LCRO 172/2015 173/2015

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 WL Applicant

AND

XC Respondent

AND

BETWEEN HF Applicant

AND XC Respondent

DECISION

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

Introduction

[1] Ms WL and Mr HF have applied to review two decisions by the [Area]

Standards Committee [X] (the Committee) to take no further action in respect of their

complaints concerning the conduct of Ms XC.

[2] The Complaints Service treated these as separate complaints. Two separate

decisions were delivered by the Committee, and the separate applications for review

have been lodged.

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[3] Because there is considerable overlap between the complaints made by

Ms WL and Mr HF, I propose to deal with both applications for review in this single

decision. I will generally refer to “the complaints” rather than to their individual

complaints.

Background

[4] At the relevant time Ms WL and Mr HF were two of five partners in

M partnership.

[5] Mrs YP and her husband had once been clients of M partnership. One of the

partners, Mr W, was related to Mr YP by marriage.

[6] Neither Ms WL nor Mr HF, when partners in M partnership, acted for either or

both of Mr and Mrs YP. Most of their legal work was done by Mr W.

[7] Mr and Mrs YP, who were married in 1991, separated in mid-2004 and

became involved in a relationship property dispute.

[8] Mrs YP considered that M partnership had acted against her interests and had

assisted her husband to structure financial and business arrangements to insulate

them from relationship property claims.

[9] She also considered that M partnership had facilitated the disposal of

relationship property funds before she separated from her husband.

[10] In early 2009 Mrs YP instructed Ms XC to act for her in bringing proceedings

against M partnership. A statement of claim was filed and served in mid-2009.

[11] Four amended statements of claim were subsequently filed by Ms XC.

Amongst the causes of action pleaded by her were claims of fraud, money laundering

and collusion. During various interlocutory phases of the proceedings, Ms XC repeated

those allegations in submissions made in open court.

[12] The proceedings were struck out by an associate judge in the High Court in

mid-2012. That decision was upheld by a High Court judge in mid-2014.

[13] M partnership applied for indemnity costs including that those costs should be

paid by Ms XC personally.

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[14] The parties settled all issues of costs without the need for that to be

determined by the court. A payment was made to M partnership without any admission

of liability.

Complaints

[15] Ms WL and Mr HF lodged separate but similar complaints with the New

Zealand Law Society Complaints Service (Complaints Service) on 24 March 2015 and

1 May 2015 respectively.

[16] In his complaint Mr HF said that he agreed with what Ms WL had said, but he

added some matters of his own.

[17] The substance of the complaints was that:

(a) the allegations pleaded by Ms XC included:

(i) conspiring with Mrs YP’s husband to fraudulently defeat her

relationship property claim;

(ii) fraudulently and knowingly assisting Mrs YP’s husband in

disposing of property;

(iii) fraudulently and knowingly receiving proceeds of sale;

(iv) fraudulently concealing those proceeds from Mrs YP;

(v) conspiring with Mrs YP’s husband to fraudulently form companies

and trusts;

(vi) fraudulently alienating property from Mrs YP;

(vii) money-laundering; and

(viii) equitable fraud.

(b) this attack on Ms WL and the other partners was without foundation;

(c) Ms XC compounded this by repeating the allegations in open court; and

(d) there was media interest driven by Ms XC’s need for publicity.

[18] Ms WL also submitted that Ms XC’s conduct breached r 13.8 of the Lawyers

and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (the Rules).

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[19] Forming part of Ms WL’s complaint was a memorandum prepared by

M partnership’s counsel Mr BB, in support of the partnership’s application for costs

against Ms XC. Ms WL submitted that the memorandum clearly identifies Ms XC’s

“misconduct”.

[20] As well, Ms WL provided copies of the various iterations of the statement of

claim filed by Ms XC, and copies of judgments of High Court judges and associate

judges dealing with interlocutory aspects of the litigation.

[21] As indicated, Mr HF agreed with Ms WL’s complaint. He added:

(a) Ms XC’s conduct breached r 13.8.1 of the Rules.1

(b) The conduct is aggravated by Ms XC’s seniority and experience. It is

more reprehensible because Ms XC’s allegations were made against

colleagues.

(c) Ms XC had been warned by various judges about the nature of the

allegations she had pleaded.

(d) M partnership was located in a provincial city where the allegations

gained some prominence. This caused “immeasurable damage”.

(e) A claim by Ms XC that she was merely following instructions should be

looked at with care. Ms XC had a duty to clarify instructions including

the consequences of pleading the various allegations of dishonesty.

She should have checked to make sure that the allegations had a factual

basis.

[22] Mr HF submitted that the complaints should be referred to the New Zealand

Lawyers and Conveyances Disciplinary Tribunal with a finding of misconduct made

there, and (amongst other orders), Ms XC should be struck off.

Response

[23] Through her counsel, Ms XC responded to the complaints as follows:

(a) Mrs YP’s allegations arose out of her belief that M partnership had

previously acted for her and owed her a continuing duty of loyalty which

1 Rules 13.8 and 13.8.1 prohibit a lawyer from attacking a person's reputation without good cause in documents filed in litigation, and from alleging fraud, dishonesty etc without having taken appropriate steps to ensure that reasonable grounds exist for making the allegations.

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they breached when acting for her husband (both before and after the

couple separated);

(b) Ms XC categorically denied the conduct allegations in the complaints.

