KN v TH [2018] NZLCRO 16 (7 February 2018)

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	LCRO 257/2016
CONCERNING	an application for review pursuant to section 193 of the Lawyers and Conveyancers Act 2006
AND
CONCERNING	a determination of the [Area] Standards Committee
BETWEEN	KN Applicant
AND	TH AND HK _Respondent

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

[1] Mr KN has applied for a review of a decision by the [Area] Standards Committee (the Committee) to take no further action in respect of his complaint concerning the conduct and fees of Mr TH and Mr HK (the lawyers) of [Law Firm] (the firm).

[2] Mr WS, the lawyers’ colleague, sent Mr KN the firm’s terms of engagement on

17 November 2014. On 25 November 2014, the lawyers provided Mr KN with an estimate for services to be provided in respect of a claim before the Weathertight Homes Tribunal (WHT) against Mr KN who had developed, built and remediated the building that was the subject of the WHT claim. Mr KN says based on the estimate, he was expecting to be charged between $28,590 if the matter settled at mediation, and

$39,590 if the matter went to a full hearing. He says he arranged to borrow enough money to pay on that basis. Mr KN says Mr WS was aware that the fees were secure

because he would receive funds from the sale of his property at [Address] (the property) when subdivision was complete and title had issued.

[3] Mr KN says Mr WS and Mr TH both attended mediation in the WHT process, even though the matter was uncomplicated and none of the other parties had two lawyers in attendance. Two full days of mediation and further negotiations resulted in settlement. The fees ultimately totalled $44,483, and Mr KN says that with GST and disbursements added, the lawyers’ bill came to around $63,000 and he had to pay

[4] The lawyers had also charged Mr KN $1,447 excluding GST and disbursements, for services relating to a family matter.

[5] Mr KN paid some of the fees for the WHT matter, but says the lawyers made errors that they refused to acknowledge. Mr KN says the lawyers did not advise him that he would have to pay for a building survey and he did not know that fee would be

$17,000 for the surveyor the lawyers recommended to him. He says the surveyor would not act without being paid in advance and Mr KN was overcommitted by that stage, having agreed to pay the lawyers’ $15,000. He says that other than agreeing to waive the payment of interest on the outstanding account, the lawyers would not negotiate a reduction to bring their fees in line with what he considered to be a reasonable amount for the services provided.

[6] Instead, the lawyers secured judgment against Mr KN, registered the debt with a debt recovery company, Veda, and did not cooperate with his attempts to raise money to pay them. The adverse credit rating put pressure on Mr KN and had an impact on his ability to raise finance, which in turn affected his cash flow.

[7] Mr KN complained about the lawyers’ fees. He said the lawyers did not abide by their estimate, or their agreement to wait for him to sell the property so he could pay the fees from the proceeds of sale. Mr KN also objected to the lawyers having lodged the debt with a recovery agent, Veda.

[8] In their detailed reply to the complaint, the lawyers denied any professional wrongdoing, provided documents in support and explained events from their perspective. They say the work they did for Mr KN over 10 months was complex and resulted in a successful outcome for him, given his exposure to risk based on him

being the builder and owing a non-delegable duty as developer. The lawyers say their settlement negotiations with Mr KN traversed the prospect of payment from the sale proceeds of the property, but failed to reach a satisfactory accommodation.

[9] The lawyers were unwilling to assist Mr KN further until he either paid or reached an agreement with them as to how and when he would pay or secure his outstanding fees. The lawyers say Mr KN took no steps to oppose the entry of judgment against him and noted that his complaint followed them taking enforcement action against him.

[10] The Committee rejected jurisdiction over the complaint about the fee of $1,447 for the family matter, because it was for a fee of less than $2,000 and apparently unrelated to the WHT matter. The Committee did not find there were special circumstances to justify it dealing with the complaint, so reg 29 of the Lawyers and Conveyancers Act (Lawyers: Complaints Service and Standards Committees) Regulations 2008 prevented it from doing so.

[11] The Committee considered the fee of $44,483 was fair and reasonable, with reference to rr 9 and 9.1 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (the Rules), for the reasons set out in the decision.

[12] The lawyers did not accept they had overcharged or agreed to Mr KN delaying payment of his fees and the Committee did not consider Mr KN had provided sufficient evidence for it to find there was an agreement. In the circumstances, the Committee concluded there was no such agreement.

[13] The Committee considered that while the lawyers’ conduct may have caused Mr KN some inconvenience, no professional standards issue arose from the lawyers having registered the judgment debt with Veda.

(a) he was not advised that the surveyor’s cost was in addition to the lawyer’s fees and he did not arrange finance to cover that;

(b) he did not enter into a retainer with the firm in respect of the family matter, so he is not liable for the fee;

(c) despite knowing Mr KN’s situation, Mr HK was uncompromising over the debt, and did not deal with him promptly and fairly; and

(d) Mr KN has been unfairly prevented from obtaining credit because the lawyers knew he disputed the invoices claimed, but registered the debt with Veda anyway.

