Zhao v Legal Complaints Review Officer [2016] NZHC 2623 (2 November 2016)

Last Updated: 1 December 2016

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2016-404-000708 [2016] NZHC 2623

UNDER THE	Judicature Amendment Act 1972, Part 30 of the High Court Rules, New Zealand Bill of Rights Act 1990, and the Declaratory Judgments Act 1908
IN THE MATTER	of an application for judicial review
BETWEEN	RICHARD ZHAO Plaintiff
AND	THE LEGAL COMPLAINTS REVIEW OFFICER First Defendant SURONG LI Second Defendant NEW ZEALAND LAW SOCIETY Intervener

Hearing:	20 October 2016
Appearances:	F Deliu for Plaintiff M Hodge for Intervener
Judgment:	2 November 2016

_{JUDGMENT OF FOGARTY J}

This judgment was delivered by Justice Fogarty

On 2 November 2016 at 3.00pm Pursuant to r 11.5 of the High Court Rules Registrar/Deputy Registrar

Date:..............................

Solicitors/counsel:

F C Deliu, Auckland/Amicus Lawyers

Whitfield Bruan Ltd, Auckland

Crown Law, Wellington

Meredith Connell, Auckland

ZHAO v THE LEGAL COMPLAINTS REVIEW OFFICER [2016] NZHC 2623 [2 November 2016]

Introduction

[1] Mr Zhao is an Auckland practitioner. While in China, he met up with a prospective client. He was retained by the client. A retainer of $50,000 was agreed. That sum was received but not banked initially into his trust account.

[2] This is an application for judicial review of a decision of the Legal

Complaints Review Officer (LCRO).

[3] On its nature, an application for judicial review depends on proof of an error of law. Notwithstanding the limitations of review, the application also argues that the Standards Committee erred in fact.

[4] Because of that complication, I begin with the Standards Committee’s

narrative of the facts and then turn to the challenge of mistake of fact.

Factual background

[5] A Ms Surong Li engaged the practitioner, Mr Richard Zhao, to complete immigration work on her behalf. Mr Zhao requested that Ms Li pay him $50,000 in advance for that work and that she provide him with certain original documents. Ms Li paid that money into the bank account Mr Zhao provided to her, which was Mr Zhao’s personal bank account. Ms Li also provided Mr Zhao with the various original documents he requested.

[6] The evidence in support of this error of fact is from Mr Zhao’s wife, Catherine, who works as an accountant. She said that in one of the five bank accounts she shared with her husband, she noticed a deposit of $49,975, thinking at the time it was some relative of her husband’s back in China. She said:

Afterwards, Richard spoke to me about one client of his who may have deposited NZ $50,000 in one of his personal accounts and told me to check if that was the case.

[7] She then narrates that she did not realise there was any urgency, but after some time she made enquiries and asked Mr Zhao whether it was from a client named Surong Li, and he confirmed it was. He then asked her to transfer the funds to his trust account as soon as possible.

The error of fact allegation

[8] There are two reasons why I disregard the allegation of error of fact. First, it is not a function of judicial review to resolve errors of fact, except in situations where the factual finding is so clearly untenable that it amounts to an error of law.¹

Second, on the evidence the client must have obtained the bank account number from Mr Zhao. The client certainly did not obtain it from his wife.

[9] The question of personal responsibility of Mr Zhao as a matter of fact was considered by the Standards Committee in its decision. In that decision dated 11

September 2014, the Committee made a number of findings of fact which I set out in order of finding:

(a) Ms Li paid that money ($50,000) into the bank account Mr Zhao

provided to her, which was Mr Zhao’s personal bank account.²

(b) A report was prepared by a Mr Maffey investigating this payment and subsequent transaction. That report shows that money was paid to Mr Zhao’s personal account and then transferred to a variety of personal accounts by himself or with his wife over the ensuing months.³

(c) Mr Zhao’s explanation that he had noticed $50,000 was paid into his

personal bank account because he was busy, is simply not credible.⁴

[10] This judgment does not disturb those findings of fact, nor can it.

[11] Because of those findings of fact, the Standards Committee upheld the first complaint of failing to hold client funds on trust, concluding after the foregoing:⁵

Mr Zhao’s conduct constitutes misconduct under s 7 of the Act.

