Hong because that that was what he had advised and that I should do what he said and sign the necessary documents.
[114] The outcome was that Mr Hong had sole control over the property. The evidence of Mr K and Ms D was that this was not explained to them. Mr Hong does not suggest that it was.
[115] There were then the two subsequent transfers on 4 August 2011 and 12 December 2012 to Nominees and Trustees Ltd (another of Mr Hong’s companies) and then to him personally.
[116] In the meantime, and before the two subsequent transfers, CLT, as already noted, paid $50,000 on 11 February 2009. This was done without any accompanying advice or explanation or documentation to protect the interests of CLT. Mr Hong would have it that this payment was for rent, whereas Mr K’s position is that this was a further payment towards the trust’s equity in the property. As I have noted above, it is not necessary to resolve this issue.
[117] What can be said is that from the time of the transfer on 6 August 2008, on any view of things, any notion of independence was not present. Mr Hong dealt with the property as if it was his own. That continued when he received the $50,000 payment from the Ks (whether as rent or a capital payment) and when he acted in the subsequent transfers of the property.
[118]There was a breach of rr 5, 5.1 and 5.2.
Charge 2: r 5.4
5.4 A lawyer must not act or continue to act if there is a conflict or a risk of a conflict between the interests of the lawyer and the interests of a client for whom the lawyer is acting or proposing to act.
[119] Mr Collins submits that the reality of Mr Hong’s position, at all times after 31 July 2008, was that he had a disqualifying conflict of interest because he was
obliged to protect the Ks and their trust while at the same time advancing his own interests in a substantial financial and property transaction.
[120] I accept Mr Collins’ submission that Mr Hong breached this rule by continuing to act in his dealing with the property, most particularly when he transferred it to BGH Trusteeship Ltd as the sole owner. From this time, Mr Hong had sole control over the property.
Charge 2: r 5.4.2
5.4.2A lawyer must not act for a client in any transaction in which the lawyer has an interest unless the matter is not contentious and the interests of the lawyer and the client correspond in all respects.
[121] Mr Hong continued to act for the Ks after 6 August 2008. Having acquired an interest in the property because of his personal loan and his ownership status, his interests and the interests of his clients did not correspond in all respects.
[122]Mr Hong breached this rule.
Charge 2: r 5.4.3
5.4.3A lawyer must not enter into any financial, business, or property transaction or relationship with a client if there is a possibility of the relationship of confidence and trust between the lawyer and client being compromised.
[123] The first issue that arises with this rule (and the following rule) is whether Mr Hong “entered into” a relevant transaction or relationship with the Ks after 31 July 2008. On the one hand it might be said that the transactions and the relationship were simply continuations of a transaction or relationship entered into previously.
[124] Relevant events that occurred were the transfer of the property into the sole ownership of BGH Trusteeship Ltd and the two subsequent transfers. There was also the Ks’ payment to Mr Hong of $50,000.
[125] Although these were events on a continuum, I consider each can properly be seen as a separate transaction:
(a)the wording of the rule (and r 5.4.4) contemplates individual financial or property transactions;
(b)the rule would be deprived of its force if it did not apply after the first transaction in the series.
[126] I consider the rule should be read so that each of Mr Hong’s actions can be identified as a separate transaction in which the duty to protect the Ks’ interests arose. At each stage he needed to address his professional duties. Because of his conflict of interest in each of the transactions I have referred to, there was a possibility that the relationship of confidence and trust between lawyer and the client being compromised.
[127]Mr Hong breached this rule.
Charge 2: r 5.4.4
5.4.4A lawyer who enters into any financial, business, or property transaction or relationship with a client must advise the client of the right to receive independent advice in respect of the matter and explain to the client that should a conflict of interest arise the lawyer must cease to act for the client on the matter and, without the client’s informed consent, on any other matters. This rule 5.4.4 does not apply where –
(a)the client and the lawyer have a close personal relationship; or
(b)the transaction is a contract for the supply by the client of goods or services in the normal course of the client’s business; or
(c)a lawyer subscribes for or otherwise acquires shares in a listed company for which the lawyer’s practice acts.
[128] None of the exceptions in (a) to (c) applies. Mr Hong accepts he did not advise the Ks of their right to receive independent advice.
[129]There was a breach of this rule.
Charge 2: r 5.4.5
5.4.5In this rule, a lawyer is deemed to be a party to a transaction if the transaction is between entities that are related to the lawyer by control (including a trusteeship, directorship, or the holding of a power of attorney) or ownership (including a shareholding), or between parties with whom the lawyer or client has a close personal relationship.
[130] It is clear that Mr Hong was a party to the transaction in which the property was successively transferred, first to companies under his control and then to himself personally. As already noted, he was the sole director and shareholder of BGH Trusteeship Ltd and Nominees and Trustees Ltd. Mr Hong was therefore deemed to personally be a party to all those transactions.
[131]There was a breach of this rule.
