Zhao v Legal Complaints Review Officer [2017] NZHC 1561 (31 October 2017)

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UNDER	The Judicial Review Procedure Act 2016
BETWEEN	RICHARD ZHAO Applicant
AND	THE LEGAL COMPLAINTS REVIEW OFFICER _Respondent

Hearing:	25 September 2017
Appearances:	D Zhang for Applicant No appearance for Respondent (abiding the decision of the Court) M J Hodge for Intervener (New Zealand Law Society)
_Judgment:	_{31 October 2017}

On 31 October 2017 at 3.00pm Pursuant to r 11.5 of the High Court Rules Registrar/Deputy Registrar

Solicitors/counsel: Amicus Law, Auckland Crown Law, Wellington Meredith Connell, Auckland

[1] The applicant, Mr Richard Zhao, has brought judicial review proceedings, seeking to quash a decision dated 13 October 2016 made by the respondent, the Legal Complaints Review Officer (“LCRO”), upholding a decision of the National Standards Committee (“the Committee”) made on 14 March 2014.¹The Committee had found that Mr Zhao breached rr 13, 13.8 and 13.8.1 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008, when he pleaded

deceit and fraudulent representation in a statement of claim filed on behalf of a client.²

(a) the LCRO erred in law, and applied the wrong legal test when considering the rules referred to in [1] above;

(b) the LCRO erred in fact, when he found that Mr Zhao had not taken any steps to enquire whether there were reasonable grounds to make the allegation of deceit/fraudulent representation in the statement of claim; and

[4] The LCRO has filed an appearance, indicating that he will abide the decision of the Court. In an accompanying memorandum he noted that he is the only respondent to the application. He queried whether the Committee should be added as a party.³

²_{Notice of Determination by the National Standards
Committee, No. 7569, 14 March 2014.}

³Referring to Harold v Legal Complaints Review Officer HC Auckland CIV-2011-404-3420, 23

[6] The matter came before Fitzgerald J.⁴She expressed the view that Mr Zhao’s decision not to name the Committee as a party was “somewhat curious”.⁵She directed that Mr Hodge, appearing on behalf of the NZLS, should bring the matter to the attention of the Committee, and she reserved leave to the Committee to file a

[7] The Committee filed a memorandum in accordance with this direction. It did not apply to be joined, but advised that it was neutral if the Court decided to join the Committee of its own motion.

[8] The issue was not further canvassed before me, although Mr Hodge did submit that the absence of the Committee constrains the relief available to Mr Zhao if he succeeds in his application.

(a) In professional disciplinary litigation, the relevant regulatory body should generally be named as a party to defend decisions of its decision-making bodies.⁶In the present case, the relevant regulatory

(b) LCRO’s are not lawyers and they are independent of the NZLS. They are appointed by the Minister of Justice.⁸They have statutory functions and their decisions can be judicially reviewed.

(c) LCRO’s are charged with reviewing decisions made by standards committees. Where the NZLS for the Committee is not joined as a party, the Committee’s decision cannot be the subject of any Court order made in the proceedings. A successful applicant for judicial

⁴_{Zhao v Legal Complaints Review Officer HC Auckland
CIV-2017-404-604, 4 May 2017.}

⁶_{Ongley v Medical Council of New Zealand [1984] NZHC 102; (1984) 4
NZAR 369 (HC).}

decision, and to send the matter back to the LCRO for reconsideration in accordance with such directions as the Court may give.

[10] In the present case, Mr Zhao has chosen not to join the Committee. He has had ample opportunity to do so. He must be taken as accepting the limitations on the relief that might be available if he succeeds.

[11] I did not consider it necessary to join the Committee of my own motion. Its position is not materially different from that of the LCRO. It was the first instance decision-maker. Its decision was upheld by the LCRO. Further there was no concern that, in its absence, there would be no party to test Mr Zhao’s assertions. The Court had already ordered that the NZLS be joined as an intervener.

[12] In or about February/March 2012, Mr Huachi Gao entered into a building contract with Mr Xikun Chen. Mr Gao considered that Mr Chen subsequently breached the contract and he took legal advice. His solicitor referred the matter to Amicus Barristers Chambers. Mrs Zhenzhen Chen, a lawyer in those chambers, prepared a notice of claim under the then applicable District Court rules. Although the notice of claim stated that Mrs Chen was Mr Gao’s lawyer, it was filed in the District Court under Mr Zhao’s name as counsel acting.

[13] The notice of claim alleged repudiation of the building contact by Mr Chen, breach of contract, unjust enrichment, and, relevantly, the tort of deceit and fraudulent representation. It referred to what were said to be the elements of the latter allegations and then went on as follows:

The Defendant [Mr Chen] made a representation to the Plaintiff [Mr Gao] in the form of a written contract between the two parties that the renovation project would be completed by 9 March 2012. The Defendant was the person who made the representation to that effect, and it was represented to the Plaintiff.

The representation made by the Defendant that the renovation project would be completed by 9 March 2012 had induced the Plaintiff to enter into the contract with the Defendant. The completion date was a key and central clause in the contract, and therefore, was material to the Plaintiff.

