KM v ZT [2025] NZLCRO 58 (30 April 2025)

Last Updated: 8 May 2025

LEGAL COMPLAINTS REVIEW OFFICER

ĀPIHA AROTAKE AMUAMU Ā-TURE

	[2025] NZLCRO 058 Ref: LCRO 168/2023
CONCERNING	an application for review pursuant to section 193 of the Lawyers and Conveyancers Act 2006
AND
CONCERNING	a decision of the [Area] Standards Committee [X]
BETWEEN	KM Applicant
AND	ZT Respondent

DECISION

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

Introduction

[1] KM has applied for a review of a decision by the [Area] Standards Committee [X] to take no further action in respect of his complaint concerning the conduct of the respondent, ZT.

Background

[2] KM instructed ZT in September 2022 to provide legal advice in respect to proceedings that were before the Family Court.

[3] ZT was at that time, an associate in the law firm [Law Firm A] (the firm).

[4] On 5 September 2022, ZT provided KM with her firm’s terms of engagement. ZT’s initial correspondence confirmed her hourly charge out rate, informed KM as to who her supervising partner was, and advised that attempts would be made to ensure that legal costs were managed by ensuring that tasks were handled by lawyers with the appropriate level of experience.

[5] The firm’s terms of engagement made provision for the firm to charge interest on outstanding fees.

[6] Clause 11 of the terms of engagement provided as follows:

We can also charge interest on demand on all sums billed and unpaid if the payment of any account is overdue, in which case interest accrued from the billed sums due date(s) will be added, and interest will continue to accrue to the date of payment. This will include all invoices issued after interest has been demanded on any still outstanding accounts, and without any requirement for further demand, until all accounts and default interest have been paid. The interest charged will be at 15% per annum.

[7] Invoices were rendered monthly for work completed.

[8] Seven invoices were rendered in the period 28 October 2022 to 28 April 2023.

[9] Fees invoiced totalled $9,485.00 exclusive of GST and disbursements.

[10] An account was forwarded to KM on 10 October 2022. Shortly after the account had been sent, a legal secretary emailed KM making request for him to contact the firm’s credit controller “to discuss a suitable payment arrangement”.

[11] Early in the retainer, KM was having problems with his accounts.

[12] He wrote to the firm’s credit controller on 13 October 2022 inquiring as to whether an arrangement could be entered into which allowed him opportunity to pay his accounts off over a period of time. He indicated that he would be able to make payments of $500 a month to fees, with additional payments being made when he received commission payments from his sales position.

[13] KM was advised on 20 October 2022 that the firm agreed to the repayment plan suggested. He was informed that the firm would review the payment plan in February 2023. KM’s attention was drawn to a provision in the firm’s terms of engagement which required prompt payment of all invoices, and facility for interest to be charged on sums outstanding. KM was advised that interest at the rate of 15% per annum (the sum provided by the terms of engagement) would be charged.

[14] On 10 April 2023, ZT advised KM that the proceedings in the Family Court had been allocated a hearing date for 27 June 2023.

[15] On 27 April 2023, ZT wrote further to KM. She advised that the firm’s accounts team had reviewed KM’s outstanding fees and payment history. He was informed that he would be required to clear his outstanding debt prior to the July hearing if she was to continue to act. Earlier advice to KM that interest was accruing on outstanding fees was further reinforced.

[16] In her 27 April 2023 correspondence, ZT provided KM with some suggestions as to steps he could possibly take to secure funds which would enable him to settle his fees.

[17] KM responded to ZT on 28 April 2023. He advised that he had explored options for securing funds but had been unsuccessful. He confirmed that he would be unable to settle his outstanding fees prior to the court hearing. He informed ZT that he would represent himself in the upcoming court hearing. He said that he would be in touch with the firm’s credit controller to work out a payment plan.

[18] ZT provided KM with a draft notice of change of representation and advice to assist him in managing the impending court hearing.

