Richard Zhao Lawyers Ltd v Family Court at Auckland
[2015] NZHC 983
•8 May 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-000316 [2015] NZHC 983
BETWEEN RICHARD ZHAO LAWYERS LIMITED
Plaintiff
AND
FAMILY COURT AT AUCKLAND First Defendant
JIE PING CHEN Second Defendant
Hearing: 28 April 2015 Counsel:
FC Deliu for Plaintiff
PF Chambers for Second DefendantJudgment:
8 May 2015
JUDGMENT OF ASHER J
This judgment was delivered by me on Friday, 8 May 2015 at 4.45pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors/Counsel: FC Deliu, Auckland.
PF Chambers, Auckland.
RICHARD ZHAO LAWYERS LTD v FAMILY COURT AT AUCKLAND [2015] NZHC 983 [8 May 2015]
Introduction
[1] Richard Zhao is a lawyer practising in Auckland and controls Richard Zhao Lawyers Ltd, a law firm in Auckland. He seeks judicial review of four decisions of the Family Court at Auckland. Ms Chen opposes the application. The first defendant has not sought to take any steps and has not appeared.
[2] The first decision was a direction by Judge D Burns on 23 December 2014 that Richard Zhao Lawyers Ltd transfer funds it was holding to another lawyer. The second is a decision of 20 February 2015 emailing the 23 December 2014 direction. The third is a decision on 5 March 2015 arising from the 23 December 2014 decision to set a District Court proceeding down for an urgent hearing. The fourth is a decision of 10 March 2015 confirming the fixture and directing Mr Zhao to attend as an officer of the Court.
[3] It is said that the decisions were made contrary to law, and were: (a) a breach of legitimate expectation;
(b) a fraud upon the Court, or the seeking of relief without evidence; (c) ultra vires (due to a lack of jurisdiction);
(d) an error of law;
(e) a breach of natural justice/statutory duty; (f) unreasonable in a Wednesbury sense; and
(g) there was a failure to take into account relevant considerations.
A brief history
[4] The second defendant Jie Ping Chen married Gang Wang on 24 December
2004. They separated in May 2010. Ms Chen owned two properties, one of which was at 48 Te Koa Road, Panmure. Mr Wang was not on the title. The property was
sold on 27 November 2013 for $653,000 leaving net sale proceeds of $212,370.14 after the deduction of all expenses.
[5] Mr Wang claimed that the house at Te Koa Road and the net proceeds were relationship property, and claimed a half interest in the $212,370.14. Ms Chen maintained that the house and the net proceeds were never relationship property and that the proceeds are her separate property.
[6] In April 2014 Ms Chen instructed Mr Zhao to bring relationship property proceedings on her behalf against Mr Wang. On 4 April 2014 Mr Wang’s solicitors, East Law Ltd, wrote to Mr Zhao seeking an undertaking that his firm would hold the sale proceeds undisbursed until resolution of the division of relationship property dispute. On Ms Chen’s instructions Mr Zhao provided the following undertaking:
I Richard Zhao of Amicus Law hereby undertake that our firm will retain the sale proceeds of 48 Te Koa Road, being the amount of $212,370.40 which was received from East Law Ltd undisbursed, until resolving of division of relationship property between Gang Wang and Jieping Chen.
[7] By 5 September 2014 Ms Chen no longer wished Mr Zhao to act for her, and had instructed Paul Chambers, barrister. Mr Chambers wrote to Justicia Chambers (for the attention of a barrister Bianca Fanene) and Amicus Law (for the attention to Mr Zhao) advising of his instruction and seeking to uplift Ms Chen’s files. He also raised the question of the funds being held in trust and whether there was an undertaking.
[8] Francisc Deliu, barrister, responded on 8 September 2014 stating that there was a lien in place over non-payment of legal fees and stating that Mr Zhao had given an undertaking to hold the funds.
[9] On 11 September 2014 Mr Chambers on Ms Chen’s behalf lodged a complaint with the New Zealand Law Society against Mr Zhao. There was a complaint that Mr Zhao was taking the position that he had a lien over fees and would not release the files until the fees were paid. I will return to this question later in the judgment. There was also a complaint about the level of fees.
