Minter Ellison Rudd Watts v Chesterfields Preschools Limited HC Christchurch CIV 2009-409-1700

[2010] NZHC 261

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV 2009-409-1700

BETWEEN  MINTER ELLISON RUDD WATTS

Plaintiff

ANDCHESTERFIELDS PRESCHOOLS LIMITED

First Defendant

ANDDAVID JOHN HAMPTON Second Defendant

ANDDAVID JOHN HAMPTON AND THERESE SISSON TRADING AS CHESTERFIELDS PARTNERSHIP Third Defendants

ANDDAVID JOHN HAMPTON AND THERESE SISSON TRADING AS CHESTERFIELDS PRESCHOOLS PARTNERSHIP

Fourth Defendants

ANDANOLBE ENTERPRISES LIMITED Fifth Defendant

Hearing:         9 February 2010

Appearances:  L van Dam for the Plaintiff

D J Hampton appearing for himself and by leave for the other defendants

Judgment:      11 February 2010

JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN

This judgment was delivered by me on

11.02.10 at 4:00pm, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors/Counsel:

L van Dam, Minter Ellison Rudd Watts, Wellington – [email protected]

Copy to:

Mr D Hampton and Ms T Sisson, 8 Kahu Road, Christchurch – [email protected]

MINTER ELLISON RUDD WATTS V CHESTERFIELDS PRESCHOOLS LIMITED AND ORS HC CHCH

CIV 2009-409-1700  11 February 2010

[1]      The plaintiff (MERW) seeks summary  judgment  upon  its  claim  for  legal

services.    The  defendants  engaged  MERW  to  represent  them  in  respect  of  two successful  judicial  review  proceedings,  and  associated  interlocutory  applications, brought  against  the  Commissioner  of  Inland  Revenue  (the  Commissioner). Two separate contracts of retainer were entered into.   The first encompassed  the period March 2005 to May 2006 (the first retainer) and the second encompassed the period June 2007 to June 2009 (the second retainer).

[2]      Eleven invoices were issued by MERW to the defendants between June 2008 and  May 2009  for  legal  services  provided  under  the  second  retainer. The  present claim is for $172,462.57 being the balance owing on those unpaid invoices. All invoiced costs provided under the first retainer have been paid by the defendants.

[3]      In  his  affidavit  in  opposition  to  the  summary  judgment  application  Mr Hampton on behalf of all defendants disputes that any indebtedness at all is due.  The defendants  allege  MERW  failed  to  discharge  its  professional  obligations  thereby contributing to the financial loss of not less than $5M sustained by the defendants.  It is alleged this was due to:

a)        The course of conducting discovery in 2005;

b)Failing  to  make  an  application  for  legal  aid  in  October  2007  and subsequently;

c)        Failing to prepare an affidavit in a timely way in relation to the second judicial review proceeding; and

d)       Charging excessively for  work  undertaken  between  November  2008

and May 2009.

Background

[4]           Until  December  2004  the  defendants  were  represented  by  Buddle  Findlay, barristers and solicitors (Buddle Findlay).  Initially Buddle Findlay were engaged in settlement negotiations with the Commissioner “concerning a protracted tax dispute involving a range of historical issues”.  An objection of complaint was made against the  Commissioner  following  the  Commissioner’s  issue  of  a  statutory  demand. Ultimately Buddle Findlay prepared and filed an application for judicial review on behalf  of  the  defendants.   Mr  Hampton  states  that  because  the  defendants  were unable  to  continue  to  fund  the  representation  of  Buddle  Findlay  he  personally undertook   the   initial   formal   discovery   and   inspection   of   the   Commissioner’s documents in November 2004.

[5]      When on 13 December 2004 Buddle Findlay formally withdrew as solicitors

on the record, the defendants instructed Mr Andrews in January 2005.   At that time

he was a  partner  at  Palmer  Chen,  barristers  and  solicitors. Shortly afterwards  Mr

Andrews joined the partnership of  MERW.   MERW  were  instructed  from  March

2005 to May 2006 and from June 2007 to June 2009 in relation to two High Court judicial review proceedings.   Each period of retainer was the subject of  a separate contract of retainer.

[6]      Mr Hampton states MERW withdrew its representation a month prior to the first judicial review hearing in July 2006 and did not represent the defendants in that hearing.

Grounds for opposition

Discovery

[7]      The defendants claim that MERW did not attempt at any time to obtain the list of the documents included in the non privileged CD ROMs listed in the Commissioner’s affidavit of documents filed on 12 October 2004. He said had MERW  done  so  they would  have  received  notice  of  certain  documents  containing “evidence critical to the success of the defendants in the judicial   review

proceedings”.    As  well  other  documents  listed  in  the  Commissioner’s  affidavit “would have put [MERW] on notice to obtain further discovery orders in relation to certain non privileged documents containing evidence critical to the success of the defendants in the judicial review proceedings”.