Due to the Defendant’s deceit, the Plaintiff has suffered an adverse alternation [sic] of position. The Plaintiff had entered into the contract on the basis that the renovation project was to be completed on 9 March 2012. However, despite numerous attempts to contact the Defendant to complete the project, the Defendant did not take steps towards completing and/or remedying the renovation project. This has caused the Plaintiff to incur additional expenses and loss of income as a result of the Defendant’s deceit.

March 2012 in order to induce the Plaintiff to enter into the contract, with the knowledge that this was impossible to do.

The Defendant’s deceit has caused the Plaintiff to suffer considerable loss and damage. The Plaintiff was required to attain [sic] the services of another renovation specialist in order to complete the project and in order to repair the damage cause to the property by the Defendant. The Plaintiff had also lost the opportunity to rent the property from 9 March 2012, and has consequently lost the rental income from the property.

[14] The notice of claim was served on Mr Chen, and he in turn contacted his solicitors – Connell & Connell. They contacted Mr Gao’s solicitors, inter alia noting that deceit and fraudulent representation had been pleaded, commenting that these were serious allegations and expressing surprise that they had been made in the context of what was a contractual dispute. It was noted that the pleading did not provide any proper foundation for the allegations, and the observation was made that such allegations made without proper foundation, could be in breach of r 13.8.1. Mr Chen’s solicitors asked what steps Mr Gao’s solicitors had taken to ensure that reasonable grounds existed prior to making the allegations.

[15] Mr Gao’s solicitors did not reply. Rather, an email was sent to Connell & Connell by Mr Deliu, in his capacity as head of Amicus Barristers Chambers. Mr Deliu did not answer the question posed by Connell & Connell. Rather, he criticised Connell & Connell for “procedural pettifoggery” and invited the firm to apply to the Court if it wished to do so. A few days later, Mr Deliu sent a further email to Connell & Connell, suggesting that a complaint be made to the Law Society if Connell & Connell believed there were grounds to do so.

[17] In January 2013, the Lawyers Complaints Service of the NZLS contacted Mr Deliu to ask who had been responsible for the notice of claim. Mr Deliu confirmed that Mr Zhao was counsel and that Mr Zhao had tasked Mrs Chen to assist him with the matter.

[18] On this basis the Committee treated Connell & Connell’s complaint as being a complaint against Mrs Chen. However, on 26 March 2013, the Committee, pursuant to s 130(c) of the Lawyers and Conveyancers Act 2006 (“the Act”), resolved to investigate Mr Zhao’s role in the matter on its own motion.

[19] On 19 April 2013, the Committee, through the NZLS, wrote directly to Mr Zhao, sending copies of relevant materials and requesting, pursuant to s 141(c) of the Act, that he supply specified information. Mr Zhao was asked to advise:

(b) the steps (if any) Mr Zhao had taken to ascertain the factual background before making the allegations;

[21] Mr Zhao did not respond himself. Rather, Mr Deliu responded on behalf of both Mrs Chen and Mr Zhao on 2 May 2013. Relevantly, the information requested from Mr Zhao was not provided. Rather, it was asserted that the request issued by the Committee to Mr Zhao was ultra vires.

2013. It rejected the assertion that it had acted ultra vires and declined to rescind the request issued by it. It resolved to set the matter down for hearing on the papers, pursuant to ss 152 and 153 of the Act, and it issued a notice of hearing in this regard.

[23] Advice of these resolutions was given to Mr Deliu and he was asked to provide any submissions he wished to file on behalf of Mr Zhao by 21 August 2013. The Committee requested that the submissions should focus on the factual basis for the pleading.

[24] In the event, Mr Deliu requested an extension of time, and this request was granted.

[25] In a further letter of 5 September 2013, the Committee again requested that the submissions to be filed on behalf of Mr Zhao address relevant factual matters, the basis on which dishonesty had been pleaded, and what steps had been taken to ascertain the factual background before the pleading was filed.

September 2013. Various procedural issues were raised. Further, it was asserted that:

(a) deceit and fraudulent representation could be inferred from the circumstances of the case;

... the Committee cannot possibly at this stage determine that fraud has been improperly pleaded, evidence in the proceeding has yet to be filed. The Committee does not know what representations Mr Chen made to Mr Gao. Mr Zhao and Mrs Chen of course are bound by privilege and cannot divulge the instructions their client gave them. As such, any advice that a deceit claim was tenable in the circumstances cannot be deemed to have been proper or improper because the key piece of evidence, i.e., what the client said he was told, is missing. As such, it is impossible to meet the threshold that appropriate steps have not been taken to ensure that “reasonable grounds for making the allegation” exist because the Committee does not know what

efforts were made and the practitioners are duty bound to keep their instructions confidential.

