McPhedran v New Zealand Institute of Chartered Accountants
[2020] NZHC 1526
•1 July 2020
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2019-485-240
[2020] NZHC 1526
IN THE MATTER OF a judicial review of decisions made by the disciplinary bodies of the New Zealand Institute of Chartered Accountants BETWEEN
DAVID WILLIAM McPHEDRAN
Plaintiff
AND
NEW ZEALAND INSTITUTE OF CHARTERED ACCOUNTANTS
Defendant
CIV-2019-485-779 BETWEEN
NEW ZEALAND INSTITUTE OF CHARTERED ACCOUNTANTS
PlaintiffAND
DAVID WILLIAM McPHEDRAN
Defendant
Hearing: 11 June 2020 Appearances:
Plaintiff in person, with M Laws, McKenzie friend (via VMR) S A Barker and O C Gascoigne for defendant
Judgment:
1 July 2020
Reissued:
30 July 2020
RESERVED JUDGMENT OF DOBSON J
McPHEDRAN v NEW ZEALAND INSTITUTE OF CHARTERED ACCOUNTANTS [2020] NZHC 1526 [1 July 2020]
Contents
Background [1]
The facts [3]
Scope of grounds of challenge [26]The position of the firm [32]
The scope of the Appeals Council’s jurisdiction [41]
The surrogacy principle [54]
Irremediable or in-compensable loss suffered? [62]
Mr McPhedran’s state of mental health in August 2018 [66]
Summary of conclusions on pleaded grounds for judicial review [78]Jurisdiction of the Appeals Council [78]
Unreasonableness [79]
Relevant/irrelevant considerations [83]
Surrogacy principle [87]
NZICA summary judgment application [90]
Costs [92]
Background
[1] This application for judicial review is brought by the plaintiff (Mr McPhedran) to challenge the outcome of an appeal pursued by him to the Appeals Council of the defendant (NZICA) in which he unsuccessfully sought to reverse the impact of decisions by the NZICA Disciplinary Tribunal (the Tribunal). The orders made by the Tribunal were for Mr McPhedran’s name to be removed from the register of members of NZICA, for publication of that outcome and for costs.
[2] At the time of the relevant complaints against Mr McPhedran to NZICA, he was running his chartered accountancy practice in Dunedin under the style of Your Business Team Limited (YBT). Mr McPhedran also operated an advisory and mentoring business, trading as 10X, with a business partner, Mr Carl Spruyt, who was not a chartered accountant. The two businesses were operated from the same premises and used the same staff. Evidence was given to the Tribunal analysing the way the businesses operated. The Tribunal treated them as being insufficiently separate or distinct to have the 10X business fall outside the practice of YBT, so that the supervision and responsibility under NZICA’s code of ethics extended to the conduct of 10X’s business.
The facts
[3] In February 2017, Mr McPhedran had a serious accident at his home and was subsequently admitted to the Burwood spinal unit for treatment and recovery for some six weeks. He was left with physical and mental health difficulties, some of which have persisted. Mr McPhedran returned to work in May 2017 but, by his own current perception, he was not in a fit state to do so.
[4] Between May and September 2017, a number of complaints were lodged with NZICA against Mr McPhedran by two of his clients, a Mr and Mrs Bell, and a Mr Roper. In both cases, part of Mr McPhedran’s businesses had taken shareholding interests in companies operated by those clients and had instigated steps in the conduct of those clients’ businesses that were the subject of the complaints against Mr McPhedran. The case against him was that the conduct complained of revealed stark conflicts of interest, and amounted to one or more of breaches of the NZICA code of ethics, negligence or incompetence in a professional capacity to such a degree and/or frequency as to bring the profession into disrepute, conduct unbecoming of an accountant and ultimately misconduct in a professional capacity.
[5] Mr McPhedran dealt with the initial investigative stage conducted by NZICA’s professional conduct committee (PCC) on his own behalf. However, when the PCC served him with notice of charges, Mr McPhedran notified his insurers who appointed a firm of solicitors (the firm) to represent him in July 2018.1
[6] The firm referred the details of the charges against Mr McPhedran to an independent accounting expert, Mr Ruscoe, seeking advice as to the prospects for defending the charges. On 14 August 2018, the firm advised Mr McPhedran that Mr Ruscoe’s opinion was that he was guilty of some of the charges that had been made and that he should accept that advice and plead guilty to them. On the same day, Mr McPhedran accepted that advice and indicated that he would indeed plead guilty. The following day, the firm made a formal response on Mr McPhedran’s behalf,
1 References to the name and location of the firm have been removed from this judgment pursuant to an order for name suppression made on 30 July 2020.
pleading guilty to a number of the particulars of the charges and admitting the fourth and least serious charge, namely breach of the NZICA code of ethics.
[7] On 20 August 2018, in anticipation of the hearing before the Tribunal set for 22 and 23 August 2018, the firm advised counsel for the PCC that Mr McPhedran was medically unfit to travel, that an adjournment was not required to enable him to appear subsequently and that giving evidence through a telephone or video conference would not assist. The Tribunal was advised of this information the next day.
[8] On 21 August 2018, the firm filed statutory declarations with the Tribunal that had been completed by Mr McPhedran, his business partner, Mr Spruyt, and Mr Chris Burke, a Dunedin solicitor who had acted for Mr Roper in relation to business transactions, some aspects of which were the subject of complaints made by Mr Roper to NZICA about Mr McPhedran’s conduct.
[9] At the hearing on 22 and 23 August 2018, the firm tendered an unsigned brief of evidence on behalf of Mr McPhedran, as well as the statutory declarations completed by him and Messrs Spruyt and Burke. Given Mr McPhedran’s non- availability for cross-examination, the Tribunal declined to read the unsigned brief of evidence. Counsel for the PCC objected to any reliance on the statutory declarations because those providing them were unavailable for cross-examination. The objection was resolved by counsel agreeing to redact passages that were inconsistent with the statements of evidence by complainants or other witnesses on their behalf. Their versions of events were able to be tested because they were available for cross- examination. The firm accepted that what remained of the redacted statutory declarations would not be relied on to contest liability, but would be relied on in submissions seeking to mitigate penalty.
