Kain v Wynn Williams & Co
[2012] NZCA 563
•30 November 2012
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| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA635/2011 [2012] NZCA 563 |
| BETWEEN GEORGE CHARLES KAIN, GEORGE MICHAEL KAIN, GEORGE THOMAS CARLTON KAIN, GEORGE HARRY KAIN & GEORGINA KAIN |
| AND WYNN WILLIAMS & CO |
| Hearing: 15 October 2012 |
| Court: Hammond, Harrison and Ronald Young JJ |
| Counsel: O G Paulsen and S Dwight for Appellants |
| Judgment: 30 November 2012 at 12.30 pm |
JUDGMENT OF THE COURT
A The appeal is dismissed.
BThe appellants are to pay costs to the respondent for a standard appeal on a band B basis together with usual disbursements.
REASONS OF THE COURT
(Given by Harrison J)
Contents
Para No
Introduction [1]
Background [3]
Issue 1: was the conditional fee agreement unlawful? [13]
(a) High Court [13]
(b) Appeal [15]
(c) Decision [18]
Deferred payment of a reasonable fee is not champertous in
New Zealand [18]
(ii) Considerations of public policy [33]
(iii) Effect of the Lawyers and Conveyancers Act 2006 [49]
(iv) Conclusion [56]
Issue 2: Credit Contracts and Consumer Finance Act 2003 [57]
(a) Introduction [57]
(b) Appeal [58]
(c) Decision [61]
Result [72]
Introduction
This appeal raises two issues: first, whether a conditional fee agreement entered into between a law firm, Wynn Williams & Co, and its former clients, members of the Kain family, was unlawful because it provided a financial benefit to the firm in the event of its successful performance of a professional service; second or alternatively, whether the Credit Contracts and Consumer Finance Act 2003 (the CCCF Act) rendered the agreement unenforceable because Wynn Williams did not comply with its disclosure provisions.
French J answered both questions in favour of Wynn Williams[1] and entered summary judgment for the firm. The Kains are dissatisfied and appeal on both grounds.
Background
[1]Wynn Williams & Co v Kain [2011] 3 NZLR 709 (HC).
The Kains are the beneficiaries of various trusts. The first and third appellants, Charles and Tom Kain, were the trustees of some of those trusts. In the late 1990s the Kains became involved in protracted litigation about the administration of the trusts.
The litigation was hard fought in all courts. Wynn Williams represented Charles and Tom Kain in their capacities as trustees in the High Court where after a lengthy trial Panckhurst J delivered judgment in December 2004.[2] Cross-appeals to the Court of Appeal followed; Wynn Williams again represented Charles and Tom Kain. This Court’s decision was unfavourable to the Kains.[3] Wynn Williams rendered a fee for professional services of $175,500 plus disbursements. The Kains paid some of this fee but left a balance owing of $87,000.
[2]Kain v Hutton HC Christchurch M189/00, 3 December 2004.
[3]Kain v Hutton [2007] NZCA 199, [2007] 3 NZLR 349 (CA).
The Kains decided to appeal to the Supreme Court. All five of the Kains retained Wynn Williams as their solicitors. However, the Kains’ collective financial position was adverse; not only did they owe Wynn Williams a substantial amount of fees but the Kains were unable to pay the firm a retainer for arguing their appeal to the Supreme Court.
In the event, after a period of negotiation, Wynn Williams agreed to act for the Kains on a contingent fee basis (the conditional fee agreement). The terms agreed between the parties are set out in Wynn Williams’ email to the Kains dated 18 June 2007. The material terms are as follows:
1) $25,000.00 base fee (to be paid immediately) with success fees of $150,000.00 for the first point, $75,000 for the second point, $50,000.00 for each point thereafter;
2) The GST liability payable by us on the success fee is to be paid by you to us immediately on judgment. Kain Plaintiffs to be personally liable. Success Fees guaranteed jointly and severally by the Plaintiffs and the balance to be paid within two years of the date of judgment. Interest to apply at 10% per annum compounding monthly. Security for this is to be given over the Plaintiffs interests in the trusts.
3) All sums in this agreement are plus GST. Plaintiffs will meet all disbursements and out of pocket expenses including in advance airfares, filing fees, and accomodation. [sic]
4) From our discussion today, we will be involved on all points that are appealed. Although Gilbert Walker can take the lead on some points if you wish.
5) In respect of the $87,000.00 approximately outstanding. You will pay $10,000.00 immediately off this debt. You will also immediately pay $10,000.00 towards us procuring further payment from the Public Trust. Once the $10,000.00 is used we are not obliged to continue to pursue payment from the Public Trust without funds. You will support our claim for payment from the Trusts. In this respect your father will also support payment. The debt will be guaranteed jointly and severally to be paid within 18 months. Interest will apply at 10% per annum compounding monthly. Underlying liability of Tom, Charles, and G T Kain for this debt is not affected but also not admitted by them by virtue of this agreement alone. Again security for this debt is to be given over the Plaintiffs interests in the trusts.
In the High Court there was dispute about whether the conditional fee agreement was entered into on 18 June 2007 or when a formalised document was signed on 9 June 2008. French J’s finding that it was the former date is not challenged.
On 20 November 2007 the Supreme Court granted the Kains leave to appeal on two grounds.[4] In its substantive judgment delivered on 7 August 2008 the Court allowed the Kains’ appeal on the first of the two grounds.[5] In summary, the Court found that the trustees of a trust had acted unlawfully in resettling trust property on a new trust for the benefit of a relation. That result could only have been achieved by appointment rather than by advancement. The Court refused to validate the trustees’ actions on the ground that they could have achieved the same result by exercising powers of appointment which they held under the trust deed. As a result, the trust property was returned to the trust and vested in the Public Trustee.