[19] In July 2023, KM emailed ZT. He advised her that the hearing had gone well. He noted that he wished to settle his outstanding debt and proposed a repayment schedule of $50 per fortnight. He made request that the firm give consideration to abandoning its claim for default interest, noting that the compounding effect of the continuing interest claim would compromise his ability to pay off the debt.

The complaint and the Standards Committee decision

[20] KM lodged a complaint with the New Zealand Law Society Complaints Service (Complaints Service) on 18 July 2023. The substance of his complaint was that:

• (a) fees charged were excessive; and
  
• (b) costs had been incurred without achieving any productive outcome; and
  

(c) he had not been provided with adequate assistance to assist him to manage his case before the court; and

(d) request had been made for a reduction of the default interest rate being charged.

[21] ZT responded to KM’s complaint on 31 July 2023.

[22] She submitted that:

• (a) the firm’s terms of engagement had been made clear to KM at commencement; and
  
• (b) the basis on which fees would be charged (including possibility of default interest) were explained to KM; and
  
• (c) conscientious efforts were made to implement a realistic and workable repayment plan; and
  
• (d) work required to be spent on the file exceeded what had been initially anticipated as a consequence of incidents which had prompted a further application to the Family Court; and
  
• (e) the firm’s credit controller had communicated regularly with KM; and
  
• (f) KM had at no time raised any queries or concerns in respect to the invoices provided.
  

[23] The Standards Committee delivered its decision on 6 November 2023.

[24] The Committee determined pursuant to s 138(2) of the Lawyers and Conveyancers Act 2006 (the Act) that no further action on the complaints was necessary or appropriate.

[25] In reaching that decision the Committee concluded that:

• (a) there was no evidence to support complaint that there were any issues with the competency of the work that had been performed; and
  
• (b) ZT’s hourly charge out rate was appropriate for a lawyer of her experience; and
  
• (c) fees charged were fair and reasonable; and
  

(d) the ability to charge penalty interest at 15% per annum was confirmed in the firm’s terms of engagement.

Application for review

[26] KM filed an application for review on 21 November 2023.

[27] The focus of his review application was narrowly confined to the penalty interest issue.

[28] It was KM’s submission that:

• (a) the penalty interest charged was exorbitant and oppressive; and
  
• (b) not governed by a regulatory body such as would be able to maintain standards; and
  
• (c) default interest charges cannot be recovered if they constitute a penalty.
  

[29] ZT was invited to comment on KM’s review application and did so in submissions to the Legal Complaints Review Officer on 22 March 2024.

[30] She submitted that:

• (a) the penalty interest imposed, had not been charged automatically on late payment, but rather after fair warning had been provided to KM of intention to charge interest; and
  
• (b) the interest rate charged was not unreasonable and it would be surprising if the rate was substantially in excess of late payment interest rates charged by other law firms; and
  
• (c) the firm had a genuine commercial interest in ensuring that its fees were paid promptly and in accordance with its terms of engagement; and
  
• (d) the interest rate charged, when referenced to what was described as the “generally high interest rates and high inflation rates” was comparatively modest.
  

Review on the papers

[31] Indication was given to the parties by the Review Officer that was initially managing the file, that he considered the review was suitable for hearing on the papers.

[32] The parties were given opportunity to comment.

[33] ZT indicated her agreement to the review proceeding on the papers. KM’s preference was for a hearing in person.

[34] The Review Officer then managing the file, advised the parties that he considered there was sufficient information available on the Standards Committee file to enable the review to proceed on the papers.

[35] I agree with that decision. The issue on review is narrowly focused.

[36] I record that having carefully read the complaint, the response to the complaint, the Committee’s decision and the submissions filed in support of and in opposition to the application for review, there are no additional issues or questions in my mind that necessitate any further submission from either party. On the basis of the information available, I have concluded that the review can be adequately determined in the absence of the parties.

Nature and scope of review

[37] 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.

[38] 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.