[10] On 23 August 2018, the Tribunal determined that the particulars that had been admitted on behalf of Mr McPhedran, and a number of disputed particulars, were proven and that all charges were proven. The Tribunal reserved its decision on penalties and issued its formal written determination on both liability and penalties on 8 November 2018. The Tribunal found that Mr McPhedran had been dishonest, had denigrated a client and showed little insight into the seriousness of the misconduct. It
rejected submissions that a lesser penalty than removal of his name from the Register would be sufficient.
[11] On 22 November 2018, the firm filed a notice of appeal on behalf of Mr McPhedran. The notice sought to appeal the orders that had been imposed by the Tribunal, but did not challenge findings as to liability. An application was then made to the Appeals Council to allow Mr McPhedran to adduce new evidence on the appeal. The proposed evidence would address two topics: first, email correspondence relating to the removal of Mr Roper as a director of a company previously operated by him in which Mr McPhedran’s interests had become involved, and secondly, a psychiatric report addressing Mr McPhedran’s state of mental health.
[12] The Appeals Council ruled that it would allow evidence relating to the removal of Mr Roper as a director, but declined leave to adduce the evidence relating to the state of Mr McPhedran’s mental health. The Appeals Council determined that such evidence was not “fresh” in the requisite sense under the Evidence Act 2006 and in any event the pressures on Mr McPhedran’s mental health appeared to be attributable to concerns about the possible effect of publication of the determination.
[13] At the end of February or in early March 2019, the firm ceased to act for Mr McPhedran. He was briefly represented by another lawyer until 1 April 2019 when that lawyer also ceased to act. Mr McPhedran then appointed a lay advocate, Mr Michael Laws, to represent him in the Appeals Council proceedings.
[14] On 9 April 2019, Mr Laws applied to add seven further grounds to those previously advanced on the appeal. Four of the proposed grounds raised additional criticisms of the procedure that had been followed by the Tribunal and three raised alleged inadequacies in the firm’s representation of Mr McPhedran before the Tribunal.
[15] On 11 April 2019, the Appeals Council allowed the four new procedural grounds, but declined to allow the three grounds raising alleged inadequacies in legal representation before the Tribunal.
[16] The Appeals Council hearing was due to start on 16 April 2019, but given Mr Laws’ recent involvement, the Appeals Council adjourned its hearing to allow him further time.
[17] On 1 May 2019, the Appeals Council was warned by Mr Laws that judicial review proceedings were to be commenced, including an application for interim orders to stay the appeal proceeding. NZICA advised Mr Laws that the appeal scheduled for 7 and 8 May 2019 would proceed in the absence of any orders from the Court preventing it doing so.
[18] On 6 May 2019, Mr McPhedran commenced the present proceedings, including filing a without notice application for interim injunction to stop the Appeals Council’s hearing proceeding the following day. The application was dismissed by Grice J, who provided her reasons in a judgment issued on 7 May 2019.2
[19] At 4.51 pm on 6 May 2019, Mr Laws advised the Appeals Council by email that, given the commencement of this proceeding “Mr McPhedran will not be attending the appeal hearing tomorrow, nor his counsel”. At 8.05 am the following morning, Mr Laws confirmed that the application for an interim order had been declined and submitted that it would be inappropriate to proceed except on the procedural issues that had been raised. The hearing was in Auckland, requiring Mr Laws to fly from Dunedin. The Appeals Council agreed to his request to defer the start time to 1.00 pm that day.
[20] The Appeals Council hearing proceeded on 7 and 8 May 2019. Mr McPhedran did not attend but was represented by Mr Laws. Having been given leave to adduce further evidence, the Appeals Council advised Mr Laws that witnesses producing further evidence would need to be present, and be available for cross-examination. Mr Laws confirmed that Mr McPhedran had decided not to call those witnesses, so the arguments that would have depended on the further evidence were not pursued.
[21] At the conclusion of the hearing, the chair of the Appeals Council, Mr Taylor QC, sought to clarify with Mr Laws why Mr McPhedran and his proposed
2 McPhedran v New Zealand Institute of Chartered Accountants [2019] NZHC 976.
witnesses had not attended at the hearing, and specifically whether their non- appearance was because they had anticipated the High Court making interim orders on the application that had been pursued on 6 May 2019. Mr Laws advised the Appeals Council:3
My instructions were that were Mr McPhedran in particular to turn up here with the judgments that had already been made by the Appeals Council as to the kind of evidence that he might be able to offer, he would not receive a fair opportunity to answer the charges or to advance his submissions.
[22] In advancing submissions for Mr McPhedran, Mr Laws sought to advance criticisms of the firm’s handling of Mr McPhedran’s case before the Tribunal. The Appeals Council refused to hear argument on that matter.
[23] On 5 July 2019, the Appeals Council dismissed the majority of matters that had been argued for Mr McPhedran. It did make a finding in his favour that the Tribunal had made an unjustified finding of dishonesty on Mr McPhedran’s part in his dealings with Mr Roper and overruled that aspect of the Tribunal’s findings. Having undertaken a thorough review of all the evidence, including the further evidence and cross-examination of Mr Roper, the Appeals Council upheld the findings as to liability for the disciplinary charges. When considering the appropriate penalty, it characterised the conduct in Mr McPhedran’s dealings with both complainants in the following terms:4
201.In both cases, the member and his associates proposed taking an equity interest in the businesses of the clients and had agreed to pay for that interest. In both instances invoices appear to have been issued for which there was no written authority or agreement, for amounts which covered at least the proposed purchase price of the shares to be offered. In both cases, payment was never made for the shares but transfers of the shares to Mr McPhedran or related interests was achieved at the instigation of Mr McPhedran or Mr Spruyt (for whom Mr McPhedran was responsible). Similarly both Mr McPhedran and Mr Spruyt were appointed as directors of their client companies.