[4]Kain v Hutton [2007] NZSC 92.
[5]Kain v Hutton [2008] NZSC 61, [2008] 3 NZLR 589.
On 8 August 2008, the date following the Supreme Court judgment, Wynn Williams issued its invoice for the agreed success fee of $150,000 in accordance with cl 1 of the conditional fee agreement. The Kains were bound to pay GST immediately but had two years within which to pay the success fee. Additionally, cl 5 of the conditional fee agreement obliged the Kains to pay the outstanding Court of Appeal fees.
The Kains defaulted on both obligations. On 22 December 2008 Wynn Williams applied for summary judgment against the Kains for the Court of Appeal debt of $87,000. The Kains responded by laying a complaint with the New Zealand Law Society (the NZLS) claiming, among other things, that the base and success fees payable under the conditional fee agreement of $25,000 and $150,000 respectively were unlawful. Wynn Williams discontinued its application for summary judgment on condition that the Kains paid the amount outstanding against the firm’s undertaking to refund any amounts which the NZLS found to be unjustified or invalid.
In February 2010 a Standards Committee appointed by the NZLS dismissed the Kains’ complaint. The Kains applied for a review by the Legal Complaints Review Officer, which was unsuccessful. On 3 December 2010 the NZLS issued a certificate under s 161 of the Lawyers and Conveyancers Act 2006 (the LC Act) that the amount due to Wynn Williams in respect of its bill of costs dated 8 August 2008 was the success fee of $150,000 plus GST and interest and expenses.
On 3 December 2010 Wynn Williams applied for summary judgment for the amount of its success fee plus interest and costs. The Kains opposed on 13 grounds. By the time of the hearing before French J those grounds had compressed to five in number. They are now reduced to two: both challenge the lawfulness of the conditional fee agreement. We shall now address each in turn.
Issue 1: was the conditional fee agreement unlawful?
(a) High Court
The conditional fee agreement was entered into after the LC Act received royal assent but before the statute came into force. Common law principles governed the Kains assertion that the agreement was unlawful. French J approached this defence on the premise that the agreement was lawful providing Wynn Williams was doing no more than deferring payment of its reasonable fee and was not seeking to share in the proceeds of the litigation; however, if the agreement involved sharing in the spoils, it would be champertous and unlawful.[6]
[6]At [89].
French J dealt with the issue briefly. The Standards Committee and the Legal Complaints Review Officer had each determined that the agreed base and success fees of $25,000 and $150,000 were fair and reasonable. The Judge held that both determinations were conclusive of the reasonableness of the amount due,[7] and she was independently satisfied they were correct.[8] Thus the agreement was not champertous because it only deferred payment of a reasonable fee.
(b) Appeal
[7]At [93].
[8]At [94].
Mr Paulsen for the Kains submits that French J erred. He says that when the agreement was entered into the law was settled in New Zealand that any conditional fee agreement – even if the lawyer would only recover a normal fee – was champertous and unlawful. He relies on Lord Denning MR’s statement in Wallersteiner v Moir (No 2),[9] approved and adopted in recent decisions of the English Court of Appeal,[10] that:
English law has never sanctioned an agreement by which a lawyer is remunerated on the basis of a “contingency fee,” that is he gets paid the fee if he wins, but not if he loses. Such an agreement was illegal on the grounds it was the offence of champerty ... Even if the sum was not a proportion of the amount recovered, but a specific sum or advantage which was to be received if he won but not if he lost, that too, was unlawful ... It mattered not whether the sum to be received was his sole remuneration, or to be an added remuneration (above his normal fee) in any case it was unlawful if it was only to be paid if he won, and not if he lost.
[9]Wallersteiner v Moir (No 2) [1975] QB 373 (CA) at 393.
[10]Awwad v Geraghty & Co [2001] QB 570 (CA); Sibthorpe v Southwark London Borough Council [2011] EWCA Civ 25, [2011] 1 WLR 2111.
Mr Paulsen’s submission is based upon these premises:
(a)The tort of maintenance is committed where a person, without lawful justification, assists one party to a civil action to bring or defend the action, thereby causing damage to the other party. Champerty arises when the person giving that assistance does so in consideration of receiving a share of something which may be gained as a result of the action. A champertous agreement is unenforceable because it is contrary to public policy.
(b)The fundamental aim of the law of champerty is to protect the administration of justice. Champertous agreements between lawyers and clients have always been considered objectionable because of the risk that if the lawyer’s remuneration was tied to success he or she might conduct proceedings in a fashion which was contrary to duties owed to the client or the Court. The relevant duties are to advise the client with a clear eye and an unbiased judgment and to present the case to the Court with scrupulous fairness, honesty and integrity. A solicitor who agrees to charge a success fee is one who seeks to share in the spoils of litigation. The public interest in the highest quality of justice out ranks the private interest of litigants in entering into champertous agreements.[11] New Zealand authority supports this conclusion, particularly Mills v Rogers.[12]
[11]Pittman v Prudential Deposit Bank Ltd (1896) 13 TLR 100 (CA) at 111 per Lord Esher MR, Awwad v Geraghty, above n 10, at 576 per Schiemann LJ.
[12]Mills v Rogers (1899) 18 NZLR 291 (SC and CA).