She complied with her professional obligations in issuing and pursuing

the proceedings and did so in good faith;

(c) the proceedings were issued on her client’s instructions;

(d) the allegations were supported by legal precedent;

(e) there was a proper basis to plead the allegations in question. Ms XC

was obliged to act on her client’s instructions;

(f) the fact that the proceedings were ultimately struck out does not equate

to incompetence or misconduct. Courts have repeatedly emphasised

that the pursuit of what may later be found to have been a hopeless

case should not be treated as indicative of counsel incompetence. It is

important for litigants to have access to justice;

(g) Ms XC did not seek to attract media attention. The media reported, as it

is entitled to do, submissions that had been made in open court; and

(h) the issue of costs was “fully and finally” settled as between Ms XC and

M partnership, and payment made without any admission of liability.

[24] Counsel also provided the Complaints Service with copies of Ms XC’s costs

submissions and her affidavit opposing M partnership’s application for indemnity costs

against her.

Comment by Ms WL

[25] Ms WL agreed that when proceedings are struck out “that generally of itself

did not indicate incompetence or misconduct” on the part of counsel. However Ms WL

referred to a number of interlocutory rulings made in the High Court that were critical of

Ms XC’s pleadings and which, Ms WL said, Ms XC ignored.

Standards Committee decisions

[26] The Committee delivered its decisions on 21 July 2015.

[27] In considering the claim that Ms XC had breached r 13.8.1, the Committee

noted that Ms XC was following her client’s instructions. It noted Ms XC’s explanation

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of the step she took to satisfy herself that there was a proper basis for the allegations.

The Committee noted that the proceedings “were issued on instructions and in good

faith, following advice to Mrs YP as to the merits of pursuing a case against

[M partnership]”.2

[28] The Committee decided to take no further action on the complaints, pursuant

to s 138(1)(f) of the Act, on the grounds that Ms WL and Mr HF had already exercised

their right to an adequate remedy.

Applications for review

[29] Ms WL and Mr HF filed applications for review on 17 and 19 August 2015

respectively. They submit that the Committee:

(a) failed to consider the extensive material before it;

(b) was wrong to hold that settlement precluded examination of Ms XC’s

professional responsibilities; and

(c) was wrong to hold that Ms XC was justified in following her client’s

instructions.

Response

[30] Through counsel, Ms XC submitted:

(a) The Committee properly assessed the material before it and found that

Ms XC had acted on Mrs YP’s instructions and in good faith.

(b) The Committee accepted that Ms XC had satisfied herself that there was

a proper basis for the pleadings in question.

(c) The allegations pleaded by Ms XC related to a period of time when

Ms WL was a partner in M partnership.

(d) Ms XC did not improperly attract media attention to the case. Various

decisions of the High Court in relation to the litigation were publicly

accessible.

(e) A Standards Committee is not obliged to provide a long and detailed

analysis in its reasons. It is sufficient to set out relevant law or legal

2 Standards Committee determination on Ms WL's complaint at [26], and on Mr HF's complaint at [24].

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standards, key facts and whether in the light of those facts a

professional standard has been breached.

(f) The Committee did not fail to consider the substance of the complaints;

rather, it did not accept that they had any merit.

Nature and scope of review

[31] The nature and scope of a review have been discussed by the High Court,

which said of the process of review under the Act:3

… 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.

[32] More recently, the High Court has described a review by this Office in the

following way:4

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.

[33] 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.

3 Deliu v Hong [2012] NZHC 158, [2012] NZAR 209 at [39]–[41]. 4 Deliu v Connell [2016] NZHC 361, [2016] NZAR 475 at [2].

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Statutory delegation and hearing in person

[34] As the Officer with responsibility for deciding these applications for review, I

appointed Mr Robert Hesketh as my statutory delegate to assist me in that task.5 As

part of that delegation, on 31 May 2018 at Auckland Mr Hesketh conducted a hearing

at which Ms WL appeared in person, and Ms XC appeared with her counsel Ms RG

and her support person Ms TD.

[35] Mr HF was unable to appear and provided explanation for that. He said that

he relied on the submissions that he made to the Complaints Service, as well as those

of Ms WL.

[36] The process by which a Review Officer may delegate functions and powers to

a duly appointed delegate was explained to the parties by Mr Hesketh. They indicated

that they understood that process and took no issue with it.

[37] Mr Hesketh has reported to me about the hearing and we have conferred

about the complaint, the application for review and my decision. There are no

additional issues or questions in my mind that necessitate any further submissions from

either party.

Analysis

Timeline:

Statement of Claim

[38] Ms XC’s original statement of claim is dated 5 June 2009. The plaintiff is her

client Mrs YP, and the single defendant is “[M partnership]”.

[39] Within the body of the statement of claim Ms XC names one of the five

partners (Mr W) as the lawyer in M partnership whom she alleged had acted for Mr and

Mrs YP, jointly and separately, when they were married, and for Mr YP after the couple

separated in 2004.

[40] The causes of action pleaded against M partnership were breaches of

fiduciary duty owed towards Mrs YP, negligence and failing to disclose information to

Mrs YP.

5 Lawyers and Conveyancers Act 2006, sch 3, cl 6.

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Second Amended Statement of Claim

[41] A second amended statement of claim dated 14 May 2010 was filed and

served by Ms XC.6 This document identified each of the five partners in M partnership,

including Ms WL and Mr HF, as defendants.

[42] The second amended statement of claim noted that Mr W was Mrs YP’s

brother-in-law.7

[43] Further causes of action were added to the second amended statement of

claim. These were that Mr W had acted in collusion with Mr YP by disposing of

approximately $286,000 and a further $300,000, with the intention of defrauding

Mrs YP of rights under the Property (Relationships) Act 1976.