202.In both cases, when Mr McPhedran and his clients fell out, Mr McPhedran used his/YBT's purported ownership of shares in the business to further his own interests and to deliberately act against the interests of his clients.
3 Transcript of Appeals Council hearing at 177.
4 Decision of Appeals Council, 5 July 2019.
[24] The Appeals Council endorsed the finding of the Tribunal as to Mr McPhedran’s dealings with the Bell complainants as being “unjustified, self- serving and totally unprofessional”. The Appeals Council found Mr McPhedran’s conduct in relation to Mr Roper to be “disgraceful”.5
[25] The Appeals Council decided that overturning the dishonesty finding did not warrant revisiting the penalties that had been decided upon by the Tribunal. It concluded that removal as a member of the Institute was the only appropriate penalty.6
Scope of grounds of challenge
[26] Mr McPhedran’s initial statement of claim filed on 6 May 2019 provided a discursive recitation of his dealings with NZICA through the various stages up to that point. The complaint in respect of the Appeals Council was its April 2019 refusal to allow additional grounds of appeal that would traverse the alleged errors by the firm.
[27] An amended statement of claim was filed on 23 July 2019, which updated the narrative to include claims relating to the hearing before, and decision of, the Appeals Council. The relief sought was an order setting aside the Tribunal’s and Appeals Council’s decisions and for Mr McPhedran to be afforded a fresh opportunity to defend himself against the charges alleged by the PCC. He also sought orders that the costs awards against him by the Tribunal and the Appeals Council be set aside.
[28] For a period in early 2020, Mr McPhedran was represented in the proceeding by Alistair Logan, solicitor of Dunedin. He filed a second amended statement of claim on Mr McPhedran’s behalf on 8 April 2020, which focused the issues more narrowly than the previous pleadings. It alleged the Appeals Council had made an error of law in not recognising and allowing counsel incompetence as a ground of appeal, and that the decisions were flawed because of the failure to have regard to relevant considerations, and taking irrelevant considerations into account. The relief sought was a setting aside of the various decisions of the Appeals Council and an order directing a re-hearing before the Appeals Council on terms that would allow, as a
5 Decision of Appeals Council, above n 4, at [203], [204].
6 Decision of Appeals Council, above n 4, at [220].
ground of appeal, the issue of inadequacies in legal representation that allegedly resulted in a miscarriage of justice.
[29] Shortly after the filing of the second amended statement of claim, Mr McPhedran dispensed with Mr Logan’s services and sought leave for his case to be argued on his behalf by Mr Laws as a McKenzie friend. The affidavits in support of the application for judicial review included one completed by Mr Laws, which contained a relatively detailed narrative of his presentation of Mr McPhedran’s appeal before the Appeals Council. Mr McPhedran was declined leave for Mr Laws to participate in the hearing beyond the conventional level of support provided by a McKenzie friend.7
[30] A synopsis filed by Mr McPhedran in advance of the hearing focused his criticisms on the inadequacies of legal representation before the Tribunal by the firm. He invited analogy with the ground of counsel incompetence raised in criminal appeals, submitting that the same ground should be available in judicial review of disciplinary proceedings. Mr McPhedran submitted that he had not had a fair hearing because of the firm’s inadequacies and because of the exceptional pressure on him to accept their advice in pleading guilty to some charges, caused in material part by the mental health difficulties he was encountering at the time.
[31] Understandably, Mr Barker submitted for NZICA before me that it should not be required to answer wider criticisms of it that arose outside the pleaded grounds for the relief sought in the second amended statement of claim.
The position of the firm
[32] The primary basis for Mr McPhedran’s complaints that he has not been given a fair hearing arises out of his criticisms of the conduct of the firm. Those complaints (referred to as the counsel incompetence complaints) include:
7 After other judges had issued minutes defining the conventional limits on involvement by a McKenzie friend and declining leave for a wider role for Mr Laws, I raised the prospect of Mr Logan participating as court-appointed counsel. Mr McPhedran signalled his preference to be represented by Mr Laws.
· they obtained an opinion from an independent accountant (Mr Ruscoe) on the prospects of defending the charges, having given Mr Ruscoe only the complainants’ version of events, when Mr McPhedran contemplated the answers on factual matters reflected in statutory declarations by him and supporters would also have been taken into account;
· Mr McPhedran was put under extreme time pressure to consider and agree to the firm’s advice that he should plead guilty to the majority of the particulars in the charges;
· the firm should have appreciated the limitations on his mental health at the time, which meant that he was not fit to make a fully informed decision;
· the firm failed to tell him of the prospect of having the Tribunal hearing adjourned and misrepresented to him that there was no feasible means of his appearing from a distance;
· the firm failed to advise him of the risk of adverse consequences that might arise from his not appearing;
· the firm agreed to material redactions from the statutory declarations completed by Messrs McPhedran, Spruyt and Burke, without his approval and without telling him it had been done.
[33] More generally, Mr McPhedran criticised the context in which his relationship with the firm was maintained, with the firm purporting to represent his interests but being paid by, and ultimately responsible to, his professional indemnifiers.
[34] During what turned out to be a preliminary hearing on 16 April 2019, Mr Laws had made a further attempt to persuade the Appeals Council to allow counsel incompetence as an issue within the appeal. During Mr Laws’ exchanges with the chair of the Appeals Council about this prospect, Mr Taylor indicated that any consideration of the firm’s conduct would necessarily involve Mr McPhedran providing a waiver of the legal privilege attaching to all communications between them, including the prospect of the firm having dialogue with NZICA’s lawyers and potentially giving evidence for them.