Charge 2: rr 6 and 6.1
6.In acting for a client, a lawyer must, within the bounds of the law and these rules, protect and promote the interests of the client to the exclusion of the interests of third parties.
Conflicting Duties
6.1A lawyer must not act for more than 1 client on a matter in any circumstances where there is a more than negligible risk that the lawyer may be unable to discharge the obligations owed to 1 or more of the clients.
[132] Mr Hong, having acted for himself and the Ks after 31 July 2008 in the circumstances I have discussed, created a more than negligible risk that he would be unable to discharge the obligations he owed to the Ks. There was no informed consent.
[133]Mr Hong was in breach of this rule.
Charge 3: procuring a personal advantage to the detriment of his clients contrary to s 4(d) of the Act
[134]Section 4(d) of the Act provides:
4 Fundamental obligations of lawyers
Every lawyer who provides regulated services must, in the course of his or her practice, comply with the following fundamental obligations:
…
(d) the obligation to protect, subject to his or her overriding duties as an officer of the High Court and to his or her duties under any enactment, the interests of his or her clients.
[135] The allegation against Mr Hong on this charge was that he was in breach of one of the fundamental duties of a lawyer which, in this case, is to protect the interests of his clients.
[136] Mr Hong failed to do so by procuring a personal advantage for himself. Mr Hong became the owner of the property as a result of the consecutive transfers of title. This all flowed from a transaction in which his duty was to protect and advance the interests of his clients, not to serve his own interests. Mr Hong acquired the property without the informed consent of the Ks, and he was in breach of the fundamental obligation in s 4(d). Mr Hong submits that he has ended up making a loss on the property. Whether or not Mr Hong made a loss is irrelevant. But, as noted, he has used the property as security for a personal loan. As to whether the clients had any equity left in the property, that is irrelevant. However on their evidence they paid a deposit of $45,000, $40,000 of which was paid direct to the vendor. Mr Hong does not dispute that. The Tribunal was correct in its finding on this charge.
[137] Having upheld the Tribunal in its decision finding the charges proven, it follows that I do not accept Mr Hong’s submission that the Tribunal was concerned with the form as opposed to the substance of the rules. It also follows that I do not accept Mr Hong’s submission that the Tribunal erred in interpreting the need for independence on the facts of the case before it.
Was there misconduct?
[138] I have upheld the decision of the Tribunal that there were breaches of the relevant rules and, accordingly, that the charges were proven. It is next necessary to consider whether the Tribunal was correct in determining that the conduct reached the
level of misconduct, or whether it was more properly conduct unbecoming (charge 1) or unsatisfactory conduct (charges 2 and 3) or, in the further alternative, negligence or incompetence (all three charges).
[139] In finding that the charges reached the level of misconduct, the Tribunal accepted the submissions made by Mr Collins as set out in [38] of the Tribunal’s decision (reproduced in [41] above). The Tribunal added that Mr Hong’s conduct fell well short of the standards required of him as a practitioner at the time.
[140] Section 112(1)(a) of the Law Practitioners Act 1982, which applies to charge 1, provides that if the disciplinary tribunal is of the opinion that the practitioner has been guilty of misconduct in his professional capacity it may, if it thinks fit, make an order under s 112.
[141] Section 7 of the Act, which applies to charges 2 and 3, defines misconduct and provides in relevant part:
7Misconduct defined in relation to lawyer and incorporated law firm
(1)In this Act, misconduct, in relation to a lawyer or an incorporated law firm,—
(a)means conduct of the lawyer or incorporated law firm that occurs at a time when he or she or it is providing regulated services and is conduct—
(i)that would reasonably be regarded by lawyers of good standing as disgraceful or dishonourable; or
(ii)that consists of a wilful or reckless contravention of any provision of this Act or of any regulations or practice rules made under this Act that apply to the lawyer or incorporated law firm or of any other Act relating to the provision of regulated services;
…
[142] Mr Hong submits that the Ks did not suffer any financial loss and he did not gain anything. There was no finding of dishonesty against him. He trusted the Ks and it was an oversight not to have the loan documented and signed before an independent lawyer. He submits this does not reach the level of misconduct.
[143] Mr Collins submits that the Tribunal was correct in finding there was misconduct. He refers to what he describes as the deliberate nature of the scheme; the absence of any attempt by Mr Hong to recognise any conflict and the need for the Ks, at various points over an extended period, to have independent advice; and Mr Hong’s persistence in saying that he had done no wrong and that the rules did not apply to him.