Mr Paulsen acknowledges the Law Commission’s statement in 2001 of the existing New Zealand law as being that an agreement between a lawyer and impecunious client is not champertous where it entitles the lawyer to receive a fee only if the claim succeeds providing the fee is normal.[13] He contends that this statement of the law is not correct.
(c) Decision
Deferred payment of a reasonable fee is not champertous in New Zealand
[13] Law Commission Subsidising Litigation (NZLC R72, 2001).
In our judgment Mr Paulsen’s submission must fail on three composite grounds. First, we do not accept his proposition that in June 2007 any conditional fee agreement – regardless of whether the fee was reasonable – was champertous and thus unlawful. While that statement may represent the English position, it is not a correct statement of the New Zealand common law. The focus must be on New Zealand authorities. On analysis, they show the common law has moved differently in both jurisdictions.
Before undertaking this analysis, we record our acceptance in principle of Mr Paulsen’s description of the nature of the tort of champerty.[14] But certain important qualifications must be noted. In Giles v Thompson[15] Lord Mustill summarised the origins and purpose of the tort, emphasising in particular that (a) its living presence was limited to two situations – one is where a solicitor is forbidden from accepting payment for professional services for a plaintiff calculated as a proportion of the sum recovered from the defendant;[16] (b) this rule was in the course of attenuation as it was largely a rule of professional conduct; (c) the law has not stood still but has accommodated itself to changing times; and (d) its application to any case can best be addressed by considering its origins as a principle of public policy designed to protect the purity of justice and the interests of vulnerable litigants.
[14] At [16](a) above.
[15]Giles v Thompson [1994] 1 AC 142 (HL) at 153, adopting the language of Fletcher Moulton LJ in British Cash and Parcel Conveyers Ltd v Lamson Store Service Co Ltd [1908] 1 KB 1006 (CA) at 1014.
[16]At 153.
On Lord Mustill’s approach in Giles v Thompson the ultimate test for maintenance is whether there is a:[17]
... wanton and officious intermeddling with the disputes of others [where] the meddler has no interest whatever, and where the assistance he renders to one or the other party is without justification or excuse.
Lord Mustill had earlier confirmed that:[18]
For champerty there must be the added notion of a division of the spoils.
[17]At 164.
[18] At 161.
Four New Zealand authorities are directly relevant when considering Lord Mustill’s ultimate question. In Mills v Rogers, a decision of this Court in 1899,[19] the plaintiff, a politician, wished to sue for damages a number of newspapers which had published objectionable comments about him. Two solicitors, the defendants, agreed to fund all his disbursements. The politician was not required to pay any expenses except out of the proceeds of the litigation. If he succeeded and recovered damages, the solicitors would be entitled to recover from the proceeds their disbursements and two thirds of the remainder.
[19]Mills v Rogers, above n 12.
The solicitors brought two actions for the politician. In the first the politician recovered damages and costs; in the second he failed and was ordered to pay costs. The solicitors refused to release the funds recovered in the first action to indemnify the politician against his liability for costs in the second. He sought in a later action to recover the costs from the solicitors. The politician failed at first instance in the then Supreme Court before Denniston J who held that the agreement was both (a) in the nature of maintenance because it was an agreement to supply assistance and money by people not interested legally or morally in the litigation and (b) champertous because payment was contingent upon success and would come from the proceeds of the litigation.
On appeal in Mills the primary issue was whether s 33 of the Supreme Court Act 1882 altered the common law to allow such an agreement. This Court dismissed the appeal, answering the question in the negative. Williams J did not characterise the arrangement as a solicitor–client relationship but as a partnership in these brief terms:[20]
It was not an agreement for the payment of services of a solicitor, but a partnership agreement, into which one partner contributed to the common stock certain rights of action for libel, and the others, who had no moral or legal interest in the litigation, their legal skill. The proceeds were to be divided, and the partner who contributed the rights of the action was to be indemnified against loss. An arrangement more calculated to foster and encourage improper litigation and unscrupulous professional conduct can hardly be conceived.
[20]At 309.
We do not share Mr Paulsen’s interpretation of Mills as authority for the wider proposition that any conditional fee arrangement is champertous under the common law of New Zealand. The arrangement under consideration in that case was such an egregious example of champerty that this Court refused to recognise the agreement as one for payment of legal services. On analysis the decision goes no further than confirming the uncontroversial position that the torts of maintenance and champerty are part of the common law of New Zealand.[21] Mills does not assist on the different question of the scope of the torts where the agreement at issue is indisputably for payment of legal services.
[21]A point confirmed by this Court in Saunders v Houghton [2009] NZCA 610, [2010] 3 NZLR 331 at [67] and Parliament in the Lawyers and Conveyancers Act 2006, s 334.
In Sievwright v Ward[22] a lawyer agreed to bring an action for slander on his client’s behalf. The client paid the lawyer £25 before the hearing for costs and disbursements. The lawyer deferred charging for his reasonable fees until after the result. It was not suggested that the lawyer had agreed to receive a percentage of the proceeds of the action. Instead, the parties agreed that the client would pay the lawyer’s reasonable costs as soon as he was in a position to do so even if the litigation failed.
[22]Sievwright v Ward [1935] NZLR 43 (SC).
