Zhao v Otago Standards Committee of New Zealand Law Society
[2017] NZHC 1971
•17 August 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2016-404-2469 [2017] NZHC 1971
IN THE MATTER of an appeal against BETWEEN
RICHARD ZHAO Appellant
AND
OTAGO STANDARDS COMMITTEE OF NEW ZEALAND LAW SOCIETY Respondent
CIV-2016-404-3091
IN THE MATTER of an appeal against
BETWEEN RICHARD ZHAO Appellant
ANDOTAGO STANDARDS COMMITTEE OF NEW ZEALAND LAW SOCIETY Respondent
Hearing: 7 March 2017 Appearances:
D Zhang and B Castelino for Appellant
J Shaw for RespondentJudgment:
17 August 2017
JUDGMENT OF TOOGOOD J
This judgment was delivered by me on 17 August 2017 at 3.30 pm
Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
Zhao v Otago Standards Committee of New Zealand Law Society [2017] NZHC 1971 [17 August 2017]
Introduction
[1] Mr Richard Zhao is a solicitor practising in Auckland. The Otago Standards Committee of the New Zealand Law Society laid a charge of misconduct1 against Mr Zhao, alleging:
(a) Failure to pay client money into a trust account in breach of s 110 of the Lawyers and Conveyancers Act 2006 ("the Act");
(b) Failure to ensure client money earned interest in breach of s 114 of the
Act;
(c) Personally earning interest from client monies; and
(d) Failure to act upon a request to uplift client documents in breach of r
4.4.1 of the Lawyers and Conveyancers Act (Lawyers: Conduct and
Client Care) Rules 2008 ("the Rules").
[2] The New Zealand Lawyers and Conveyancers Disciplinary Tribunal was satisfied the particulars had been proved and found Mr Zhao guilty of misconduct on
19 August 2016 (the substantive decision).2 On 23 November 2016, he was
censured, suspended from practice for four months, ordered to undertake a trust account course and ordered to pay the prosecution’s and the Tribunal’s costs (the penalty decision).3
[3] Mr Zhao now appeals those decisions.
Background facts
[4] Mr Zhao was admitted to practice law in late 2008 and commenced work as a junior barrister with no trust account experience. By late 2012, he was practising on
his own account as a solicitor operating a trust account.
1 Lawyers and Conveyancers Act 2006, s 241(a).
2 Zhao v Otago Standards Committee No 1 [2016] NZLDCT 22.
3 Otago Standards Committee v Zhao [2016] NZLDCT 32.
[5] In March 2013 Mr Zhao was introduced to a prospective client, Ms L. After phone conversations and a meeting in China, Mr Zhao agreed to undertake legal work relating to family and immigration issues on Ms L’s behalf, including applications in New Zealand.
[6] On or about 11 April 2013, the agreed retainer of $50,000.00 was paid by
Ms L into Mr Zhao’s personal "Freedom" account with ANZ Bank (less a bank fee of
$25.00), details of which Mr Zhao had previously given to Ms L. The same day most of those funds were transferred into a "Serious Saver" account in the name of Mr Zhao and his wife. These funds were held in a variety of Mr Zhao’s personal accounts for a period of six and a half weeks.
[7] Over this period the sum gained some interest, and on 30 April 2013 the bank credited the Serious Saver account with $767.75, a portion of which is attributable to Ms L’s funds. This portion is estimated to be several hundred dollars. While Mr Zhao asserted he remained ready, willing and able to pay this interest to Ms L, he did not account to Ms L for any interest earned on the funds held. Despite making an offer to account for the interest in response to Ms L’s complaint, a year after the funds were deposited, no interest was paid to Ms L. It was never accounted for in the firm’s trust account statements, despite Mr Zhao being aware of the requirement under the Trust Account regulations for the firm to do so.