[8]      The defendants state that “the delay and failure of [MERW] to discharge its responsibilities” thereby, caused “serious financial loss to the defendants by virtue of the   knock   on   effect   of   the   enforcement   action   of   the   Commissioner   on   the defendants’ businesses, causing damage” including:

a)        Loss of income and business assets, and inability to continue to fund legal representation during the first judicial review process;

b)        Causing the defendants to be powerless to defend the Commissioner’s

157 Notices;

c)        Causing the defendants to be powerless to defend the Commissioner’s mareva injunction application;

d)       Causing an “exponential incremental accumulation of” tax penalties;

e)        Rendered the defendants powerless to apply for relief prior to the first judicial review hearing.

[9]      By  his  affidavit  Mr  Hampton  asserts  that  it  was  not  until  December  2005, nine months after  MERW  was instructed, and being three months after  the setting down date of the substantive judicial  review  hearing, that  MERW  requested an explanation from the Commissioner for the basis of the privilege claim over a number of documents in the Commissioner’s Affidavit of documents. Mr Hampton claims it was clear that MERW “was well aware that the Commissioner had failed to comply in material respects to the High Court rules. Also it was not until December 2005 that MERW  made a written request under  the Official  Information  Act 1982 and the Privacy Act 1993 for disclosure by the Commissioner “of certain documents created since 1 August 2003”.

[10]     Mr Hampton noted that the Commissioner replied to the information request

by  letter  dated  20  February  2006. The Commissioner responded to the privilege claim letter on 31 March 2006. The latter letter contained advice that the Commissioner  was  reviewing  the  CD  ROMs  and  would  advise  concerning  this  in due course. Regardless, Mr Hampton claims MERW did not follow the matter up. It  was  not  until  June  2006  that  an  affidavit  filed  on  behalf  of  the  Commissioner disclosed  that  the  CD  ROMs  contained  filenotes  the  contents  of  which,  he  said, meant the defendants’ proceeding against the Commissioner required repleading.

[11]     Mr Hampton states and it is not disputed that the “filenotes proved critical to the success of the defendants in the first judicial review proceeding”. Mr Hampton submits   that   had   this  disclosure   of   the   filenotes   been   made   earlier   then   the defendants would have succeeded with their applications to restrain the Commissioner from exercising s 157 rights (by which money due to a tax defaulter may be attached) when that application was heard in June 2005, and to oppose the mareva injunction and sequestration orders obtained bythe Commissioner in September 2005, i.e. the Commissioner’s enforcement action.

Legal Aid

[12]     The  defendants  assert  MERW  failed  to  take  any  steps  at  any  time  and,  in particular in October 2007 when it was requested to make an application for legal aid assistance  notwithstanding  that  on  1  October  2007  it  promised  to  investigate  Mr Hampton’s   eligibility  for   legal   aid.  Although   aware   he   was   unable   to   pay accumulating legal fees, on 1 October 2007 Mr Hampton emailed Mr Andrews with the  question  “do  you  think  I  should  apply  for  legal  aid,  and  if  so,  would  MERW accept a legal aid appointment?”

[13]     Mr Andrew’s response was:

“...  I  seriously  doubt  you  would  get  it  given  the  plaintiffs  overall  asset position but what is your and Therese’s personal separate asset position?   I can then make and assessment.

I am legal aid qualified i.e. the LSA allows me to do cases on legal aid.”

[14]     Mr Hampton replied:

“I do not own any assets personally of significance and since the demise of the preschools I do not have an income.

Therese  has  her  law  firm  and  I  think  earns  above  the  threshold  for  legal aid....”

[15]     In  summary  Mr  Hampton  complains  that  MERW  continued  to  act  for  the defendants for long periods of time in the direct knowledge that they were unable to pay  accumulating  legal  fees,  and  that  Mr  Hampton  personally  did  not  have  any income as a result of the “failure of the defendants’ businesses due to the knock on effect of the enforcement action of the Commissioner”.

Preparation of affidavit in relation to second judicial review proceeding

[16]     Mr Hampton’s complaint is that MERW failed to “initiate, prepare and file”

his affidavit in a timely way ahead of the scheduled July 2008 hearing of the second judicial  review  proceeding.   In  the  result  he  says  the  Commissioner  was  able successfully to apply for an adjournment of that proceeding.  Mr Hampton claims Mr Andrews  misrepresented  the  extent  of  work  undertaken  to  prepare  Mr  Hampton’s affidavit  for  filing  within  time  as  directed  by  the  Court. Indeed  Mr  Hampton complains  that  Mr  Andrews  directed  him  to  undertake  much  of  the  affidavit preparation  work. Eventually,  he  said  that  by  9  July  his  own  draft  ran  to  1200 paragraphs. Despite  this  he  said  the  affidavit  was  not  filed  in  time  to  avoid  the Commissioner applying for and obtaining an adjournment of the review hearing set down  for  16  July  2008. According  to  Mr  Hampton  “the  delay  caused  further financial detriment to the defendants  and resulted in further restrictive  High Court orders against the defendants”.

Fees invoiced for work done following second judicial review hearing

[17]     The defendants dispute   liability  for   invoices   totalling  $63,965.65   from

November 2008 to May 2009.  They claim MERW failed to act in a timely manner

in  accordance with the directions of the High Court  in  the  second judicial  review causing “further exponential penalty accumulation in the tax accounts of the defendants and a deterioration in the defendants’ relationship with and support of its

bankers.   It  is  also  claimed  the  amounts  charged  were  not  commensurate  with  the type of legal work undertaken by MERW during that period.