[10] On 17 September 2014 Judge L de Jong issued a directions minute on the Family Court file (the first Judge de Jong minute). He recorded the background and four obstacles that were in the way of a hearing proceeding. He said at [17]–[19]:
In my view, the quality of documentation before this Court is poor and no doubt explains why the wife has now engaged a new lawyer. The wife’s new lawyer has filed a comprehensive memorandum which highlights a range of issues for the wife being able to advance the proceedings. Her first difficulty involves trying to get information currently held on her behalf by her former lawyer. In my view, that information needs to be released immediately and urgently. I am not in a position to make any orders with respect to that issue but it is hard to understand how the wife’s former lawyer feels able to withhold this information particularly having regard to the Privacy Act provisions. All of this raises concern about whether it is appropriate that Richard Zhao Lawyers Limited continue to hold the sale proceeds of the parties’ property.
What I intend to do is to adjourn these proceedings to a registrar’s list in about six weeks. That is to allow the wife’s new lawyer an opportunity to follow up with the former lawyers, and the Law Society, in an effort to advance the proceedings in a meaningful way.
I will also make a direction that the registrar forward a copy of this minute to Richard Zhao Lawyers Limited and Justitia Chambers. The purpose of this is to ensure they have adequate notice that this Court is very likely to make an order which will require the parties’ sale proceeds to be held in a solicitor’s trust account other than where they are held at present.
[11] On 16 October 2014 Mr Deliu sent an email to the “case management team, Auckland” at the District Court protesting at comments being made about Mr Zhao’s conduct when he was not a party to the proceedings and had been given no opportunity to comment.
[12] On 5 December 2014 Judge de Jong issued another minute (the second Judge de Jong minute). He noted Mr Deliu’s email to the Registrar and commented that the Registrar was left confused by Mr Deliu’s informal approach to the Court, and was uncertain whether the email required a response. I interpolate to observe that this concern was properly expressed, and counsel should not send any document to a court which is intended to be read by a Judge, which is not in the form of a memorandum or other formal court document and is intituled and dated. Judge de Jong observed at (e):
My 17 September 2014 minute was issued because I was the Judge who
presided over a “formal proof hearing” on 17 September. It was not possible
for me to make any orders and, in my minute, I set out four obstacles to making orders. My minute also sets out some of the background so any Judge or lawyer dealing with the file in the future will know what issues arise and what needs to be addressed. Perhaps Mr Deliu did not read my minute because I did not actually make any orders. If the applicant wants to apply for orders in the future, including orders against third parties, this is a matter for the applicant. My minute deals with the fact the applicant is contemplating further steps and I was merely alerting Mr Zhao and Ms Fanene of this prospect as a matter of courtesy. I am sorry my courtesy has been misplaced or misunderstood. Similarly, I did not make any directions regarding the release of Ms Fanene’s file to the applicant’s new lawyer. Whether the applicant relies on the Privacy Act to obtain a photocopy of Ms Fanene’s file is entirely a matter for the applicant.
(emphasis added)
[13] At about the same time, Mr Chambers on behalf of Ms Chen filed an on notice application for orders dividing the relationship property and an interim order for distribution of part of the net proceeds of sale in the amount of $100,000 and any ancillary order or orders that the Court deemed just. The accompanying memorandum relevantly sought the following direction:
8.2 In terms of paragraph 19 of de Jong DCJ’s minute of 17 September
2014, an order from the Court requiring the parties’ sale proceeds to be held in the applicant’s current solicitor’s trust account, details of which accompany this memorandum.
[14] There was also a request for consideration of an award of indemnity costs against Mr Zhao.
[15] On 23 December 2014 the matter came before Judge Burns who issued an oral judgment. It is this judgment that is the first decision for which judicial review is sought. He noted that there had been an urgent application brought for interim distribution and that:1
[6] Today Mr Chambers seeks to have a direction that the funds be transferred from that law firm to his instructing solicitors, in order to protect the funds and also to involve lawyers who are actively involved in the proceedings as opposed to a law firm that is no longer involved.
