VR v BJ [2019] NZLCRO 108 (30 August 2019)

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	LCRO 117/2018
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 [X]
BETWEEN	VR Applicant
AND	BJ _Respondent

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

[1] Mr VR has applied for a review of a decision by the Central Standards Committee 2 (the Committee) to take no further action in respect of his complaint concerning the conduct of Ms BJ, at the relevant time at partner with [law firm], [town] (the firm).

[2] Ms BJ’s client, an advertising company (the claimant), alleged Mr VR’s company ordered, but did not pay for advertising printed on envelopes for a local authority.

[3] Mr VR disputed that the money was owing. His complaint about Ms BJ concerns the firm having served a statutory demand on Mr VR’s company, and then issuing liquidation proceedings to recover the money claimed.

the availability of “advert features” at the cost of “$800+ GST”, plus “$270 outstanding”.

The claimant requested payment “in advance” if Mr VR’s company “wish[ed] to proceed” with the printing. A week later the claimant forwarded (via email) a “booking form” to Mr VR’s company “to sign and email ... back” with a reminder that “total $1230 incl GST

[5] In late July 2016, the claimant instructed Ms BJ to recover $1,230 from Mr VR’s company. In accordance with those instructions, on 28 July 2016, she and Ms YL (a debtor administrator employed by the firm) sent a letter of demand to Mr VR’s company requesting payment “within seven days of the date of [the] letter”.

[6] Ms BJ and Ms YL reported to the claimant on 15 August 2016 that payment had not been received. Two days later Ms YL telephoned Mr VR and left a message on his voicemail for him to call her. She made a file note of that attendance.

[7] On 29 August 2016, the claimant instructed Ms BJ and Ms YL “to proceed with recovery action”. They prepared a statutory demand which they sent to a process server on 3 September 2016 to arrange “service” on Mr VR’s company.1

[8] On 21 September 2016, the process server “affix[ed]” the statutory demand “to the main entrance door” of Mr VR’s company’s premises. The process server’s report to Ms BJ and Ms YL the following day included an “accompanying” photograph.

[9] The claimant instructed Ms BJ on 13 October 2016 “to issue liquidation proceedings” for “non-payment of the demand”. On 27 October 2016, the statement of claim, notice of proceedings, and verifying affidavit prepared by Ms BJ were filed in the High Court at Nelson.

2016. Mr VR’s company responded that day by paying $1,230 to the claimant. Also that day, Mr VR’s company’s financial manager, Ms MR, informed Ms BJ via email that payment had been made, and explained that Mr VR had been absent from his company’s premises “on business” on 21 September 2016.

[11] Ms MR added that “reminder notices”, but not the statutory demand, had been received by email from the claimant. She requested “immediate notification” if the claimant intended “to continue” with proceedings against Mr VR’s company. In those circumstances she said Mr VR would “take legal advice to have the application struck

1 A statutory demand is a demand by a creditor in respect of a debt owing under s 289 of the

[12] Between 12 and 29 November 2016, email communications were exchanged between Ms VR and Ms BJ about the matter. Mr VR disputed that the amount claimed was owing, questioned whether the statutory demand had been properly served, and asked why a copy of the statutory demand had not been sent to his company by email. He also referred to the possibility of complaining to the Law Society for “abuse of process” by Ms BJ in serving a statutory demand, and taking High Court proceedings against his company “where no debt ... exists”.

[13] On 29 November 2016, Ms BJ emailed Mr VR that her client’s claim was to be heard in the High Court at Nelson on 8 December 2016. Ms BJ said her client would be seeking an order for costs “incurred in commencing the liquidation application”. She invited Mr VR to pay those costs which she would “calculate”.

[14] On 7 December 2016, Mr VR served his company’s statement of defence and counterclaim on the firm. The following day, the High Court heard the claimant's application to withdraw the liquidation proceedings, and for a costs order. Both orders were granted. The costs order was for $3,878.75. There was no appearance for Mr VR’s company at the hearing.

May 2018.2 He sought “an investigation into the documents” he had provided to Ms BJ

that “show a disputed debt prior to the [H]igh [C]ourt action” initiated by her client.

[16] Mr VR claimed Ms BJ “abused the process” referred to in r 2.3 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (the Rules) which prohibits a lawyer issuing a statutory demand in circumstances where the lawyer knows, or fails to make enquiries that the debt “is bona fide disputed”.3

[17] He said the debt concerned advertising the claimant had offered to his company, which was not accepted. He said as soon as he became aware the statutory demand had been served on his company, he informed Ms BJ he had been absent from his company’s office and had not seen the demand.

[18] He said this was why he had not paid that money to the claimant in the first place. He said he provided this information to Ms BJ before she initiated the High Court action against his company to recover the debt.