[44] The defendants applied to strike out the second statement of claim.8

[45] In opposing that, Ms XC submitted that she had applied for specific and non-

party discovery and if that was successful, that would lead to a more particularised

statement of claim.

[46] The High Court described the second amended statement of claim as

“unsatisfactory” and listed those aspects that fell into that category.9

[47] As well, the Court noted:10

I suspect that the plaintiff’s pleading arises from a misunderstanding by her counsel as to the nature of rights which arise under the Property (Relationships) Act 1976 itself. Ms XC submitted to me, without any authority, that rights to property arose without any action being taken on the plaintiff’s part to secure either an agreement providing ownership of the assets or an order of the court.

[48] Faire AJ said that the deficiencies in the second amended statement of claim

were such that he could not “determine whether there is a juristic basis for the claim”.11

[49] Although the Court held that the second amended statement of claim did not

comply with the High Court Rules as to particularity, the Associate Judge adjourned the

strike out application pending resolution of Mrs YP’s discovery applications.

6 A First Amended Statement of Claim was filed on 18 November 2009, but that has not featured in the complaint and review process. 7 Mr W was married to Mr YP’s sister. 8 [case citation removed]. 9 At [23] and following. 10 At [25]. 11 At [29].

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Third Amended Statement of Claim

[50] The third amended statement of claim is dated 1 July 2011. It followed

Mrs YP receiving further discovery.

[51] The relevant causes of action included that the partners of M partnership had:

(a) fraudulently conspired with Mr YP to conceal or dispose of shares;

(b) fraudulently assisted [Mr YP] to conceal or sell or dispose of land

thereby defeating Mrs YP’s interest in relationship property;

(c) fraudulently received sale proceeds into their trust account and

transferred those proceeds to interests of Mr YP with intention to defeat

Mrs YP’s rights in relationship property;

(d) fraudulently assisted Mr YP to set up companies which excluded Mrs YP

and fraudulently and knowingly alienate profits from her;

(e) fraudulently conspiring with Mr YP to establish Trusts which had the

effect of defeating Mrs YP’s interest in relationship property;

(f) fraudulently failed to disclose information to Mrs YP knowing that it

would cause her loss;

(g) committed equitable fraud; and

(h) fraudulently laundered money through their trust account.

Fourth Amended Statement of Claim

[52] The fourth amended statement of claim was filed on 16 March 2012.

[53] The defendants successfully applied to strike out the fourth amended

statement of claim.12

[54] In its judgment striking out the fourth amended statement of claim, the Court

said (inter alia):

[16] A major issue to be addressed here is whether the fourth amended statement of claim remedies the deficiencies outlined [by Faire AJ in relation to the second amended statement of claim].

…

12 [case citation removed].

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[18] At the outset, I need to say that in my view to a large extent, these defects remain. Essentially, what the plaintiff has done in her fourth amended statement of claim … is simply to embellish the pleadings first, with many speculative and unsubstantiated allegations including liberal claims of “fraud”, “equitable fraud”, “money-laundering”, “collusion”, “conspiracy” and “dishonesty”, and secondly, to include some additional allegations set to amount to “factual” information. Instead of picking up on this court’s suggestions as to the need first, for additional particulars, and secondly, to identify how the actions complained of caused the actual claimed losses, and the detail of those losses, the Fourth Amended Statement of Claim it might be said represents a fundamental challenge to the earlier suggestion by [Faire AJ in relation to the second amended statement of claim] that Mrs YP did not have the type of rights which she has asserted were breached, at the time of the claimed breaches of duty on the part of the defendants.

…

[61] … I have considered whether the repeated deficiencies in this pleading … can be remedied by further pleadings from the plaintiff. I am not satisfied however that any further opportunity to amend the statement of claim will establish a properly arguable case. The plaintiff has had ample opportunity to “fix” who pleadings and in particular to show how the defendants’ actions complained of, even if established, caused the losses the plaintiff says she has suffered. She has failed to do so. In my view, these pleadings are not capable of effective repair and once more a “total write-off” [citation omitted].

Appeal against order striking out the Fourth Amended Statement of Claim

[55] Mrs YP appealed unsuccessfully against the Associate Judge’s decision to

strike out her fourth amended statement of claim. That appeal was heard by a High

Court judge in July 2014, with judgement delivered in September of that year.13

[56] In dismissing the appeal, the Court held (inter alia):

[31] I agree … that the [fourth amended] statement of claim should be struck out as not disclosing a reasonably arguable cause of action. As noted, the statement of claim is prolix and convoluted. …

…

[62] … It is my view that [Ms XC] has substantially misconstrued the obligations of a firm of solicitors such as [M partnership] when acting for a husband and wife and the business run by the husband.

…

[68] … It is for [Mrs YP] to establish a reasonably arguable cause of action. This she has consistently failed to do.

13 [case citation removed].

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Costs sought by M partnership

[57] As indicated above the fourth statement of claim was struck out by the High

Court. Mrs YP unsuccessfully applied to review that ruling. That effectively brought

Mrs YP’s litigation against M partnership to an end.

[58] Through counsel, M partnership sought costs including against Ms XC

personally. The amount sought from Ms XC was a little under $235,000.

Ms XC’s submissions as to costs

[59] Through counsel, Ms XC filed submissions and also swore and filed her own

affidavit. In summary:

Counsel’s submissions

(a) Counsel submitted that “a practitioner should not be penalised for

pursuing her client’s case robustly, on instructions and in good faith,

simply because that claim is struck out”.

(b) Before instructing Ms XC, Mrs YP believed that M partnership had

breached duties owed to her and had colluded with her ex-husband to

prejudice her interests.