Principles

[18]     Upon its summary judgment application MERW must satisfy the Court that the defendants have no defence to a cause of action in the statement of claim.   As noted by Ms van Dam for MERW, the principles relating to summary judgment are well settled.  They include:

a)        The absence of a defence means no bona fide defence, no reasonable ground  of  defence  and  no  fairly  arguable  defence:  Pemberton  v Chappel [1987] 1 NZLR 1 (CA) at 3;

b)Generally summary judgment is inappropriate where there is a factual dispute between the parties;

c)        A Judge is not required “to accept uncritically, as raising a dispute of fact  which  calls  for  further  investigation,  every  statement  on  an affidavit  however  equivocal,  lacking  in  precision,  inconsistent  with undisputed contemporary documents or other statements by the same deponent,  or  inherently  improbable  in  itself  it  may  be”: Eng  Mee Yong  v  Letchumanan  [1980] AC 331. Bald or baseless allegations cannot found a genuine factual dispute; a defendant must prove sufficient particulars to show that there is an issue worthy of trial and that the Court should scrutinise the defendant’s affidavits to ensure they pass the threshold of credibility.

d)In  the  absence  of  a  defence  a  Court  will  usually  grant  summary judgment unless it would be unjust or oppressive to do so:  Sudfeldt v UDC Finance Limited (1987) 1 PRNZ 205 (CA) at 209.

[19]     There is no absolute prohibition upon use of the summary   judgment procedure  in  cases  involving  claims  of  negligence. Although  the  usual  nature  of

negligence cases, including professional negligence cases often presents difficulties

for a plaintiff in proving the absence of a defence, resort to the summary judgment procedure may be appropriate where the reality of liability is clear.

[20]         Although  a  defendant  may raise  a  set  off  in  answer  to  the  plaintiff’s  claim usually counterclaims will not be so considered. Therefore even if the Court is satisfied in this instance that  the defendants have laid an evidential  foundation  for their allegations those will not constitute a “defence” for the purposes of rule 12.2 of the  High  Court  rules  if  they  amount  to  counterclaims  rather  than  a  set  off. The relationship between the two concepts is often misunderstood.  As noted in Roberts’ Family Investments Limited v Total Fitness (Wellington) Limited [1989] 1 NZLR 15

at 20, in order for a defendant’s claim against a plaintiff to constitute a set off and, accordingly,  a  defence  to  a  plaintiff’s  application  for  summary  judgment,  it  is essential that there be a factual overlap or a nexus between the plaintiff’s claim and the  defendant’s  asserted  set  off. It  is  “that  very  factual  nexus  [which]  makes  it appropriate that both claim and set off should go on as one to trial”. (Roberts supra)

[21]     This  principle  was  reiterated  by  the  Court  of  Appeal  in  Grant  v  NZMC Limited [1989] 1 NZLR 8 at 12:

“The principle is, we think, clear.   The defendant may set off a cross claim which  so  affects  the  plaintiff’s  claim  that  it  would  be  unjust  to  allow  the plaintiff to have judgment without bringing the cross claim to account.  The link must be such that the two are interdependent: judgment on one cannot fairly be given without regard to the other; the defendant’s claim calls into question or impeaches the plaintiff’s demand.”

[22]     It follows that a set off does not have a separate existence in its own right. Accordingly, if the defendant is able to bring an independent proceeding against the plaintiff to address the claim, the claim is properly characterised as a counterclaim and not a set off.

[23]     For the defendants Mr Hampton submits that the necessary nexus between claim and cross claim exists. He submits the core or central overlapping issue for determination is whether or not there was a failure to properly discharge the discovery obligation, and, if so, whether that failure  amounted  to  a  breach  of  the contract of retainer or, expressed as a tort duty, amounted to negligence on the part

of  the  plaintiff,  its  partner  and  staff,  and  in  circumstances  where  it  would  only be proper  that  a  summary  judgment  be  declined  and  that  the  matter  required  to  be determined at trial in the normal way.

The case for the defendants in opposition

Alleged failure to undertake discovery

[24]     Mr   Hampton   alleges   that   MERW   failed   to   discharge   its   professional obligations in terms of the discovery process in 2005.  He said MERW did not take time  to  obtain  a  list  of  documents  included  in  a  non  privileged  CD  ROMs,  or privileged documents which were listed but not disclosed by the Commissioner.

[25]     In response to this Mr Andrews deposed that the allegation relates neither to the relevant MERW retainer with the defendants nor to the amounts which it seeks payment  for.   Rather,  Mr  Andrews  states  the  allegation  relates  to  the  first  retainer which concluded before July 2006.  MERW entered into the second retainer with the defendants in June 2007 and it is that retainer which supports the current claim for payment. Nevertheless, Mr  Andrews  denies  the  allegations  in  their  entirety. He states  it  was  Mr  Hampton  himself  who  had  already done  the  necessary inspection and copying of the IRD’s “open” documents prior to March 2005 when he was first retained.   Mr Andrews states his role was to advise and represent the defendants at the then upcoming first judicial review proceeding.