[8] During the course of the lawyer-client relationship, Mr Zhao had received from Ms L various documents, including passports, birth certificates and identification cards relating to herself and her family. When Ms L arrived in New Zealand, she presented Mr Zhao with new identity information for her children which showed that the children were born in China with a different father. Mr Zhao interpreted the production of these documents as amounting to forgery and an attempt to defraud immigration authorities. He said he told Ms L that he would not help her. On 23 May 2013, Ms L terminated the relationship with Mr Zhao in writing and formally requested the return of all of her documentation, including those that related to her children and copies of anything held on file, as well as the balance of deposited funds after payment of Mr Zhao’s reasonable expenses and costs.
[9] On 27 May 2013, Mr Zhao wrote to Ms L saying he suspected her of "criminal and/or immigration offences". He refused to release her documents on the grounds that they may be evidence of such and said he was considering reporting Ms L to the authorities.
[10] That same day, several transfers were made within Mr Zhao’s personal accounts resulting in $49,975.00 being deposited back into the original personal Freedom account, and from there into the trust account of Richard Zhao Lawyers Limited (Mr Zhao’s firm).
[11] On or about 29 May 2013, Ms L instructed a solicitor, Mr B, to act on her behalf in relation to her documents and payments. An exchange of correspondence followed. Mr B requested that all documentation and the funds be accounted for, including seeking time records and invoices. Mr Zhao declined to return the documents on the basis of alleged attempted fraud, saying time would be needed to decide which documents could be returned, and stating that invoices and time records would be provided in due course.
[12] On 12 June 2013, Ms L lodged a complaint against Mr Zhao with the New Zealand Law Society. On 17 June 2013, Mr Zhao released several of the requested documents but he retained others, including passports, birth certificates, household registers, wills and other Chinese legal documents.
[13] On 27 June 2013, the $49,750.00 held on trust for Ms L (plus $25 credited to her) was transferred to the practice of Mr Zhao’s firm in payment of fees.
[14] At a meeting with Mr Maffey, the Committee’s appointed inspector, on
27 November 2013, Mr Zhao produced an invoice dated 21 June 2013 in which Mr Zhao invoiced Ms L in the amount of $50,000.00. While the narration recites the work undertaken, there are no details provided for the basis on which the fee was calculated.
[15] On 29 November 2013, Mr Zhao gave the investigator a document headed
"Time Sheet/WIP" which details the attendances to which the $50,000.00 related.
$29,973.00 was included for barrister’s fees which had not been invoiced previously.
[16] Mr Zhao declined to act upon the repeated requests to return Ms L’s documentation, over a period of around eleven months after Ms L first requested they be returned. On 11 April 2014, only three days before Mr Zhao’s response to Ms L’s complaint was due to be submitted to the Committee, he forwarded the documents to immigration authorities. There was no evidence that Mr Zhao’s complaint was acted on by Immigration New Zealand.
Tribunal’s decisions
[17] The Tribunal's finding of misconduct is the only one of the five issues addressed by the Tribunal in its substantive decision that is the subject of this appeal. The penalty decision is challenged as to the order for suspension and costs.
[18] After the hearing of evidence by the Tribunal, Mr Zhao made an unsuccessful application for a stay of the Tribunal's process. It was founded on a proposition that Mr Zhao was being treated differently from other practitioners in other cases without any proper basis. Although there is no challenge to the refusal of the stay in this appeal, Mr Zhao relies on points raised in that application in support of an argument that the Tribunal’s misconduct finding was unjustified. It is convenient, therefore, to discuss the arguments and the Tribunal’s findings on it first.
Practitioner X
[19] The principal ground for the stay application was an assertion that the way in which a Standards Committee had dealt with a senior barrister, Practitioner X, in March 2016 demonstrated that what was sought by the Standards Committee in the present case was disproportionate and an abuse of process. Practitioner X was issuing prospective fee invoices; that is, invoices for fees presently payable and for services due to be provided in the future. Upon receipt of the invoice, those fees were paid into the practitioner’s practice account, and not a trust account. As the
work was carried out, retrospective fee invoices or statements were issued, to confirm how much of the prospectively charged fee had been used.