Ostler J held that the arrangement was not champertous, stating:[23]
As a matter of principle ... I should be prepared to hold that if a solicitor (or a partner in a firm of solicitors) has honestly investigated a client’s case, and honestly come to the conclusion that the client has a good cause of action or a good defence to an action, then, so long as he makes no bargain with his client to take a share of the proceeds, he does not, by advancing money for disbursements and by conducting the case without having received any payment on account of his costs, commit the wrong of either champerty or maintenance. I think further that, whether the solicitor does this without any prior agreement with his client, or whether he makes a prior agreement either that in any case he shall be repaid such costs and disbursements, or that he should be paid only out of the proceeds of the suit, and that if there are no proceeds the solicitor will bear the loss, the result is the same: the solicitor would be guilty of no wrong. To hold otherwise would be against the public interest. It would hamper litigants in their efforts to obtain justice, and it would hamper solicitors in the conduct of a lawful and honourable profession.
[23]At 47.
Sievwright has stood uncontradicted since 1935 as authority in this country for the proposition that it is not champertous for a lawyer to agree to defer payment of a reasonable fee until after completion of litigation. Ostler J’s focus on the public interest and access to justice, eschewing adoption of a strict or doctrinaire approach, led him to conclude that it would be against public policy to characterise as champertous an arrangement allowing a litigant to bring a meritorious claim and resulting in no more than an obligation to pay a reasonable fee. His approach presaged that adopted by Millett LJ in the English Court of Appeal in Thai Trading Co v Taylor[24] in 1998.
[24] Thai Trading Co v Taylor [1998] QB 781 (CA).
Mr Paulsen characterises as dicta Ostler J’s observation in Sievwright that the result would have been the same even if the parties had agreed that the lawyer would only be paid if the claim was successful and out of the proceeds. That may be so but we are satisfied nevertheless that it is a correct statement of the common law of New Zealand.
New Zealand courts have since reinforced the predominant principle of allowing access to justice where champerty is claimed. The Employment Court’s decision in Order of St John Midland Regional Trust Board v Greig is significant because of its setting in an area of legal practice where contingency fees often operate. In that case Judge Colgan held that only “unjustified” conditional fee arrangements – that is, illegal as against public policy – will be champertous.[25] We respectfully approve the Judge’s reasoning:
[89] As the commentary on maintenance and champerty in Butterworth’s The Laws of New Zealand (Tort - para 180) notes, all aspects of a transaction under consideration should be taken together for the purpose of considering whether there is wanton and officious interfering with the disputes of others in which the meddler has no interest whatever and where the assistance rendered to one or the other party is without justification or excuse: see Giles v Thompson [1994] 1 AC 142. I consider it would be difficult to ascribe such characteristics to persons in business as employment advocates as agents assisting impecunious dismissed employees to have access to justice that would not otherwise be able to be afforded by them. Although such are not charitable motives long recognised as providing a good defence to an action for maintenance, they may legitimise what might otherwise be an unlawful arrangement so long as the fee agreed is normal and reasonable. Using the circumstances of legal practitioners, a solicitor who in good faith supports litigation on behalf of a client in financial difficulties by advancing money for disbursements and by conducting the case without payment, commits neither maintenance nor champerty. However, a solicitor may not lawfully support the case of a poor client irrespective of its prospects of success and simply in the hope of getting the other party to settle, or make a bargain to take a share of the proceeds.
[25]Order of St John Midland Regional Trust Board v Greig [2004] 2 ERNZ 137 (EC).
In Saunders v Houghton this Court approved Lord Mustill’s “wanton and officious interfering with the affairs of others” test when considering an argument of champerty, although not in the context of a conditional fee agreement for provision of legal services.[26] In holding that a litigation funding agreement was lawful, despite the well known risks of an abuse of process, the Court emphasised the importance of flexibility in these terms:
[28] Nevertheless, the interests of justice can require the Court to unshackle itself from the constraints of the former simple rule against champerty and maintenance. Access to justice is a fundamental principle of the rule of law. It can require flexibility to meet the harsh reality of the current cost to the injured party of litigation, which is often more than a would-be plaintiff can sensibly be expected to bear. The result can be a failure of justice: a plaintiff with merits can be excluded from relief against the defendant who has committed a legal wrong.
[26] Saunders v Houghton, above n 21, at [24].
In summary, we are satisfied that unlike the English common law New Zealand does not recognise an absolute prohibition on conditional fee agreements. Instead, a practical and flexible approach is required. Each case must be considered on its merits.
Thus, the existence of a conditional fee arrangement does not of itself render the agreement between Wynn Williams and the Kains champertous.
Considerations of public policy
Second, the reason why the common law of New Zealand has moved differently from England is because the governing consideration in this country when determining the lawfulness of a conditional fee agreement is whether it offends the public interest in amounting to an unjustifiable interference in the disputes of others – the defining feature of the tort of maintenance.
As Mr Paulsen correctly submits, the tort of champerty as confirmed in Mills v Rogers includes the additional element of an agreement to divide the spoils of litigation. Giles v Thompson provides recent authority for the same proposition.[27] In Sievwright, Ostler J treated champerty as a species of maintenance. Thus, because the agreement did not contravene public policy and did not amount to maintenance, it could not by extension be champertous – the failure to satisfy the first element was fatal.
[27] At [20] above.
However, recent decisions of the English Court of Appeal point in a different direction. Sibthorpe v Southwark London Borough Council[28] represents the highwater mark of this trend. Understandably, Mr Paulsen places considerable store upon it. Two residential tenants of a council brought claims for damages for its failure to carry out repairs to properties. Their solicitors were instructed to act under conditional fee agreements. The agreements complied with the requirements of s 58 of the Courts and Legal Services Act 1990 (which allowed some types of conditional fee agreements) except that they included provisions whereby the solicitors undertook to indemnify the claimants against payment of the council’s costs if they failed.