(c) Mrs YP wrote to Mr W as early as in February 2009 referring to him

being involved in deliberately and knowingly involved in setting up trusts

that excluded her, describing this as “deceitful” and designed to defeat

her interests in relationship property.

(d) Ms XC gave Mrs YP:

appropriate advice … regarding the risks of pursuing a claim against [M partnership]” and “Mrs YP nevertheless instructed [Ms XC] to proceed, and Ms XC was obliged to accept these instructions.

(e) Ms XC does not accept that the pleaded claims completely lacked legal

foundation.

(f) Despite some judicial criticism, both Faire AJ and Gendall AJ recognised

that M partnership might arguably have breached some duty or duties to

Mrs YP.

(g) The fact that the arguments were rejected by the court did not make

them hopeless.

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(h) Ms XC satisfied herself that there was a proper evidential basis to plead

fraud. She was obliged to follow her client’s instructions to make those

allegations.

Ms XC’s affidavit

(a) Ms XC began acting for Mrs YP in early 2009; after Mrs YP had

communicated directly with Mr W in M partnership about his conduct in

acting, as she saw it, against her interests.

(b) Ms XC gave Mrs YP advice about the risks of pursuing M partnership

but was nevertheless instructed by Mrs YP to do so. Ms XC considered

that she “had a professional obligation to accept those instructions”.

(c) The original statement of claim pleaded only negligence and breach of a

fiduciary duty. Discovery led to the more serious allegations of

deliberate wrongdoing being added to subsequent statements of claim.

(d) Mr W was married to Mr YP’s sister and was also a co-trustee in Mr and

Mrs YP’s family trust. Mrs YP considered that this gave rise to the

dishonest collusion between Mr W and Mr YP.

(e) All causes of action were pleaded on the basis of Mrs YP’s instructions

and based on her view that M partnership knowingly assisted Mr YP to

defeat her interests.

M partnership’s submissions as to costs

[60] M partnership sought costs against Ms XC personally. Counsel, Mr BB, filed

submissions in which he said (inter alia):

8. The particular features which take this case beyond mere negligence, making errors of judgement or doggedly pursuing a hopeless case and into a category of “serious dereliction of duty” are:

• Breach by Ms XC of rule [13.8.1 of the Rules].

• Ignoring the clear guidance of Associate Judge Faire in his decision of 6 October 2010 [in relation to the second amended statement of claim].

• Repeatedly ignoring elementary requirements such as a link between the alleged wrong and the loss suffered.

• The repeated advancing of untenable legal propositions and the ignoring of clear guidance from the Court as to the nature of those propositions.

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…

16. Another feature which takes this case beyond mere incompetence to the area of dereliction of duty is the repeated unwillingness by Ms XC to accept any guidance from the court.

…

20. … Had there been only one strike out application, Ms XC may be able to hide behind the claim that she had to do what her client asked her to. However, the situation differs where the Court clearly and unequivocally points out the nature of the deficiencies in the proceeding and, instead of accepting that, counsel continues to challenge those judicial findings.

…

24. … It needs to be remembered that these are the most serious allegations that could be made against a firm of solicitors: covering fraud, money laundering and dishonesty. The Court expressly found that there was no basis whatsoever for such allegations.

…

45. All three judgments make the fundamental point that there was a clear disconnect between the causes of action pleaded and any loss suffered by [Mrs YP].

…

47. Ignoring the guidance of the Court and embellishing a statement of claim with “speculative and unsubstantiated” allegations of serious wrongdoing is a serious dereliction of counsel’s duty.

…

75. … It was grossly irresponsible for Ms XC to have continued these proceedings, particularly when she failed to take any steps to amend the pleadings and provide the details Associate Judge Faire told her were fundamental.

76. [M partnership] would … seem to have been made scapegoats in an attempt by [Mrs YP and Ms XC] to get at [Mr YP and his father].

77. Ms XC’s breaches of obligation, particularly in relation to the allegations of fraud, collusion, money-laundering and dishonesty are egregious and in flagrant breach of her obligations. …

[61] Ms WL and Mr HF relied extensively on Mr BB’s submissions in support of

their complaints and applications for review.

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Submissions on review:

Ms WL and Mr HF

[62] Ms WL said that her complaint about Ms XC essentially came down to:

(a) Ms XC breached r 13.8.1 by pleading fraud in circumstances where she

had not taken appropriate steps to ensure that reasonable grounds

existed for making an allegation.

(b) Ms WL submitted that this amounts to misconduct pursuant to

s 7(1)(a)(ii) of the Act in that it was a wilful or reckless contravention of

r 13.8.1.

(c) Ms XC improperly courted public attention by disseminating details of

the proceedings to the media. This had the effect of aggravating the

conduct.

[63] Ms WL relies on Mr BB’s costs submissions as well as the High Court

judgments dealing with the statements of claim.

[64] Ms WL said that the statements of claim relevant to the complaints were the

third and fourth amended versions. These followed on the heels of the second

amended statement of claim and added further allegations of serious wrongdoing by

the partners of the M partnership. The second amended statement of claim was

heavily criticised by the High Court, and Ms WL submitted that Ms XC ignored the

criticism in her third and fourth amended iterations.

[65] Ms WL also submitted that Mrs YP realised that she had lost out on a potential

relationship property claim because of her husband’s bankruptcy and was looking for a

scapegoat; targeting the M partnership.