[20] After a hearing conducted on an "own motion" basis, the Standards Committee decided not to take any further action against the practitioner and to issue guidance to the profession. The Tribunal summarised the Standards Committee’s reasons for not taking further action as follows:
(a) There was some uncertainty about the concept of prospective fee invoicing by barristers, such that an appropriate response would be to issue public guidance. No meaningful disciplinary or protective purpose would be served by making an adverse finding against the barrister.
(b)As the events giving rise to the Standards Committee investigation were several years in the past, there were questions about the transitional provisions of the Act and whether at least some of the conduct fell under the Law Practitioners Act 1982, which contained no equivalent rule to that relied on under the new disciplinary regime.
(c) There was no evidence, nor even any suggestion, that the practitioner had acted anything other than honourably or responsibly in the manner in which he dealt with the client retainer and the funds received.
(d)While the Committee found the approach to be "ultimately wrongful", it did not rise to a level of professional culpability. The practitioner’s interpretation of the interaction between the Act, the Rules, and the Trust Account Regulations was that the funds were not trust funds.
(e) The Tribunal noted that Practitioner X and other barristers had understood the approach taken to be a legitimate practice, based on an arguable interpretation of the Rules.
[21] The Tribunal did not consider the case was sufficiently similar to the present complaint to give rise to any inconsistency. In the case of Practitioner X, an invoice had been issued for fees and payment had been made in response to it. In the present case, no invoice had been issued prior to the payment of funds by Ms L. In this case, there is no dispute that the funds ought to have been deposited promptly into Mr Zhao’s trust account.
Finding of misconduct
[22] In its substantive decision addressing the allegation of misconduct, the Tribunal noted the requirement under s 7(1)(a)(ii) of the Lawyers and Conveyancers Act 2006 that the breach be "wilful or reckless". The Tribunal held that, having knowingly provided a client with a personal account number into which to deposit a fees retainer, Mr Zhao (described as "a trained Trust Account Supervisor") ought to have been exquisitely aware of the need to monitor the funds coming in to ensure they were directed to the trust account. The Tribunal found that wrongly holding the funds in his personal accounts for a period of more than six weeks should be regarded as a lengthy period in the context of this case. It was also unclear, with Mr Zhao providing no explanation, why Mr Zhao could not have provided his trust account details earlier when he provided Ms L the compendium of information describing his legal services.
[23] The Tribunal did not consider that Mr Zhao’s being "busy" could excuse his failure to advise his wife, who manages his accounts, of the incoming funds, as this would provide little reassurance to the public regarding the mismanagement of their funds.
[24] The Tribunal found it concerning that Mr Zhao’s evidence indicated his tidying up of funds and ensuring compliance at the time of billing was not isolated or unusual. He was untroubled that the funds lacked the protection afforded by the strict provisions of the trust account regime while they were retained in his personal account. Given the protective purpose of the rules and regulations of client funds, of which compliance is a fundamental obligation, the Tribunal considered that Mr Zhao showed sufficient disregard for his actions to be classified as reckless.
[25] If they were wrong in this assessment, the Tribunal considered that cumulatively, the remaining particulars of earning interest from client money; failing to ensure the client money earned interest; and failing to promptly return the documentation intensified the level of wrongdoing.
[26] The Tribunal accepted that Mr Zhao was genuinely concerned about the use to which the documentation received from Ms L would be put. Nevertheless, he had a number of other alternatives to retaining important documents for a year before sending them to the authorities. He also delayed in sending the documents until the day before his response to the disciplinary complaint was required. The Tribunal stated that if this were the sole particular of the charge, it would likely have been unsatisfactory offending only, but here it aggravated the central breaches which had been found to amount to misconduct.
[27] Accordingly, the Tribunal did not address the lesser level of negligence or incompetence, nor whether there was unsatisfactory conduct.