[28]Sibthorpe v Southwark London Borough Council, above n 10.
The question in Sibthorpe was whether the indemnity provisions rendered the conditional fee agreements champertous. The Court of Appeal answered this question in the solicitors’ favour. In delivering the leading judgment, Lord Neuberger MR surveyed the English common law of champerty. In summary he acknowledged the modern approach of considering agreements on a case by case basis in the round. However, a stricter approach applies where the agreement is entered into with a person who is conducting the litigation in question. The law is as described in Wallersteiner v Moir[29] and Awaad v Geraghty.[30] It is settled that any conditional fee agreement, even where the fee payable is only the practitioner’s normal fee, is champertous and unlawful. The decision in Thai Trading Co v Taylor,[31] allowing a practitioner to recover an “ordinary fee” on a conditional basis, was held to be per incuriam and was not followed.[32]
[29]Wallersteiner v Moir, above n 9.
[30] Awwad v Geraghty & Co, above n 10.
[31] Thai Trading Co v Taylor, above n 24.
[32]At [39].
Lord Neuberger justified this strict approach on the grounds that:[33] (a) officers of the court should not by virtue of their self interest in the result of litigation (arising from their financial interest in the conditional fee agreement) place themselves in a position of potential conflict with their duties to the court; (b) the legislature had now laid down rules about the permissible and impermissible types of conditional fee agreements; and (c) while there was much to be said for assessing each case on its merits, there is greater benefit from having a clear rule. All the parties will then know where they stand rather than awaiting a decision on the validity of the agreement on the merits. It is also beneficial to “have a properly funded legal profession, which has no need to have recourse to conditional fees or contingency fees or the like”.
[33]At [40]–[41].
The agreement in Sibthorpe was not champertous, however, because the solicitor was not acting contrary to public policy in agreeing to shoulder the risk of an adverse costs award against a client without enjoying a gain in the event of success. In this respect, promotion of access to justice was an essential ingredient of a modern civilised society.
The principled rationale for Sibthorpe’s strict approach was Lord Neuberger’s isolation of what was now effectively the sole legal element of champerty in these terms:
[53] However, as I understand it, the council does not put its case on the basis of maintenance, and concedes that it can only succeed if it establishes that the indemnity amounted to champerty. The reason for this is that maintenance is based on “wanton and officious intermeddling in the disputes of others” assisting one of the parties “without justification or excuse” [British Cash [1908] 1 KB 1006, 1014], and it is unrealistic to contend that a solicitor acting for a party to litigation can fall within that expression. This concession appears to me to be supported by what Lord Phillips said in Factortame (No 8) case [[2003] QB 381, 411], para 76, namely that “a solicitor who charges a contingency fee [not sanctioned by statute] can hardly be said to be guilty of ‘wanton and officious intermeddling with the disputes of others …where the assistance he renders to one party or another is without justification or excuse’”. In other words, a solicitor in such a case is not involved in maintenance. If that is true of solicitors who enter into an unlawful CFA, it must be a fortiori true of solicitors who, as in the present case, enter into an otherwise lawful CFA with an indemnity.
[54] Nonetheless, as Lord Phillips immediately went on to say, in a case where a solicitor charges a contingency fee not permitted by statute, what is “in play” is the policy “against a person who is in a position to influence the outcome of litigation having an interest in that outcome.”
[55] Thus, it appears to me that the law has developed, perhaps unconsciously, so that, at least when it comes to agreements with those who conduct litigation (and, presumably, with those who provide advocacy services), there can be champerty without maintenance. This is consistent with the fact that, in recent times, the reach of the law of maintenance has been decreasing, while the common law has adhered to the principle that those who conduct litigation (and provide advocacy services) should not benefit financially from their clients’ success in the litigation.
On this strict approach, champerty (at least in the context of the provision of legal services) is no longer a sub-species of maintenance and the tort is no longer of a composite nature. Lord Neuberger accepted that conditional fee agreements would not normally be condemned as maintenance. So, in order to maintain a prohibition on such agreements, he severed the element of champerty and treated it as a discrete justification for that result. We must observe that the Judge’s approach is difficult to reconcile both with (a) his earlier view that Courts should “accede to the argument that it would be inappropriate in the 21st century to extend the law of champerty”;[34] and (b) the reality that solicitors fee agreements are the major surviving area offering scope for arguments about champerty.
[34] At [51].
Lord Neuberger drew some support for this strict approach from the judgment of Steyn LJ[35] and the speech of Lord Mustill in Giles v Thompson.[36] It is true that both Judges recognised the existence of two classes of champertous arrangements. As just noted, the primary class was solicitors’ contingency fees (and the assignment of personal rights of action) “where crystallised policy” and a stricter approach is applied. However, even in that class, Lord Mustill accepted that:
... it is necessary first to consider whether the transaction bears the mark of unlawful champerty and then to inquire whether it is validated by the existence of a legitimate interest in the person supporting the action distinct from the benefit which he seeks to derive from it.
[35] Giles v Thompson [1993] 3 All ER 321 (CA) at 332.
[36] Giles v Thompson, above n 15, at 163.
Both Lord Mustill’s elements invite some policy inquiry, although on a narrower scale than the so-called “modern approach”. However, neither Steyn LJ nor Lord Mustill went as far as Lord Neuberger in condemning every contingency fee agreement without further inquiry. To the contrary, Lord Mustill expressly contemplated a second stage or residual inquiry in cases such as this which is not confined by the factor of the lawyer’s self interest in the result – the factor which Lord Neuberger treated as decisive.