[7] I am satisfied it is appropriate to make such a direction and I direct, therefore, that Richard Zhao Lawyers Limited transfer the entire funds held on trust on behalf of both parties to Mark Henley-Smith, lawyers, to be held by Mark Henley-Smith undisbursed without any further payments being made, unless there is a written agreement entered into between the parties
1 Chen v Wang [2014] NZFC 10786.
pursuant to s 21 of the Act or alternatively a Court order, whichever occurs first.
[16] His order was in due course sealed and sent out on 20 February 2015 to
Mr Zhao. This is the second “decision” that is challenged in the judicial review.
[17] On 24 February 2015 Mr Chambers filed a memorandum for Judge Burns seeking orders that Mr Zhao be directed to attend the Court to explain his wilful refusal to comply with the direction of the Court and for an order against Richard Zhao Lawyers Ltd in the following terms:
An Order against Richard Zhao Lawyers Limited for contempt of Court, whereby seizing the funds held in that solicitor’s trust account and delivering same to Henley-Smith Law and awarding damages and indemnity costs against Richard Zhao Lawyers Limited (see above citations and, in particular, sections 2 and 19(1)(a) District Courts Act 1947).
[18] On 5 March 2015 Judge Burns issued a minute setting the matter down before him for 30 minutes, directing that Richard Zhao Lawyers Ltd and Mr Zhao attend the hearing. It stated:
· Set the case down urgently before me (30 minutes).
·I direct the directors of Richard Zhao Limited and Mr Richard Zhao to attend the hearing.
·The issue for determination at the hearing is whether the company of Mr Richard Zhao is held in contempt and if so, what steps the Court should take.
·The Law Society should be informed of this hearing and has leave to intervene.
This is the third decision that is challenged in the judicial review proceedings.
[19] On 10 March 2015 Judge Burns issued a further minute:
· The memorandum of Mr Chambers dated 9/3/15 has been read.
·I direct a copy of the memorandum be served on Ms Carrie Gage, Senior Solicitor Office of Legal Counsel, Ministry of Justice.
· I direct the hearing on 30/3 to proceed.
·Mr Richard Zhao as an officer of the Court has been directed to attend. If he fails to do so, then the Court will hear any applications as to what steps (if any) should be ordered.
This is the fourth decision in respect of which review is sought.
[20] Since the filing of the amended statement of claim there was a hearing on
30 March 2015, being the hearing that is referred to in the minute of 10 March 2015. Following that hearing on 23 April 2015, Judge Burns delivered a judgment in which he held Mr Zhao to be in contempt of Court and referred his conduct to the New Zealand Law Society. However, he declined to make the orders sought in respect of the funds, in particular a contempt ruling in relation to the non-payment of funds, a seizure of the funds and damages and a direction to the bailiff. He did so on the basis that he had no jurisdiction to make such orders.
[21] The first defendant has stated that it will abide the decision of the Court, and has not appeared.
[22] I record that Mr Deliu asked me to debar Ms Chen from appearing, given that there had been no statement of defence filed to the amended statement of claim, and various procedural failings. However, Mr Zhao had never formally filed that amended document. There have been procedural failings on both sides, but they have not given rise to serious prejudice. I will not debar Ms Chen from defending the claim.
Approach
[23] I am prepared to consider the application for judicial review, even though the parties have a right of appeal from the Family Court. Mr Zhao was not a party to the Family Court proceedings. As a non-party he claims to have been affected by the decision. Judicial review is a procedure that is available for him to challenge decisions of the Court that affect him.
The decision of 23 December 2014
The right to be heard
[24] The amended statement of claim contains the usual heads of claim for judicial review. I do not propose to address each one. It seems to me that in relation to the decision of 23 December 2014, the natural heading for Mr Zhao’s complaints comes under “breach of natural justice”.