The penalty
[28] The Tribunal noted that Mr Zhao’s reckless disregard for his professional and fiduciary obligations by failing to deposit the $50,000.00 into his trust account for six and a half weeks was intensified by the three further particularised defaults in his conduct. This was held to be serious, although not at the very top of the scale.
[29] The Tribunal accepted that the level of recklessness, the amount of funds, and the length of time were aggravating factors, and rejected Mr Zhao’s submission that the funds were not at risk and no loss was sustained. The more serious aggravating factor was that Mr Zhao had five previous disciplinary findings against him, two of which had been upheld by the Legal Complaints Review Officer by the time of the penalty hearing. The other findings remained under review.
[30] Given that Mr Zhao had raised his prior good character in submissions and through character references, it was appropriate to take into account these prior findings over the short period of three years. The Tribunal held the decision of the
LCRO finding overcharging of the complainant in this case weighed heavily on their assessment of penalty. It had been found that Mr Zhao had charged a total of
$50,000.00 (precisely the amount paid on account of costs by Ms L and banked to
Mr Zhao's personal accounts) when the costs assessment investigation fixed
$10,000.00 as the proper figure to have been charged, taking account of a number of specific and articulated factors. The Tribunal concluded that that was very serious "indeed 'high end' unsatisfactory conduct, directly connected with "the conduct being considered by the Tribunal".
[31] As to mitigating factors, the Tribunal found that Mr Zhao had expressed a genuine willingness to put things right by paying back the overcharged amount in the LCRO decision (despite continuing to dispute the findings). However, Mr Zhao could not rely on full acceptance of responsibility as a mitigating feature as he had fully exercised his rights to challenge various aspects of the disciplinary process.4
[32] The Tribunal noted that the financial cost to Mr Zhao of the disciplinary action had been of his own making by the manner in which he conducted the Tribunal hearing, which could have been half a day rather than three given the acceptance of all relevant facts.
[33] The Tribunal found that even without the previous disciplinary findings against Mr Zhao, the seriousness of the present conduct would have justified a suspension. It noted the unique feature of the absence of any supporting reference from a legal colleague. The nature of the findings against Mr Zhao raised questions over his fitness to practice, requiring him to take a period of reflection and rehabilitation. The Tribunal reduced the six month period of suspension sought by the Committee to four months, given Mr Zhao’s willingness to recompense the
complainant and the serious financial consequences of the decisions for him.
4 Daniels v Complaints Committee No 2 of the Wellington District Law Society [2011] 3 NZLR
850.
Costs
[34] Mr Zhao was censured and ordered to reimburse the New Zealand Law
Society for the Tribunal’s costs ($15,508.00). He was ordered to pay the full costs of
$47,903.00 incurred by the Standards Committee.
Grounds of appeal
[35] Mr Zhao advances the following grounds of appeal to this Court:
(a) The Tribunal’s finding of misconduct cannot be justified when Mr Zhao’s conduct is compared with that of Practitioner X and practitioners in other cases, revealing disproportionate treatment within the regulatory system;
(b) The Tribunal’s finding of misconduct should be quashed and
substituted for one of unsatisfactory conduct;
(c) There was no proper basis on which the failure to return client documents could be proven, as Mr Zhao would have been assisting with fraudulent behaviour had he returned the documents. Turning a blind eye could have exposed him to worse ethical breaches of the Act and Rules, as well potential criminal charges under the Immigration Act 2009. Thus there was no breach, and none that amplified the seriousness of the conduct;
(d) The suspension imposed was excessive in the circumstances; and
(e) The costs orders were made without due process.
Respondent’s submissions
[36] The Committee submits that Mr Zhao does not challenge the Tribunal’s clear finding that he was reckless in his breach, so the grounds of appeal do not disturb or call into question the core of the misconduct finding. The differences between the
circumstances of Practitioner X and Mr Zhao render their cases wholly incomparable. Moreover, by referring to allegedly more serious cases of misconduct Mr Zhao ignores the fact specific nature of the inquiry the Tribunal must make into his conduct. Given there is a statutory definition of misconduct, it is not necessary to compare Mr Zhao’s case to others so as to assess relative culpability to determine misconduct.