I of course am in no position to break the privilege but hypothetically what if Mr Chen had told Mr Gao that the project will be finished, by a certain date? What if Mr Gao had said to Mr Chen that it must be finished, by that date especially, or else he would not enter into the contract? What if other evidence tends to indicate that Mr Chen knew very well that the project was not going to be finished by then? What if the implication is that Mr Chen never intended to finish the project by then and only lied about it to induce Mr Gao to pay him for work that was not going to be delivered as promised? The Committee cannot say that on the central facts of this case that the elements of fraud would be impossible to prove. There is little or no dispute of the following:

1. Mr Gao and Mr Chen contracted whereby Mr Gao would pay Mr Chen for construction work;

6. Mr Chen has given inadequate explanation as to why he did not honour his end of the bargain;

8. Mr Gao believes he has been defrauded (this is indicated inter alia not only by his instructions to pursue a deceit claim but also his attempts to have the Police involved, refer 25 January 2013 e-mail appending 26 July 2012 complaint, i.e., before the claim).

(d) the claim as filed was not necessarily the claim that would be pursued at trial. It was said that, if, in the course of the trial, it became apparent that the deceit/fraudulent representation claims were not likely to succeed, they would be abandoned. On this basis, it was asserted that the issue whether deceit/fraudulent representation were wrongly claimed against Mr Chen was “not even ripe for consideration”;

(e) there were other indicia that the claim was properly considered by Mrs Chen/Mr Zhao. It was said that it could be inferred from the notice of claim that Mrs Chen/Mr Zhao had turned their minds to the evidence and the relevant legal tests, and that this in turn implied that the claim “was not just cavalierly made with reckless disregard”. It was said that there clearly had to have been meetings with Mr Gao “to get the facts from him, perusal of materials (evidential and research) and any other incidental steps to beginning [the] Court action”.

[27] The National Standards Committee’s decision was issued on 14 March 2014.⁹

Although it is not directly in issue, it is helpful to briefly record the way in which the

[28] The Committee recorded the factual background and set out the relevant rules. It dealt with and dismissed the various procedural matters which had been raised on Mr Zhao’s behalf.

[29] In relation to the substantive submissions, the Committee considered that they confused whether an allegation is established at trial, and the professional propriety of making the allegation in the first place. It observed that neither matter is established by the other and said that the purpose of r 13.8 is to ensure that legal practitioners, as officers of the Court, do not attack reputations without good cause and are not parties to the making of serious allegations without reasonable grounds. It noted that the good cause and reasonable grounds must exist prior to filing, and that material later uncovered through interrogatories and discovery cannot remedy a lawyer’s failure to have good cause and reasonable grounds at the outset.

[30] In relation to the submissions made on Mr Zhao’s behalf that he could not fully respond to the own motion complaint because of solicitor-client privilege, the Committee observed that this suggested that privilege prevented Mr Zhao from

_{revealing the basis for the pleas of deceit/fraudulent representation.
The Committee}

considered that this argument overlooked the procedural requirement to plead the grounds relied upon to support an allegation of dishonesty. The Committee said that a plaintiff cannot plead a case without disclosing the essential requirements for the claim, and that if the grounds cannot be revealed because of privilege, the claim cannot be advanced. It observed that Mr Zhao’s submission, if accepted, would render r 13.8 nugatory. It also observed that r 13.8 ensures that practitioners do not abuse privilege by making allegations without reasonable grounds or attack a person’s reputation without good cause. It considered that the grounds for pleading an allegation of dishonesty are unlikely to attract privilege as they must be set out in the pleading.

[31] The Committee took it from the submissions filed on Mr Zhao’s behalf, that his reasons for pleading the tort of deceit and alleging fraudulent representation were as follows:

[32] The Committee considered that these reasons confused the requirements of pleading with the exercise of professional responsibility. It took the view that it was not sufficient for Mr Zhao to rely on such subjective beliefs as Mr Gao may have had, and observed that a lawyer is expected to test a client’s subjective beliefs and advance an allegation of the kinds caught by r 13.8.1 only if there are reasonable grounds to support it.

[33] Accordingly, the Committee concluded that Mr Zhao breached r 13.8.1 by failing to take appropriate steps to ensure that reasonable grounds existed for pleading the tort of deceit, breached r 13.8 by approving a pleading attacking Mr Chen’s reputation without good cause, and breached r 13 by failing in his overriding duties owed to the Court. It censured Mr Zhao and fined him $3,500. It also ordered him to pay $1,000 in respect of the New Zealand Law Society’s costs and expenses.

It decided that it was not in the public interest to publish Mr Zhao’s name, but directed the Society to publish a summary of its decision to remind practitioners of their professional obligations.

[34] Mr Zhao promptly applied for a review of the Committee’s determination by

[35] Mr Deliu, on Mr Zhao’s behalf, wrote in support of Mr Zhao’s request for the LCRO to review the decision. Various grounds were raised by Mr Deliu. A copy was forwarded to the Committee, and it was asked whether it wished to comment on the application. The Committee responded, advising it would abide the decision of the LCRO. It did offer to assist by providing further information should it be required, and it made copies available of some of the reference materials referred to in its determination. Mr Zhao was advised, and Mr Deliu was asked whether he wished to make further submissions. He responded, indicating that he wished to appear and be heard on Mr Zhao’s behalf, and to supplement his written submissions with oral argument.