We are satisfied that Lord Neuberger’s recharacterisation in Sibthorpe of the tort of champerty to exclude the element of maintenance as it applies to solicitors’ conditional fee agreements does not represent the common law of New Zealand. And we question whether his rationale for a stricter approach to such agreements withstands scrutiny. Officers of the court do not need to be subject to a strict rule against champerty in order to uphold their duties to the court. Courts are quite capable of examining arrangements on a case-by-case basis where a real risk of improper conduct is alleged – applying settled legal principles to the facts is a core judicial function. And it is counterintuitive to impose an absolute rule which has the stated purpose of maintaining confidence in the legal profession but has the practical effect of decreasing access to justice.
We prefer as consistent with the modern, policy centred approach which a New Zealand court would apply Millett LJ’s conclusion in Thai Trading Co[37] that:
... it is not improper for a solicitor to agree to act on the basis that he has to be paid at ordinary costs if he wins but not if he loses.
[37] At 789.
This case illustrates our point and the injustice of an absolute rule. A lawyer conducting an appeal before the Supreme Court of New Zealand could hardly be influenced to act improperly by the prospect of payment only if the appeal succeeded. It is at best a theoretical possibility that his or her self-interest could in turn influence the result. Mr Paulsen’s suggestion that counsel may be tempted to suppress citation of a leading authority adverse to his or her argument needs only to be noted to be rejected.
The Sibthorpe rationale for maintaining an absolute prohibition on conditional fee agreements which do not comply strictly with the statutory criteria appears to be designed to justify a result which invariably prefers one policy factor over another: it is that those who conduct litigation should not under any circumstances benefit financially from a client’s success – even where there is nothing to suggest that the lawyer’s assistance had undermined what Lord Mustill in Giles v Thompson called the purity of justice – must prevail over the promotion of access to justice. As this Court noted in Saunders v Houghton, a “more discriminating test” focussing on public policy and considerations of access to justice is required in New Zealand rather than confinement within the strict limits of champerty.[38]
[38] Saunders v Houghton, above n 21, at [28], [29] and [77]–[79].
The result in Sibthorpe may have been influenced by a factor which is absent in New Zealand. That is that the English Parliament had set rules in the Courts and Legal Services Act 1990 clearly allowing some conditional fee agreements but declaring all others unlawful. This distinction may provide a basis for imposing a strict rule against agreements that do not comply with the Act. But that is simply a matter of statutory interpretation, not of the development of the common law. And it is not a reason for New Zealand courts to adopt a strict approach to conditional fee agreements which necessarily excludes a consideration of the merits of each case.
In summary, the New Zealand common law requires proof of the orthodox element of maintenance – the unjustified interference in the affairs of others – before a conditional fee agreement can be held to be champertous. When pressed, Mr Paulsen was unable to identify any such element in this case.
Effect of the Lawyers and Conveyancers Act 2006
Third, the passage of the LC Act is relevant because it would permit this conditional fee agreement. It is now common ground that the agreement was entered into in the period between the LC Act’s enactment and its commencement; the statute received royal assent on 20 March 2006 but did not come into force until 1 August 2008. While the LC Act cannot be applied, its terms are nevertheless relevant when considering the scope of the tort of champerty in New Zealand.
The LCA now provides that a conditional fee agreement will not be unlawful where the agreed remuneration is only a normal fee or a normal fee plus a premium:
334 Conditional fee agreements
(1) A conditional fee agreement is not an illegal contract or an unenforceable contract by reason only of the fact that the remuneration the lawyer may receive under it is dependent on the outcome of the matter to which the remuneration relates if—
(a) that remuneration is either—
(i) a normal fee; or
(ii) a normal fee plus a premium; and
(b) the application of this section is not excluded by section 335; and
(c) the agreement complies with such requirements (if any) as are prescribed by the practice rules.
(2) If a conditional fee agreement is, by virtue of subsection (1), not an illegal contract or an unenforceable contract, a lawyer does not by entering into that agreement make himself or herself liable to proceedings founded on the tort of maintenance or the tort of champerty.
Parliament’s express approval of certain conditional fee agreements cannot be construed as a legislative acknowledgment that they were prohibited by the existing common law. The LC Act’s enactment is neutral on this question. Indeed, the LC Act states that a conditional normal fee is lawful, and the Law Commission in 2001 made it very clear that conditional normal fees were also lawful under the common law.[39]
[39]Law Commission, above n 13, at [12].
Importantly, ss 333–336 of the LC Act do not prohibit as unlawful all types of conditional fee agreements other than those permitted by the Act. By contrast, s 58(1) of the Courts and Legal Services Act 1990 (UK) provides that all types of conditional fee agreements, other than those permitted in the Act, are unenforceable. However, the LC Act stops short of declaring unlawful all types of conditional fee agreement not permitted by the Act. Some scope is thus reserved to the courts for considering the application of the common law of champerty to conditional fee agreements which fall outside the statute’s purview.
The question then is whether the enactment of the LC Act is a relevant factor for us in determining the scope of the tort of champerty at common law in June 2007. Clearly, if this conditional fee agreement was entered into after 1 August 2008 it would be enforceable because it satisfies the provisions of s 334. What then is the effect on the application of the common law of an enactment that has received royal assent but has not come into force?