[37] The Committee submits that, because r 4.4.1 is strict and definitive in its terms, Mr Zhao was required to return the documents to Ms L promptly, notwithstanding the possible ethical breaches and Immigration Act offences that Mr Zhao raises. Regarding the penalty of four months' suspension, the Committee asserts that the degree of recklessness, combined with Mr Zhao’s prior disciplinary history, rendered this breach more serious and warranted suspension. It is also said that the order as to costs, falling within the broad discretion of the Tribunal, should not be disturbed. It reflects the nature and conduct of the proceedings.
Approach on appeal
[38] This appeal is brought under s 253 of the Act. It is by way of rehearing, and as such the correct approach is provided by the Supreme Court in Austin, Nichols & Co v Stichting Lodestar.5 This Court must assess the merits and arrive at its own conclusion. Nevertheless, as the Supreme Court acknowledged, there are circumstances in which some deference can be warranted to the first instance body and an appellate court should exercise caution before concluding that findings of fact and degree are wrong.6
Applicable regulatory provisions
[39] The relevant obligations in the Act which Mr Zhao is said to have contravened are:
5 Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 14.
6 At [5].
110 Obligation to pay money received into trust account at bank
(1) A practitioner who, in the course of his or her practice, receives money for, or on behalf of, any person—
(a) must ensure that the money is paid promptly into a bank in
New Zealand to a general or separate trust account of—
(i) the practitioner; or
(ii) a person who, or body that, is, in relation to the practitioner, a related person or entity; and
(b) must hold the money, or ensure that the money is held, exclusively for that person, to be paid to that person or as that person directs.
(2) An incorporated firm that, in the course of its practice, receives money for, or on behalf of, any person—
(a) must ensure that the money is paid promptly into a bank in New Zealand to a general or separate trust account of the firm; and
(b) must hold the money, or ensure that the money is held, exclusively for that person, to be paid to that person or as that person directs.
(3) For the purposes of this section, a practitioner or an incorporated firm is deemed to have received money belonging to another person if—
(a) that person, or a bank or other agency acting for, or on behalf of, that person, deposits funds by means of a telegraphic or electronic transfer of funds into the bank account of—
(i) the practitioner or incorporated firm; or
(ii) a person who, or body that, is, in relation to the practitioner, a related person or entity; or
(b) the practitioner or incorporated firm takes control of money belonging to that person.
…
114 Duty of practitioners to ensure that funds earn interest
It is the duty of every practitioner and of every related person or entity and of every incorporated firm to ensure that, wherever practicable, all money held on behalf of any person by that practitioner, related person or entity, or incorporated firm earns interest for the benefit of that person, unless—
(a) that person instructs otherwise; or
(b) it is not reasonable or practicable (whether because of the smallness of the amount, the shortness of the period for which the practitioner, related person or entity, or incorporated firm is to hold the money, or for any other reason) for the practitioner, related person or entity, or incorporated firm to invest the money, at the direction of the person for whom the money is held, so that interest is payable on it for the benefit of that person.
[40] Mr Zhao was found to have breached r 4.4.1 which provides:
4.4.1Subject to any statutory provisions to the contrary, upon changing lawyers a client has the right either in person or through the new lawyer to uplift all documents, records, funds, or property held on the client’s behalf. The former lawyer must act upon any written request to uplift documents without undue delay subject only to any lien that the former lawyer may claim.
(footnotes omitted)
[41] Section 7(1)(a)(ii) of the Act is the relevant provision defining misconduct. It provides that the lawyer’s conduct consist of "a wilful or reckless contravention of any provision of this Act or of any regulations or practice rules made under this Act that apply to the lawyer or incorporated law firm or of any other Act relating to the provision of regulated services".