[25] The right to natural justice is set out in s 27(1) of the New Zealand Bill of
Rights Act 1990. Section 37 of the Property (Relationships) Act 1976 provides:
37 Persons entitled to be heard
(1) Before any order is made under this Act, such notice as the Court directs shall be given to any person having an interest in the property which would be affected by the order, and any such person shall be entitled to appear and to be heard in the matter as a party to the application.
…
[26] It is an element of the principles of natural justice that there is a duty to hear both sides of a dispute before making a decision.2 No matter how obvious a point may seem, or how unreasonable on its face the actions of a person may have been, a person who will be materially affected by a decision should have the opportunity to be heard.
[27] Mr Zhao was not heard when the decision of 23 December 2014 was made. However, that was not the end of it. It must be discerned whether he had a material interest in the outcome of that decision. The right to be heard, sometimes called the audi alteram partem rule, does not operate blindly without regard to the practical
realities of the situation.
2 Board of Education v Rice [1911] AC 179 (HL) at 182; Commissioner of Police v District Court at Manukau [2007] NZAR 370 at [11]. See generally Philip Joseph Constitutional and Administrative Law in New Zealand (4th ed, Brookers, Wellington, 2014) at 1023, 1046-1048.
Effect on Mr Zhao
[28] Judge Burns in the decision of 23 December 2014 does not refer to any possible adverse effect on Mr Zhao that might result from the decision. He makes no reference to Mr Zhao having given an undertaking to hold the money. He makes no reference to the possibility of Mr Zhao having a lien over the money. However, this was understandable. On the material that I have had made available to me, it seems that this has arisen because Judge Burns was not in fact made aware of either of these matters. To explain this it is necessary to go back into the history in a little more detail.
[29] On or about 26 March 2014 Ms Chen signed a general contract of retainer with Mr Zhao in respect of “family matters – relationship property”. It was stated in the contract that:
In the course of completing this matter, we estimate that our fee, excluding GST and disbursements, will be not less than $5,000, to negotiate. We are not guaranteeing that we can accomplish the work for that sum, but are representing to you that in our judgment that amount appears reasonable under the circumstances. …
[30] The retainer went on to reserve Mr Zhao’s right to revise the estimate and
charge further legal fees.
[31] The contract then went on to provide that given Ms Chen’s lack of liquid cash to pay fees, payment of fees was deferred until such time as the $212,370.14 held in trust by Mr Zhao for her was released. Paragraph 6 provided:
In consideration you agree that we are a priority secured creditor and except as otherwise provided by law we are in a prime position to be paid immediately to avoid doubt above all other creditors, upon disbursement of said funds. You also agree to allow us to place a caveat or charging order or the like on any or all of your property to secure our position at any time on our discretion.
[32] It would seem that this contract gave Mr Zhao the right to claim a lien over the funds held for at least $5,000 plus GST and disbursements, and quite possibly more. In fact Mr Zhao has charged $13,402.25.
[33] There were some references to a lien in Mr Deliu’s correspondence with the Family Court prior to 23 December 2014. Because they were emails and not memoranda, they may not have been seen by the Judge. However, in the memorandum of counsel of 4 December 2014 that Judge Burns is likely to have had in front of him when he considered the request for an order directing Mr Zhao to pay out the money, at paragraph 4 it was stated:
One of the reasons for those complaints is the continued refusal of the applicant’s former lawyers to release funds held in the former solicitor’s trust account, to the applicant’s new solicitor’s trust account, absent any evidence of a lien against both files and funds they had previously advised reliance upon.
(emphasis added)
[34] In fact, there was good evidence of the existence of a lien over the funds in the form of the contract of retainer (which I record Mr Chambers may not have been aware of). There was no reference in the memorandum to the existence of an undertaking.
[35] Unsurprisingly, therefore, in the 23 December 2014 judgment there is no reference to the existence of any lien, and no reference to an undertaking that had been given by Mr Zhao in respect of the funds. There is no provision for that undertaking to be discharged.