[26]     Of this position Mr Hampton notes Mr Andrews did not consider he had any professional obligation in relation to the discovery of documents for the proceeding. Yet, he observes that Mr Andrews  knew  that  the  Commissioner’s  affidavit of documents did not comply with the High Court rules and that matter had not been addressed at the time MERW accepted instructions from the defendants. As much is plain, submits Mr Hampton, from Mr Andrews’ letter to the Commissioner dated 23

December 2005.  That letter by Mr Andrews indicated:

“Its  purpose  was  to  seek  to  understand  the  asserted  basis  of  privilege immunity  for  a  number  of  the  documents  in  the  second  part  of  [the Commissioner’s] list.”

[27]     The  letter  expressed  difficulty  in  understanding  claims  of  privilege  and sought clarification.   It commented that the Commissioner’s affidavit of documents did not always indicate grounds for objection to production.

[28]     Mr Hampton submits that because of this letter and subsequently by MERW’s  provision  of  documents  to  the  defendants  when  forthcoming  from  the Commissioner makes it clear that MERW did in fact take professional responsibility

for deficiencies in the Commissioner’s affidavit of documents.  He submits therefore that the crucial question for trial is an  analysis  of the standard  of  care  required of MERW  in  relation  “to  the  role  of  Mr  Andrews  in  advising  and  representing  the plaintiffs  in  relation  to the  proceeding,  including  continuing discovery obligations, and  whether  that  standard  of  care  was  discharged  in  the  knowledge  that  the Commissioner’s  [affidavit]  of  documents  was  non-complying”. He  rejects  Mr Andrews’ assertions that only informal applications were made to the Commissioner for further and better discovery.   Mr Hampton submits that this is an unacceptable and untenable rebuttal of the defendants’ claim.  Mr Hampton goes further:

“It resounds of complacency and casualness of the primacy and fundamental duty  of  care  to  the  defendants  in  terms  of  ongoing  discovery  in  the preparation of litigation.”

[29]     He rejects the proposition that there was no obligation on the part of MERW

to  review  the  work  of  previous  legal  representatives  or  to  address  and  seek rectification of non-compliance by the Commissioner with the High Court rules for discovery to ensure that the defendants were protected.

[30]     Mr  Hampton  has  deposed  to  his  view  that  a  number  of  the  documents included  in  the  CD  ROMs  included  important  filenotes  which  “were  critically relevant  and  material  to  the  successful  judicial  review  proceedings  against  the Commissioner”.           Thereby,   he   deposes,   the   defendants   “were   deprived   of   an opportunity  prior  to  trial  to  document  an  evidential  trail  of  the  attempts  of  the defendants  since  1999  to  have  the  Commissioner  disclose  the  existence  of  [those] filenotes  that  would  have  placed  in  context  the  difficulties  the  defendants  had  in dealing  with  the  Commissioner’s  officers  over  the  years  since  1996. This  in  turn would  have led to a careful examination and rebuttal of the allegations by the Commissioner  in  his  officers’  affidavits  concerning  the  alleged  non-compliance

history   of   the   defendants   and   alleged   deliberate   non-payment   and   tactical manoeuvring of assets to avoid payment”.

[31]     He adds: “The defendants were simply unable to effectively and persuasively rebut such allegations given the very late disclosure of the ... filenotes shortly before trial”.  In the end the defendants, who were self represented by that time, focussed in the judicial review hearing on establishing the legal force of the assurances made by the author of the filenotes.

[32]     In conclusion he, on his point, submits that:

“Early  disclosure  of  the  ...  filenotes  prior  to  a  trial  would  have  allowed resolution of these matters in the judicial review proceedings.  The impact of the  failure  caused  the  defendants  to  incur  substantial  further  legal  costs, stress   and   time   in   the   initiation   of   fresh   proceedings  for   malicious prosecution and misfeasance for losses incurred in relation to the initiation of enforcement  action  in  respect  to  the  157  Notices,  mareva  injunction  and, ultimately, the sequestration order.”

[33]     Mr Hampton submits that because earlier enquiry was not made regarding the non  privileged  CD  ROMs  and  because  no  requests  had  been  made  to  list  all documents  included  in  those  and  because  the  filenotes  were  only disclosed  by the Commissioner at the end of May 2006, just “a couple of weeks before the judicial review hearing”, and because MERW had by that time withdrawn as solicitor on the record, the defendants were deprived of sufficient time to “meaningfully amend the statement of claim to include a cause of action in the judicial review and to follow evidential  lines  of  enquiry in  relation  to  possible  bad  faith  of  the  Commissioner’s officers”.

The failure to apply for legal aid on behalf of Mr Hampton personally

[34]     Mr  Hampton  asserts  MERW  failed  to  take  any  steps  to  “meaningfully respond to the request ... to apply for legal aid assistance, despite assuring him that appropriate  steps  would  be  taken.  I  have  already  addressed  the  extent  of  the defendants’ claims in this respect in the preceding paragraphs 12 - 15 herein.