[42] Section 12 defines unsatisfactory conduct. Section 12(c) simply provides that conduct is unsatisfactory conduct which consists of a breach of the Act or the Rules, that is, "a contravention of this Act, or of any regulations or practice rules made under this Act that apply to the lawyer or incorporated law firm, or of any other Act relating to the provision of regulated services (not being a contravention that amounts to misconduct under section 7)".
[43] In Ellis v Auckland District Law Society a full Court adopted as applicable in New Zealand statements of Lord Goddard CJ about the basis for the rare exercise of the Court’s supervisory jurisdiction over the disciplinary process:7
The tribunal, as a responsible body with lengthy experience in disciplinary matters, is well placed to determine the appropriate penalty for the type of offending with which the appellant was charged. In Re A Solicitor [1956] 3
All ER 516 at p 517 Lord Goddard CJ said:
7 Ellis v Auckland District Law Society [1988] 1 NZLR 750 (HC) at 758.
"This court is always, and always has been, very loath to interfere with the findings of the Disciplinary Committee either on a matter of fact, because they understand these matters so well, or with regard to penalty. If a matter were one of professional misconduct, it would take a very strong case to induce this court to interfere with the sentence passed by the Disciplinary Committee, because obviously the Disciplinary Committee are the best possible people for weighing the seriousness of professional misconduct."
Those views undoubtedly apply in the present instance.
[44] In Re S (a solicitor), the Court of Appeal held that disciplinary intervention is more likely where the recklessness or incompetence relates to the management of client funds.8
The misconduct appeal
Misconduct: Practitioner X
[45] Disproportionality of outcome compared to other cases is not a recognised defence to a charge of misconduct and no authority was cited in support of such a proposition. I accept, however, that decisions in other cases may be relevant to determining the standards of conduct which are required by the profession; whether
there has been misconduct or unsatisfactory conduct; and penalty.9
[46] The answer to Mr Zhao’s submissions about the case of Practitioner X is that, for the reasons given by the Tribunal, the circumstances are not comparable. In short, Practitioner X was not alone in believing his conduct was justified under the then Rules; invoices were issued at material times; the funds were placed directly into a business operating account, rather than a personal account; and the case involved no element of professional culpability.
[47] Moreover, there is some support for Practitioner X’s view in the decision of
Skagen v Wellington Standards Committee of the New Zealand Law Society.10
8 Re S (a solicitor) [1935] NZLR 908 (CA).
9 In Hong v Auckland Standards Committee No 3 [2014] NZHC 2871, Gilbert J observed that “(p)ractitioners and members of the public must be able to have confidence that disciplinary sanctions are applied in an even-handed manner.”
10 Skagen v Wellington Standards Committee of the New Zealand Law Society [2016] NZHC 1772 at [36] – [42].
Although that case is not on all fours, Mallon J held that reg 10, which provides that all money must be held in a trust account, was not breached when the practitioner received payment of an invoice issued in advance of carrying out the work, in circumstances where the client would pay a fixed fee for work to be done and half was payable immediately.
[48] Mr Zhao was held to have breached the trust account provisions of the Act recklessly; his argument based on the altogether different case of Practitioner X fails.
Misconduct: reckless contravention
[49] The Committee’s primary submission is that as Mr Zhao does not challenge the Tribunal’s clear finding that he was reckless in his breach, the grounds of appeal do not disturb the core of the misconduct finding. In oral argument, Mr Zhang cited several authorities which, he argued, demonstrate that this was not misconduct. The reliance on Auckland Standards Committee No 4 v Appleby to support the
proposition that Mr Zhao was not reckless is misplaced.11 In that case, the finding of
misconduct was established on the extent of the practitioner’s knowledge and serious
negligence, not recklessness per se.12
[50] Mr Zhang also relied on Auckland Standards Committee No 5 v Holmes in which the practitioner took client money to meet fees, without client authority and by creating false invoices which purported further attendances justifying the fees, on the grounds he was recovering small unpaid fees.13 The Tribunal tended to agree that the practitioner’s clean-up actions concerning the trust account were more "laziness than badness". The Tribunal found this was a reckless contravention of the Act and regulations, albeit at the lower end of the scale of misconduct offences, inferring that
Mr Holmes "simply did not turn his mind to his obligations and was therefore reckless". Mr Zhang argues that, as Mr Holmes’s conduct was far more culpable,
Mr Zhao’s behaviour cannot be held to amount to misconduct.