Statutes are part of the law of New Zealand during the interim period between enactment and commencement.[40] However, they are not yet in force, and not part of the body of law that has come into operation.[41] Until an Act is in force it cannot create enforceable rights or duties, and actions or prosecutions based on it cannot succeed.[42] However, even though its provisions cannot be enforced, circumstances can arise where a Court will take them into account. In particular, it may be a relevant factor in the exercise of judicial discretion that the law is about to change.[43]
[40]Constitution Act 1986, s 16: a Bill “becomes law” on Royal assent.
[41]JF Burrows and RI Carter Statute Law in New Zealand (4th ed, LexisNexis, Wellington, 2009) at 569.
[42]R v Kynaston (1926) 19 Cr App R 180 (EWCA); Wilson v Dagnall [1972] 1 QB 509 (EWCA); R v Director of Public Prosecutions ex p Kebilne [2000] 2 AC 326 (HL) at 368.
[43]R v O’Brien [1976] 1 NZLR 513 (CA) at 517.
While we are not considering the exercise of a statutory discretion, we are satisfied that the enactment of legislation is material where it effectively reinforces common law principles applying in a particular area of activity. Parliament’s intention cannot be ignored. Indeed, in Awaad the English Court of Appeal expressed its reluctance to allow a conditional fee agreement where the issue was before Parliament.[44] Parliament’s enactment of the LC Act supports the view that a conditional fee agreement entered into shortly before the statute came into force is not of itself champertous.
Conclusion
[44]Awaad v Geraghty & Co, above n 10, at 593E.
It follows that the answer to this first issue is in Wynn Williams favour; we agree with French J that the conditional fee agreement was not champertous and was thus not unlawful.
Issue 2: Credit Contracts and Consumer Finance Act 2003
(a) Introduction
The Kains argue alternatively that the conditional fee agreement is a consumer credit contract under s 11 of the CCCF Act. As such, formal disclosure was required but not made. The Kains must show that the agreement arguably satisfied the statutory criteria necessary to constitute a consumer credit contract. Five criteria are relevant to this case:
(a)the arrangement must be a “credit contract” as defined in s 7;
(b)the debtor is a natural person (s 11(1)(a));
(c)the debtor entered into the contract for primarily for personal, domestic or household purposes (s 11(1)(b));
(d)interest charges are or may be payable under the contract (s 11(1)(c)(i));
(e)when the contract was entered into, the creditor made a practice of providing credit in the course of a business carried on by the creditor (s 11(1)(d)(ii)).
(b) Appeal
The Kains appeal focussed on whether the fifth criterion was satisfied: was Wynn Williams arguably in the practice of providing credit in the course of its business as a provider of legal services? The Kains contend that this question must be answered affirmatively. They rely on the firm’s routine practice of issuing invoices stating that fees were payable in 14 days. That factor is said to amount to the provision of credit under the Act.
Mr Jones, who was Wynn Williams’ general manager in 2007, confirmed that as a matter of standard practice the firm’s invoices were rendered with the notation: “Please note balance is payable within 14 days”. He said the 14 day grace period “was to allow time for the client to receive the tax invoice in the post, consider it, and process it for payment”. On Mr Jones’ evidence, all invoices were rendered with a notation allowing 14 days grace.
On this basis, Ms Dwight submits, Wynn Williams was plainly in the “practice” of providing a 14 day period for payment. She says a debt arises within the meaning of the CCCF Act when Wynn Williams issues an invoice. Section 6(c) is also relevant because a client purchases legal services at the time the retainer is made – but payment has been deferred. If this view is correct, then issuing invoices stating that payment is not due for 14 days is a deferral of “credit” under s 6(a) of the Act, the conditional fee agreement is a consumer credit contract, and the statutory disclosure regime applies.
(c) Decision
Wynn Williams’ own evidence suggests that it “made a practice” of allowing clients time to pay “in the course of [its] business” (s 11(1)(d)(ii)). The question then is the threshold one of whether the firm “provided credit” in the course of that business. The statutory meaning of the word “credit” is critical:
6 Meaning of credit
In this Act, unless the context otherwise requires, credit is provided under a contract if a right is granted by a person to another person to—
(a)defer payment of a debt; or
(b)incur a debt and defer its payment; or
(c)purchase property or services and defer payment for that purchase (in whole or in part).
(Our emphasis.)
The legislative history of the CCCF Act does not assist in defining the term “credit”. The explanatory note to the Bill, the Select Committee report, the different versions of the Bill and the Hansard debates do not discuss the definition’s genesis or purpose. The text of s 6 remained untouched (and without commentary) throughout the legislative process.
The text of s 6 is, we consider, clear. The Kains must show that when they entered into the 2007 conditional fee agreement with Wynn Williams the firm made a practice pursuant to contract of granting its clients a right to defer payment of the fee.
Section 6 plainly contemplates that the right granted is created by a contract. So it is necessary to identify first the contract governing the legal relationship pursuant to which credit is said to be granted. The relevant contract here is the retainer whereby the solicitor agrees to perform legal services in consideration for the client’s promise to pay a fee. Ms Dwight does not dispute that a contractual right to defer payment must be supported by consideration. Where a lawyer promises to perform professional services, it is in exchange for the client’s implied promise to pay the fee immediately upon completion. This constitutes the orthodox element of mutuality of promises in the nature of a benefit and corresponding detriment which is at the heart of the concept of consideration.[45]
[45] Fuel Espresso Ltd v Hsieh [2007] NZCA 58, [2007] 2 NZLR 651 at [16]–[18].