[66] In an email to this Office dated 12 January 2018, Mr HF said that he wanted it

“noted that the unfounded perpetration of hopeless litigation (as noted by several

judges) by Ms XC almost destroyed [M partnership]”. He said that the “financial

pressures she unnecessarily caused were in no way compensated [for] by the costs

award settlement”.

[67] At the hearing before Mr Hesketh, Ms WL drew attention to Mr HF’s

submissions to the Complaints Service noting that Mr HF regarded Ms XC’s conduct as

being an “aggravated breach of rule 13.8.1”, because the allegations of fraud and

dishonesty were made against colleagues.

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Ms XC

[68] Ms RG’s submissions on behalf of Ms XC may be summarised as follows:

(a) At all times Ms XC acted on her client’s instructions.

(b) Ms XC’s was acting for a well-informed client who:

(i) was well-informed about the issues relevant to the proceedings;

(ii) had intimate knowledge of matters;

(iii) had been married to her husband for a long time; and

(iv) knew and had a firm belief about fiduciary duties.

[69] Ms RG noted that Mrs YP had received advice from a senior lawyer who

specialised in relationship property, before she instructed Ms XC. Amongst the steps

taken by that lawyer was to obtain restraining orders against Mr YP in relation to

approximately $260,000 worth of funds.

[70] That lawyer advised Mrs YP that there was merit in a claim against the

M partnership.

[71] It was emphasised that before Ms XC was instructed by Mrs YP, Mrs YP had

written directly to Mr W pointing out her views about his conduct in acting for Mr YP,

saying:

[Y]ou needed to consult your insurers … as you have acted contrary to my interests … There were huge conflicts of interests in you acting in various ways as you well know. What I do not understand is why you as a trustee and a lawyer and a family member would have ever allowed me to sign an unlimited guarantee for the business which was secured over my home. This was negligence in anyone’s language! The other disappointing thing that I will pursue against you is that you deliberately and knowingly set up trusts while I was married to [Mr YP] that excluded me. This was deceitful and was designed to defeat my interests in matrimonial property. … Basically you have totally ripped me off and you need to answer for your actions before the court.

[72] In a further email to Mr W on 18 February 2009, Mrs YP said:

3. … Unfortunately you have acted dishonestly and have deliberately left be out of various trust entities to my detriment and in order to defeat my interests. This occurred well prior to separation while you were acting for us jointly.

17

4. My claim against you is:

(a) you have acted in collusion with [Mr YP] on many occasions against me.

(b) You have had a clear conflict of interest.

(c) You have given negligent advice …

…

(e) [Y]ou have kept me in the dark with information

(f) I have a number of other claims against you and I will address these with the insurers.

… I have been kept in the dark deliberately and [did not have] proper advice and disclosure of information and transparency from the beginning …. I was shocked to learn that you had deliberately excluded me as a beneficiary and a trustee from sharing in various assets for at least six trusts that I am aware of, whilst I was still married and living as husband and wife …

[73] Ms RG submitted that the nature and content of Mrs YP’s two emails, drafted

and sent by her before she instructed Ms XC, revealed a well-informed client with a

clear view about her legal position.

[74] Ms RG also submitted that Ms XC appropriately advised Mrs YP about the

risks of proceedings against the M partnership but was nevertheless instructed to

proceed. Rule 4 of the Rules obliged Ms XC to proceed; she had no basis to decline

the instructions – she was simply “doing her job”.

[75] Ms RG referred to Ms XC’s costs affidavit and said that this fully set out the

steps that Ms XC took to satisfy herself that reasonable grounds existed to make the

allegations of fraud.

[76] In particular, discovery provided by the M partnership following service of the

second amended statement of claim, provided the basis for Ms XC to plead fraud and

other dishonesty. Ms RG submitted that this is consistent with Ms XC having taken

appropriate steps to ensure that there were reasonable grounds for those allegations.

[77] It was pointed out on Ms XC’s behalf that the allegations in question were not

pleaded in the original, first or second amended statements of claim because Ms XC

had not then been able to take appropriate steps to ensure that there were reasonable

grounds to make the allegations of dishonesty.

[78] Ms XC said that discovery provided after the High Court’s judgement in

relation to the second amended statement of claim revealed several transactions

through the M partnership trust account which she described as “unusual” and which

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involved Mr YP. She concluded that these were consistent with business restructuring

that was excluding Mrs YP, and that the timing of those transactions was “suspicious”

— being close to when the couple separated in early 2004.

[79] As to the claim that she courted media attention, Ms XC denied this. She said

that Mr YP was a high-profile businessman and that the proceedings against the

M partnership were in open court. She denied contacting and speaking to any

journalist about the proceedings.

Discussion

[80] I put to one side the submissions of both Mr BB and Ms XC’s counsel,

prepared and filed in anticipation of a hearing before the High Court about indemnity

costs. In doing so I mean no disrespect to the lawyers involved (one now a judge of

the High Court).

[81] But those submissions are not decisions on the facts, nor are they decisions

about Ms XC’s conduct. They are the opinions of lawyers advocating on behalf of their

clients in a contested matter. The language of advocacy is not to be confused with a

decision-maker’s process of independent analysis and reasoning.

[82] And, because the issue of costs was settled between the parties, there has

never been a decision of the Courts focussing squarely on Ms XC’s costs exposure.

[83] I do have before me an affidavit sworn by Ms XC. I must be slow to reject

what she has deposed to, as she has not been cross-examined about that. I am of

course required to look critically at what she has said in her affidavit.

Rule 13.8.1

[84] Ms WL and Mr HF frame their complaint as one under r 13.8.1 of the Rules.