[36] As I have outlined, the facts show that Mr Zhao and his company indeed did have an interest in any order that was being made about the payment out of the fund held. There was a lien and an undertaking. It would have been unfair to Mr Zhao and his company to require him to disgorge funds over which he appeared to have had a lien without giving him an opportunity to be heard. Further, Mr Zhao was entitled to expect that if he was directed to pay the monies, that the Court would formally record that he was no longer bound by the undertaking, or explicitly discharge him of his obligation in one way or another. It seems likely that if Mr Zhao had been given an opportunity to be heard that he would have persuaded the Judge to have made provision for him to remain secured for his fees in one way or another, and also he would have obtained an explicit discharge of the undertaking. Neither occurred. Although the amount of fees owed to Mr Zhao was limited, the
amount for which he was secured was far from de minimis. Further, a solicitor’s
undertaking is a serious matter.
[37] Thus, I conclude that Mr Zhao should have been given an opportunity to be heard before any judgment was issued requiring him to disgorge the funds he held.
Was Mr Zhao given an opportunity to be heard?
[38] There is no evidence of service on Mr Zhao or his company of the application for orders or the memorandum in support. Although Judge de Jong’s first minute indicated that an order requiring him to make the payment might well be made by the Court, his second minute explicitly recorded at [3(e)] that no orders had been made in the first minute, and that if Ms Chen wished to apply for orders in the future, including orders against third parties (presumably Mr Zhao), that that would be a matter for her. Judge de Jong stated in the second minute that he was merely alerting Mr Zhao to this prospect as a matter of courtesy.
[39] Thus on the basis of the second minute Mr Zhao could have fairly expected that he would be given notice of an application that he be ordered to transfer the monies, before an order was made.
[40] Mr Chambers did not seek to argue that there had been any formal service on Mr Zhao. He thought that the application and memorandum might well have been mailed, but could not attest to having done so himself. He did not know if the Court had given any informal notification. Mr Zhao has deposed that he did not have notice, and this has not been challenged. Mr Zhao thus was not given notice of the pending fixture, which would ultimately affect his interests.
Conclusion on first decision
[41] For the reasons that I have set out, Mr Zhao had an interest in the funds that he was ordered to pay out, and an interest in being discharged from the undertaking that he had given to hold the funds. Because he had these interests he should have been given notice as a party affected of the application for an order that he pay out
all the money. He was given no such notice. There was therefore a breach of the audi alteram partem rule and a breach of natural justice.
[42] Further, this analysis shows that the Court proceeded without being made aware of relevant matters. It was relevant that there appeared to be a lien, and it was relevant that there was an undertaking. The passing reference to the lien in the memorandum did not properly inform the Court of the nature of Mr Zhao’s claim and the Judge does not appear to have been made aware of the undertaking.
[43] This is a significant failure to take into account relevant considerations, and is in itself a ground for review.
[44] I conclude that there was a significant breach of natural justice in the
23 December 2014 hearing that proceeded without notice to Mr Zhao of the application to obtain an order of payment of the funds held. There was also a failure to take into account relevant considerations which were not brought to the Judge’s attention, being the undertaking and Mr Zhao’s lien over the funds in question.
Second decision – sending sealed order
[45] The emailing of the sealed order as pleaded in the amended statement of claim could not in itself be a decision susceptible to judicial review, as it was a purely formal process. However, the actual sealing of the order on or about
20 February 2015 could be seen as part of the original 23 December 2014 decision made in breach of the rules of natural justice, or a following act directly tainted by the earlier failure to observe the rules of natural justice.
[46] It must follow from the 23 December decision being reviewed, that any order sealing the decision is also to be reviewed.
Third decision – setting down hearing
[47] On 5 March 2015 a hearing was set down by the District Court for 30 March
2015 as to whether Mr Zhao and his company were in contempt of Court. It was stated in a minute of 5 March 2015:
The issue for determination at the hearing is whether the company or Mr Richard Zhao are held in contempt and if so, what steps the Court should take.
[48] It was also stated that the Law Society should be informed of the hearing and leave was given to the Law Society to intervene.