[19] Following an initial assessment by the LCS, Mr VR’s complaint was dealt with through its Early Intervention Process which I refer to later in this decision.

[20] The Standards Committee delivered its decision on 19 June 2018 and determined, pursuant to s 138(2) of the Lawyers and Conveyancers Act 2006 (the Act), that no further action on the complaint was necessary or appropriate.

[21] The issue identified by the Committee was whether it had jurisdiction to consider Mr VR’s allegations about Ms BJ having “act[ed] illegally and abusing legal processes” in circumstances where the High Court had entered judgment against Mr VR’s company for failing to pay a debt owed to the claimant.

[22] The Committee was assisted in reaching its conclusion to take no further action by a decision from this Office in which the view was expressed that the “proper route” for a litigant dissatisfied with the outcome of a Court or tribunal hearing is “appeal”.4

[23] In the Committee’s view, on an appeal of the Court’s decision, Mr VR’s company could have “questions of law” determined. Any “conduct issues” concerning Ms BJ which arose from the appeal proceedings which required a disciplinary response, and in respect of which Mr VR subsequently made a complaint to the LCS, could be considered at that later date.

[24] In conclusion, the Committee stated it was satisfied “there was no evidence to suggest” that when Ms BJ issued the statutory demand she knew “the debt was disputed”.

[26] He asks that the review “focus” on whether the debt was disputed. Because,

he says, “lawyers have a privileged position” he seeks compensation for “all damages”

4 OR v PL LCRO 88/2011 (August 2012) at [28], citing P v H LCRO 2/2009 (March 2009) at [11].

[27] He says although it was “made clear” to the Committee that upon service of the statutory demand the claimant provided Ms BJ with evidence that Mr VR’s company disputed the debt, the Committee did not “focus” on that issue.

[28] Mr VR claims Ms BJ “had evidence” that the debt was “disputed” yet “ignored”

[29] He says if Ms BJ knew, at the time she served the statutory demand, that his company may have disputed the debt, then by serving the demand Ms BJ “risk[ed] her professional status as a lawyer”.

[30] Ms BJ submits that because Mr VR did not dispute the debt until 11 November

2016, “there can be no criticism of [her] decision to sign a statutory demand on 5

[31] In support of that position Ms BJ produces an affidavit by Ms YL who, as noted earlier, was a debtor administrator employed by the firm at that time. Ms YL’s affidavit contains a chronology of events commencing from service of the statutory demand on

21 September 2016 until 11 November 2016 when Mr VR informed Ms BJ that the debt

[32] The parties attended a review hearing in [city] on 22 August 2019, at 10.30am by telephone conference.

[33] The nature and scope of a review have been discussed by the High Court, which said of the process of review under the Act:7

... 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.

[34] More recently, the High Court has described a review by this Office in the following way:8

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.

[35] Given those directions, the approach on this review, based on my own view of the fairness of the substance and process of the Committee’s determination, has been to first, consider all of the available material afresh, including the Committee’s decision, and secondly, provide an independent opinion based on those materials.

[36] As I mentioned earlier, Mr VR’s complaint was dealt with through the LCS’s Early Intervention Process. This involves a Standards Committee conducting an initial assessment of a complaint and forming a preliminary view as to the outcome.

[37] If the Committee’s preliminary view is that the complaint lacks substance, a Legal Standards Officer (LSO) will inform the lawyer concerned of the Committee’s preliminary view, inviting response. Any response is noted in a file note and provided to the Committee, which then completes its inquiry into the complaint.

[38] On 15 June 2018, an LSO telephoned Ms BJ and informed her that the Committee had reached a preliminary view that it would take no further action on Mr VR’s complaint. Having been asked whether she wished to respond to the complaint, Ms BJ indicated that she did not wish to do so.

_{[39] I have identified the following issues for consideration on
this review:}

(a) Having been instructed by her client that Mr VR’s company had not paid the amount claimed, what initial steps did Ms BJ take to recover the money?

(b) In doing so, what enquiries did Ms BJ make about the amount claimed before preparing and arranging service of a statutory demand?

[40] A lawyer is prohibited from using legal processes for other than their proper purpose. In particular, r 2.3 provides that:

A lawyer must use legal processes only for proper purposes. A lawyer must not use or knowingly assist in using, the law or legal processes for the purpose of causing unnecessary embarrassment, distress, or inconvenience to another person’s reputation, interests or occupation.

[41] A helpful description of the rationale for this rule is that “public interest in the due administration of justice necessarily extends to ensuring that the court's processes do not lend themselves to oppression and injustice”.9

[42] Explanations of the application of this rule include that it “constrains lawyers to use legal processes more broadly only for proper purposes”.10 Also, that:11

If a lawyer uses the law for a purpose which is quite contrary to that for which it was intended, the lawyer will be guilty of using the law for an improper purpose.

