CB v Standards Committee [2015] NZLCRO 38 (29 June 2015)

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	LCRO 108/2014
CONCERNING	an application for review pursuant to section 193 of the Lawyers and Conveyancers Act 2006
AND
CONCERNING	a determination of the Standards Committee
BETWEEN	CB & NM Applicants
AND	STANDARDS COMMITTEE Respondent

The names and identifying details of the parties in this decision have been changed.

[1] Mr CB and Mr NM (the lawyers) have applied for a review of a determination by the Standards Committee in which the Committee decided that there are special circumstances that would justify it dealing with a complaint about bills of costs rendered by the lawyers’ firm, [Law Firm A] (the firm), more than two years prior to the date of the complaint.

[3] Instructions were primarily given by Mr WJ, one of two directors. The complaint was laid by the other director, Ms PF.

[4] The complaint was critical of the lawyers’ competence in both matters, and the level of the fees they charged. [Company C] acknowledges it has not paid a total of

[5] The parties made some unsuccessful attempts to resolve their differences, then in late April 2012 the firm sent a letter of demand followed by an invitation to [Company C] to make a settlement offer. It waited a year, and when no offer was forthcoming, the firm commenced debt recovery proceedings in the District Court seeking to recover the outstanding fees.2

[7] The Lawyers Complaints Service (LCS) referred the complaint to the lawyers on

6 August 2013 indicating it related to concerns about lawyer competence, and allegation that the lawyers’ fees were not fair and reasonable. The lawyers responded, then both parties were invited to provide submissions in relation to special circumstances under regulation 29 of the Lawyers and Conveyancers Act (Lawyers: Complaints Service and Standards Committees) Regulations 2008 which says:

If a complaint relates to a bill of costs rendered by a lawyer or an incorporated law firm, unless the Standards Committee to which the complaint is referred determines that there are special circumstances that would justify otherwise, the Committee must not deal with the complaint if the bill of costs –

(b) relates to a fee that does not exceed $2,000, exclusive of goods and services tax.

[8] The lawyers did not accept that [Company C]’s criticisms of their conduct or fees were valid, nor did they consider there were any special circumstances that would have enabled the Committee to consider the fees aspect of the complaint.

[9] After a number of requests for extensions of time to provide submission on special circumstances, [Company C] submitted:3

We were not at all happy with the standard of service from Mr CB and Mr NM. It fell well short of the level of competence we believe we should reasonably expect from competent lawyers. This view has been reinforced by our experiences with other lawyers subsequently.

There had been no ongoing dialogue about the costs of the proceeding. We had expected this to occur, particularly given the relatively low sums involved in the competing claims. The claims against us were for a total of $200,000 (plus interest, costs and exemplary damages).

The totals provided on 30 August shocked us. We could not rationalize how these costs had amounted to this much. In the first instance the costs for the [Company D]’s claim (being a simple claim for outstanding invoices) were out of proportion to those Mr HS charged after taking over that aspect of the litigation. We were also concerned that it appeared that [Law Firm A] continued to charge for attendances in relation to the [Company D] claim after Mr HS had been instructed.

Mr NM has acknowledged that the charges were comparatively high. In his explanation to the NZLS, dated 19 August 2013 he states “It might be considered that in their total, the invoices are much higher than may be usual in a District Court Claim...”

After receiving the statements I prepared the summaries of invoices received from [Law Firm A] and Mr HS... I met with VB, Legal Administrator at [Law Firm A], on 4th October 2011 to discuss my concerns about the standard of service we

Mr WJ (also a director of [Company C]) and I had a further two meetings at [Law Firm A] to discuss our concerns with Mr NM. No resolution was reached and we felt pretty aggrieved.

On 27 April 2012 we received a further letter of demand from [Law Firm A]... At that time, there had been some discussions about these issues between Mr NM and TE of [Law Firm B]. We were therefore surprised at receiving the demand.