[35] Two days later, on 18 April 2019, the Appeals Council issued a decision explaining the reasons for declining to allow counsel incompetence as a ground of appeal . It included the following:8
(a)We accept that conduct of counsel can in criminal cases sometimes give rise to a miscarriage of justice. Miscarriage of justice is a statutorily recognised ground of appeal in such cases. This appeal, however, arises in a disciplinary context and must be conducted in accordance with the rules of the Institute. The appeal is by way of rehearing including, where leave is granted, further evidence.
(b)We do not need to decide in this decision whether there is jurisdiction to allow such a ground of appeal but we have reservations as to whether such a ground of appeal is properly allowable in an appeal from the Disciplinary Tribunal. We have found no cases where such a ground of appeal has been permitted in respect of appeals in a disciplinary context.
(c)Mr Laws, in his submissions before us, referred to extracts of the legal advice which gave rise to Mr McPhedran’s decision to admit particulars of the charges against him and not to give evidence himself except by way of a statutory declaration. It is clear from the extracts of legal advice provided that the reasons for that advice related primarily to concerns as to whether Mr McPhedran giving evidence would be in his best interests.
(d)The legal advice was of a kind that a solicitor could reasonably give when advising on defence of disciplinary charges. Mr Laws asserted that, although Mr McPhedran assented to the course recommended by his solicitors, he was suffering from mental illness at the time and his decision was not therefore a properly informed one. Whilst that may, or may not be the case, we are not persuaded that it is either necessary or desirable to embark on an enquiry as to whether Mr McPhedran’s mental state was so severe that he was unable to understand the legal advice or make a decision based on it.
(e)Negligent or inadequate advice by counsel is not a ground, in itself, for rehearing of a criminal prosecution. The question in such cases is whether the inadequacies of the legal representation, if established, has given rise to a miscarriage of justice. It is not enough that, having made a decision based on legal advice to admit the particulars of the charges against him and not to give evidence in person (and subject himself to cross-examination), that the member subsequently regrets his decision and wishes to, effectively, rerun his defence. If the ground of appeal in a criminal context is available in this jurisdiction the member would still have to prove that the decisions made have resulted in a miscarriage of justice.
(f)Decisions made which are objectively reasonable in the circumstances will rarely enable the client to succeed in asserting a miscarriage of justice in criminal cases. Normally an appeal would not be allowed simply because of a judgment made by trial counsel which could well be made by another trial counsel in the course of a new trial.
8 Decision of Appeals Council, 18 April 2019 at [15] (citations omitted).
(g)Finally, as is clear from the cases in the criminal jurisdiction, allowing such a ground of appeal would necessarily involve a lengthy and detailed procedure and enquiry which would significantly delay the hearing of the appeal. Such an enquiry would relate to events leading up to and including the hearing before the Disciplinary Tribunal in August 2018 and would include detailed evidence as to the advice given (or not given) by Mr McPhedran’s legal representatives and, according to Mr Laws, Mr McPhedran’s mental condition at the time. Those events and circumstances have been known to Mr McPhedran since that time but have only be [sic] raised by him in April of this year some 10 days out from the date for hearing of the appeal.
…
[36] Mr McPhedran now treats comments in the Appeals Council’s decision of 18 April 2019 as inappropriately and incorrectly upholding the competence of the firm’s conduct on his behalf.
[37] In a memorandum for a case management conference that was pending in this proceeding on 11 October 2019, Mr McPhedran recognised that an issue still to be determined was whether the firm should be joined to the proceedings. No initiatives to pursue their joinder have been taken.
[38] Mr McPhedran confirmed during his oral submissions that he had not pursued any complaint against the firm with the New Zealand Law Society, nor has he given them notice of the extensive criticisms he is making of them.
[39] In his oral submissions, Mr McPhedran accepted that the Court could not make any findings adverse to the firm’s interests without their being afforded an adequate opportunity to be heard. Mr McPhedran’s approach was that the relief sought could be granted without the need to uphold any of his criticisms of their conduct. That approach substantially limits the prospects for relief, if grounds for the challenge are made out.
[40] To succeed on his primary issue that the Appeals Council erred in not hearing his complaint that the firm’s conduct prevented him getting a fair hearing, Mr McPhedran must make out positive responses to the following two questions:
(a)did the Appeals Council have jurisdiction to consider counsel incompetence before the Tribunal as a ground of appeal; and
(b)if it did have jurisdiction, should the Appeals Council have entertained that ground in this case?
The scope of the Appeals Council’s jurisdiction
[41] Mr McPhedran submitted that the Appeals Council had a legal responsibility to hear him on the issue of counsel incompetence, and that it committed an error of law in not doing so.
[42] NZICA is a statutory body provided for in the New Zealand Institute of Chartered Accountants Act 1996 (the Act). The functions of NZICA include, in s 5A of the Act, a duty to control and regulate the profession of accountancy as conducted by its members in New Zealand. The Act provides for the PCC to investigate complaints against members (including former members) and for the powers and procedures of the PCC. Its functions include the laying of charges against members which may then be heard by the Tribunal that is also provided for in the Act. Section 6 of the Act requires that NZICA must have rules that provide, inter alia, for the PCC, the Tribunal and an Appeals Council, which is to hear appeals from decisions of the Tribunal, and such rules are to provide the powers and procedure of the Appeals Council.9
[43] Section 9 of the Act requires the PCC and NZICA’s disciplinary bodies to observe the rules of natural justice. The Act also empowers the disciplinary bodies to receive evidence on oath and provides for a District Court judge to authorise a disciplinary body to issue a summons under s 11 of the Act. The rules of NZICA include various machinery provisions as to the conduct of proceedings by the PCC, the Tribunal and the Appeals Council. In the case of the Appeals Council, the rules provide that it is to regulate its procedure as it thinks fit, subject to the content of the rules. Where an appeal is lodged with the Appeals Council, the decision of the Tribunal is not to take effect until the determination of the appeal.10
9 New Zealand Institute of Chartered Accountants Act 1996, s 6(1)(h).
10 Rules of NZICA, effective 26 June 2017, at 13.55, 13.47(a).
[44] Every appeal is to proceed by way of re-hearing, with the Appeals Council empowered to direct that witnesses be recalled where they gave evidence before the Tribunal, or to introduce new evidence.11 In determining appeals, the Appeals Council may confirm or vary or reverse the Tribunal’s decision and make any order as to the payment of costs of the appeal as it thinks fit.12
[45] For NZICA, Mr Barker submitted that the rules did not contemplate the Appeals Council having jurisdiction to consider a complaint of counsel incompetence before the Tribunal as a ground of appeal. Mr Barker cited the lack of any precedent for that to occur in disciplinary proceedings either for NZICA members, or in the comparable disciplinary procedures for other professions.