[144] The Court of Appeal has observed that the definition of misconduct in the Act may affect the application of authorities decided under the Law Practitioners Act:28
Unlike the Law Practitioners Act 1982, which the current Act repealed and replaced, there is a lengthy definition of what constitutes “misconduct” in ss 7–11 and “unsatisfactory conduct” in ss 12–14 of the Act. These definitions must be kept in mind when considering the applicability of the authorities decided under the earlier legislation. The definition of misconduct relevantly includes (under s 7(1)(a)(i)), conduct of a lawyer when providing regulated services “that would reasonably be regarded by lawyers of good standing as disgraceful or dishonourable”. Misconduct is also defined to include certain wilful or reckless contraventions or failings (s 7(1)(a)(ii) and (iii)) and charging grossly excessive costs for legal work (s 7(1)(a)(iv)).
[145] However, it is necessary in this appeal to consider those authorities for the purposes of charge 1. An accepted starting point is Complaints Committee No 1 of the Auckland District Law Society v C where Winkelmann J, as she then was, giving judgment for the Full Court, stated that adjectives such as “disgraceful”, “dishonourable” and “reprehensible” describe the “gravity of the conduct” but “reveal little of the type of conduct intended to be caught”.29
[146] The Judge went on to say that the “essential characteristics of conduct that will amount to professional misconduct are well described in Re A (Barrister and Solicitor of Auckland)”, particularly endorsing the statements of Kirby P in Pillai v Messiter (No 2) referred to in Re A (Barrister and Solicitor of Auckland).30 The Judge noted that Kirby P’s conclusion was that “professional misconduct” did not include “mere professional incompetence” but required more: “a deliberate departure from accepted standards or such serious negligence as, although not deliberate, to portray
28 J v Auckland Standards Committee 1 [2019] NZCA 614 at [32].
29 Complaints Committee No 1 of the Auckland District Law Society v C [2008] 3 NZLR 105 at [30]
30 At [31].
indifference and an abuse of the privileges which accompany registration [in a profession]”.31
[147] This Court, again sitting as a Full Court, addressed these issues further in Shahadat v Westland District Law Society, and settled on a similar approach by distinguishing between dishonest and dishonourable conduct:32
It is important to bear in mind that “dishonesty” can have different connotations. (It may describe criminal acts. But it may comprise acting deceitfully towards a client or deceiving a client through acts or omissions.) “Dishonourable” behaviour on the part of a practitioner may well be different to that which is seen to be “dishonest” in the fraudulent sense. “Dishonest” may carry a connotation of “fraudulent”, whereas “dishonourable” behaviour may cover a wide range of disgraceful, unprincipled, wrongful acts or omissions comprising blatant breaches of duties owing by a professional person.
[148] Dishonest or dishonourable conduct was “blatant” or “deliberate” actions in breach of “duties” owed or “privileges” held by a person in a profession.
[149] As to s 7 of the Act, although Shahadat was decided under the Law Practitioners Act 1982, the reasoning of the Full Court was adopted by Wylie J in considering s 7 of the Act in A v National Standards Committee.33 Nor, as Whata J observed in Burcher v Auckland Standards Committee 5 of the New Zealand Law Society, is disgraceful and dishonourable conduct limited to intentional wrongdoing. The Judge considered it “clear from the authorities that the presence or absence of an intentional breach of expected standards, together with the presence or absence of harm (including financial and/or emotional harm) to a client or third person, will be relevant to the assessment”.34
[150] Indeed, as is made clear by Winkelmann J in Complaints Committee No 1 of the Auckland District Law Society v C: “While intentional wrongdoing by a practitioner may well be sufficient to constitute professional misconduct, it is not a
31 At [31].
32 Shahadat v Westland District Law Society [2009] NZAR 661 (HC) at [31].
33 A v National Standards Committee [2020] NZHC 563.
34 Burcher v Auckland Standards Committee 5 of the New Zealand Law Society [2020] NZHC 43. See Complaints Committee No 1 of the Auckland District Law Society v C [2008] 3 NZLR 105 at [31]; Deobhakta v Waitako Bay of Plenty Standards Committee [2015] NZHC 965; Ellis v Auckland Standards Committee No 5 [2019] NZHC 1384; A v Canterbury Westlands Standards Committee No 2 [2015] NZHC 1896.
necessary ingredient of such conduct”.35 Although dealing with misconduct under the Law Practitioners Act 1982, C was adopted by Muir J in Ellis v Auckland Standards Committee 5 in his analysis of the terms of s 7(1) of the Act, which he described as authoritative on the question of what constitutes disgraceful or dishonourable conduct.36
[151] J v Auckland Standards Committee 1 is a helpful application of these principles in the context of s 7 of the Act.37 J was a legal practitioner who was found guilty of a charge of misconduct by the Tribunal. That decision was appealed to the High Court and Jagose J found the misconduct charge proved. The facts of the case were complex but turned on the mistaken payment of a sum of money into J’s trust account by the former employer of his client, with whom a settlement had been reached. The funds were incorrectly used by J, rather than returned. It was more than two years before the error was discovered.