That rule provides:

A lawyer must not be a party to the filing of any document in court alleging fraud, dishonesty, undue influence, duress, or other reprehensible conduct, unless the lawyer has taken appropriate steps to ensure that reasonable grounds for making the allegation exist.

[85] The learned authors in Ethics, Professional Responsibility and the Lawyer

have said the following:14

More fundamental than the duty to plead clearly is the duty to plead

14 Duncan Webb, Kathryn Dalziel and Kerry Cook Ethics, Professional Responsibility and the Lawyer (3rd ed, LexisNexis, Wellington, 2016) at 14.8.

19

honestly. Whenever a claim or defence is lodged with the court, the lawyer of the record signs it. In signing a pleading, lawyers are certifying that the case is not a mere fiction. The court presumes the lawyers have investigated the evidence and believe, in their judgement, that there is at least a prima facie case to be answered in respect of the claiMs made. While lawyers are advocates for their clients, they are expected to exercise independent judgement in accepting the assertions made.

…

The duty is not merely one to use good faith or best endeavours. The decision to proceed after discovery must be tested against the judgement of a reasonable advisor who investigated the facts with proper care. …

The onus on a lawyer to ensure the truth of pleadings is particularly high where serious allegations are made.

[citations omitted].

[86] In Rondel v Worsley Lord Reid noted the duty of counsel in the following

terms:15

Every counsel has a duty to his client fearlessly to raise every issue, advance every argument, and ask every question, however distasteful, which he thinks will help his client's case. But, as an officer of the court concerned in the administration of justice, he has an overriding duty to the court, to the standards of his profession, and to the public, which may and often does lead to a conflict with his client's wishes or with what the client thinks are his personal interests. Counsel must not mislead the court, he must not lend himself to casting aspersions on the other party or witnesses for which there is no sufficient basis in the information.

[87] In Medcalf v Mardell the House of Lords considered the issue of counsel’s

duty when making an allegation of fraud in a pleading.16 At issue was paragraph 606

of the Code of Conduct of the Bar of England and Wales, which is expressed in roughly

similar terms to r 13.8.1.

[88] Lord Bingham of Cornhill said:

[22] … The parties to contested actions are often at daggers drawn, and the litigious process serves to exacerbate the hostility between them. Such clients are only too ready to make allegations of the most damaging kind against each other. While counsel should never lend his name to such allegations unless instructed to do so, the receipt of instructions is not of itself enough. Counsel is bound to exercise an objective professional judgement whether it is in all the circumstances proper to lend his name to the allegation. As [paragraph 606] recognises, Council could not properly judge it proper to make such an allegation unless he had material before him which he judged to be reasonably credible and which appeared to justify the allegation. … [A]t the preparatory stage the requirement is not that counsel should necessarily have before him evidence in an admissible form but that he should have material of such character as to lead responsible counsel to conclude that serious allegations could properly be based upon it.

15 Rondel v Worsley [1969] 1 AC 191 (HL). 16 Medcalf v Mardell [2003] 1 AC 120 (HL).

20

[89] In Lawyers’ Professional Responsibility the learned author describes the

position in Australia as follows:17

As to disciplinary proceedings, the Full High Court in Clyne v New South Wales Bar Association explained the relevant law as follows:

Cases will constantly arise in which it is not merely the right but the duty of counsel to speak out fearlessly, to denounce some person or the conduct of some person, and to use such strong terMs as seemed to him in his discretion to be appropriate to the occasion. From the point of view of the common law, it is right that the person attacked should have no remedy in the courts. But, from the point of view of a profession which seeks to maintain standards of decency and fairness, it is essential that the privilege, and the power of doing harm which it confers, should not be abused. Otherwise grave and irreparable damage might be unjustly occasioned.

(Citation omitted)

[90] Rule 13.8.1 — which mirrors the principle articulated by the House of Lords in

the two decisions referred to above — requires a lawyer to take appropriate steps to

ensure that reasonable grounds exist for pleading damaging allegations. If a lawyer is

not persuaded that reasonable grounds exist then this may amount to good cause

under r 4, for the lawyer to refuse to accept those instructions as to do so would put

them in breach of a professional duty.

[91] Whether there are “reasonable grounds” is an objective test: would a

competent and diligent lawyer in possession of the facts conclude that there is an

arguable case for pleading serious allegations?

[92] Mrs YP was described by Ms XC’s counsel, and by Ms XC, as a well-informed

client by the time she instructed Ms XC, in early (but after February) 2009. She had by

then been represented by a leading counsel in relationship property, who had

apparently told her that she may have a claim against the M partnership.

[93] Mrs YP’s self-penned emails to Mr W in February 2009 reveal a clear and

firmly expressed view by her that Mr W had acted deceitfully, duplicitously and

negligently towards her. Mrs YP’s language was the language contemplated by

r 13.8.1: fraud, dishonesty and other reprehensible conduct.

[94] Ms RG has submitted that in the face of a well-informed client with knowledge

of fiduciary duties providing clear instructions, Ms XC was obliged to accept the

instructions and frame the pleadings accordingly. She referred to the r 4 requirement

that a lawyer “must not, without good cause, refuse to accept instructions”.

17 GE Dal Pont Lawyers’ Professional Responsibility (6th ed, Thomson Reuters, Sydney, 2017) at [5.315].

21

[95] I do not agree with Ms RG’s blanket submission that because of the way in

which Mrs YP presented — well-informed and clear — Ms XC was thereby obliged to

draft pleadings based upon those instructions.

[96] It is clear from r 13.8.1 that counsel is not able to simply take client

instructions at face value where issues of fraud and the like are alleged. Counsel must

take appropriate steps to satisfy themselves that there are reasonable grounds for

making the allegation.