[46] He argued that the so-called surrogacy principle, discussed below, militated against an appellant before the Appeals Council disavowing the conduct of the member’s case before the Tribunal on the ground of counsel incompetence. Further, that if there was scope to apply an analogous ground of appeal to the counsel incompetence ground that applies in criminal appeals, then it was not open to Mr McPhedran to run such an argument without initiating the procedural pre-requisites required in the criminal appellate context. These would include waiving privilege in all the advice and communications between Mr McPhedran and counsel whose conduct is impugned, to permit full and frank inquiries to be undertaken of that counsel, and for them to be afforded an opportunity of explaining the conduct that is now criticised. Mr Barker noted that the firm has not been put on notice of the nature and extent of criticisms advanced by Mr McPhedran and accordingly had no opportunity to put their version of events.
[47] In this case, having considered it unnecessary to decide whether it had jurisdiction to entertain the point, the Appeals Council was influenced in its decision against allowing counsel incompetence to be raised by the substantial extent of further work that would be involved. A mechanism would be needed to have the criticisms of the firm put to them, and to allow a response from them. Further, the Appeals Council would need to form a view on whether the errors on their part made a material
11 Rule 13.54.
12 Rule 13.57(a).
difference, by an analogy with the criminal appellate analysis of whether counsel incompetence led to a miscarriage of justice.
[48] An appellate disciplinary body such as the Appeals Council could justifiably be wary of making a judgement as to whether counsel representing a member facing disciplinary charges had failed to carry out instructions competently, and whether any such errors caused or contributed to a different outcome from that which the member might reasonably have achieved if competently represented. Those matters would be core issues in any civil proceedings brought by the member for professional negligence against the allegedly incompetent counsel.13
[49] A further consideration for the Appeals Council was the further time and cost inevitably incurred for all involved, if disciplinary appeal proceedings were to be expanded in this way. The Appeals Council was concerned to discharge its obligations to achieve a prompt and efficient outcome. Further adjournments would have been necessary plus preliminary hearings to provide directions on the manner in which the firm participated. A substantial expansion of the evidence and arguments in dealing with the appeal would almost certainly arise.
[50] Maintaining public confidence in disciplinary processes operated by professional bodies is in the public interest,14 and an important aspect of that is in operating processes that produce expeditious outcomes.15 The additional time and cost, and the prospect of denting the confidence of the profession and the public in the disciplinary process, are likely to be material considerations against allowing issues in a disciplinary appeal to include claims of counsel incompetence before the Tribunal.
[51] However, whilst these considerations are likely to limit the cases in which the Appeals Council agrees to hear a ground of counsel incompetence, I do not accept that they are sufficient to exclude that prospect entirely.
13 Cause of action recognised since Lai v Chamberlains [2006] NZSC 70, [2007] 2 NZLR 7. An example of professional negligence as a result of incompetent counsel is Gillibrand v Swanepoel [2017] NZHC 1209; Gillibrand v Swanepoel [2018] NZCA 467.
14 Institute of Chartered Accountants of New Zealand v Bevan [2003] 1 NZLR 154 (CA) at [68].
15 Deliu v New Zealand Law Society [2015] NZCA 12 at [22], [23] and footnote 20.
[52] I am not persuaded that the lack of recognition of counsel incompetence as a ground of appeal in the rules prevents the Appeals Council from entertaining such a ground on appropriate terms in appropriate appeals. The overriding statutory obligation of the prosecuting authority and the adjudicative bodies in their respective contributions to the disciplinary process is to comply with the rules of natural justice.16 That does not create any responsibility for the conduct of a member’s case before them as that is beyond their control. However, the appellate body’s responsibilities should extend to correcting a patently unjust outcome where a miscarriage of justice becomes apparent arising from the manner in which the member’s case was conducted before the Tribunal.
[53] For example, circumstances may arise in which a member intending to defend disciplinary charges before the Tribunal has the conduct of his or her defence taken out of their hands and misconducted to an extent that an unjustified finding against the member results, when there are real prospects that a competently conducted case on the member’s behalf would have succeeded. Mr McPhedran cited criminal decisions on counsel incompetence including the Supreme Court decision in R v Sungsuwan.17 An analogy can be drawn, taking account of the very different context in which the concern arises, from the judgment of Gault J in that appeal:18
… whatever approach is taken, it must remain open for an appellate court to ensure justice where there is real concern for the safety of a verdict as a result of the conduct of counsel even though, in the circumstances at the time, that conduct may have met the objectively reasonable standard of competence.
The surrogacy principle
[54] To invoke the so-called surrogacy principle, Mr Barker relied principally on the speech of Lord Bridge in the House of Lords’ decision in Al-Mehdawi v Secretary of State for the Home Department.19 That litigation involved an Iraqi national studying in England who had sought to appeal a deportation order. The solicitors who filed the notice of appeal with the administrative tribunal on his behalf received notice of the
16 As reflected in the analysis of the House of Lords in Al-Mehdawi v Secretary of State for the Home Department [1989] UKHL 7, [1990] 1 AC 876, discussed at [54]–[61] below.