We heard nothing further from [Law Firm A] after Mr TE’s email. As we understood from that exchange that Mr NM would discuss the matter further with the partners at [Law Firm A] and revert to Mr TE.

Mr NM wrote back to Mr TE on 2 July 2012, indicating that [Law Firm A] was not prepared to forego the outstanding fees but inviting us to make an offer for resolution. Mr TE responded the same day, saying he would take instructions and respond.

At the same time, we were involved in a dispute regarding the settlement terms of the substantive dispute (which had settled in March 2011). We had internal discussions about lodging a complaint against [Law Firm A]. However, when we heard nothing further, we focussed our attention on extracting settlement payment from the XY entities, and running our business.

[Law Firm A] did not commence proceedings until a year later, and did so without communicating with us or [Law Firm B] further, despite being well aware of our concerns with the fees charged, and that we were represented.

Had they contacted us again before commencing proceedings, we would have lodged our complaint at that stage.

It seems to us as if [Law Firm A] may have been deliberately letting time go by to prevent a complaint from being lodged. I do not know whether or not that is in fact the case, however I certainly expected to hear further from [Law Firm A] before they issued proceedings. Had that happened a complaint would have been made.

We rely on these matters as meaning there are special circumstances such that the fees complaint if out of the 2 year period should still proceed.

We believe the fee complaint is intrinsically linked to the competency complaint. Our concerns around the quality of services provided include the amount of time spent on various aspects of the proceeding, a matter which has a direct impact on the level of fees charged.

We do not expect the Committee to unnecessarily spend additional time considering two separate complaints arising out of the same factual circumstances. However, when the issues overlap and facts presented are essentially related the two should be heard in conjunction.

If the issue of fees is removed from the complaint then there will be parallel District Court and Law Society processes being advanced. It seems very inefficient to try to have the same issues advanced through the District Court at the same time. I would think that that is in no one’s interests, and is further special circumstances why the fee complaint should proceed.

[10] On 14 February 2014 the Committee considered whether it had jurisdiction to consider the complaint about all of the bills of costs for both files, all of which were rendered more than two years before the complaint. If there were no special circumstances as envisaged by regulation 29(a), all of the invoices were beyond the Committee’s statutory jurisdiction. The Committee’s Minute records its consideration of special circumstances and its determination in respect of regulation 29 (the determination), which says:

The retainer related to District Court proceedings for a relatively low $200,000 claim. In the Committee’s view, fees of close to $170,000 seem unusually high

for such matter, even though there had been complications and a counter-claim for a much higher monetary amount. The Committee considers the potential degree of over-charging to be special circumstances that justify it dealing with the costs complaint.

[11] The Committee delegated consideration of the bills to a costs assessor, adjourned consideration of the conduct complaints, and advised the parties of that course on 3 March 2014.

[12] On 17 March 2014 the parties were advised of the detail of the costs assessor’s appointment, including identifying that all of the invoices from 2009 to 2011 would be the subject of costs assessment.

[13] On 18 March 2014 the lawyers enquired about the detail of the determination.

[14] On 19 March 2014 LCS confirmed to the lawyers that the Committee had determined that special circumstances exist on the basis of the cost/benefit concerns recorded in the determination.

[15] On 20 March 2014 Ms PF sent a spreadsheet, copies of bills she said had been omitted, and details of costs in the High Court and District Court to NZLS. The list included all the invoices the firm had rendered to [Company C] in relation to all five separate matter numbers it had opened for matters on which it had acted for [Company C] between 2009 and 2011. There were a total of 28 invoices, 19 for matter 1, two for matter 2, one for matter 3, one for matter 4 and five for matter 5.

[16] The LCS advised the costs assessor and the lawyers about the challenge to the fees in the additional four invoices for matters 2, 3 and 4.

[17] On 24 March 2014 Mr NM indicated to NZLS that the firm intended to apply to this Office for a review of the determination on special circumstances, with reference to all 28 of the invoices.