[152] The charge of misconduct described the actions of J as disgraceful or dishonourable, so came within s 7(1)(a)(i). J was given leave to bring an appeal to the Court of Appeal on a question of law. Much of the appeal was concerned with the categories of conduct in the Act. The Court of Appeal found the Tribunal was entitled to find misconduct because “J’s proven failings went beyond negligence and involved breaches of his fiduciary duty to his client”.38 A lack of reasonable care alone is not sufficient to constitute misconduct but breaching a practitioner’s fiduciary duty to a client does amount to misconduct.
[153] The present case is one where a practitioner entered into a financial transaction with his clients, without telling them to obtain independent legal advice and which resulted in a conflict of interest and breach of his duties to his clients. This conduct continued over an extended period. It resulted in Mr Hong obtaining legal title to the property which the clients, through their family trust, entered into an agreement to purchase.
35 Complaints Committee No 1 of the Auckland District Law Society v C [2008] 3 NZLR 105 at [33]. Citing Re A (Barrister and Solicitor of Auckland) [2002] NZAR 452 (HC) at [49]-[51].
36 Ellis v Auckland Standards Committee 5 [2019] NZHC 1384.
37 J v Auckland Standards Committee 1 [2019] NZCA 614.
38 At [40].
[154] Mr Hong emphasises the absence of dishonesty and the lack of gain. However, the charges did not allege any dishonesty. It also cannot be said his conduct is somehow less serious because of his asserted lack of gain. At the very least, he acquired the property as a result of his status as the Ks’ lawyer. He obtained title in his own name and then he was able to use the property as security for personal borrowing.
[155]Mr Hong’s conduct was serious and it was on-going.
[156] Mr Hong’s submission that cultural considerations should be taken into account does not assist him. The Court is of course aware of the need to acknowledge diverse cultural practices. But Mr Hong’s cultural background cannot relieve him of compliance with the rules of his profession. Nor does it justify the Benevolence on the Conscience Loan Fund as an exception to Mr Hong’s professional obligations.
[157] I find that, in relation to charge 1(conduct up to 31 July 2008), Mr Hong’s conduct involved such serious negligence as to portray indifference and an abuse of the privileges which accompany registration as a law practitioner. It was dishonourable conduct in that his acts were disgraceful, unprincipled and wrongful, comprising blatant breaches of duties owed by him as a lawyer to his clients.
[158] In relation to charges 2 and 3 (conduct from 1 August 2008) Mr Hong’s conduct was disgraceful and/or dishonourable in terms of s 7(1)(a)(i). Mr Hong’s conduct went beyond negligence and involved breaches of his fiduciary duty to his clients.
[159] Finally, there is Mr Collins’ submission that the Court may take into account Mr Hong’s position that he has done no wrong and the rules do not apply to him. In my view, this does not aggravate the conduct but it does provide assistance in terms of an analysis of the definition in s 7(1)(a)(ii). Wilful, as opposed to reckless, contravention requires some actual knowledge that the act is a contravention.39 Mr Hong has steadfastly referred to his subjective belief that he did no wrong. However under s 7(1)(a)(ii) misconduct may also consist of a reckless contravention,
39 Hong v Auckland Standards Committee No 5 [2020] NZHC 744 at [59].
that is wilful blindness.40 In this case Mr Hong heedlessly went into the arrangement without addressing his responsibilities. This was a reckless contravention of the relevant rules. I find there was a misconduct under s 7(1)(a)(ii) (as well as under s 7(1)(a)(i)).
[160] The Tribunal was correct to find that Mr Hong’s conduct reached the level of misconduct. In making its findings there was no bias on the part of the Tribunal nor was its decision unreasonable. The necessary facts, which were mostly admitted by Mr Hong, supported the findings on the charges and the Tribunal’s finding of misconduct.
The Tribunal’s penalty decision
[161] The Tribunal, in its penalty decision of 29 April 2020, made orders striking Mr Hong’s name off the Roll of Barristers and Solicitors under s 242(1)(c) of the Act and directing him to pay:
(a)The costs of the Law Society, totalling $29,450;
(b)A refund to the New Zealand Law Society of the costs of the Tribunal in the sum of $6,923; and
(c)Compensation of $8,000 to Mr K under s 156(1)(d) of the Act.
[162] The Tribunal referred to the primary purpose of its penal jurisdiction as the protection of the public and the maintenance of professional standards.41
[163] In respect of striking off, the Tribunal referred to the “enduring principle” to be applied, as set out by the High Court in Dorbu v New Zealand Law Society:42
The question posed by the legislation is whether, by reason of his or her conduct, the person accused is not a fit and proper person to be a practitioner. Professional misconduct having been established, the overall question is whether the practitioner’s conduct, viewed overall, warranted striking off.
40 At [59].
41 Daniels v Complaints Committee 2 of the Wellington District Law Society [2011] 3 NZLR 850 (HC) at [22].
42 Dorbu v New Zealand Law Society No 2 [2012] NZHC 564, [2012] NZAR 481 at [35].
The Tribunal must consider both the risk of reoffending and the need to maintain the reputation and standards of the legal profession. It must also consider whether a lesser penalty will suffice. The Court recognises that the Tribunal is normally best placed to assess the seriousness of the practitioner’s offending.