[17] The nature and scope of a review have been discussed by the High Court, which said of the process of review under the Act:1

... the power of review conferred upon Review Officers is not appropriately equated with a general appeal. The obligations and powers of the Review Officer as described in the Act create a very particular statutory process.

The Review Officer has broad powers to conduct his or 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. These powers extend to “any review” ...

... the power of review is much broader than an 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.

[18] More recently, the High Court has described a review by this Office in the following way:2

A review by the LCRO is neither a judicial review nor an appeal. Those seeking a review of a Committee determination are entitled to a review based on the LCRO’s own opinion rather than on deference to the view of the Committee. A review by the LCRO is 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.

[13] It is well established that as a matter of law an estimate is not a promise that the cost of the work will be the amount estimated. In K. M. Young Ltd. v Cosgrove [1963] NZLR 967 at 969 it was stated:

the estimate was no more than an estimate and the respondent knew that the actual cost was to be based on an hourly rate. The principle that a contractor is entitled to recover the fair and reasonable value of the work done is one applicable where the price of the work to be done has not been fixed by agreement. In this case it was fixed by agreement; it was to be the hourly rate; and it seems to me that, once that hourly rate is found to be a reasonable one, that fixes the contract price.

[14] However, that is not the end of the matter. That case also stated that the person giving the estimate must do so with care. It was noted that the party giving the estimate is the expert in the services to be provided and may be expected to be relied on by the layperson. The layperson is induced to enter into the contract on the basis of the estimate. The duty of a person (including a lawyer) in giving a potential client an estimate is "to give him a correct one, or say it could not be done." Daniell Ltd. v Kebbell [1919] G.L.R. 156 at p 160.

[15] A lawyer who gives an estimate must therefore do so with some care. It is not appropriate for a lawyer to give an estimate to a client where the lawyer knows (or ought reasonably to know) that it is likely that the fee will be greater than the estimate in the client’s particular circumstances. An estimate should be the amount which work of the nature contemplated in the particular circumstances of the client is likely to cost. It is misleading to provide a figure which is the lowest it might possibly cost and suggest that this is an estimate. There is a strong and legitimate expectation by a client that if the transaction proceeds in a usual way the bill will be in the amount of the estimate, or at least close to it.

[16] It is also relevant that a client will rely on an estimate in retaining a lawyer and it often will not be feasible to cease instructing a lawyer if the estimate increases. A client must be able to reasonably rely on an estimate if provided.

[17] A lawyer is not required to slavishly adhere to the estimate, however, neither should a lawyer slavishly adhere to charging on a time-costed basis. As a matter of professional obligation the existence of an estimate must be taken into account when setting the amount of the bill. As a matter of law an estimate must be given carefully and without negligence. It may be that some increase or decrease above or below the estimate is appropriate, however there is a strong presumption that unless the client has been informed of a potential increase the bill will be approximately the amount of the estimate.

detailed estimate for the WHT claim. The likely cost of mediation was estimated as somewhere between $28,590 and $39,590 including:

(b) receiving the particularised statement of claim, joinder and opposition to applications for removal;

[21] The lawyers estimated the likely costs for each step, including, for example, time ranging between $2,000 and $8,000 for joinder and opposition to application for removal, depending on how many such applications were made.

[22] At paragraph 1.7, the estimate discusses the lawyers liaising with experts and says that an estimate of the expert’s costs should be obtained from them directly. As to mediation, the estimate says that it is difficult to estimate the time, because that will depend in part on the duration of the mediation, but suggested a range between

$10,000 and $15,000. If mediation failed, the estimate describes the steps that would follow by way of preparation and attending at hearing. Again, the estimate provided a range and said it would be difficult to assess how many days a hearing might take. The lawyers also provided a diagram of the WHT process.

[23] The level of information provided in the estimate was sufficient to enable Mr KN to see from the start how unpredictable the WHT process could be and enabled him to assess the likely cost for each aspect of that process. It also puts to rest questions about whether Mr KN was advised that the expert’s fee would be charged separately from the lawyers’ and whether there is a basis on which to say the lawyers’ fees were unfair, based on them having provided an inaccurate estimate. The lawyers’ estimate was as accurate as it could reasonably have been in the circumstances at the time and Mr KN was advised that he would need to obtain an estimate from an expert.

[24] As the matter progressed the firm provided comprehensive updates with each invoice explaining what the fee was for. If any part of the estimate was exceeded, the reasons for that were clearly explained to Mr KN, so that if he had concerns about fees,

he could have addressed those with the lawyers at the time: he did not. He continued to instruct the lawyers until they had resolved the WHT claim. The lawyers charged fees accordingly.