[36] The LCRO delayed in dealing with the matter, and in October 2015 Mr Deliu sent an email to the secretariat asking for an update. He received a response indicating that the matter was still queued for hearing and advising Mr Deliu to contact the office again in mid-2016 for a further update.

[37] In August 2016, the LCRO’s secretariat requested written submissions from Mr Deliu. Those submissions were filed on 2 September 2016. Inter alia, it was asserted that the Committee had failed to properly take into account as a relevant consideration that Mr Zhao was acting under client instructions and/or was constrained by lawyer-client privilege from revealing his client’s evidence of dishonesty. It was asserted as follows:

Mr Zhao could not, without a waiver, disclose what those instructions were, eg, what Mr Gao told his counsel that Mr Chen told him. For example, if Mr Chen told Mr Gao “fob off, I was never going to do your work” or “ha, ha I took your money” or something of the like then that will be prima facia proof of a fraudulent intention.

Counsel would be perfectly entitled to put that to Mr Chen at trial. Equally counsel would not be at liberty to divulge that lawyer-client communication. Moreover, even if Mr Zhao could it would have been contrary to Mr Gao’s interests to do so, as that would be hand best played initially at trial.

[38] Mr Deliu was asked whether Mr Zhao consented to the review being completed on the material to hand and without a hearing. He signalled Mr Zhao’s agreement, albeit under protest, by email dated 5 September 2016.

[39] On 13 October 2016, the LCRO issued a determination on Mr Zhao’s review application. The LCRO advised that he had reviewed all of the material on the Committee’s file, and as provided by Mr Deliu. He confirmed that he had no issues of concern, and had reached the view that the determination of the Committee was correct. He advised that full reasons for his decision would issue in due course.

[40] The LCRO’s reasons issued on 29 November 2016. He summarised the relevant factual background and the Committee’s enquiry and determination. He noted that Mr Deliu in correspondence had acknowledged Mr Zhao’s role in the preparation of the proceedings, and observed that Mr Zhao had signed the notice of claim as being true and correct. On this basis he recorded his view that Mr Zhao was responsible to the Court for the allegations made in the notice of claim and had to accept that responsibility. The LCRO then:

(b) noted that none of the responses from Mr Zhao indicated that he (or Mrs Chen) had made any independent enquiry to establish that Mr Chen knew at the time of entering into the contract with Mr Gao that there was no possibility of the completion date being met;

(c) took the view that if it was not possible to establish reasonable grounds for forming that view prior to completing and filing the notice of claim, then serious consideration needed to be given as to whether the tort of deceit, together with allegation of fraudulent representation, needed to be pleaded at all;

(d) observed that the issue arose in the context of an alleged breach of contract, and that the contractual issues did not require that those allegations be made;

(e) observed that if facts became known during the course of the litigation indicating that there were grounds to amend the pleadings to allege deceit, an application could have been made to the Court at that later stage;

(f) took the view that if Mr Zhao was not able to meet his professional obligations on the notice of claim as prepared, the pleadings should not have been drafted in the manner that they were;

(g) considered that Mr Zhao had been blind to his professional obligations, and had proceeded to make allegations in the notice of claim careless of his obligations to ensure that there reasonable grounds at the time the pleadings were prepared for the allegations made;

(h) noted that Mr Zhao had provided nothing to show that he had complied with his obligations in terms of r 13.8.1;

(j) concluded that there was no good cause to plead deceit and make the allegation of fraudulent representation;

(l) considered that the requirements of the rules were clear, and that Mr Zhao had not provided any evidence as to what reasonable steps he took to ensure the accuracy of the allegations made; and

(m) concluded that Mr Zhao was in breach of the rules, and that breaches of rr 13.8 and 13 necessarily follow a breach of r 13.8.1.

[41] The censure and fines imposed by the Committee were upheld, and the determination of the Committee was confirmed, pursuant to s 211(1)(a) of the Act. Mr Zhao was also ordered to pay $1,200 to the NZLS for the costs of the review pursuant to s 210(1) of the Act.

[42] Mr Zhang, appearing for Mr Zhao, submitted that the LCRO applied the wrong legal test. He argued that, in effect, the LCRO required Mr Zhao to make independent enquiry into the relevant facts, and only plead deceit/fraud if there was “overwhelming” evidence to justify the pleading. He submitted that if there is “any material” that justifies making an allegation of deceit or fraud, there is a sufficient basis for a lawyer to plead that allegation.

[43] Mr Zhang further argued that the LCRO did not give Mr Zhao the benefit of the doubt in relation to his claim that he was unable to provide a full answer to the complaint because of legal privilege. He submitted that the LCRO was wrong to find that, if the grounds on which a claim is based cannot be disclosed because of privilege, then the claim should not be advanced in the first place.

[44] Mr Zhang also argued that the LCRO made a mistake of fact when he concluded that Mr Zhao had taken no steps to ensure that there were reasonable grounds to make the deceit/fraud allegation. He argued that the bare facts of the case as pleaded were sufficient to raise at least a reasonable suspicion of dishonesty. He pointed out that Mr Gao’s instructions were to plead the tort of deceit, and that Mr Gao clearly felt that he had been defrauded.