[18] The Committee met again on 4 April 2014 when it considered the additional invoices, and whether special circumstances also applied to those invoices. The LCS agenda note says it “seems clear that the original complaint related to all fees charged in the related matters”, and invited the Committee to consider whether special circumstances enabled it to consider the additional invoices. The Committee determined that special circumstances applied to all the invoices, including the additional ones.

[19] That determination was communicated to the parties on 8 April 2014, and the lawyers were referred to the possibility that the determinations may be reviewable by this Office.

[21] On 22 April 2014 the lawyers applied for a review of both determinations relating to special circumstances”.

[23] The review application refers to correspondence between the parties and NZLS, mentioned that the determination of special circumstances had not been communicated immediately to the parties, but was conveyed at the lawyers’ request. It refers to the Committee’s reasons for the determination being that the fees of “close to

$170,000 seem unusually high for such a matter, even though there had been complications and a counterclaim for a much higher monetary amount”. It noted the

$200,000 claim and considered that the “potential degree of overcharging” was a special circumstance that justified it dealing with the costs complaint.

The Act and the relevant Regulations do not envisage nor require an interim decision being issued in relation to Regulation 29.

The Committee has confirmed that as usual it will issue a formal decision in order of termination at the end of the matter.

[25] The lawyers said all of the bills were out of time, commented on [Company C]’s submissions on special circumstances and referred to the Committee’s concern about the potential degree of overcharging being a special circumstance that justified it dealing with the cost complaint.

[26] The lawyers said the reasoning lacked “any analysis by the Committee in considering whether the fees charged were excessive”, noted recognition that the

4 Amended reasons for application for the review of determination dated 14 February 2014 at

proceeding had complications and the counterclaim was for far more than $200,000. Reversal of the determination was sought on the basis of submission that:5

$200,000 with the total costs charged by [Law Firm A], without any analysis of the individual fees work done, is not sufficient to justify special circumstances.

[27] Reference was made to discussion by the Court of Appeal in relation to the meaning of special circumstances under s 151 of the now repealed Law Practitioners Act 1982 in Cortez Investments Limited v Olphert and Collins,6 including the comment that special circumstances must be “abnormal, uncommon or out of the ordinary”.7

[28] The lawyers also compared the Committee’s decision to Nicoll v Roche, in which Winkelmann J found that no special circumstances existed in a case where there had been “... no analysis of the merits of the challenge to those fees or whether there was any basis to suggest the fees were excessive...”.8

[29] Submission was made that in that case, the District Court had found that total fees charged by the lawyer, when compared with the amount at stake, was a matter to take into account in the overall mix of considerations which might comprise special circumstances, noting that the revision of the accounts in question had been sought quite soon after the end of the six-month period (which was relevant period) and it could not be said that the applicants were especially dilatory.

[30] Reference was made to the need to consider the totality of circumstances to see whether they are sufficient to constitute matters which are uncommon or out of the ordinary and whether the interests of finality should prevail over a right to review of fees despite failure to comply with a statutory time limit. The lawyers submit this matter is analogous to Nicoll v Roche and say that there is no analysis of the merits of challenge to the fees, no reference to anything which suggested that the fees were excessive or unjustified, and no special circumstances. On that basis, the lawyers ask that the determination be reversed.

[31] The role of the Legal Complaints Review Officer (LCRO) on review is to reach her own view of the evidence before her. Where the review is of an exercise of discretion, it is appropriate for the LCRO to exercise particular caution before

substituting her own judgement for that of the Standards Committee, without good reason.9

[32] The LCRO has broad powers to conduct her own investigations, including the power to exercise for that purpose all the powers of a Standards Committee or an investigator, and seek and receive evidence. The statutory power of review is much broader than an appeal, and gives the LCRO discretion as to the approach to be taken on any particular review and the extent of the investigations necessary to conduct that review.

[33] Mr NM attended a review hearing in Auckland on 23 June 2015. The Standards Committee indicated it did not wish to be involved and the review hearing proceeded in its absence.