[49] This minute was issued under the misapprehension that there had been a fair hearing on 23 December 2014 where the order was made that the monies be paid. The Court worked off an incorrect premise. This can be categorised in judicial review terms as failing to take into account a relevant matter. The 23 December
2014 decision should not have been given, and the order for a hearing to determine whether Mr Zhao and his company may have been in contempt should not have been made.
Fourth decision – confirmation of fixture
[50] This is an odd head of claim in that it would appear to cover the same ground as the 5 March 2015 decision that has been discussed. However, this fourth decision under review is best considered when coupled with the actual decision that was made on 23 April 2015 following the hearing on 30 March 2015. That decision was made available shortly before the hearing of this case.
Conclusion
[51] At the conclusion of the hearing I indicated that I was contemplating quashing the 23 December 2014 judgment and I inquired about what orders should follow if I did that. Mr Chambers accepted that it would follow that the later judgment of Judge Burns of 23 April 2015 that relied on that order and made no reference to Mr Zhao’s lien and the undertaking should also be quashed. I will treat the amended statement of claim as further amended to include a pleading that the
23 April 2015 decision is the fifth decision that the plaintiff seeks to have quashed on
the same pleaded grounds.3
3 See r 1.9 of the High Court Rules.
[52] Mr Deliu on behalf of Mr Zhao accepted in the course of submissions that Mr Zhao’s unwillingness to pay the money to another firm of lawyers stemmed from the existence of the undertaking and the existence of his lien. If he retained security for the fees that he claimed of $13,402.25 and was released from his undertaking, he would have no objection to the balance of the funds being paid to Ms Chen’s new lawyers.
[53] This was discussed during the course of the hearing by both Mr Chambers and Mr Deliu and it was agreed that to enable Ms Chen to get access to funds and for matters to progress without them becoming bogged in other procedural litigation rounds, I should direct that the net balance be paid to Ms Chen’s current solicitors Henley-Smith Law, and that the correct figure should be $94,274.84. This sum was calculated on the basis that the amount presently held in the trust account is
$215,354.19, including interest to the hearing date, and that Ms Chen’s half share of that is $107,677.09. If from that sum the amount of Mr Zhao’s fees of $13,402.25 is deducted, the net balance that Mr Zhao is content to transfer is $94,274.84, providing he is released from his undertaking.
Result
[54] The judgment of 23 December 2014 of Judge Burns, the decision of
20 February 2015 to seal the order, the decision of 5 March 2015 to set down an urgent hearing of 30 March 2015, and the decision of 10 March 2015 confirming a fixture and requiring Mr Zhao to attend are quashed. In addition, and with the consent of Mr Chambers, the judgment of 23 April 2015 of Judge Burns is quashed.
[55] I substitute for those decisions a direction to Mr Zhao to pay to Ms Chen’s current solicitors, Henley-Smith Law, the sum of $94,274.84 from the sum held by him on behalf of Ms Chen and Mr Wang, the money then to be held by Henley-Smith Law for Ms Chen and Mr Wang. I discharge Mr Zhao of his undertaking to Ms Chen to hold those monies, although it remains in respect of the balance until discharged by agreement between Ms Chen, Mr Wang and Mr Zhao, or by order of the Court.
[56] In quashing these decisions I do not purport to rule on the disciplinary or contempt issues raised between the parties. It may be that Ms Chen may seek to argue that Mr Zhao has been shown in any event to have been in contempt of Court, even if these particular decisions are quashed, and may wish to pursue complaints with the New Zealand Law Society. She may seek a hearing in the Family Court on issues other than the 23 December 2014 decision. That is a matter for her. My decision is based solely on procedural failures relating to the 23 December 2014 decision and the decisions that followed. I would, however, comment that at the end of the hearing there was a significant practical compromise reached between Ms Chen and Mr Zhao as to the way forward, which has resulted in a significant payment out of the funds. That may mean that the parties can move forward.
[57] I reserve leave to the parties to seek clarification of these orders should issues arise.
Costs
[58] At the request of the parties I reserve the question of costs.
……………………………..
Asher J
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