[45] Mr Hodge argued that pleadings alleging fraud or deceit should be direct, clear and detailed, and that a bare assertion of dishonesty, unsupported by any detail, is not acceptable. He argued that grounds must be particularised which, if established on the evidence, are sufficient to support the allegation pleaded, and that, in addition, a lawyer proposing to plead deceit or fraud on behalf of a client is first required to take appropriate steps to ensure that there is evidence that is capable of proving the allegations. He submitted that Mr Zhao made bare assertions without pleading the particulars alleged, and that the fact that it was asserted that contractual obligations had been breached, and that representations as to future conduct were not satisfied, did not of itself support allegations of dishonesty.

[46] Mr Hodge acknowledged the importance of privilege, but queried whether it applied in this case. He argued that if there was in fact a basis for the pleading of deceit/fraud, based upon such discussions as Mr Zhao had with Mr Gao, then that material should have been pleaded in the notice of claim, and that it could not attract privilege.

[47] Mr Hodge further argued that the Committee’s factual findings were correct, and that it could not be said that they were either logically flawed or unreasonable. He argued that a client’s belief that he or she has been deceived, and instructions that his or her lawyer plead deceit/fraud, are not sufficient grounds to justify such pleading if that belief is not reasonably supported by available evidence. He argued that counsel are not simply the mouthpiece for the desires of their clients, no matter how unjustified or unreasonable, or indeed, malicious, those clients may be.

A lawyer must not be a party to the filing of any document in court alleging fraud, dishonesty, undue influence, duress, or other reprehensible conduct, unless the lawyer has taken appropriate steps to ensure that reasonable grounds for making the allegation exist.

[49] It is the primary rule at issue in this case. I agree with the LCRO that if r

13.8.1 is breached, it follows, in the circumstances of this case, that there has been a breach of rr 13 and 13.8. Rule 13.8 provides as follows:

The overriding duty of a lawyer acting in litigation is to the court concerned. Subject to this, the lawyer has a duty to act in the best interests of his or her client without regard for the personal interests of the lawyer.

[51] The leading decision in this country on what constitutes reasonable grounds for a pleading alleging fraud or dishonesty is the judgment of the Court of Appeal in Gazley v Wellington District Law Society.¹⁰In that case, a practitioner had included allegations in a statement of claim alleging that judges in the Court of Appeal had wilfully and/or maliciously, or negligently in breach of their judicial duty, failed to adjudicate on certain of an appellant’s submissions and had wilfully, dishonestly or negligently failed to exercise their jurisdiction. The pleading was referred to the Wellington District Law Society, and it laid a charge of professional misconduct

against the practitioner on the basis that he had included the allegations in the statement of claim without having reasonable grounds upon which to do so. In an affidavit filed before the Disciplinary Committee of the NZLS, the practitioner claimed to have evidence supporting the allegations made, but he did not produce that evidence. He was found guilty of misconduct in his professional capacity and he was fined and censured. The practitioner appealed to the Court of Appeal.

[52] The Court of Appeal dismissed the appeal succinctly. It cited, with approval, observations made by Lord Reid in Rondel v Worsley¹¹as follows:¹²

Every counsel has a duty to his client fearlessly to raise every issue, advance every argument, and ask every question, however distasteful, which he thinks will help his client's case. But, as an officer of the court concerned in the administration of justice, he has an overriding duty to the court, to the standards of his profession, and to the public, which may and often does lead to a conflict with his client's wishes or with what the client thinks are his

personal interests. Counsel must not mislead the court, he must not lend himself to casting aspersions on the other party or witnesses for which there is no sufficient basis in the information

The same public duty applies when drawing pleadings or conducting subsequent stages in a case as applies to counsel's conduct during the trial.

[53] The Court of Appeal then noted that Rondel v Worsley had been adopted by the High Court of Australia in Clyne v New South Wales Bar Association¹³and it cited observations by that Court, namely that:¹⁴

(b) those privileges can be abused if a damaging, irrelevant matter is introduced into a proceeding;

(c) they are grossly abused if counsel, in opening a case, make statements which may have ruinous consequences to the person attacked, which counsel cannot substantiate or justify by evidence;

(d) it is unfair and improper in the highest degree for counsel, hoping that where proof is impossible, prejudice may suffice, to make such statements unless he definitely knows that he has, and definitely intends to adduce, evidence to support the allegations; and

(e) it cannot be enough that counsel thinks that he or she may be able to establish the statements made out of the mouth of a witness for the other side.

The privilege and the immunity bring with them a professional responsibility not to make allegations "without a sufficient basis" or "without reasonable grounds". This responsibility applies irrespective of the persons against whom allegations are made.