Preparation of affidavit in relation to second judicial review proceeding

[35]     Likewise in preceding paragraph  16  herein  I  reviewed  the  defendants’

position concerning this claim.  In brief, the defendants claim the hearing scheduled

for  July  2008  was  adjourned  unnecessarily  “resulting  in  further  restrictive  orders against  the  defendants  pending  ultimate  hearing  of  the  second  judicial  review proceeding.

Fees invoiced following second judicial review hearing

[36]     The defendants assert that sums charged post second judicial review were not commensurate with the nature of the work done, given the work was related to costs recovery and negotiations and discussions in relation to fees charged generally.

[37]     Although  not  covered  by  Mr  Hampton  in  his  affidavit  he  asserts  that  the defendants requested a full breakdown of all fees charged, including timesheets and identification of the nature of the work done for each timesheet.  He says MERW has failed to provide this information.   He says when it is provided the defendants will review the information and make a decision as to whether to refer the fees to the Law Society for consideration and assessment that the fees were commensurate with the actual work done.

Considerations and reasoning

[38]     The  defendants’  litigation  against  the  Commissioner  has  been  long  and complex. They allege the Commissioner made representations  to  them  between

1993 and 1995 that penalties and interest on disputed claims would not be imposed while the Commissioner was investigating their affairs. Contrary to those representations and assurances, the Commissioner did subsequently impose such penalties and interest, by which time, through the passage of time and the relevant legislation, the defendants’ alleged tax liabilities were  “extreme”  and  were  mostly comprised of penalties and interest. In or about 1992 the core  debt  was  about

$300,000.00.  By about 2005 the debt escalated to about $3.8M due to penalties and interest.

[39]         MERW acted for the defendants from March 2005.   Prior to the hearing of the defendants’ first substantive judicial review application in the High Court in July

2006 MERW withdrew from acting, on account of several invoices being unpaid.  At that  hearing  the  defendants  represented  themselves  through  Mr  Hampton  and Ms Sisson  a  practising  lawyer  and  a  shareholder  and  director/partner  of  the  first, third – fifth defendants.

[40]     As Mr Andrews deposed, in  broad  terms,  the  High  Court  upheld  the defendants’ arguments in its 15 December 2006 judgment.  It remitted certain issues

to the Commissioner to reconsider.  The Commissioner’s delegate did do so in June

2007.  The defendants formed the view that the delegate failed to apply the reasoning

in the December 2006 judgment and as a consequence, a further proceeding should

be taken to set aside the purported reconsideration.

[41]     MERW was reengaged by the defendants in June 2007.  Mr Andrews deposes that initially the engagement was for the limited purpose of determining whether a settlement  with  the  Commissioner  could  be  reached  in  light  of  the  defendants’ success in their initial review proceedings.   Subsequently MERW agreed to act for the defendants in their further judicial review proceedings against the Commissioner, and  related  proceedings  to  set  aside  freezing  orders  that  the  Commissioner  had obtained.  Although by then historical invoices were still unpaid, MERW formed the view,  based  on  the  merits  of  the  defendants’  position,  that  there  was  a  realistic prospect that the further proceedings would free up funds for payment of their costs.

[42]     In the outcome of Fogarty J’s judgment of 31 October 2007 and as a result of other  developments  including  the  mortgagee  sale  of  a  number  of  the  defendants’ properties  funds  were  realised  and  the  defendants  settled  all  of  MERW’s  unpaid invoices  in  early  2008,  and  advanced  some  further  funds  towards  ongoing  legal costs.

[43]     Following the re-enactment of the Lawyers and Conveyances Act 2006 and

its coming into force on 1 August 2008 MERW advised the defendants of the terms

of its retainer with them on 5 August 2008.

[44]     MERW’s invoice for June 2008 was not settled in full and thereafter all invoices went unpaid. Nevertheless they agreed to continue to represent the defendants through to the hearing of the second judicial review proceedings in late October 2008. They say they agreed to do so on the basis that payment would be postponed until those proceedings were determined by the High Court. The nature

of this arrangement was disclosed to the Court.

[45]     The second judicial review proceeding was heard on 21 and 22 October 2008.

By  his   judgment   dated   25   November   2008   Fogarty  J   essentially  upheld   the defendants’ challenges to the Commissioner’s actions on all grounds.

[46]     In   the   outcome   costs   were   sought   against   the   Commissioner. The Commissioner  sought  a  stay  of  execution  pending  appeal.  The  hearing  of  those applications was initially set down for 22 April 2009.

[47]     Earlier on 23 March 2009 MERW advised the defendants they would cease acting  after  the  costs  hearing  unless  their  invoices  were  paid.  Mr  Hampton responded on 24 March 2009 acknowledging that the costs award would be used to pay MERW’s fees.

[48]     In his costs judgment of 1 May 2009 Fogarty J made awards of costs against the Commissioner (each on an uplifted basis) in the sums of $88,818.78 including disbursements in respect of the second review proceeding and  $97,920.00 (plus disbursements to be fixed at 80 %) in respect of the first review proceeding. In his judgment Fogarty J made several observations regarding MERW’s representation of the defendants. His Honour noted that MERW reasonably was unwilling to continue

to act unless its costs were met by the costs award.