_{[12] That led then to the Committee’s view:}⁶

¹ _{Bryson v Three Foot Six Ltd [2005] NZSC 34, [2005] 3 NZLR 721 at [25]- [26].}

2. Notice of determination of Otago Standards Committee into complaint 7854, 11 September 2014 at [1].

³ _{At [11].}

⁴ _{At [14]}

⁵ At [16].

Having regard to all the circumstances, the Committee is of the view that complaint one should be considered by the Disciplinary Tribunal.

[13] The Standards Committee moved on to consider other complaints. It is not necessary for the purpose of this review to go into those. As already noted, it directed that complaint one be considered by the Disciplinary Tribunal. As to complaints two, three and four, the Committee made a variety of decisions: complaint two was referred to the Disciplinary Tribunal; complaint three constituted unsatisfactory conduct; and the Standards Committee elected to take no further action in relation to the fourth complaint.

[14] In a decision dated 19 August 2016, the Lawyers and Conveyancers

Disciplinary Tribunal found Mr Zhao’s conduct constituted misconduct.⁷

Review by the LCRO

[15] As was his right, Mr Zhao applied for a review of the Otago Standards Committee’s decision by the LCRO. The LCRO’s decision⁸ provides more detail on the banking of the $50,000. Having recorded that the money was first deposited into Mr Zhao’s account on 11 April 2013, the LCRO continued:⁹

The funds (or the greatest proportion of them) went from that account into a joint account of Mr and Mrs Zhao; about three weeks later they were transferred to another of Mr and Mrs Zhao’s accounts.

Thereafter smaller portions of the retainer were transferred into accounts operated by either or both Mr Zhao and Mrs Zhao.

On or about 27 May 2013, the funds totalling $49,750 were transferred into Mr Zhao’s trust account. On 27 June, the funds were transferred into Mr Zhao’s business cheque account; from there to a personal account in Mrs Zhao’s name.

[16] The LCRO records Mr Zhao’s explanation to these movements was that when he met Ms Li in China he did not have his trust account details so she was given his personal bank account details. He did not expect so prompt a payment of the retainer, and overlooked making a transfer into his trust account as he was busy. Once the retainer was terminated by Ms Li on or about 24 May 2013, Mr Zhao

_{appreciated the need to recognise the position and so transferred the retainer into his}

⁷ _{Zhao v Otago Standards Committee [2016] NZLCDT 22.}

⁸ Zhao v Li LRCO 227/2014, 21 December 2015.

trust account. He then generated an invoice which enabled him to transfer the funds out of his trust account and into his business cheque account.

[17] The LCRO having reviewed the evidence, concluded:¹⁰

I disagree with Mr Deliu’s characterisation of the conduct as being conduct which is mitigated by argument of honest mistake and therefore conduct which should properly, if it must attract a disciplinary sanction, be at the level of an unsatisfactory conduct finding, and not at a level of seriousness which should engage the attention of the Disciplinary Tribunal.

In my view, there is nothing remarkable in the Committee’s decision to refer the trust account breaches to the Tribunal, and its decision to do so cannot reasonably be seen to reflect a disproportionate response from the Committee. The Act and Rules which govern the management of client funds have been said to be at the very heart of professional practice because the public are entitled to confidence that a professional adviser will treat their affairs and their property with the utmost care and good faith. It is important to note that the conduct complained of does not simply engage allegation that Mr Zhao failed to lodge funds to his trust account, but the subsequent transferring of those funds through several accounts under the control of Mr Zhao and his wife.

(Footnote omitted)

Scope of review by the LCRO

[18] Mr Deliu submits that the LCRO made an error of law in his discussion of the standard of review by LCROs.

[19] I agree with the dictum of Winkelmann J in Deliu v Hong and the LCRO

(cited by the LCRO in its decision):¹¹

In my view the power of review is much broader than appeal. It gives the Review Officer discretion as to the approach to be taken on any particular review as to the extent of the investigations necessary to conduct that review, and therefore clearly contemplates the Review Officer reaching his or her own view on the evidence before her. Nevertheless as the guidelines properly recognise, where the review is of the exercise of a discretion, it is appropriate for the Review Officer to exercise some particular caution before substituting his or her own judgment without good reason.