[164] The Tribunal stated that in considering the penalty of striking off, it had considered the relevant factors set out in Hart v Auckland Standards Committee 1 of the New Zealand Law Society,43 which the Tribunal summarised as follows:
(a)The nature and quality of the misconduct found to be established;
(b)Previous disciplinary history;
(c)Any evidence of remorse or insight;
(d)The need for deterrence; and
(e)Consideration of any aggravating or mitigating factors.
[165] As to the seriousness of Mr Hong’s conduct, the Tribunal referred to Mr Collins’ summary as follows:
(a)It was difficult to envisage a more compromising situation involving a lawyer entering into a personal transaction with clients where he had an eye to personal profit;
(b)The absence of any advice to the clients about the arrangement, the perils they might face and the absence of any recommendation that they seek independent advice or an explanation from Mr Hong why independent advice would be wise; and
(c)Viewing the transactions in their totality, Mr Hong committed an egregious breach of the rules and of the established principles and standards.
43 Hart v Auckland Standards Committee 1 of the New Zealand Law Society [2013] NZHC 83, [2013] 3 NZLR 103 at [181]-[189].
[166] As to deterrence, the Tribunal noted Mr Collins’ submission that the important features of Mr Hong’s disciplinary record were:
(a)The span of his career over which they occurred, indicating an enduring tendency to breach professional standards;
(b)The range of categories of professional irresponsibility for which discipline has been imposed, including;
(i)unprofessional dealings with others;
(ii)breach of an undertaking;
(iii)misrepresentation about liability insurance cover;
(iv)breach of trust accounting reporting standards;
(v)communicating directly with a party known to be represented by a lawyer;
(vi)undue delay with, and failure to complete, a retainer; and
(vii)obstructing the inspectorate.
[167] The Tribunal referred to Mr Collins’ submission that the disciplinary record demonstrated a continuing disregard for the rules and standards of professionalism across a range of activities consistent with Mr Hong’s denial of any breach of professional standards in this case.
[168] Further in relation to deterrence, the Tribunal’s decision recorded Mr Collins’ submission that the case before it included all of the factors warranting specific and general deterrence in the interests of public protection and the maintenance of confidence in the legal profession and its disciplinary institutions.44
44 Citing Legal Services Commissioner v Nomekos [2014] VCAT 251 at [24].
[169] Finally, on the Hart factors, the Tribunal’s decision recorded Mr Collins’ submission that there were no mitigating factors. Mr Hong had not accepted that he had done anything wrong and, consistently with that attitude, had not taken any steps to mitigate the harm he caused his former clients.
[170] The Tribunal referred to Mr Hong’s submissions, noting that Mr Hong had held to the views he expressed during the liability hearing. His primary position continued to be that the rules did not apply to his financial assistance to the Ks in the circumstances. He submitted that his disciplinary history was not relevant to the question of penalty because he had not been sanctioned on the same subject matter or issues.
[171] As to deterrence, Mr Hong’s submission to the Tribunal was that there was no need for deterrence. There was not likely to be any concern for the future because his Benevolence on the Conscience Fund had made its last advance. He was not prepared to make further advances from the fund because human kind could not be trusted when it comes to money. He had nothing to be remorseful over and his loss, he stressed, was greater than that of the Ks.
[172] The Tribunal adopted as the reasons for its orders, the submissions of Mr Collins, describing them as comprehensive, careful and supported by authority. The Tribunal noted it was mindful of the requirement to consider whether a lesser penalty would suffice but it did not find that to be the case. The Tribunal endorsed Mr Collins’ submission that it was difficult to envisage a more compromising situation involving a lawyer entering into a personal transaction with his clients.
[173] In relation to costs, Mr Hong’s position was that he did not have the income to pay costs as sought. Mr Collins’ submission was that the profession should not be burdened with the costs of the proceeding. The case had been a major exercise in unravelling a complex situation and full costs were sought. The Standards Committee also sought the usual order that Mr Hong refund to the Law Society the Tribunal’s costs which are payable by the Law Society.
[174] The Tribunal considered the costs claimed were not unreasonable. Mr Collins’ hourly charge out rate was at the amount regularly accepted by the Tribunal as appropriate.
[175] Finally, in relation to compensation to Mr K, this was sought to compensate Mr K for the emotional harm he had suffered. It was submitted that the case stood out for an award. Mr K had been living with an unresolved situation for 12 years, causing him stress and anxiety, including that caused by Mr Hong’s unsuccessful attempt to have him evicted from the property. The Tribunal accepted that submission and made an order of $8,000 by way of compensation to Mr K.