When it is clear the action taken is not intended to affect any legal rights, but to achieve some collateral purpose the action is inappropriate and an abuse of legal process.

9 GE Dal Pont Lawyers' Professional Responsibility (6th ed, Thomson Reuters, Sydney, 2017) at

11 Duncan Webb, Kathryn Dalziel and Kerry Cook Ethics, Professional Responsibility and the

[43] In this context, the likely meaning of the word “proper” means “genuine”, “conforming to recognised social standards or etiquette”, “decent, decorous, respectable, seemly”, “correct”.12

[44] The rule contemplates the possibility of more than one purpose. In such circumstances, it has been observed that “[i]f there was a second purpose and this was the predominant purpose then, if such purpose was improper, there would be a breach of Rule 2.3”.13

[45] It follows that “where the predominant purpose is improper, rule 2.3 is breached. That reasoning must apply equally to the situation where there is only one purpose, and that is improper”.14

[46] The footnote to the rule provides three “[e]xamples of the breaches [that] the rule might include”. The example relevant to Mr VR’s complaint is where a lawyer “issu[es] a statutory demand under the Companies Act 1993, knowing that (or failing to make inquiries whether) the debt is bona fide disputed”.15

[47] Mr VR claims that Ms BJ did not make sufficient enquiry to satisfy herself that the money claimed by her client was owed by Mr VR’s company. Therefore, he says, in contravention of rule 2.3, Ms BJ did not use the statutory demand process for proper purposes.

[48] Ms BJ disagrees. She says because Mr VR did not dispute the amount claimed until 11 November 2016, when Mr VR’s company was served with the liquidation proceedings, she cannot be criticised for taking the action she did.

[49] Mr VR asked the Committee to “investigate” whether the debt claimed by the claimant was “disputed”. That would necessarily include inquiry into whether there was

12 Oxford English Dictionary “Proper” (3rd ed, June 2007) <www.oed.com>. Conversely,

15 The other examples referred to in the footnote are: "registering a caveat on a title to land knowing that (or failing to enquire whether) there is not a ‘caveatable interest’ on the part of the client to be protected"; and "serving documents in a way that causes unnecessary embarrassment or damage to the person's reputation, interests, or occupation".

a contract for the supply of printing by the claimant to Mr VR’s company as described in the claimant’s 16 and 23 February 2016 emails to Mr VR’s company referred to earlier.

[50] However, such questions, namely, whether there was a contract between parties, are determined by the Courts, not a Standards Committee, or this Office on review.

[51] What was at issue before the Committee, and is now on review, is whether Ms BJ contravened any professional obligations or duties by using the statutory demand process to recover the money claimed by her client. That enquiry requires an examination of the steps Ms BJ took to recover that money.

[52] As well as the texts and commentary on the requirements and procedures which apply to the service of a statutory demand under the Companies Act 1993, I refer to an article, published on the Law Society’s website, which contains practical suggestions for lawyers on this subject.16

[53] The author of that article suggests that a careful lawyer, having received instructions from a client to recover a debt which the client claims is owing, would ensure that “there is no substantial dispute” about whether the debt is owing. In undertaking that enquiry, the lawyer would search the Companies Office register to ensure that the company from which the money is claimed has not been struck off (or in the process of being struck off), and is not in liquidation.

[54] With r 2.3 in mind, the author suggests that the lawyer first send a letter of demand to the company from which the money is claimed, with relevant “invoices (or similar documents)” attached. Doing so may also bring to light “potentially unidentified defences”. To make use of the statutory demand procedure, the debt must, of course, be not less than $1,000.17

[55] Although the article does not carry the force of being a decided authority on the issue, the author’s suggestions nevertheless present as useful, practical and sensible.

[56] Ms BJ says she received instructions from her client to recover the money from

Mr VR’s company around 26 July 2016. By then it was approximately five months since her client had put the advertising proposal to Mr VR’s company. It will be recalled that

16 Brent Norling “Appointment of liquidator by creditors” (2016) 898 Lawtalk

17 Companies Act 1993, s 289(2)(a); Companies Act 1993 Liquidation Regulations 1994, reg 5.

the claimant’s 23 February 2016 email to Mr VR’s company included the request “to sign and ... email back” the “booking form” together with payment of “total $1230 incl GST”.

[57] Mr VR says he did not respond to that request. For that reason, as I have noted, Mr VR contends there was no contract made with, and therefore there was no debt owing to the claimant.