17 R v Sungsuwan [2005] NZSC 57, [2006] 1 NZLR 730.
18 At [70].
19 Al-Mehdawi v Secretary of State for the Home Department, above n 16.
date of hearing but forwarded it to an out of date address for the appellant. As a result, there was no appearance by him or on his behalf and the appeal was accordingly dismissed. On an application for judicial review, both the High Court and the Court of Appeal held that the decision dismissing the appeal should be quashed, and the appeal re-heard with Mr Al-Mehdawi being afforded an opportunity to be heard.
[55] In earlier decisions that had been followed in the High Court and the Court of Appeal, such deficiencies in the process had been characterised as breaches of the obligations of natural justice, even although those making the impugned decisions had not been responsible for any relevant error. Lord Bridge cited the classic definition of grounds on which administrative action is subject to judicial review as defined by Lord Diplock in Council of Civil Service Unions v Minister for the Civil Service, namely illegality, irrationality and procedural impropriety.20 Lord Bridge made the point that none of those grounds for claiming judicial review can arise if the relevant failure has been by a legal adviser or other agent of the challenging party where the failure arose beyond the knowledge and control of the decision-maker.21
[56] Having reviewed cases in which such complaints had been addressed as breaches of natural justice, Lord Bridge concluded:22
… a party to a dispute who has lost the opportunity to have his case heard through the default of his own advisers to whom he has entrusted the conduct of the dispute on his behalf cannot complain that he has been the victim of a procedural impropriety or that natural justice has been denied to him, at all events when the subject matter of the dispute raises issues of private law between citizens.
[57] Mr Barker submitted that the reasoning in Al-Mehdawi applied and was a complete answer to any challenge that depended on alleged inadequacies in the performance of the firm. He argued that Mr McPhedran could not allege a breach of obligations of natural justice when neither the Tribunal nor the Appeals Council had made any relevant error. However, the full force of that reasoning has been moderated since Al-Mehdawi, both in England and in New Zealand.
20 Council of Civil Service Unions v Minister for the Civil Service [1985] AC 374 at 410.
21 Al-Mehdawi v Secretary of State for the Home Department, above n 16, at 894H.
22 At 898E-F.
[58] In FP (Iran) v Secretary of State for the Home Department,23 the Court of Appeal of England and Wales distinguished the circumstances of the foreign student whose visa had expired in Al-Mehdawi from proceedings involving asylum seekers where the possibility arose of their being returned to jurisdictions in which they might face persecution, torture or death. Lord Justice Sedley distinguished the latter as a type of case in which “irretrievable and in-compensable” loss could arise.24 Lady Justice Arden characterised asylum applications as requiring the highest standards of fairness.25 In such cases, the surrogacy principle could not prevent a re-opening of what had been an inadequate hearing.
[59] That distinction has been recognised in two proceedings by Muir J as qualifying the scope of the surrogacy principle. In Ratzapper Australasia Ltd v Noe, the relevant issue was the enforceability of an arbitral award where the unsuccessful party in the arbitration had been barred from defending the proceedings on the grounds of persistent and deliberate failures to comply with discovery requirements.26 An award had been made against the party in his absence, and the absence of his being heard before liability was determined was raised as a ground for opposing an order for enforcement of the award that was sought from the High Court. Muir J did not treat the case as one justifying a relaxation of the surrogacy principle. The defendant had the opportunity to establish error or breach of duty on the part of legal advisers representing him in the arbitration so that a civil remedy against them was available, taking it outside the scope of the exception for “irretrievable and incompensible loss”.
[60] In Kaur v Minister of Immigration, Muir J had to consider omissions on the part of legal advisers who delayed beyond the expiry of a time limit for an application for review to challenge a decision in respect of immigration status.27 The Judge referred to his earlier analysis in Ratzapper and observed:28
[26] I note further that this is not a situation where there is any effective remedy by the applicants against counsel. The so called ‘surrogacy principle’, whereby the errors or omissions of counsel are visited on their client, applies
23 FP (Iran) v Secretary of State for the Home Department [2007] EWCA Civ 13.
24 At [41].
25 At [58].
26 Ratzapper Australasia Ltd v Noe [2017] NZHC 2931.
27 Kaur v Minister of Immigration [2018] NZHC 138.
28 Footnote omitted.
with less rigour in cases where the loss is effectively incompensible. The Court should, in my view, be hesitant to penalise an applicant for the honest mistake of counsel in circumstances where the error is unable to be adequately compensated in damages.
[61] I respectfully adopt Muir J’s approach to the surrogacy principle. Its application should not extend to cases in which the loss or damage arising from counsel incompetence is irretrievable and in-compensable.
Irremediable or in-compensable loss suffered?
[62] At no stage has Mr McPhedran indicated an intention to challenge the Tribunal’s determination that he was guilty of the disciplinary charges brought against him. This point was reiterated both in NZICA’s written submissions, and in Mr Barker’s oral submissions, and that brought no rejoinder from Mr McPhedran. The scope of the appeal he sought to pursue was in essence to have the conduct complained of seen in a less serious light so as not to justify the removal of his name from the NZICA register, and that the additional adverse consequences of publication were not warranted. In addition, Mr McPhedran sought reversal of the orders as to costs made against him.
[63] The Appeals Council saw Mr McPhedran’s complaints about the firm as matters that he should pursue “in another jurisdiction”. That was implicitly on the basis that if he could make out his allegations against them, then he would have a cause of action for damages against the firm for the loss suffered as a result of their errors and omissions.
[64] Any such claim would require Mr McPhedran to establish on the balance of probabilities that the firm failed to follow instructions, or provided negligent advice and representation on his behalf, or both. He would also have to establish that the firm’s negligence was causative of loss,29 and make out the quantum of such loss. I obviously deal with these prospects in an entirely hypothetical way without expressing
29 Mr McPhedran would have to establish that the allegedly negligent counsel failed to follow his instructions, and that if his preferred defence was advanced it would, on the balance of probabilities, have resulted in a materially more favourable outcome.
any view about the merits of such criticisms, given that the firm has had no opportunity to respond to them.