[97] This would be the case no matter how well-informed a client might be about

the facts or even the law. Any client will be emotionally invested in their case and this

will undoubtedly cloud factual views and legal understanding.

[98] Indeed, r 5.3 requires a lawyer to “give objective advice to the client based on

the lawyer’s understanding of the law”.

[99] Nor is it relevant that another lawyer — Mrs YP’s relationship property lawyer

— had apparently expressed their view that she may have a claim against

M partnership.

Appropriate steps

[100] Not without some reservations, I am satisfied that Ms XC took “appropriate

steps” before determining whether there were reasonable grounds for making the

serious allegations.

[101] For example, her first statement of claim (although wrongly naming the

M partnership as the only defendant, rather than the individual partners as separate

defendants) did not include any of the serious allegations, despite Mrs YP’s instructions

that those allegations should be pleaded.

[102] Ms XC’s tactic appears to have been one of drawing out further information

through the process of discovery. At some point she also applied to join Mr YP’s father

as a defendant and, as well, sought non-party discovery against Mr YP senior and the

Trustees of a trust.

[103] As to my reservations about whether Ms XC took sufficiently “appropriate

steps”, given that she was contemplating allegations against a law firm of the most

serious kind — fraud and money laundering — she could also have considered

whether to use the interrogatories process in an effort to draw out relevant information.

Further, it is not clear to me whether Ms XC sought independent expert advice about

22

the conduct and the transactions she was intending to impugn; for example, from a

forensic accountant.

[104] Nevertheless, I accept that Ms XC initially adopted a cautious approach by

declining to plead the serious allegations about which she had been instructed. She

took an appropriate step of filing a statement of claim designed to provide opportunity,

through the process of discovery, to develop the theory of the case about which her

client had instructed her.

Reasonable grounds:

[105] Ms XC’s advice to Mrs YP appears to have been that as her former lawyers,

M partnership owed her ongoing duties of loyalty including to ensure that she was

protected in the event of any separation and potential relationship property claim.

Further, M partnership’s (specifically Mr W’s) conduct (both before and after Mr and

Mrs YP separated) deliberately and dishonestly undermined Mrs YP’s potential future

rights. This conduct included money laundering.

[106] Ms WL (and Mr HF) are particularly concerned about Ms XC’s third and fourth

amended statements of claim. It was the striking out of the fourth amended statement

of claim which brought the litigation to an end.

[107] I observe that a total of five statements of claim were filed: an initial statement

of claim plus four amended versions. The second amended statement of claim was the

subject of strong criticism by an associate judge and the fourth amended statement of

claim was struck out by an associate judge who also levelled strong criticism at that

pleading.

[108] There were other criticisms of the pleadings by the High Court at various of

the interlocutory stages, though none quite as trenchant as in the three judgments that

I have specifically referred to.

[109] The partners of M partnership applied to strike out Ms XC’s second amended

statement of claim. The High Court’s judgement in relation to that application was the

first of the three in which Ms XC’s pleadings were strongly criticised.

[110] Faire AJ was highly critical of the second amended statement of claim,

signalling that it lacked particularisation and cautioning against simple repetition in a

subsequent pleading.18 I have referred above at [46]–[49] to His Honour’s other

criticisms of the second amended statement of claim.

18 At [41]–[47] above.

23

[111] However, the second amended statement of claim was not struck out. What

appears to have saved it were Ms XC’s submissions that she would better particularise

her allegations once further discovery, including non-party discovery, had been

completed.

[112] The Associate Judge was prepared to allow Ms XC that opportunity. The fact

that the second amended statement of claim was not struck out, would tend to support

a submission that Ms XC was then still in the process of taking appropriate steps to

ascertain whether reasonable grounds existed.

[113] The third and fourth amended statements of claim were much more

extensively pleaded than the second amended statement of claim. As an illustration,

the second amended statement of claim ran to 57 paragraphs; the third amended

statement of claim was exactly double that at 114 paragraphs and the fourth amended

statement of claim ran to 137 paragraphs.

[114] The third and fourth amended statements of claim add to the earlier pleaded

allegations of breaches of fiduciary duties, allegations of equitable fraud and fraudulent

money-laundering by the partners of M partnership.

[115] Included in the fourth amended statement of claim is an allegation of

fraudulent assistance by the partners to defeat Mrs YP’s claim or rights under the

Property (Relationships) Act 1976 (PRA).

[116] I have referred above to three substantive judgements of the High Court in

relation to the proceedings issued by Mrs YP against M partnership: those judgments

dealt with applications to strike out the second and fourth statements of claim.19

[117] As Ms WL said to the Complaints Service, the fact that pleadings are struck-

out generally does not of itself indicate incompetence or misconduct by counsel.

[118] Academic commentary and case law suggests that some latitude is to be

extended to counsel when making an assessment as to whether reasonable grounds

exist for pleading serious allegations such as fraud.

[119] Ms XC said that when instructed by Mrs YP, which included Mrs YP’s views

about Mr W’s conduct, she did not regard Mrs YP’s potential claim against

M partnership as “untenable”.

19 At [38]–[56] above.

24

[120] Ms XC has deposed that discovery led to her pleading “the more serious

allegations of deliberate wrongdoing”. She said that the discovery:

revealed a number of what appeared to [Mrs YP] to be unusual transactions relating to entities associated with [Mr YP], at a time when [Mr and Mrs YP] were disputing the division of their relationship property in the Family Court.