[34] The question on review is whether there is good reason to interfere with the determination. As the answer to that question is yes, the determination is reversed for the reasons discussed below. Consequently, although the fees complaint cannot be progressed, it remains open to the Committee to address any conduct concerns that may arise from [Company C]’s complaint.

[35] [Company C]’s complaint about the lawyers’ fees was made under s 132(2) of the Lawyers and Conveyancers Act 2006 (the Act), which entitles a person who is chargeable with a bill of costs to complain about the amount of the bill, whether it has been paid or not. Once a Committee has decided to inquire into a complaint, it is required to issue a notice to the person to whom the complaint relates under s 141 of

_{the Act. A notice under s 141 acts as a statutory stay, preventing a
practitioner or firm}

from commencing or continuing proceedings for the recovery of the amount of the bill

[36] Regulation 29(a) limits the length of time within which a person can exercise the right to initiate a complaint under s 132(2) to two years. Once two years have passed from the date on which the bill was rendered, the statutory right to complain comes to an end, and can only be revived by a Committee making a determination that there are

[37] Special circumstances is not a defined term, and has been the subject of consideration by courts at various levels. As well as being a feature of regulations made under the Act, special circumstances were also a feature of the Act’s predecessor the Law Practitioners Act 1982 (LPA). Section 151 of the LPA also limited the time in which a complaint could be made about a lawyer’s fees, but to one year. The more liberal two year period is one of the consumer protection enhancements made by the Act.

[38] Special circumstances under s 151 of the Law Practitioners Act were discussed by the Court of Appeal in Cortez Investments Ltd. Woodhouse P said one simple way to look at whether the test was met in its then statutory context was: 11

...where aspects of the facts seemed to indicate a problem which had relatively unusual features while reasonably deserving at the same time relief of the kind provided by the provision”.

[39] His Honour thought it would be wrong to “exclude as irrelevant either the reasons for the situation which has arisen or the possible merits of the substantive issue”.12

[40] Richardson J, again referring to the context of the Law Practitioners Act, said the expression “should not be construed narrowly”; 13 that “special circumstances are wide, comprehensive and flexible words”, and that the question was “where the

interests of justice lie in all the circumstances”.14 He considered “something less than extraordinary or unique”15 was required, and that a:16

...factor or combination of factors which may properly be characterised as not ordinary or common or usual may constitute a special circumstances justifying the revision of the bill under s 151.

[41] His Honour said that the “inquiry never calls for the mechanical application of a rigid set of criteria”,17 and that:18

...circumstances cannot be regarded as special unless they bear on the obtaining of an order for the reference of the bill for an actual bona fide revision by the District Council [of the Law Society].

[42] McMullin J referred to the need for a “value judgment on the facts”,19 and said that the: 20

...purpose of s 151 is to prevent the re-opening of stale or already adjudicated grievances; it is not intended to prevent the re-opening of matters which, left as they are, could give rise to injustice.

His Honour also commented that “applications for extensions of time or for leave to proceed outside of prescribed time limits are not usually considered without reference to the merits”,21 although he did not exclude cases that “may arise where applications for leave to proceed out of time may be justified without reference to the merits at all”,22 and that whether circumstances are “special” was a “question which involves the use of a judicial discretion in the exercise of which some latitude must be allowed”.23

[43] Special circumstances under s 151 were also the subject of consideration by Winkelmann J in an appeal to the High Court in Nicoll v Roche. The District Court had not considered that the complainant’s health was a special circumstance such that it had prevented him from making complaint over the course of the year. Instead, the District Court had considered two other matters needed to be taken into account in the

_{“overall mix of considerations which might comprise special
circumstances”.}24

[44] The first matter related to the total costs in respect of the transaction, which the District Court Judge described as “considerable”, compared with the amount at stake for the clients. The second matter was that the Court could not say that the “applicants were especially dilatory”. The District Court Judge did not consider that either of those matters would be sufficient to constitute special circumstances on their own, but that “in totality they are sufficient as to constitute matters which are uncommon or out of the ordinary”, and that “overall, the time limits are not so great as to allow the interests of finality to prevail”.25