[20] Mr Deliu did not focus his attention to this paragraph just cited. Rather he focussed on the proposition of the LCRO in paragraphs [51] and [52] of the decision:

¹⁰ _{At [61]-[62].}

¹¹ Deliu v Hong and the LCRO [2012] NZHC 158, [2012] NZAR 209 at [41].

The starting point is that it will only be in exceptional cases that a decision to prosecute will be reversed on review. In FF v Wellington Standards Committee

2 this Office summarised the principles to be applied when reviewing a decision to prosecute as follows:

[49] [Previous LCRO [Legal Complaints Review Officer] cases] have identified the principles set forth in the various Court decisions where a decision to prosecute might be revisited. These include situations in which the decision to prosecute was:

(a) significantly influenced by irrelevant considerations.

(b) exercised for collateral purposes unrelated to the objectives of the statute in question (and therefore an abuse of process).

(c) exercised in a discriminatory manner.

(d) exercised capriciously, in bad faith, or with malice.

[50] In addition, it was noted in the Rugby decision that “if the conduct was manifestly acceptable then this might be evidence of some improper motivation in the bringing of the prosecution”.

[51] While I do not necessarily agree that this might constitute evidence of some improper motivation in the bringing of the prosecution, I do agree that the decision to prosecute should be set aside if the conduct was manifestly acceptable.

In OJ v PT this Office held that the review of a decision to prosecute does not include a review of the evidence that was before the Standards Committee.

(Footnotes omitted).

[21] Mr Deliu noted that the decision being followed by the LCRO was decided in

2011, whereas Winkelmann J’s guidance dates from 2012. I agree that the summary in FF v Wellington Standards Committee No 2¹² is too narrow.

[22] Here Mr Hodge for the Law Society also cited from the decision of the Court of Appeal in Orlov v New Zealand Law Society.¹³ I do not think Orlov assists. The judgment of the Court in Orlov, delivered by French J, discusses judicial review of the exercise of powers of the Standards Committee in making prosecutorial

_decisions.¹⁴ _{Orlov was not a case where there was any examination of a review by}

¹² _{FF v Wellington Standards Committee No 2 2 LCRO 23/2011.}

¹³ _{Orlov v New Zealand Law Society [2013] 3 NZLR 562 [2013] NZCA 230.}

¹⁴ See, for example, at [49]-[50].

the LCRO. There were, however, some observations on the function of the LCRO in paragraph [54] of the decision. Where the Court said:¹⁵

Further there is now oversight of the referral decision by the independent LCRO. The protection for a practitioner once afforded by the threshold test is thus now met by other means. The oversight of the LCRO should assist in protecting the resources of the Tribunal and preventing it from being overwhelmed by petty or trivial cases.

[23] The purpose of the review by the LCRO is to form a judgment as to the appropriateness of the charges laid in the prosecutorial exercise of discretion by the Standards Committee. It is as simple as that. It is pointless expecting the LCRO to have the skill set to apply the Wednesbury rules of judicial review. Nor is it necessary. I agree with Mr Deliu’s submission that “a review by the LCRO (should be) informal, inquisitorial and robust”. It involves the LCRO coming to his or her own view of the fairness of the substance and process of a Committee’s determination. I agree also there is room in that review for the LCRO to identify errors of fact.

Decision

[24] The Standards Committee made significant findings of fact, which are set out at [9] of this judgment. Those findings of fact, including the finding that Mr Zhao’s explanation was simply not credible, render the present judicial review proceedings hopeless.

[25] I find no error of law or fact in the approach of the LCRO. Its decision also appears to be reasonable. It was unnecessary for the LCRO to cite the dictum of another LCRO in the case of FF v Wellington Standards Committee discussed earlier, a dictum which is out of date. The LCRO usefully recognised, following a note in Orlov, that a critical question for the LCRO is whether the degree of gravity of the matter should justify the Standards Committee exercising the power to refer it to the

Tribunal.¹⁶ I can find no material error of law in the decision of the LCRO. It is not

_{necessary to rely on the well established proposition that if there were any unfair}

¹⁵ _{At [54](d).}

¹⁶ Above.

process, which I have not found, that it would not be cured by a hearing before the

Tribunal.

[26] This application for judicial review is without merit and is dismissed. [27] Mr Zhao is to pay costs on a 2B basis to the LCRO.

Fogarty J