[49]     Despite continuing requests for payment none was forthcoming in the period

June 2008 and May 2009.  The defendants have not authorised MERW to take steps

to seek payment from the Commissioner. Mr Andrews deposes and it has not been disputed that Ms Sisson was willing to allow MERW to write to Crown Law seeking payment by the Commissioner of the legal costs and that Ms Sisson on  several occasions orally acknowledged that the defendants were liable for outstanding legal

fees.   Despite  this  Mr  Hampton  was  not  prepared  to  let  MERW  take  that  step  to recover the costs from the Crown.

[50]     Mr Andrews deposes that as a consequence of the defendants refusal to pay the  outstanding  invoices  he  concluded  that  MERW’s  retainer  had  been  effectively terminated  and  because  the  defendants  would  not  themselves  take  any  steps  to remove MERW as solicitors on the record, it was necessary for them to apply to the Court and Court of Appeal to be removed from the record.  Those applications were granted in June 2009.

[51]     Mr  Andrews  states  the  defendants  did  not  query  any of  MERW’s  invoices over  the  period  of  time  they  acted  for  the  defendants.          Further,  the  defendants instructed him to argue, in the costs application before Fogarty J, that MERW’s costs were  reasonable.   Indeed,  the  detail  of  the  outstanding  invoices  was  submitted  as evidence to the Court.  Prior to the 1 May costs judgment Mr Andrews believed the defendants fully intended to pay MERW’s outstanding invoices following the costs award.  As much was reinforced by Mr Hampton’s email dated 24 March 2009 to Mr Andrews. In  that  email  Mr  Hampton  emphasised  it  was  not  his  position  that  he would  not  undertake  to  pay  MERW’s  fees  from  the  costs  award. Not  until  Mr Hampton’s  email  of  4  May  2009  did  he  assert  that  the  overall  level  of  legal  fees needed to be reviewed for reasonableness.  At that time Mr Hampton stated he would write to Mr Andrews more fully about the issue in the following couple of days.  He never did this.

[52]     Mr Andrews deposes, and it is a matter of record, that on many occasions the Court  and  the  defendants  have  expressed  their  gratitude  to  MERW,  both  for  his willingness   to   continue   to   act   for   the   defendants   on   a   postponed   payment arrangement, but as well for the quality and success of their representation.   By an email from Mr Hampton dated 28 October 2008 Mr Hampton thanked MERW for the  “wonderful  work,  talent  and  skills  [they]  had  put  into  the  second  judicial review”.

[53]     In  an  email  from  Mr  Hampton  dated  25  November  2008,  shortly  after  the substantive judgment was released, Mr Hampton made the following acknowledgments of MERW’s commitment:

“I am thrilled that Justice Fogarty has looked after your well earned fees.”

and

“I  am  reflecting  on  the  brilliant  representation  you  gave  us  over  that momentous two days.”

[54]     In an affidavit sworn 10 June 2009 by Mr Hampton and filed in the Court of Appeal when MERW successfully applied to be removed as solicitors on the record Mr Hampton, at paragraph 15, noted:

“Finally  the  respondents  wish  to  note  on  the  record  from  a  personal perspective that they hold Mr Andrews in the highest regard and are grateful for  the  work Mr  Andrews has  done  for  the respondents.   The  respondents also acknowledge the support of the staff at MERW.  The respondents have come to understand that litigation of this nature is extremely stressful for the legal representatives as well as the litigants on both sides.   I have no doubt that the Commissioner and his legal representatives have benefitted from the very  high  standards  of  conduct  and  intellectual  craftsmanship  that  Mr Andrews  has  brought  to  this  dispute  over  the  years.   I  note  that  the  High Court has acknowledged the assistance of Mr Andrews and more latterly Mr Peterson in this regard and this recognition is well deserved.”

[55]     That same affidavit expressed Mr Hampton’s view that it was practically and ethically  wrong  for  the  defendants  to  continue  to  instruct  MERW  in  view  of  an allegation that it ought to have “discovered” some IRD filenotes of an officer who had historically dealt with the defendants.

[56]     As earlier noted in this judgment those filenotes had emerged belatedly as a result of an informal application for further and better discovery.   Subsequently the Commissioner’s solicitors asserted that a number (but not all) of  the  filenotes belatedly discovered had previously been sent to Mr Hampton in electronic format,

at a time when he was represented by other solicitors, and Mr Hampton did in due course  locate  a  copy  of  the  relevant  material.  This  has  not  been  denied  by  the defendants.

[57]     In  overview  it  is  the  defendants’  case  that  all  of  its  perceived  claims  of injustice and of negligence and of loss can be attributed to a perceived failure by Mr Andrews to take earlier action to review and perfect the discovery of certain filenotes not  expressly  identified  by  the  Commissioner’s  affidavit  of  documents. That affidavit  had  been  filed  and  was  received  at  the  time  when  the  defendants  were represented by Buddle  Findlay.   Disclosure of discovered  documents was made to Buddle  Findlay  and  also  separately  to  Mr  Hampton,  himself  a  qualified  (but  not practicing) barrister and solicitor.