[65] Although claims of this type requiring the claimant to run “a trial within a trial” are notoriously difficult, there is conceptually at least an available remedy. Mr McPhedran could claim that the damage to his reputation from an unwarranted exclusion from NZICA is irremediable, but that is a form of damage that the courts are prepared to quantify. I therefore agree with the Appeals Council that Mr McPhedran had the prospect of claiming for damage allegedly caused by the firm “in another jurisdiction”. It follows that his circumstances are within those to which the surrogacy principle applies.
Mr McPhedran’s state of mental health in August 2018
[66] A significant feature of Mr McPhedran’s criticisms of the firm in the period leading up to the Tribunal hearing is that he alleges they knew he was suffering from what he describes in his affidavit in the current proceeding as “a major depression disorder”. On Mr McPhedran’s argument, the firm should not have pressed him for instructions, particularly to allow them to admit the disciplinary charges on his behalf. Further, they should not have made arrangements for the hearing to proceed without exploring the prospects of an adjournment or Mr McPhedran’s remote appearance via AVL. Mr McPhedran claims that he became aware that both of those prospects may have been available only after the Tribunal’s decision.
[67] Mr McPhedran contends that awareness of his lack of full mental capacity heightened the duty of care owed to him by the firm, and ought to have required them to pursue a different course on his behalf.
[68] Immediately prior to the hearing before the Tribunal in August 2018, Mr McPhedran had provided a short note from a general practitioner in the Dunedin practice of which Mr McPhedran was a patient. The note stated:
Dave is currently being treated for escalating anxiety and is currently not medically fit to attend his hearing. I feel attendance would cause increased symptoms and cause hardship. Please contact me if further details are needed.
[69] At an early stage of the proceedings before the Appeals Council, an application was made on Mr McPhedran’s behalf to adduce a November 2018 report from a consultant psychiatrist, in addition to the note from the general practitioner. That report was completed on behalf of the Accident Compensation Corporation (ACC) as to whether Mr McPhedran’s mental health condition resulted from the physical injuries previously suffered by him. Apparently the same consultant psychiatrist had, shortly after completing the report for ACC, completed a further letter addressing Mr McPhedran’s mental state of health. Neither the report for ACC nor the separate letter are in evidence, but the essence of their content is described in the Appeals Council’s 15 February 2019 decision rejecting the application to adduce those documents as evidence before it.
[70] The Appeals Council’s February 2019 decision describes the consultant psychiatrist’s November 2018 report as attributing Mr McPhedran’s mental health condition to the disciplinary complaint and anxiety in respect of the outcome. The consultant psychiatrist had not found any evidence of any thought disorder, psychosis or cognitive impairment. Not inconsistently, the consultant psychiatrist’s separate letter stated that whilst carrying out the ACC assessment, Mr McPhedran “had all the symptoms of a major depressive episode”.
[71] The Appeals Council declined leave to adduce the evidence on Mr McPhedran’s state of mental health so the mental health opinions were not tested. The Appeals Council considered Mr McPhedran’s complaints that no adequate weight had been given to his mental health impairment at the time of the Tribunal hearing by analogy with the test applying in criminal proceedings of a defendant’s fitness to plead and mount a defence. Mr Taylor indicated in exchanges with Mr Laws that there did not appear to be any scope for contending that Mr McPhedran had been impaired in respects that could possibly have rendered him “unfit to plead”.
[72] In defending NZICA’s treatment of Mr McPhedran throughout the disciplinary processes, Mr Barker submitted that there was no credible admissible evidence that he suffered any sufficient measure of mental impairment at any stage. The short statement from the general practitioner tendered to the Tribunal described only escalating levels of anxiety to an extent that he was not medically fit at the time to
attend the hearing. Mr Barker submitted that the general practitioner’s note was advanced to explain his non-attendance at the Tribunal hearing and could not provide any justification for a plea that Mr McPhedran was mentally unfit to instruct counsel to respond to the disciplinary charges on his behalf. Similarly, the conclusions of the consultant psychiatrist who assessed Mr McPhedran some months after the Tribunal hearing could not form any basis for a retrospective claim that Mr McPhedran was suffering from any thought disorder or psychosis or cognitive impairment to an extent that precluded his responding to the disciplinary charges.
[73] Mr McPhedran was left with his retrospective self-assessment, and the layperson’s observations of Mr Spruyt, as conveyed to the firm in the week before the hearing, to the effect that Mr McPhedran was not coping.
[74] Mr Barker also submitted that claims of a mental health impairment should to be seen in light of what he characterised as Mr McPhedran’s own cynical view about that matter in an email exchange he had with the firm on 16 August 2018. Mr McPhedran asked in that email:
Would you prefer me to attend or would it perhaps be better to play the Medical Card.
[75] Mr Barker invited the inference from that communication that Mr McPhedran was quite well enough to attend, but if for tactical reasons it was considered preferable for him to stay away, his medical condition could be cited as an excuse for not appearing.
[76] To the extent that Mr McPhedran now seeks to add to his challenge the conduct of the Appeals Council and the outcome before it, I am not persuaded that the Appeals Council erred in rejecting the application to adduce additional evidence going to Mr McPhedran’s state of mental health. Nor am I persuaded that the approach it adopted contributed to any error in the procedure subsequently followed, or the substantive outcome.
[77] It is understandable that in reconstructing the events leading to the adverse outcome for him before the Tribunal, Mr McPhedran would readily believe that he was “not himself” to the extent of having less than his normal level of mental faculties
to bring to bear on the important issues confronting him. However, without evidence that a material mental health impairment, diagnosed by an appropriately qualified mental health professional, had existed at the time, Mr McPhedran cannot rely on this factor in advancing his judicial review challenge of the processes adopted in the disciplinary proceedings.