[25] There is no basis to the concerns Mr KN expressed about the estimate and related matters discussed above.

[26] The conduct concerns that Mr KN raises relate to the lawyers’ conduct after the retainer had come to an end, and the lawyers had not been paid.

[27] The lawyers prepared a deed recording their offer to concede costs and interest, in exchange for Mr KN entering into a guarantee and agreement to mortgage/caveat if he failed to meet the payment deadline. The lawyers offered not to seal summary judgment if the debt remained unpaid by a given date and offered Mr KN the opportunity to take legal advice before he signed the deed.

[28] There is no conduct rule that requires a lawyer to negotiate over an unpaid fee. There is nothing unprofessional about the offer, the manner of the lawyers’ negotiations leading up to the offer being put, or the way in which the lawyers put the offer.

[29] Although Mr KN may have thought the fees were too high, he had not formally disputed the debt. Mr HK’s letter of 11 March 2016 says Mr KN had never raised any concern about the fees until four days before the judgment was entered against him on or about 15 March 2016. Once the lawyers had judgment against Mr KN, there was nothing, in a professional sense, preventing them from passing the debt over to Veda.

[30] Section 161 of the Lawyers and Conveyancers Act 2006 (the Act) would have prevented the lawyers from pursuing recovery of the fees if Mr KN had made a complaint under the Act, but there is no record of any complaint having been made about the lawyers’ fees until June 2016. As I understand the position, Mr KN had expressed satisfaction with the services the lawyers had provided, and had not raised any formal dispute and made no complaint that would have prevented the lawyers from registering the debt with Veda.

[31] There is no evidential support for the contention that although Mr HK was aware Mr KN’s situation was difficult, he refused to compromise over the debt. The evidence supports the contrary position, that Mr HK allowed Mr KN significant latitude

in respect of his fees and offered what appears to be a reasonable compromise. More importantly from the perspective of this Office, Mr HK was under no professional obligation to compromise.

[33] The Committee considered Mr KN’s complaint and the relevant regulations and rules, in particular rr 9 and 9.1 which include taking account of complexity, and estimates or quotes provided. Mr KN’s position is that the WHT proceeding was not particularly complex and the fees are too far removed from the original estimate.

[34] The initial estimate was detailed enough to provide sufficient information in a somewhat uncertain process and not so vague as to be useless. The balance was well struck. The estimate was updated and attendances fully explained as the matter progressed.

[35] Mr KN’s suggestion that the matter was not complex is not well supported in a general or particular sense. WHT proceedings are generally complicated by the number of parties. This one was no different. There were a number of parties. The lawyers had to reach settlement with all of them, and document that settlement in a competent and diligent manner. There is no substance to the allegation that the lawyers wasted time and became bogged down in the detail of the settlement agreement. A reasonable standard of diligence is expected of any lawyer acting professionally.

[36] The Committee considered complexity as part of its costs assessment, and concluded the fees were fair and reasonable. None of the points Mr KN has made support a different conclusion.

[37] At the review hearing Mr KN clarified that his objection to two lawyers attending mediation related to duplication of costs. Mr HK says estimates are calculated to take into account the prospect that two lawyers might be involved at various times. Mr TH’s evidence was that Mr KN had instructed him that he and Mr WS were both to attend. Mr KN’s evidence was that he could not recall having given that instruction. In the absence of clear evidence to the contrary, Mr TH’s evidence on that point is accepted. There is no evidence of any unnecessary

attendances, or unforeseen duplication of costs to Mr KN. The fee cannot be said to have been unfair or unreasonable on that, or any other, basis.

[38] After considering the materials available on review, the invoices, the reasonable fee factors and the Committee’s analysis of the reasonable fee factors, I can find no reason to disagree with the Committee’s view.

[40] In his review application Mr KN said he did not enter into a retainer with the firm in respect of the family matter. In essence his position on review was that he should not have to pay anything for those services,

[41] Although he included the invoice for family matters with his complaint, Mr KN did not raise an issue of liability at that time. At the review hearing did not recall having raised an issue with that invoice in particular at all.

[42] As I understand it, the fee for the family matter is included in the judgment the firm obtained from the District Court against Mr KN.

[43] This Office has jurisdiction over quantum but not liability. It is not a forum in which an appeal can be progressed against a judgment of the District Court. In the circumstances no further action will be taken in respect of that issue on review.

[44] Having carefully considered all of the information available on review, I am unable to identify any reason to take any further action in respect of any aspect of Mr KN’s complaint, or to reverse or modify the Committee’s decision. The Committee’s decision is therefore confirmed.

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

KN v TH [2018] NZLCRO 16 (7 February 2018)