[58]     Mr Andrews deposes that although the first contract of retainer was limited to the preparation and conduct at the first judicial hearing, he did by informal process raise  with  the  Commissioner’s  lawyer’s  matters  concerning  the  adequacy  of  the Commissioner’s  affidavit  of  documents.           Mr  Hampton’s  complaint  is  that  Mr Andrews’  actions  in  this  regard  were  made  too  late  and  although  the  relevant filenotes  were  discovered  prior  to  the  first  judicial  hearing,  that  came  too  late  to avoid for the defendants the ‘ravages’ caused by the failure of the defendants to set aside  the  Commissioner’s  s 157  Notices,  or  to  oppose  the  mareva  injunction  and sequestration orders.

[59]     But  it  was  not  until  May  2009  that  any  indication  at  all  was  given  by  the defendants of challenge to MERW’s fee invoices.  Before then they had supported a claim  for  payment  of  MERW’s  fees  on  an  ‘uplifted’  basis.   Since,  the  defendants allegations  of  discontent  have  emerged  from  about  that  time  when  Mr  Hampton purported to terminate  MERW’s contract of retainer  when he prevented  action for recovery of fees against the Commissioner.

[60]     Now it appears that the claims of negligence seek to challenge the validity of fee invoices already paid in full under the terms of the first retainer.  But, it is clear that these claims do not arise in the context of a set off but rather as a counterclaim. They are discrete claims and if they are to be pursued they ought to be the subject of a  separate  challenge  and  are  not  properly  brought  upon  MERW’s  present  claim which is for the balance of fees owing under the second retainer i.e. for services in connection with the second judicial review and other matters between June 2007 and June 2009.

[61]     Also the claims of negligence and alleged losses are not verified by evidence

of   anything   more   than   speculation and suspicion.   They lack precision, are unsupported   by   independent   material and quite plainly are inconsistent   with contemporary written records.

[62]     The  defendants  claim  that  had  the  Commissioner’s  relevant  filenotes  been obtained earlier then the  s 157 Notices  would have been set aside  and the mareva injunction and sequestration orders would have been resisted successfully.   I accept the submission of Ms van Dam that that analysis is flawed.

[63]     In rejecting the defendants’ application to set aside the s 157 Notices Fogarty

J at paragraph 13 of his judgment dated 13 June 2005 commented adversely about an attempt on behalf of the defendants “to usurp ongoing payments from the Ministry of Education  and  WINZ  to  the  defendants”.   His  Honour  stated  “that  is  likely  to  be some kind of fraud or dishonest conduct to which the law, both criminal and civil attaches severe consequences.

[64]     Likewise  upon  the  Commissioner’s  application  for  mareva  injunction  and sequestration orders  Fogarty J  by his judgment  dated 13 December 2005 noted, at paragraph 8:

“The Crown argues that there is a substantial history of moving assets into different vehicles within the family which raises the risk of the assets being dissipated or disposed of.   In this regard the Crown relies on two events, a sale of 8 Kohu Road, that property being first registered in the name of Mr David   John   Hampton   to   his   parents   and   second,   the   transfer   of   the Chesterfield Preschools business to Mr Hampton’s sister, Mrs Stikkelman, a transfer which is said may yet turn out to be a sham.”

[65]     His Honour concluded, at paragraph 17:

“So, in short, I am satisfied for the purposes of a mareva injunction that there

is a sufficient history to justify a real risk or apprehension that the Hampton persons and vehicles may and will dissipate  or  dispose  of  assets  so  as  to

render themselves, as far as possible, judgment free.  They may not have the ability to render themselves completely judgment free but given the amount

at stake, $3M there is an incentive to remove assets to the extent that they can do.”

[66]     In short the mareva was ordered because the Court was satisfied of the risk of dissipation of assets. In my judgment and  regardless  of  the  filenotes  and  their contents, those interlocutory applications were decided on the basis of concise issues

of law then before the Court.   It is difficult to see how the earlier disclosure of the filenotes could have operated to restrain the Commissioner from exercising the rights

he did.

[67]     Accordingly it is only in relation to the claims of failure to obtain legal aid, of delays with preparatory work for the second judicial review, and in relation to the reasonableness  of  the  second  retainer  invoices,  that  the  defendants’  claims  of  a defence fall to be considered.

Legal Aid

[68]     Mr  Hampton’s  contentions  concern  a  brief  exchange  of  emails  early  in October 2007.  It is clear at no time subsequently was the issue of legal aid raised in relation  to  the  legal  work  being  undertaken.   In  part  this  may  have  been  because MERW  was  content  to  fund  the  costs  itself  until  the  second  judicial  review proceeding, and associated attendances, were completed.   Also there is no evidence that Mr Andrews agreed he would conduct those services subject to a grant of legal aid.   The defendant companies would not have been entitled to a grant of legal aid. Likely  the  defendant  partnerships  would  also  have  not  qualified. Mr  Hampton accepts  the  legal  aid  issue  concerns  him  alone. Regarding  his  circumstances  in October  2007  the  following  statements  at  paragraph  37  of  Mr  Andrews’  reply affidavit have not been challenged”

“(c)       Minter  Ellison  represented  all  of  the  defendants,  including  Mr Hampton  and  Ms  Sisson,  so  there  was  simply  no  basis  for  Mr Hampton   to   separately   seek   legal   aid   because   the   defendants’ interests were shared;