¹³_{Clyne v New South Wales Bar Association [1960] HCA 40; (1960) 104
CLR 186 (HCA).}

[55] Mr Zhang did not dispute the general propositions set out in Gazley. Rather, he submitted that the decision does not help in determining what are reasonable grounds in any given case. He argued that all that is required is that there be some material, even just circumstantial material, to justify a pleading of the kind in issue in this case. He referred to a decision of the House of Lords – Medcalf v Mardell.¹⁶

[56] Medcalf concerned an application for wasted costs against a practitioner. It had been alleged that transcripts of evidence had been tampered with, that there had been attempts to pervert the course of justice, and that signatures on a witness statement had been forged. There was evidence of these allegations, but that evidence was inadmissible due to legal privilege. The issue before the Court was whether it was misconduct for the practitioner to plead fraud when evidence existed to support the allegation, but that evidence was inadmissible. The House of Lords held that where a practitioner is of necessity precluded (in the absence of waiver by the client) from giving his account of the instructions he received and the material before him at the time of settling the impugned pleading, the Court should be very slow to conclude that the practitioner could have had no sufficient material. Lord

[The English Code of Conduct lays] down an important and salutary principle. The parties to contested actions are often at daggers drawn, and the litigious process serves to exacerbate the hostility between them. Such clients are only too ready to make allegations of the most damaging kind against each other. While counsel should never lend his name to such allegations unless instructed to do so, the receipt of instructions is not of itself enough. Counsel is bound to exercise an objective professional judgment whether it is in all the circumstances proper to lend his name to the allegation. As the rule recognises, counsel could not properly judge it proper to make such an allegation unless he had material before him which he judged to be reasonably credible and which appeared to justify the allegation. At the hearing stage, counsel cannot properly make or persist in an allegation which is unsupported by admissible evidence, since if there is not admissible evidence to support the allegation the court cannot be invited to find that it has been proved, and if the court cannot be invited to find that the allegation has been proved the allegation should not be made or should be withdrawn. I would however agree ... that at the preparatory stage the requirement is not that counsel should necessarily have before him evidence in admissible form but that he should have material of such a character as to lead responsible counsel to conclude that serious allegations could properly be based upon it.

Proceeding from the undoubted fact ... that at the hearing on 14-15 February there was no reasonably credible admissible evidence before the court to substantiate the seven allegations held to be improperly made, the majority of the Court of Appeal concluded that the barristers could have had no such admissible evidence before them when signing the draft amended notice of appeal and the skeleton arguments. It would seem likely that they did not. But this was to apply too stringent a test. The question is whether, at that stage, the barristers had material of any kind before them which justified the making of the allegations. This is something which the court does not know and cannot be told. Hunch and suspicion are not enough. ... I remain in doubt, and the barristers must have the benefit of that doubt.

[57] Lord Steyn referred to the equivalent rule to r 13.8.1 in the English Code of

This particular professional duty sometimes poses difficult problems for practitioners. Making allegations of dishonesty without adequate grounds for doing so may be improper conduct. Not making allegations of dishonesty where it is proper to make such allegations may amount to dereliction of duty. ... Often the decision will depend on circumstantial evidence. It may sometimes be finely balanced. What the decision should be may be a difficult matter of judgment on which reasonable minds may differ.

The professional advocate is in a privileged position. He is granted rights of audience. He enjoys certain immunities. In return he owes certain duties to the court and is bound by certain standards of professional conduct in accordance with the code of conduct of his profession. This again reflects the public interest in the proper administration of justice; ... The advocate must respect and uphold the authority of the court. He must not be a knowing party to an abuse of process or a deceit of the court. ... The codes of conduct of the advocate's profession spell out the detailed provisions to be derived from the general principles. These include the provisions relevant to barristers which preclude them from making allegations, whether orally or in writing, of fraud or criminal guilt unless he has a proper basis for so doing. [The rule] ... requires express instructions and reasonably credible material which as it stands establishes a prima facie case of fraud. All this fits in well with an appropriate constitutional structure for a judicial system for the administration of justice.

[59] Relying on these various observations, Mr Zhang submitted that Mr Zhao had sufficient material before him at the preparatory stage which permitted him to make the allegations of deceit and fraud contained in the notice of claim. He argued that

the LCRO, in his decision, proceeded on the basis that Mr Zhao was required to make “independent enquiry” and himself find that there was “overwhelming evidence” before the impugned allegations could be made. He argued that this was the wrong legal test.

[60] As noted above at [9], LCRO’s are appointed by statute and they exercise statutory powers when they review decisions made by standards committees. They are amenable to judicial review and, inter alia, the Courts will intervene if LCRO’s misconstrue their statutory powers, act unreasonably or with mala fides, commit a procedural error or unreasonably encroach on fundamental rights or values.²⁰The function of the Courts on judicial review is to ensure that statutory powers and duties are exercised in accordance with the law.

[61] The question posed by Mr Zhang is whether the LCRO made a material error of law by proceeding on a wrong legal basis.

[62] When discussing r 13.8.1, the LCRO noted that Mr Zhao had provided nothing to show that he met his obligations under the rule.²¹He also noted that, if an allegation is made that the rule has been breached, it falls to the lawyer to provide evidence of the enquiry made. The LCRO considered that this was not an unreasonable requirement, and that it could be easily and readily satisfied if indeed the lawyer had made reasonable enquiries.²²

[63] The LCRO did use the words “independent enquiry”, but he did not require that Mr Zhao had to find that there was “overwhelming evidence”, as suggested by Mr Zhang. The LCRO said as follows: ²³

None of the responses from Mr Zhao indicate that he ... made any independent enquiry to establish ...

