Royalyn Home Limited v Huang

[2015] NZHC 803

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-002632 [2015] NZHC 803

BETWEEN

ROYALN HOME LIMITED

Plaintiff

AND

YUTAI HUANG First Defendant

QISHENG XU Second Defendant

Hearing:	On the papers
Judgment:	23 April 2015

JUDGMENT OF COURTNEY J

This judgment was delivered by Justice Courtney on 23 April 2015 at 12.30 pm

pursuant to R 11.5 of the High Court Rules

Registrar / Deputy Registrar

Date................................

ROYALN HOME LIMITED v YUTAI HUANG [2015] NZHC 803 [23 April 2015]

[1]      In November 2014 the plaintiff, Royaln Home Ltd (RHL), applied for an order restraining the defendants’ solicitors, Prestige Lawyers Ltd (Prestige), from continuing to act.  It asserted a conflict of interest based on the fact that Prestige had previously acted for RHL’s director and parties related to RHL. Prestige did not (and still does not) accept that a conflict existed but in January 2015 the defendants filed a notice of change of solicitor.  RHL accordingly withdrew its application but seeks indemnity costs.

[2]      The basis for the costs application is that as a result of not acting promptly when the potential conflict was raised, Prestige forced RHL into the cost of the application unnecessarily. It is apparent, however, that the application is underpinned by the same assertion as in the original application, that Prestige was acting in a conflict and in breach of rule 8.7.1 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008. However, Prestige still maintains that it was not acting in breach of the rule and asserts that it ceased acting only to save its client unnecessary costs.

[3]       Rule 8.7.1 relevantly provides that:

A lawyer must not act for a client against a former client of the lawyer of or

any other member of the lawyer’s practice where –

(a)       the   practice   or   a   lawyer   in   the   practice   holds   information confidential to the former client; and

(b)      disclosure of the confidential information would be likely to affect the interests of the former client adversely; and

(c)       there is more than negligible risk of disclosure of the confidential information; and

(d)      the  fiduciary  obligation  owed  to  the  former  client  would  be undermined.

[4]      The  evidence  relating  to  a  possible  breach  of  this  rule  came  from  an affirmation in support of the application by RHL’s director, Ms Lin. She stated that in the three years prior to 2011 Prestige acted on the following: for Ms Lin’s husband on a Tenancy Tribunal matter; for a related company, Royaln Ltd, of which Ms Lin and her husband were directors and shareholders on the purchase of a business; for Imperial Enterprise Ltd, of which Ms Lin was the sole director and shareholder on a

tenancy matter; for Imperial Enterprise Ltd on a property purchase; for Ms Lin and her husband on the re-financing of three properties, the purchase of a property and the purchase of a business.

[5]      Mrs  Lin  expressed  concern  that  the  files  held  by  Prestige  contained information that was confidential to her and the related parties and that during the time Prestige acted for her Ms Reed obtained an intimate knowledge of Ms Lin, her family, business activities and assets. She did not, however, provide any specific details of the information that might have led to a breach of the rules.

[6]      It seems to be common ground that Prestige had not previously acted for RHL itself, but only for Ms  Lin  or related  companies. Prestige asserts that  the previous instructions related to transactional matters only and were undertaken by a legal executive who no longer works for Prestige.  No confidential information was held and there was no connection between the previous attendances and the current proceedings.

[7]      Indemnity costs, which are provided for in r 14.6 of the High Court Rules are generally limited to very unreasonable conduct or other misconduct. Although RHL’s discomfort  at  having  Prestige  act  is   understandable,  there  was  no  specific information provided from which I could conclude that confidential information was held that would be likely to affect the interests of either RHL, Ms Lin or any of the related parties or bring Prestige within the ambit of r 8.7.1.  In these circumstances, I do not consider that indemnity costs are justified.

[8]      However, costs on a 2B basis are justified, given the circumstances in which the application was withdrawn. Prestige has filed a memorandum acknowledging that this outcome is possible. There is therefore an order for costs on a 2B basis

against Prestige. I will leave the calculation of those costs to the parties.

P Courtney J