Grounds of appeal – penalty decision
[176] In relation to penalty, Mr Hong repeats many of his submissions in relation to the charges and misconduct, which I have already addressed. He also submits that the penalty of striking him off the Roll of Barristers and Solicitors was manifestly unjust, excessive and against legal principles in the circumstances.
[177] He submits that as there had been no joint venture, at worst, in relation to penalty he could only be sanctioned for oversight on his part. He trusted the Ks, did not require them to enter into a loan agreement with him and did not advise them to seek independent legal advice. He submits the sanction for an error of judgement of that sort should merely be a censure and a fine.
[178] In relation to his previous disciplinary history, Mr Hong submits that most of the previous misconduct findings against him had been over correspondence he had issued to third parties. They did not relate to complaints by previous clients. Mr Hong refers to the most recent decision of this Court upholding three months’ suspension and says he has made an application for leave to appeal that judgment to the Court of Appeal.45
[179] He submits the Tribunal erred in considering there was a need for deterrence. He says there will be no repeat of his lending to clients as he has asked “our Higher
45 A decision on that application refusing leave has now been given. See Hong v Auckland Standards Committee No. 5 [2020] NZHC 1572.
Conscience” for him to be released from helping humans who cannot be trusted when it comes to money.
[180] He submits a mitigating factor was that his loan to the Ks was not a business adjunct to his law practice. It therefore has to be treated as private lending to clients unconnected with his provision of legal services.
[181] As to the costs award of $29,540, Mr Hong submits this was manifestly excessive and the Law Society should carry all of the costs (particularly if he is successful in his appeal on the misconduct finding and the penalty of strike off).
[182] In terms of the compensation order of $8,000 required to be paid to Mr K for emotional harm, Mr Hong submits the order is ultra vires as there must be an actual financial loss.
Discussion
[183] There is no dispute over the Tribunal’s statement of principles from Dorbu and Hart. As is apparent, Mr Hong takes issue with the application of those cases to his conduct. On an appeal of this nature it is appropriate for this Court to reach its own view, but give due regard to the specialist tribunal’s assessment.46 I address the relevant factors following the sequence in the Tribunal’s decision.
Seriousness of the breaches
[184] First, the seriousness of the breaches. Mr Hong entered into an undocumented personal transaction with clients involving a significant asset, their intended family home, with real financial implications for the clients. The evidence I have referred to indicates that, in doing so, he had an eye to personal profit.
[185] There was a total absence of any advice to the clients about the arrangement or any possible consequences for them and, most importantly, the total absence of any
46 Orlov v New Zealand Lawyers and Conveyances Disciplinary Tribunal [2014] NZHC 1987, [2015] 2 NZLR 606 at [191].
recommendation that they seek independent advice and an explanation of why they should do that.
[186] The Tribunal was correct when it accepted Mr Collins’ submission that, viewing the transactions in their totality, this was an egregious breach of the rules and the established principles and standards encompassed in the three charges.
Disciplinary history
[187] Turning to Mr Hong’s disciplinary history, Mr Collins submits this was a key factor. Using the language of the High Court in Hart, he submits that this history may be an indicator that striking off is the only effective means of ensuring protection of the public in future. Mr Collins notes that although Mr Hong has been in practice for about 30 years, a significant feature of his disciplinary record is that most of the adverse findings (nine out of 11) relate to conduct over the last 10 years. There have been seven adverse findings since January 2016.
[188] There is a full discussion of Mr Hong’s disciplinary record in the recent decision of Gault J in Hong v Auckland Standards Committee No. 5.47 The range of categories of conduct for which discipline has been imposed is as set out in the Tribunal’s decision and referred to in [166](b) above.
[189] Mr Collins submits that the theme is one of disregard for the rules and standards of professionalism across a range of activity, consistent with Mr Hong’s disavowal of any breach of professional standards in this case.
[190] I respectfully agree with what was said by Gault J in his recent judgment on the disciplinary record as it then existed:
[82] Mr Hong’s disciplinary record since Gilbert J’s decision in 2014 is of concern. Leaving aside the fact that Mr Deliu appears as an adversary in several of the matters, Mr Hong’s disciplinary record since 2014 has included a finding of misconduct relating to correspondence sent in 2010 and 2012, where a two month suspension from practice was only quashed because he had already served a period of suspension for another matter where the Tribunal’s decision had been set aside. There are also four subsequent findings of unsatisfactory conduct, with two fines of $7,500 imposed. Even so, as Mr
47 Hong v Auckland Standards Committee No. 5, above n 39, at [78]-[83].
Collins’ submission to the Tribunal acknowledged, there was not a previous matter on all fours with the present matter. Indeed, there was nothing akin to it. One matter involved a breach of the Regulations (the first 2016 finding at [81](c) above), but not of the same nature as this case and it was not a serious breach.
[83] Having reviewed these disciplinary matters, I acknowledge that they span Mr Hong’s career and involve a range of professional shortcomings, but I consider that, more than indicating an enduring tendency to breach professional standards or a general disregard for the rules and standards, the increase in frequency of disciplinary findings over more recent years suggests a decline in Mr Hong’s capacity to maintain professional standards.