[58] Nevertheless, Ms BJ’s 28 July 2016 letter of demand was specific in its terms. Ms BJ informed Mr VR that her instructions “to collect ... the sum of $1287.50” concerned “an amount owed for an advertisement which features on the [local authority] Site Envelopes”. She stated that “accounts have been rendered and full details given together with collection costs”.18

[59] Ms BJ requested Mr VR to make that payment to her firm’s office “within seven days of the date of [that] letter”. Otherwise, she said her instructions were “to issue notice under the Companies Act”. She asked Mr VR to “contact” her “immediately to resolve this matter”.

[61] At the hearing, Mr VR said had he been informed sooner of Ms BJ’s client’s

[62] He summarised his criticisms of the way in which he says Ms BJ acted for her client as (a) inadequate enquiries as to whether the amount claimed was owing, (b) not serving the statutory demand properly, and (c) choosing to recover the money claimed by way of statutory demand instead of the less expensive process of issuing recovery proceedings in the District Court.

[63] In response, Ms BJ referred to the provision by her client to Mr VR’s company of the invoice dated 26 April 2016, followed by accounts rendered (further copies of the invoice) on 26 May and 26 June 2016, all of which she said went unanswered. Ms BJ also refers to her 28 July 2016 letter of demand, and Ms YL’s 17 August 2016 telephone message left for Mr VR which similarly went unanswered.

[64] In support of her contention Mr VR knew her client was chasing his company for the money, Ms BJ referred to Ms MR’ – Mr VR’s financial manager – statement in [Ms MR’s] 11 November 2016 email that having checked Mr VR's company’s emails she could “find reminder notices only and no statutory demand”.

18 Invoice (13 July 2016). Ms BJ says her client states this was sent to Mr VR's company on

[65] Concerning the alternatives to the statutory demand procedure taken by Ms BJ, I observe Ms BJ's explanation that contrary to Mr VR’s understanding, recovery proceedings in the District Court would have led to both higher filing fees, and legal costs. Ms BJ added that in her view, proceedings in the Disputes Tribunal were not open to her client because at that stage Mr VR had not informed her his company disputed the money was owing.

[66] As I have noted, Ms BJ’s 28 July 2016 letter of demand summarised the basis upon which her client claimed the amount owing, and referred to accounts rendered. Upon receipt Mr VR would have been able to review the claimant’s 16 and 23 February

2016 emails, the 26 April 2016 invoice, and further copies dated 26 May and 26 June as it appears he did on 11 November 2016 when, upon being served with the liquidation proceedings, he immediately paid the amount claimed.

[67] By then, the time within which an application to set aside the statutory demand had long since expired.19 As Mr VR informed Ms BJ via email on 12 November 2016, “it was too late to negotiate, discuss” because of the “strict process” which applied to statutory demands.20

21 September 2016, the statutory demand had not been received by his company and therefore was not properly served. In support of that claim, on review, he referred to three reported decisions of the High Court, all of which, in my view, do not assist him.21

[69] The first decision concerned costs following the dismissal of an application for liquidation. Although the debtor company provided evidence of solvency after the application had been set down for a defended hearing, the creditor proceeded with the application on the basis that the evidence was insufficient. The second decision concerned whether service by email had been done properly. The third decision concerned an application to set aside a statutory demand on the grounds that there was a substantial dispute.

[70] Finally, I make the observation that whilst Mr VR’s company subsequently filed a statement of defence, his company was not represented in Court on 8 December 2016

19 Companies Act 1993, s 290(2): an application to set aside a statutory demand must be made and served on the creditor within 10 working days of service of the demand.

21 Eastlight Asset Trading No.3 Ltd v Jaafar Holdings Ltd [2018] NZHC 221; Upright Scaffolding Ltd v Pinnies Painters & Plasterers Ltd [2019] NZHC 1495; and Security Systems Ltd v Smart Controls Ltd [2017] NZHC 2465.

to oppose Ms BJ’s client’s application for an order for costs incurred in the statutory demand process. The result was that costs were awarded. It would have been open to Mr VR to appeal that decision but he chose not to.

[71] From my analysis of these events and communications, the conclusion I have reached is that in acting for her client claimant to serve a statutory demand on Mr VR’s company to recover the amount claimed by her client, Ms BJ did not contravene rule 2.3.

[72] For the above reasons, pursuant to s 211(1)(a) of the Lawyers and Conveyancers Act 2006 the decision of the Standards Committee to take no further action on Mr VR’s complaint is confirmed.

[73] Pursuant to s 206(4) of the Act, I direct that this decision be published so as to be accessible to the wider profession in a form anonymising the parties and bereft of anything as might lead to their identification.

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

VR v BJ [2019] NZLCRO 108 (30 August 2019)