Summary of conclusions on pleaded grounds for judicial review
Jurisdiction of the Appeals Council
[78] I am not persuaded that the Appeals Council lacked jurisdiction to entertain, as a ground of appeal, a relevant complaint of counsel incompetence in the presentation of Mr McPhedran’s defence before the Tribunal. However, there are numerous material considerations counting against any obligation for the Appeals Council to accept such a ground of appeal. Those include the need to provide for a procedure pursuant to which counsel whose conduct is in issue can be given notice of the detail of the complaint against him or her, and be afforded an opportunity to provide an explanation for his or her conduct. That procedure would include a requirement for the member complaining of counsel’s conduct to give timely notice waiving privilege of all communications between them, thereby facilitating dialogue between those acting for NZICA and the counsel whose conduct is criticised.
Unreasonableness
[79] Mr McPhedran pleaded that the decision to exclude counsel incompetence as a ground of appeal was unreasonable. His submissions did not advance the claim, by reference to the tests in administrative law for unreasonableness, that it was a decision that no decision-maker, correctly directed as to the law, could have arrived at on the facts. For the reasons I have set out, I am satisfied that the Appeals Council did not misdirect itself as to the law, and the decision to dismiss the application to add counsel incompetence as a ground of appeal was one reasonably open to it.
[80] Mr McPhedran’s submissions tended to use the concepts of a breach of the obligations of natural justice and a miscarriage of justice interchangeably, or at least that the existence of the former inevitably led to the latter. That approach overlooks
material distinctions between the two concepts. As demonstrated by Lord Bridge’s speech in Al-Mehdawi, the obligation of a decision-maker to comply with the requirements of natural justice extends only to the procedure adopted by decision- makers for matters that are under their control.30
[81] In contrast, the spectre of a miscarriage of justice will generally arise out of mistakes in the presentation of a party’s case caused by matters beyond the control of the decision-maker. Relevantly here, the alleged cause of a potential miscarriage of justice was counsel incompetence. To make out a case for any relief on the ground of a miscarriage of justice, the Court would need to be satisfied that competent presentation of Mr McPhedran’s case would be likely, at least on the balance of probabilities, to have led to a materially different outcome.
[82] In the present case, Mr McPhedran has not provided a forum in which his claims of incompetence by the firm could reasonably be tested, but importantly he has also not attempted to establish with any credible detail how competent counsel running his case differently would have procured a more favourable outcome.
Relevant/irrelevant considerations
[83] Mr McPhedran has argued that Appeals Council decisions took into account irrelevant considerations, namely the extent of delay that would be caused if counsel incompetence was included as a ground of challenge, and that the public interest in having the appeal resolved expeditiously was a factor to be taken into account. For the reasons I have set out, I am satisfied that it was open to the Appeals Council to take both those factors into account in reaching its conclusion to exclude counsel incompetence as a ground of appeal.
[84] Mr McPhedran also claimed that the Appeals Council wrongly took into account the reasonableness of the advice he had received from the firm, when that arguably should have been irrelevant. I am not satisfied that the Appeals Council’s decisions turned to any material extent on their projection as to what advice Mr McPhedran had been given. There is no more than an acknowledgement that one
30 See [55] above.
form of advice that may have been given would have been open to the firm. I am not persuaded that the acknowledgement of that point constitutes the taking into account of an irrelevant consideration.
[85] Mr McPhedran also characterised the Appeals Council’s reasoning as including a projection on the likelihood of success in proving a miscarriage of justice when he contends that consideration should be irrelevant when determining his appeal. Again, I am not persuaded that a view on such a projection was determinative in the Appeals Council’s decisions and, to the extent that it featured in the reasoning, I am satisfied it was a relevant aspect of the review of the issues raised by the novel point that Mr McPhedran sought to pursue.
[86] Mr McPhedran also argued that the Appeals Council failed to take into account a relevant consideration, namely that his appeal before the Appeals Council was the sole prospect of his obtaining a remedy for the wrong caused by the firm in the penalties decision delivered by the Tribunal. I do not accept that the factual premise on which that contention relies can be made out.
Surrogacy principle
[87] The surrogacy principle would not be available as an answer to a member’s complaint about counsel incompetence in the hearing before the Tribunal if the loss or damage claimed to flow from counsel incompetence is irremediable or in-compensable. In this case, Mr McPhedran arguably has a possible cause of action against the firm, so the surrogacy principle can apply as an answer to claims of deficiencies in the process caused by counsel incompetence.
[88] No claim of counsel incompetence has been notified to the firm, and no steps taken to afford them an opportunity to explain their conduct. The analysis of a possible cause of action against them is therefore on an entirely hypothetical basis and no view is expressed about the merits or lack of merit in any such claim.
[89] Mr McPhedran cannot make out the grounds he has pleaded for any relief in his claim for judicial review.
NZICA summary judgment application
[90] In December 2019, NZICA commenced proceedings for judgment for the extent of costs orders made against Mr McPhedran, none of which have been paid. NZICA made an application in that proceeding for summary judgment of the liquidated sum of those unpaid costs. The proceeding was called at the outset of the hearing of Mr McPhedran’s judicial review. He has taken no steps to oppose the application for summary judgment and confirmed that his defence of it was limited to the arguments he raised in his judicial review proceeding. It followed that if his judicial review proceeding is unsuccessful, then he accepts he has no defence to NZICA’s claim for judgment for the extent of outstanding costs orders previously made against him.
[91] Given the dismissal of his application for judicial review, it follows that NZICA is entitled to summary judgment for the amounts sought in its separate proceeding. I accordingly enter judgment in terms of the summary judgment application, but direct that no steps can be taken to enforce that judgment for a period of 60 days from delivery of this judgment.
Costs
[92] NZICA is entitled to costs on its successful defence of the application for judicial review, on a 2B basis. Quantum is to be settled by the Registrar. NZICA is also entitled to costs on its summary judgment application, except that no amount should be ordered for a separate appearance in support of that application.
Dobson J
Solicitors:
Buddle Findlay, Wellington for defendant
Copy to: The plaintiff
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