1 Deliu v Hong [2012] NZHC 158, [2012] NZAR 209 at [39]–[41].

2 Deliu v Connell [2016] NZHC 361, [2016] NZAR 475 at [2].

[39] 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:

• (a) Consider all of the available material afresh, including the Committee’s decision; and
  
• (b) Provide an independent opinion based on those materials.
  

Discussion

[40] KM’s review application was, as noted, narrowly focused on the single issue as to whether the penalty interest charged was unreasonable.

[41] It was, in my view, appropriate that other issues that had been initially raised by him (unreasonableness of fees charged/complaints with representation provided) were not pursued on review.

[42] In examining the work undertaken, the invoices, and the time records, I reach similar conclusion to the Standards Committee that the fees charged were fair and reasonable.

[43] Nor is there any evidence to support suggestion that KM had not been competently represented.

[44] The terms of engagement were clearly explained to KM.

[45] Issues with his accounts were conscientiously addressed.

[46] KM’s decision to terminate the retainer was prompted by no circumstances other than that he regrettably was unable to afford his legal costs. There is no indication on the file of KM having raised any concerns regarding the competency of his representation or of him raising any objections to invoices received.

[47] There is no evidence to suggest that the retainer ended on bad terms.

[48] ZT gave careful advice to KM as to how he could best manage the court hearing.

[49] The issue then sharply focuses on the question as to whether the firm was able to charge penalty interest, and whether the penalty imposed was oppressive.

[50] KM does not identify any issue with the firm’s entitlement to charge interest.

[51] A law firm is generally entitled to charge penalty interest on outstanding fees where its terms of engagement with the client expressly provide for such a charge. This entitlement is grounded in the principal of contractual agreement. If the client has been made aware of the terms, including the provision for interest on overdue amounts, and has accepted them (either expressly or by continuing to instruct the firm) the firm may enforce that term.

[52] A lawyer’s contractual obligations to a client arise from the specific terms agreed upon between them, governing matters such as the scope of services, fees and responsibilities under the retainer. These obligations are enforceable as a matter of contract law and focus on fulfilling the promises made to the client.

[53] In contrast, a lawyer’s professional and ethical obligations extend beyond the contract and are found in the broader duties imposed by law, professional standards, and specific conduct rules. These ethical duties, such as maintaining client confidentiality, avoiding conflicts of interest, and upholding the administration of justice, exist to protect both the client and the public interest.

[54] While contractual obligations are privately negotiated, professional and ethical obligations are public, mandatory, and cannot be contracted out of.

[55] In practice, when examining conduct complaints, the lawyer’s conduct inevitably on occasions reveals a convergence between the duties created by the retainer agreement, and the broader professional and ethical obligations imposed by law and conduct rules.

[56] Question as to whether fees charged by a lawyer are fair and reasonable will engage both a consideration of the contractual arrangements agreed by the parties, and a consideration of the applicable conduct rules.

[57] A lawyer’s fee is the agreed-upon payment for the professional services rendered, essentially it reflects the value of the legal work performed. By contrast, a penalty interest clause is not itself part of those services but a contractual mechanism that activates only if the client fails to pay the fee on time. The fee is compensation for work done, the interest provision is a separately negotiated term that compensates the lawyer for the delay in payment (and discourages lateness) by applying an additional charge calculated on overdue amounts. Conceptually, one is core remuneration, while the other is a contingent remedy for breach of the payment obligation.

[58] An examination of the rate applied to the overdue fees shows it to fully consistent with the terms agreed in the retainer. It is submitted for the lawyers ( and no

evidence is provided to contradict the submission) that the rate charged falls within commercially reasonable grounds.

[59] There is no indication that the rate charged raises issues that would lay foundation for a broader inquiry into whether the firm had breached professional duties and obligations owed to their client.

[60] I see no grounds which could persuade me to depart from the Committee’s decision.

Anonymised publication

[61] 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.

Decision

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

DATED this 30TH day of APRIL 2025

R Maidment

Legal Complaints Review Officer

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

KM as the Applicant ZT as the Respondent GJ as a related person

[Area] Standards Committee [X] New Zealand Law Society Secretary for Justice