11 Auckland Standards Committee No 4 v Appleby [2014] NZLCDT 34.
12 At [16] – [19].
13 Auckland Standards Committee No 5 v Holmes [2011] NZLCDT 31.
[51] The way the Tribunal viewed the misconduct in Holmes illustrates the point that answers Mr Zhang’s submission: decisions in these cases turn on findings about the practitioner’s state of mind at the relevant time. Whether the breach of the Rules is so "wilful or reckless" as to amount to misconduct in a particular case is a matter of fact and degree for determination on the evidence. Reference to other cases does not greatly assist unless the facts are sufficiently similar.
[52] The facts supporting the Tribunal’s finding of recklessness amounting to misconduct in this case are:
(a) Mr Zhao had completed the Stepping Up and Trust Account Supervisors course, which emphasised trust account principles, approximately a year prior to these events. He was well aware of the fundamental obligation to hold client funds on trust and earn interest;
(b)Mr Zhao did not provide a satisfactory explanation for not taking other steps available to him which would have complied with his obligations, such as supplying his trust account number at the outset, or sending an email clarifying that the account funds should be paid into the trust account;
(c) Providing a personal account number was sufficient to alert Mr Zhao to the need to monitor the account for Ms L’s imminent payment, yet the funds remained in various personal accounts for over six weeks;
(d)Mr Zhao’s evidence was that when he became aware of the funds he planned to transfer the funds at the end of the month billing process as he did not think it mattered if the money was not in the trust account for a few days or a couple of weeks;
(e) The fact that Mr Zhao moved the funds only after the lawyer-client relationship had broken down indicates that he was indifferent to his obligations until he realised there could be a possible complaint.
[53] The prophylactic purpose of the law and regulations constraining practitioners’ conduct in relation to their clients is fundamental to ensure that public confidence in the profession is maintained. The Tribunal was justified in holding that Mr Zhao’s conduct contravened these obligations with such a reckless disregard for his duties as to amount to misconduct.
Retaining client documentation on basis of fraud
[54] Mr Zhang argued that for Mr Zhao to have returned the documents he retained would breach:
(a) Sections 3 and 4 of the Lawyers and Conveyancers Act 2006 relating to the fundamental obligations of lawyers;
(b)Rules 2 (obligation to uphold the rule of law and administration of justice) and 2.4 (assisting in a fraud or a crime) of the Conduct and Client Care Rules 2008;
(c) Sections 342 (provision of false and misleading information), 343 (aiding and abetting), 345 (improper dealings with immigration or identity documents) and 347 (publishing false or misleading information) of the Immigration Act 2009.
[55] It follows, in his submission, that withholding the documentation could not be a breach of his ethical obligations. Mr Zhang also asserted that the Tribunal had erred in failing to inquire and determine whether the documents were fraudulent.
[56] These submissions are misguided. The Tribunal made a favourable finding that Mr Zhao’s concern was genuine, but it did not need to decide whether the documents were fraudulent in order to determine that, despite a genuine concern, Mr Zhao’s conduct in this matter was unsatisfactory.
[57] The Tribunal’s key finding was that Mr Zhao could have taken various other steps, including taking copies of the documents and forwarding them to the relevant authorities. Such a step would have alerted the authorities to the possible need for
investigation. Instead, however, Mr Zhao retained the documents for almost a year without taking any action. Mr Zhang’s lengthy inaction in the face of reasonable options justified the finding that he had breached r 4.4.1. The Tribunal was also correct to find that while this would only have been unsatisfactory conduct if a standalone charge, it formed part of the overall behaviour and aggravated the general seriousness of the conduct.