[64] The law is tolerably clear. It is the duty of counsel not to allege fraud, or dishonesty, unless he or she has clear and sufficient evidence to support that

²¹_{Zhao v National Standards Committee
LCRO 85/2014, 29 November 2016 at [29].}

allegation.²⁴The decision to advance a plea of fraud imposes on counsel a heavy ethical responsibility.²⁵Counsel must have before him or her material which establishes a prima facia case.²⁶

Ethics, Professional Responsibility and the Lawyer – where it is stated as follows:²⁷

More fundamental than the duty to plead clearly is the duty to plead honestly. Whenever a claim or defence is lodged with the Court, the lawyer of the record signs it. In signing a pleading, lawyers are certifying that the case is not a mere fiction. The Court presumes the lawyers have investigated the evidence and believe, in their judgment, that there is at least a prima facie case to be answered in respect of the claims made. While lawyers are advocates for their clients, they are expected to exercise independent judgment in accepting the assertions made. And where there is some doubt as to the veracity of a client’s allegations, lawyers are entitled to seek corroboration from independent investigation. However, lawyers are not required to be unduly suspicious, and in general a solicitor is not required to go behind the word of a client.

[66] Mr Zhang submitted that Mr Zhao did have sufficient material before him to meet the requirements of r 13.8.1.

[67] The difficulty with this submission is that Mr Zhang has never asserted that he had any material to justify the allegations of deceit and fraud made in the notice of claim.

²⁴Associated Leisure Ltd (Phonographic Equipment Co Ltd)v Associated Newspapers Ltd [1970] QB 450 at 456.

²⁵_{Savril Contractors Ltd v Bank of New Zealand [2002]
NZAR 699 (HC) at [29].}

²⁶X v Y [2000] 2 NZLR 748 (HC) at 758 to 759; Carter Holt Harvey Ltd v Commerce Commission [2009] NZCA 40, [2009] 3 NZLR 573 at [80]; And see G E Dal Pont Lawyers Professional Responsibility (6^thed, Thomson Reuters, Sydney, 2017) at [17.230].

²⁷D Webb, K Dalziel and K Cook Ethics, Professional Responsibility and the Lawyer (3^rded, Lexis Nexis, Wellington, 2016) at 369.

[68] It is asserted in submissions made by Mr Deliu for Mr Zhao that such material existed.

(a) The first submissions were filed on 27 September 2013 – see [26] above. They set out various matters in [26(c)], and assert that there is little or no dispute about them. Matters (1) to (7) do not justify the pleading of deceit and fraudulent representation. They are simply the base allegations going to the alleged breach of contract. The matters set out in para (8) go to Mr Gao’s subjective beliefs. Mr Gao’s subjective beliefs do not advance matters. Lawyers are expected to exert a moderate influence on their clients, and lawyers must have both specific instructions and an appropriate evidentiary foundation

[26(e)] – that there were other indicia from which it could be inferred that Mr Zhao turned his mind to the evidence and the legal test for deceit. However, the only other indicia referred to was the notice of claim. An improper pleading cannot be material supporting an allegation which should not have been made without appropriate enquiry and reasonable grounds.

September 2016 – see [37]. It was there asserted that Mr Gao gave Mr Zhao instructions, and there was speculation as to what those instructions might have been. I repeat the comment made above. Mr Gao’s instructions do not abrogate counsel’s responsibilities.

[69] In any event, Mr Deliu’s submissions are just that – submissions – and counsels’ submissions are not themselves evidence. Mr Zhao has not gone on record, either by affidavit, or by letter, to say, eg that he met Mr Gao, or that he spoke to him, or that he has had any direct dealings with him at all. Mr Zhao has not said that he had anything before him at all when he lent his name to the pleadings, or that he took any steps, let alone appropriate steps, to see if there were reasonable

[70] There was nothing in the materials which were before the LCRO on which the LCRO could properly conclude that reasonable grounds existed on which Mr Zhao could make the allegations of deceit and fraud. On the available evidence, the only conclusion open to the LCRO was that Mr Zhao had breached his professional responsibilities. I am not persuaded that the LCRO applied the wrong legal test when considering whether Mr Zhao had complied with his obligations under r

13.8.1. The LCRO did not misconstrue r 13.8.1 or otherwise misdirect himself in law.

[71] Mr Zhang next submitted that the LCRO’s decision should not be upheld because Mr Zhao is precluded from identifying the materials before him because of solicitor/client privilege. He referred to Lord Bingham’s observations in Medcalf:²⁹

... First, in a situation in which the practitioner is of necessity precluded (in the absence of a waiver by the client) from giving his account of the instructions he received and the material before him at the time of settling the impugned document, the court must be very slow to conclude that a practitioner could have had no sufficient material. Speculation is one thing, the drawing of inferences sufficiently strong to support orders potentially very damaging to the practitioner concerned is another.