It is necessary then to identify the specific consideration given by a client for Wynn Williams’ grant of a deferral of the obligation to pay. In ordinary commercial dealing such consideration commonly takes the form of interest charges or an uplift from the original contract price. Consideration may also exist where one party advises the other of an inability to make immediate payment, resulting in an agreement to defer the obligation without any additional charges; the prospect of eventual payment rather than default might be construed as a type of consideration (at least under the approach taken in Williams v Roffey).[46] However, there is no evidence of such terms being agreed as part of Wynn Williams’ contractual arrangements with its clients.
[46] Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1 (CA).
Ms Dwight suggests that the client’s promise of eventual payment, whether given at the time the contract was entered into or when the invoice was rendered, was consideration for Wynn Williams’ practice of deferring payment of a fee for 14 days. We do not accept that proposition. A promise to perform a pre-existing obligation cannot amount to consideration (although this principle has been eroded to some extent by Williams v Roffey).[47] On a legal challenge, Wynn Williams may possibly be estopped from enforcing payment for the 14 day period. But the availability of that remedy to a client cannot be elevated to a right granted by the underlying contract.
[47]Stilk v Myrick (1809) 2 Camp 317, 170 ER 1168; Cook Islands Shipping Co Ltd v Colson Builders Ltd [1975] 1 NZLR 422 (SC).
The firm’s apparent practice was to allow a client at the time the invoice was issued 14 days to pay the fee for performance of the agreed professional services. On this basis Wynn Williams granted an indulgence subsequent to entry into the relevant contract. This unilateral step did not grant a right which would constitute the provision of credit. French J provisionally preferred this view without giving reasons because she decided the CCCF Act argument in Wynn Williams’ favour on another ground.[48]
[48] At [121].
Professor Goode’s commentary on the Consumer Credit Act 1974 (UK) supports our conclusion:[49]
8.11 As a preliminary point, what the Act deals with is not credit as such but the provision of credit under an agreement. Hence the material fact is not when payment is actually made or when the goods or services to which it relates are actually supplied but what is the contractual time for payment and supply. In other words, credit for the purpose of the Act involves the contractual deferment of debt. If a person takes credit without having been granted it – as where he is slow in paying his dentist’s bill or his solicitor’s account – there is no extension of credit within the Consumer Credit Act. Even if the supplier agrees to a delay in payment, there is no credit agreement unless he receives consideration for consenting to the delay, as by stipulating for interest. But if such consideration is furnished, a credit agreement comes into existence.
...
This is so whether the delay in the demand for payment arises from inadvertence or inactivity – as where the supplier is simply dilatory in sending out his accounts – or is an intentional indulgence, as where the supplier agrees to allow further time to pay or to accept payment by instalments. Only where this deferment is not just an indulgence but contractual is there an agreement for credit; and, again, to establish a contract it is necessary to show that the supplier received some consideration for agreeing to the delay.
(Our emphasis.)
[49]R M Goode Consumer Credit Law (Butterworths, London, 1989) at 107–108.
While Professor Goode’s statement is based on the test in s 9 of the Consumer Credit Act 1974 (UK), a contractual grant of credit is similarly a necessary element of the definition of credit in s 6 of the CCCF Act. In Geeveekay Pty Ltd v Director of Consumer Affairs Victoria[50] the Supreme Court of Victoria made the same point when applying the definition of “credit” in s 4(1) of the Consumer Credit Code (Qld), which contains similar language to s 6 of the New Zealand Act:[51]
[52] Paying due regard to that consideration, the Code, in s 4(1), uses “under a contract” in a reasonably specific sense. The subject-matter of s 4(1) is the deferring of the payment or the incurring of the legal obligation of debt or deferred debt. The section speaks of credit of that kind being “provided” under the contract, which means the deferring or incurring must be something for which the contract makes provision. Where such credit is provided under a contract, the contract is a credit contract, which is regulated in quite specific terms, including its form. Certainly “contract” has been broadly defined to pick up a series of contracts and arrangements. But “under a contract” in s 4(1) requires the contract to be the source of the right – the root of the title of the right – to defer payment of the debt owed or to incur the deferred debt.
[50]Geeveekay Pty Ltd v Director of Consumer Affairs Victoria [2008] VSC 50, (2008) 19 VR 512 at [43]–[53].
[51]The Consumer Credit Code (Qld) applies as the law of Victoria by virtue of s 5(a) of the Consumer Credit (Victoria) Act 1993 (Vic).
In summary, it is an essential element of the statutory definition of “credit” in the CCCF Act that the credit be granted “under a contract”. Here there is no evidence that the 14 day grace payment period was a standard term of Wynn Williams’ contracts of engagement with its clients. It was simply a statement printed at the foot of invoices when issued as a matter of standard practice after the firm’s provision of legal services as agreed. There is no evidence that the client provides any consideration; Wynn Williams merely allows an indulgence for checking and payment purposes. Thus, the firm cannot be described as being in the practice of providing credit in the course of its business because it allows 14 day grace periods.
We add that French J decided this ground of defence in Wynn Williams’ favour on the different ground that Parliament did not intend that contracts for performance and payment of legal fees should fall within the purview of the CCCF Act. She concluded that its application was excluded by the provisions of the Law Practitioners Act 1982 which was still in force when the conditional fee agreement was entered into.[52] With respect, we doubt that this conclusion is correct.
Result
[52] At [122]–[130].
We are satisfied that neither of the Kains’ remaining defences to Wynn Williams’ claim is arguable and that as a result the firm is entitled to summary judgment for its claim.
The appeal is dismissed.
The appellants are to pay costs to the respondent as for a standard appeal on a band B basis together with usual disbursements.
Solicitors:
Cavell Leitch Pringle & Boyle, Christchurch for Appellants
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