Penalty appeal
[58] In arguing that the penalty imposed on him was manifestly excessive, Mr Zhao relied on several cases as a point of comparison.
[59] In Wellington Standards Committee No 2 v Jones, the Tribunal found that on balance suspension was not required to protect the public or the reputation of the profession.14 I agree with the Tribunal’s reasoning that the LCRO’s decision to uphold the Standards Committee’s finding that Mr Zhao had overcharged the complainant distinguishes his case from that of Jones.15 There, no suggestion of overcharging of fees was present. Mr Zhao’s conduct places him in a more serious category where suspension may be appropriate.
[60] In Auckland Standards Committee No 4 v Appleby the Tribunal stopped short of imposing suspension based on strong mitigating personal factors and the isolated nature of the conduct.16 In this case, neither the nature of conduct nor any strong mitigating personal factors justify leniency towards Mr Zhao.
[61] Jones and Appleby are essentially cases involving sloppy trust account administration. Mr Zhao’s case is more serious and involved a more significant sum of money. The Tribunal appropriately identified Auckland Standards Committee No
5 v Chen as the most analogous case,17 but distinguished Mr Zhao’s conduct as more
serious because it involved ten times the amount money in Chen, five prior
14 Wellington Standards Committee No 2 v Jones [2014] NZLCDT 52 at [22].
15 At [25].
16 Above n 11, at [22] and [25].
17 Auckland Standards Committee No 5 v Chen [2015] NZLCDT 2.
disciplinary findings as opposed to one, and Mr Zhao being the trust account supervisor.
[62] Likewise, while no suspension was imposed in Auckland Standards Committee No 5 v Holmes, that case involved comparatively small amounts of money, and the practitioner had an unblemished disciplinary record over 40 years of practice.18
[63] As I have said, Mr Zhao has been the subject of five previous disciplinary findings of unsatisfactory conduct at the Standards Committee level, all relating to behaviour which occurred within a period of three years, from 2012 to 2015.
[64] The features referred to above at [52], in conjunction with his failure to return documents, demonstrate the serious nature of Mr Zhao’s reckless misconduct and justify the level of penalty. In my view, the Tribunal correctly concluded that, after consideration of the relevant cases, the features of Mr Zhao’s conduct combined with his prior disciplinary history rendered this breach serious and warranted suspension. The four month suspension was appropriate to denounce the conduct, protect the reputation of the profession, protect the public, and act as a general deterrent.
Costs appeal
[65] The Tribunal ordered that Mr Zhao is to pay costs to the Standards Committee in the sum of $47,903, and reimburse the New Zealand Law Society for its payment of the s 257 costs of the Tribunal. The costs of the Committee were known to Mr Zhao before the penalty hearing, and submissions were made on that point. There is no ground to disturb this finding, which was within the discretion of the Tribunal.
[66] Costs against the practitioner to reimburse the Tribunal are the norm as an exercise of the discretion under s 249 of the Act, so as to reflect the principle that the profession should not bear the cost of disciplinary proceedings brought in good faith.
It is not the Tribunal’s practice to hold a separate costs hearing once the Tribunal’s
18 Above n 13.
costs of the hearing are known. Following such a course would add unnecessarily to the costs incurred by the parties and the Tribunal. Any exceptional grounds which might prevent reimbursement of the Tribunal’s actual and reasonable costs would usually be known in advance of a hearing. If the costs imposed are considered to be excessive or unreasonable, the amount may be appealed.
[67] There was no challenge to the amount of the Tribunal’s costs ordered to be
paid in this case.
Decision
[68] The appeals against the Tribunal’s finding of misconduct and the penalty and costs appeals are dismissed.
Costs on the appeal
[69] The Standards Committee is entitled to costs on a category 2B basis. Any application for costs shall be made by memorandum filed and served by 8 September
2017. Any memorandum in reply shall be filed and served by 29 September 2017. Costs shall then be determined on the papers unless the Court directs otherwise.
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Toogood J
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