(d)In any event, in October 2007, the defendants were going through a mortgagee  sale  process  as  they  had  fallen  into  significant  arrears with their mortgage.   I successfully sought the lifting of the mareva orders at the end of October 2007.  At that point, the mortgagee sales went  ahead  and  the  defendants  were  actually  able  to  repurchase some of the properties which were sold by the mortgagee.  They had significant   assets   (equity   of   at   least   $1,000,000.00)   after   that process; and

(e)Mr  Hampton  and  Therese  Sisson  have  not,  to  the  best  of  my knowledge  entered  into  a  matrimonial  property  settlement. Mr Hampton has always asserted that he has at least a 50 % beneficial share in any assets.  Ms Sisson purchased the assets at the mortgagee sale in her name.  She is the legal owner.  She has stated to me on at least   two   occasions   that   Mr   Hampton   asserts   those   assets   are partially held on trust for Mr Hampton.”

[69]     Mr Hampton is has not produced any evidence at all in support of his claim that he was eligible for legal aid.

Preparation of affidavit in relation to second judicial review proceeding

[70]     As  earlier  noted  the  defendants  assert  that  MERW’s  failure  to  initiate, prepare and file   Mr Hampton’s affidavit in a timely way in relation to the second judicial  review  proceeding  caused  the  Commissioner  to  successfully  seek  and adjournment.  They claim this has caused further financial detriment to them.

[71]     But, they do not explain  what  alleged  further  financial  detriment  occurred.

As to the delay Mr Andrews deposed that Mr Hampton insisted on running a very extensive  argument  in  relation  to  the  Commissioner’s  non  discovery  of  relevant documents at various stages in his affidavit.   He explained to Mr Hampton that the second   judicial   review   application   was   focussed   on   the   lawfulness   of   the Commissioner’s  officers  enquiry  and  decision  following  the  first  judicial  review hearing.   He said he explained to Mr Hampton that the second review hearing was not concerned with all of the surrounding circumstances or the long and complicated history  which  Mr  Hampton  sought  to  explain  in  his  affidavit. Nevertheless  Mr Hampton insisted on running this argument and instructed Mr Andrews to put it to the Court.  It was Mr Hampton’s choice to file an affidavit comprising around 1200 paragraphs. Therefore,  Mr  Andrews  put  Mr  Hampton  in  a  room  to  prepare  that affidavit  because  what  Mr  Hampton  wanted  went  significantly  beyond  what  Mr Andrews saw as being necessary.  In the outcome Mr Andrews’ assessment was born out  by  Fogarty  J’s  approach  at  the  hearing  and  in  the  judgment. Although  the Learned  Judge  agreed  that  the  Commissioner  non  disclosure  argument  might  have some relevance as to remedies, he refused to read the affidavit material.

[72]     I am satisfied that the defendants claims of delay are not born out.

Alleged unreasonable fees

[73]     As Associate Judge Osborne noted  in  his  minute  dated  7  September  2009

when directing the scheduling of a fixture upon this summary judgment application

in  which  he  perceived  the  central  focus  of  the  hearing  was  as  to  the  fair  and reasonable fee between solicitor and clients:

“Such  a  matter  would  normally  have  proceeded  by  way  of  costs  revision under the previous Law Practitioners Act and can now be dealt with under the  slightly  different  procedure  flowing  from  a  complaint  under  s  132  (2) Lawyers and Conveyances Act 2006.”

[74]     The evidence available to this Court is that Mr Hampton has received full timesheet and ‘work done’ reports in relation to all invoices outstanding for payment. Mr Hampton has said he has reserved his position regarding referring his

‘unreasonable fees’ complaint to the Law Society.  It appears from the way this was expressed  in  his  submissions  that  his  request  for  invoice  detail  was  confined  to unpaid invoices.  At the hearing before me it became clear that he wished timesheet and ‘work  done’ details  in relation to all invoices including those  which  had been paid.   Yet he has not, as clearly he has been able to, referred any complaint to the Law  Society  upon  his  claim  of  unreasonable  fees  incurred  since  the  first  judicial review  application.   I have  earlier  noted  comments  of  Fogarty J  and  Mr  Hampton offering  praise  for  the  standard  of  work  carried  out  by  Mr  Andrews  throughout. Those  clearly  fly  in  the  face  of  belated  claims  of  unreasonable  charges.  The complaints are mostly unexplained except by reference to allegations of negligence

in relation to the first contract of retainer and as I have noted those complaints do not provide a defence on the matter before me.

[75]     In summary, none of those issues raised in answer to the summary judgment application provides the basis of an arguable defence to the defendants.   MERW is entitled to its summary judgment.

Judgment

[76]     Judgment shall be entered against the defendants jointly and severally in the sum of $172,462.57, together with  interest,  compounded  monthly,  from  20  June

2009 at a rate of 3% per annum above the New Zealand 90 day bank bill rate until the date of payment.

[77]     The defendants shall also be liable to pay the costs of this proceeding on a 2B

basis in accordance with Rules 14.1 and 14.2 of the High Court rules.

Associate Judge Christiansen