[45] Her Honour referred to Cortez as the leading authority on what was meant by special circumstances in s 151 of the Law Practitioners Act as discussed above. Her Honour said that it was “proper for the Court to have regard to the totality of the matters said to constitute special circumstances”,26 confirmed that the merits of the challenge to the bill can be taken into account in assessing whether special circumstances exist. Where her Honour departed from the District Court decision was in her assessment of

[46] She did not think that the extent of the delay in that case was a special circumstance, and disagreed with the District Court Judge’s comment that the delay of eight months beyond the period ordinarily allowed was slight, contrasting that with the

[47] With respect to the level of fees rendered her Honour said it was “clear that the Judge has proceeded on the basis of an impressionistic and global analysis of the level of charging in all of the bills of cost”,27 and that there was “no analysis by the Judge of the merits of the challenge” to some of the fees. Her Honour said she had “not been

_{referred to anything which suggests that the fees were excessive, or in
any way}

with any other matter raised, the level of fees did not constitute special circumstances in that case.

[48] In Holdgate v Official Assignee Priestley J said of special circumstances:29

In the context of legislation designed to ensure that legal fees are fair and reasonable a liberal interpretation of the special circumstances criterion is

29 _{Holdgate v Official Assignee HC
Auckland CIV-1996-404-5, 13 October 2004 at [50].}

appropriate. However, the words are not to be read down. There must be some circumstances that are “special” involving something displaying “relatively unusual features”.

[49] The first step is to consider whether any aspect of the reasons for the delay seem to indicate a problem which has relatively unusual features.

[50] [Company C] was represented. It is inconceivable that the directors were not aware of the two year time limit on making a fee complaint. They do not say they did not know.

[51] [Company C]’s submissions on special circumstances set out the background to the complaint. The delay is explained by reference to the lawyers’ delay in commencing proceedings against [Company C] to recover its fees.

[52] It is obvious from the fact that the invoices were paid that [Company C] cannot sustain argument that the directors did not apprehend the lawyers’ full costs until they were provided with statements on 30 August 2011. The directors cannot attribute their shock at the mounting costs or their inability to rationalise them to the lawyers. They had only to look at the invoices [Company C]. In the circumstances it is irrelevant whether there was dialogue about costs of the proceeding or not. The directors could have initiated discussion at any stage.

[53] The fees charged by other lawyers for the work they subsequently did on the back of [Law Firm A]’s work is irrelevant.

[54] The lawyers had sent a letter of demand on 27 April 2012. It related only to the unpaid invoices. The directors knew at that point, if not before, that the lawyers were serious about recovering the outstanding fees. The claim to surprise is disingenuous, and Mr TE’s view irrelevant. If the directors had not realised earlier, they knew when Mr NM wrote to Mr TE on 2 July 2012 that [Law Firm A] was not prepared to forego the outstanding fees. The directors also knew that it was open to them to make a settlement offer. Their evidence is that they had a chat between themselves, went about their business for another year, and ignored the lawyers’ outstanding fees.

[55] The main difficulty for the lawyers is Mr NM’s acknowledgement that the charges for the litigation were comparatively high. He explains this, however, by

reference to the complexity of the litigation. Although the claims against [Company C] may have been for $200,000, that paints an incomplete picture of a proceeding to that set out in the invoices. Those indicate that the proceeding involved a number of skirmishes and interlocutory applications, substantial and time consuming discovery and other claims against [Company C] for interest, costs and exemplary damages.

[56] No criticism can be made of [Law Firm A] for waiting a year before commencing proceedings. The firm was under no obligation to make contact before commencing proceedings. The demand was served, the opportunity to make an offer had been left on the table and ignored.