[191] The conduct involving a disregard for the rules in this case started in 2006 and continued over an extended period. During that time, Mr Hong was also involved in breaching the rules in other ways. The conduct, rather than being part of a recent decline, shows a serious disregard for the rules at a much earlier date than is disclosed in his disciplinary record. However, I take into account the otherwise more recent decline referred to by Gault J.
Deterrence
[192] This factor is both specific for the practitioner and general for all practitioners.48
[193] The Tribunal accepted Mr Collins’ submission that this case included all of the factors warranting specific and general deterrence in the interest of public protection and the maintenance of confidence in the legal profession and its disciplinary institutions.
[194] Mr Hong says he will not be making any loans again of this sort to clients. That does not remove the need for personal deterrence in my view. I say that because the reason that Mr Hong gives for his decision is not in recognition of his failure to comply with the rules but rather because people cannot be trusted, not even long- standing clients or friends, he says.
[195] The Tribunal was correct in its determination as to the need for both specific and general deterrence.
48 Legal Services Commissioner v Nomekos, above n 44.
Any aggravating or mitigating factors
[196] The issue of whether there was any evidence of remorse or insight was considered by the Tribunal under this heading.
[197] The Tribunal noted that Mr Hong had not accepted that he had done anything wrong and that consistently with that attitude, he had not taken any steps to mitigate the harm he had caused his former clients.
[198] The Tribunal was correct to find that there were no mitigating factors. There was also no evidence of any remorse or insight. To this day there is a lack of insight on the part of Mr Hong into what occurred, even with the benefit of the views of the High Court and Court of Appeal on his lending to clients under his Conscience Fund. He continues to blame the Ks, saying he is the one who has suffered not them. He describes the Tribunal’s decision as a travesty of justice.
[199] Taking all these factors together, and having regard to the assessment of the specialist Tribunal, I consider that the order striking Mr Hong from the Roll of Barristers and Solicitors was appropriate. Although this was Mr Hong’s first contravention of this nature, it was egregious conduct. Also, taking into account the frequency of the disciplinary findings against Mr Hong over more recent years and his lack of insight, the order striking him off was justified in the public interest, for the purposes of protection of the public and deterrence.
Compensation order
[200] The factors the Tribunal took into account were the number of years over which this matter spanned and the stress caused to Mr K by the unsuccessful efforts of Mr Hong to evict him from the property.
[201] Mr Collins submits that the modesty of the order meant that this was a fair and reasonable application of the compensation provision and should be upheld. Mr Collins says he is not aware of any other cases where the Tribunal has made an award for compensation for emotional stress under this provision. But he submits it was a valid exercise of the Tribunal’s penal jurisdiction, giving public confidence in
its authority by making an order that was more than symbolic, recognising Mr K’s losses at the hands of his lawyer.
[202] In his affidavits, Mr K provides evidence of the hardship he has endured as a consequence of Mr Hong's actions. Mr K placed his trust in Mr Hong to act in his interests. He acknowledges the informality of the arrangements for settlement of the Z property were unusual but he says it reflected the relationship he and his former wife had with Mr Hong. Ms D’s evidence is that she likewise trusted Mr Hong. Against this background, then, Mr K states the end of his marriage to Ms D was “in large part” caused by the difficulties arising from the ownership arrangements for the property (which Ms D confirms). Mr K has also had to deal with the difficulties arising from Mr Hong’s improper actions over a lengthy period.
[203] Section 242(1)(a) of the Act applies where a charge has been proved. The Tribunal may make “any order that a Standards Committee has the power to make under section 156 on the final determination of a complaint”. Section 156(1)(d) provides:
156 Power of Standards Committee to make orders
(1)If a Standards Committee makes a determination under section 152(2)(b), that Standards Committee may—
…
(d)where it appears to the Standards Committee that any person has suffered loss by reason of any act or omission of a practitioner or former practitioner or an incorporated firm or former incorporated firm or an employee or former employee of a practitioner or an incorporated firm, order the practitioner or former practitioner or incorporated firm or former incorporated firm, or employee or former employee of a practitioner or an incorporated firm, to pay to that person such sum by way of compensation as is specified in the order, being a sum not exceeding, as the case may require, the amount that is from time to time prescribed for the purposes of this paragraph by rules made under this Act by the New Zealand Law Society or the New Zealand Society of Conveyancers.
(emphasis added)
[204] The maximum award is presently $25,000.49 These provisions together re- enact, in slightly modified form primarily to reflect alternative practitioner structures, s 106(4)(e) of the Law Practitioners Act. Like Mr Collins, I have not been able to find any judgment which deals with either s 156(1)(d) or the former s 106(4)(e) awarding compensation for emotional harm. It is therefore necessary to consider whether such an award comes within the scope of the provision.