Only rarely will the court be able to make 'full allowance' for the inability of the practitioner to tell the whole story or to conclude that there is no room for doubt in a situation in which, of necessity, the court is deprived of access to the full facts on which, in the ordinary way, any sound judicial decision must be based. The second qualification is no less important. The court should not make an order against a practitioner precluded by legal professional privilege from advancing his full answer to the complaint made against him without satisfying itself that it is in all the circumstances fair to do so. This reflects the old rule, applicable in civil and criminal proceedings alike, that a party should not be condemned without an adequate opportunity to be heard.

[72] Solicitor/client privilege is fundamental to the efficacy of the legal profession; it goes hand in hand with the duty of confidence that a lawyer owes to his or her client. It is trite law that legal privilege can be a good answer to a

proceedings before a disciplinary tribunal,³⁰and I accept that privilege should not be undermined.

[73] Nevertheless, the proper bounds of privilege need to be identified. Information falls under lawyer-client privilege, when, in addition to being confidential, it came into existence for the dominant purpose of obtaining legal advice or in respect of contemplated or actual litigation.³¹Many communications between a lawyer and a client, although confidential, will not attract privilege.

[74] A practitioner’s obligations to the Court are clear and have statutory imprimatur.³²A lawyer must not abuse the Court or its processes. The law in relation to pleadings alleging fraud or dishonesty is also clear. Such pleadings must be “direct, clear and detailed”.³³Fraud and dishonesty are serious allegations and they must be pleaded with care. General allegations are insufficient to amount to a proper pleading of fraud or dishonesty. A plaintiff must be able to show a proper case – that is, a prima facia case – for alleging fraud or dishonesty at the time of filing the pleading,³⁴and a plaintiff cannot get by in the hope that something might turn up in discovery or on cross-examination.³⁵

[75] A practitioner cognisant of his/her professional obligations must necessarily satisfy himself/herself that reasonable grounds exist before making an allegation of deceit/fraud. The practitioner will know that sufficient particulars to justify the pleading will have to be set out in the pleading and he or she should so advise the client. As a result, the factual foundation for a pleading of deceit and/or fraud will not ordinarily attract privilege for the simple reason that it has to be pleaded. The discussion between the lawyer and the client will have been in confidence but it does

³⁰B v Auckland District Law Society [2003] UKPC 38, [2003] 2 AC 736 at [65]; Parry-Jones v

³³Air Nelson Ltd v Airways Corporation of New Zealand Ltd HC Wellington CP1000/91, 29

_{September 1992 at 13; Prosser v New Zealand Investment
Trust Ltd [1937] GLR 93 (SC).}

³⁴Commissioner of Inland Revenue v Redcliffe Forestry Venture Ltd [2012] NZSC 94, [2013] 1

_{NZLR 804 at [33]; Schmidt v Pepper NZ (Custodians) Ltd [2012]
NZCA 565 at [15].}

³⁵Ng v Harkness Law Ltd [2014] NZHC 850 at [44]; And see generally, McGechan on Procedure

[76] It is also relevant that at no stage has Mr Zhao himself raised the issue of privilege. The assertion of privilege has been made only in submissions, without any factual foundation to support it, or even any claim to privilege by the person seeking to shelter behind it.

[77] In the absence of something more from Mr Zhao, I cannot see that privilege is relevant in the present context, and I cannot see that the LCRO misdirected himself in this regard.

[78] Mr Zhang next asserted that the LCRO made a reviewable error when he found that Mr Zhao had taken no steps to ensure that there were reasonable grounds to support the allegations made.

[80] The LCRO found, in effect, that Mr Zhao had taken no steps to ensure that there were reasonable grounds to support the allegations of deceit and fraud pleaded.³⁷That finding was an inference, given Mr Zhao’s silence when confronted with the own motion complainant. Mr Zhao was given every opportunity to reply and to put his version of events before the Committee and the LCRO. He did not respond to the complaint, other than through his counsel. In my judgment, a person

in Mr Zhao’s position cannot remain silent and then allege that the inference drawn consequent on the silence is unsupported.

[81] On the facts of this case, it cannot be said that the LCRO’s decision was unsupported or that it was based on findings that were logically flawed. Nor can it be said that the decision was inconsistent or self contradictory. Given Mr Zhao’s resounding silence, the LCRO was entitled to conclude that he had taken no steps to ensure that there were reasonable grounds to support the allegations made when the notice of claim was filed.

[83] In my judgment, the LCRO did not err either in law or in fact when he upheld

(a) Mr Zhao had breached r 13.8.1, by being a party to the filing of a notice of claim in the District Court, alleging deceit and fraudulent representation, without having taken appropriate steps to ensure that reasonable grounds existed for making those allegations;

(b) Mr Zhao breached r 13.8, by engaging in litigation attacking Mr Chen’s reputation without good cause in the notice of claim filed in the District Court; and

(c) Mr Zhao failed in his overriding duty as a lawyer, acting in litigation, to the Court, by filing an inappropriate pleading containing allegations which should not have been advanced.

[85] It had been agreed between both parties that there should be no order as to costs. Accordingly, no order is made.

High Court of New Zealand Decisions

Zhao v Legal Complaints Review Officer [2017] NZHC 1561 (31 October 2017)