[57] There was nothing preventing the directors from lodging a complaint at any stage, from the first bill onwards. There is no logic to the proposition that [Law Firm A] may have been deliberately letting time go by to prevent a complaint from being lodged. There was no risk of any limitation period expiring on the directors’ conduct concerns. Holding a Damoclean threat of complaint over the lawyers after receiving the final bill can only be sustained for so long. In the absence of something special, regulation 29 cuts that opportunity off.

[58] While there may be some links between the fee complaint and the competency complaint, there is no impediment to the Committee concluding its inquiries into the conduct complaint. It may have done so by now.

[59] The directors had two years to voice any concerns they had about the effect the quality of the services and amount of time spent had on the level of fees charged. In the usual course there should be no need for a Committee to unnecessarily spend additional time considering two separate complaints arising out of the same factual circumstances. If the complaints had been made in a timely way, that could have occurred. There is nothing objectionable in the fees issue being removed from the complaint and the directors continuing any defence they may be able to avail themselves of in any parallel District Court process.

[60] I agree with [Company C]’s submission that it is “very inefficient to try to have the same issues advanced through the District Court at the same time” as a Law Society process. The proper course would have been for the directors to make a complaint in a timely way so that all matters could be dealt with expeditiously, which would have been consistent with the general thrust of the complaints and disciplinary framework set out in the Act.

[61] Having got past the major hurdle, it is difficult to view [Company C]’s late addition of the “omitted invoices” as anything but opportunistic, when the focus of the directors’ submissions on special circumstances was plainly on the invoices [Company C] had not paid.

[62] The next question is whether the problem deserves relief of the kind provided by regulation 29.

[63] There is nothing about the circumstances described by [Company C] that suggests a problem that deserves relief of the kind regulation 29 provides.

[64] In the context of the Act, and its regime designed to ensure that legal fees are fair and reasonable, I have adopted a liberal interpretation of the special circumstances criterion. I have not, however, read the words down. I am unable to detect any circumstances that are “special” or that display any “relatively unusual features”.

[65] The next consideration is the possible merits of the substantive issue, ie, are there good grounds for the fees complaint? That question cannot be answered without repeating that the fee complaint was a direct reaction to the lawyers serving [Company C] with debt recovery proceedings. While not determinative, that circumstance tends to undermine the bona fides of the complaint.

[66] I have looked at the invoices and read their narrations. There is no evidence of the Committee having taken that step before referring the fees to the costs assessor, but I consider it a reasonable basis on which to make a preliminary assessment of the merits. I therefore do not consider that I have proceeded on the “basis of an impressionistic and global analysis of the level of charging” in any of the bills of cost.

[67] While the total fees are considerable compared with the amount at stake for [Company C], the narrations to the invoices strongly suggest that the fees are supportable and that there is little merit to the fee complaint. While I have not carried out a detailed costs assessment, other than the fee complaint itself, I can see nothing to suggest that the fees were excessive, or in any way unjustified.

[68] I have been careful not to construe the circumstances narrowly, and have adopted an approach that accommodates the wide, comprehensive and flexible words, before considering where the interests of justice lie in all the circumstances.

[69] There is no factor or combinations of factors that, while less than extraordinary or unique, are special, not ordinary or common, that bear on the Committee making a determination that make it just to revive the right to complain and would justify the Committee dealing with the complaint.

[70] I can see no injustice that would arise from reversing the Committee’s determination. The directors had their chance, they knew they had that chance and how long it remained open to them. With full knowledge and legal advice, they did not take it. It would be unjust in all the circumstances to allow the Committee to proceed with an inquiry into the lawyers’ fees.

[71] The determination that special circumstances exist that justify the Committee dealing with [Company C]’s complaint about the lawyers’ bills of costs is therefore reversed.

Pursuant to s 211(1)(a) of the Lawyers and Conveyancers Act 2006 the determination of the Standards Committee is reversed.

In accordance with s 213 of the Lawyers and Conveyancers Act 2006 copies of this decision are to be provided to:

New Zealand Legal Complaints Review Officer

CB v Standards Committee [2015] NZLCRO 38 (29 June 2015)