[205] That exercise turns on the meaning of loss. The plain meaning of loss, adapted from the Shorter Oxford English Dictionary, is diminution of possessions or advantages or, alternatively, detriment or disadvantage arising from deprivation or a change of conditions. Loss arising from emotional harm caused by breaches of duties by a legal practitioner in whom a client has trust and confidence on matters going to something as fundamental as a home for his or her family, and the financial arrangements which go with that, would easily come within the scope of this definition of loss.
[206] In my view, the plain meaning of loss is consistent with the purpose of the provision and the Act. First, 156(1)(d) specifically provides for the payment of the amount as compensation, not damages. Damages generally are not usually considered compensation because they simply put the wronged party in the position they would have been in had the party at fault performed his or her bargain or duty.50 Second, the people to whom compensation can be awarded is likewise general. It is not just the client who has retained the practitioner but “any person” who has suffered loss. This would include, for example, the former employer in J. The provision confers a broad power on the Tribunal, within the scope of the maximum amount.
[207] Third, s 3 of the Act provides that the purposes are to maintain public confidence in the provision of legal services and to protect consumers of legal services. Practitioners occupy a privileged and important place in our legal system and society. Clients and the public are entitled to expect they will discharge their duties and adhere
49 See reg 32, Lawyers and Conveyancers Act (Lawyers: Complaints Service and Standards Committees) Regulations 2008.
50 See Premium Real Estate Ltd v Steven [2009] NZSC 15, [2009] 2 NZLR 384 at [99]. I acknowledge that Tipping J specifically excluded “sums payable pursuant to statute” from his discussion, as is the situation in this case, but the Judge’s analysis is still relevant for the purposes of construing this provision.
to the rules which come with membership of the profession. Where there is a failure to do so, a complaints process exists to identify and address it. That process includes, and should include, a power to award compensation to those who suffer loss arising from such failure. Whatever form that loss may take, the award of compensation is essential to maintain public confidence in the integrity of the profession and to ensure clients are properly protected where they suffer at the hands of their lawyer.
[208] As to quantum, in the absence of further direction in the statute, I am of the view that an analogy with an award of general damages can be drawn. That is, the amount is a matter of personal judgement. I consider this is a case where compensation for loss is due to Mr K and that the Tribunal’s award of $8,000 is reasonable and appropriate in the circumstances.
Costs
[209] The Tribunal ordered Mr Hong to pay the costs of the Law Society (the Standards Committee) totalling $29,450 and to refund to the New Zealand Law Society the Tribunal’s costs of $6,923. The Tribunal’s costs jurisdiction arises under s 249 of the Act. It may award costs against a practitioner if it considers that the proceedings were justified and that it is just to do so.51 Section 249 confers a broad discretion on the Tribunal to award costs in any given case, but the Tribunal must not disable itself from exercising its discretion in a particular case by rigidly adopting and applying fixed rules or policies.52
[210] An appellate court should only interfere in the exercise of the Tribunal’s discretion if the costs order is shown to be wrong in principle or clearly unreasonable.53
[211] Before the Tribunal Mr Hong submitted that he did not have the income to pay the costs as sought. He submits in this Court that litigants should not be penalised by way of costs unless they provide irrelevant statements or documents. He says that he
51 Section 249(3).
52 Hong v Auckland Standards Committee No 5, above n 39, citing Simes v Canterbury-Westland Standards Committee 2 of the New Zealand Law Society [2013] NZHC 1501 at [27]; and Lagolago v Wellington Standards Committee 2 [2017] NZHC 3038 at [15].
53 Daniels v Complaints Committee 2 of the Wellington District Law Society [2011] 3 NZLR 850 (HC) at [43].
included evidence on, and in support of, his position, particularly on each of the mistruths alleged against him (I understand his submission to be that he filed only relevant evidence). Mr Hong further submits the costs awarded were unreasonable and against the objective of the Act that the complaints framework must be cost expedient.
[212] I do not consider there is any basis to interfere with the Tribunal’s costs decision. Its approach of awarding reasonable indemnity costs, where the Standards Committee has established the charges, is justified on the basis that the lawyer should bear that cost rather than the profession generally (through the agency of the New Zealand Law Society).54
Result
[213] Mr Hong’s appeals against the decisions of the Tribunal of 20 February 2020 and 29 April 2020 are dismissed.
Costs
[214] My preliminary view is that costs should follow the event in the usual way. However I did not hear from the parties on costs. If the parties are able to agree costs a joint memorandum should be filed within 20 working days from the date of this judgment. If the parties are not able to agree costs, the respondent may file and serve a memorandum within five working days of the date for the joint memorandum, with Mr Hong to file and serve his memorandum within a further five working days. Memoranda should not exceed four pages, excluding any attachments. I will determine costs on the papers.
Gordon J
54 Hong v Auckland Standards Committee No 5, above n 39 at [93].
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