[121] Ms XC was also concerned about Mr YP’s claim to “poverty” when Mrs YP

instructed that he continued to lead an “affluent lifestyle”. This concern was given

some credence by comments by an associate judge in relation to proceedings between

Mr YP and creditors.

[122] As well, Ms XC considered that the family relationship between Mr W and Mr

YP would have meant that Mr W knew that relationship property matters had not been

resolved, at a time when Mr W was advising Mr YP about restructuring his business

arrangements.

[123] Ms XC’s efforts were not entirely without success as she was able to obtain

funds on behalf of her client, that had been held by Mr YP’s father on behalf of Mr YP.

This came about as a result of non-party discovery applications pursued by Ms XC on

behalf of Mrs YP.

[124] Ms XC concluded, on the basis of her instructions from Mrs YP (which

included substantial background factual information built up over the course of an

almost-15 year relationship), the material provided by discovery and her own

assessment of the facts, the documents and the law, that reasonable grounds existed

for her to make the allegations of serious wrongdoing that appeared in the third and

fourth amended statements of claim.

[125] Objectively (for that is the test), did Ms XC have reasonable grounds to plead

the serious allegations?

[126] An associate judge and a High Court judge disagreed with Ms XC’s

conclusions about the facts, causation and in some cases the law. But as it has often

been observed, lawyers are not infrequently held by a judge to have been wrong

without that raising conduct issues. Indeed, from time to time appellate judges hold

that lower court judges have been wrong. This is the nature of contested litigation.

[127] However, I cannot overlook the trenchant criticisms of Ms XC’s pleadings by

the associate and High Court judges. These were not merely statements of judicial

disagreement about a legal principle or a quibble about how facts might fall.

25

[128] Gendall AJ condemned the fourth amended statement of claim as being

“speculative and unsubstantiated”.20 “Unsubstantiated” carries with it the notion that

there were no grounds to make the allegations, let alone any reasonable grounds.

[129] The judgment concluded with Gendall AJ saying that the pleadings “were not

capable of effective repair and are once more a ‘total write-off’”.21 Again, this clearly

indicates that there were no reasonable grounds for any of the causes of action, let

alone those comprising serious allegations.

[130] Woolford J described the fourth amended statement of claim as “prolix and

convoluted” and said that Ms XC had “substantially misconstrued the obligations of a

firm of solicitors such as [M partnership] when acting for a husband and wife and a

business run by the husband”.22

[131] In referring to aspects of the written and oral submissions made by Ms XC,

Woolford J said that:23

these and many other bald assertions do not suffice to put forward a prima facie case. The defendants do not have to produce evidence to disprove such bald assertions. It is for [Mrs YP] to establish a reasonably arguable cause of action. This she has consistently failed to do.

(emphasis added)

[132] The role of this Office is to review decisions about lawyer conduct that has

been inquired into by a Standards Committee. Lawyer conduct is measured against

the Act and the Rules.

[133] In particular I am required to consider whether Ms XC took appropriate steps

to ensure that reasonable grounds existed for pleading the serious allegations against

the M partnership.

[134] When assessing whether or not a lawyer had reasonable grounds for pleading

serious allegations, it is not the role of this Office to undertake an analysis of the facts

and the law relating to a particular cause of action. Indeed, this Office has no

jurisdiction to determine the law and must accept what a court of record has said about

that.

[135] Here, I have the benefit of two comprehensive judgments of the High Court in

which the Court has expressed strong criticism of all of the causes of action pleaded by

20 [case citation removed]. 21 At [61]. 22 [case citation removed]. 23 At [68].

26

Ms XC, not just those involving allegations of fraud, dishonesty or other reprehensible

conduct. An associate judge and after him a High Court judge on review both

characterised the fourth statement of claim as a wholly lacking in any legal merit or

factual basis and doomed to fail. It was for that reason that the statement of claim was

struck out.

[136] From a disciplinary perspective judicial criticism of a lawyer must be looked at

carefully. However, I cannot overlook what has been said by the High Court about

Ms XC’s fourth statement of claim. On any view of the judgments, the Court was

saying that Ms XC had no reasonable grounds for pleading any of her causes of action,

let alone those alleging fraud, money laundering and a conspiracy to deprive Mrs YP of

access to legal rights and remedies.

[137] I find that Ms XC is guilty of breaching r 13.8.1 of the Rules in that reasonable

grounds did not exist for her to plead allegations of fraud, dishonesty and other

reprehensible conduct against the partners of M partnership, including Ms WL and

Mr HF. For this breach I impose a finding of unsatisfactory conduct.

[138] For completeness I emphasise that this finding relates only to the fourth

amended statement of claim. I am mindful that Ms WL’s and Mr HF’s complaint

concerned the third and fourth amended statements of claim. Those statements of

claim were filed eight months apart. There are some differences between the two

pleadings although both plead serious allegations of fraud and other dishonesty.

[139] However, application was only made by the M partnership to strike out the

fourth amended statement of claim. Judicial analysis and criticism concerned the

application to strike out the fourth amended statement of claim, and it is that analysis

and criticism which has informed my assessment that reasonable grounds did not exist

to make the allegations in that pleading.

[140] I am mindful also that allegations of fraud and dishonesty were pleaded in the

second amended statement of claim, and that the partners of M partnership applied to

strike that pleading out. However, although he was critical of the pleading Faire AJ

declined to strike it out on the grounds that Ms XC had indicated that further and more

directed discovery would lead to a more particularised pleading.

Courting publicity

[141] In its decisions, the Committee notes that both Ms WL and Mr HF raised as an

issue of complaint that Ms XC had improperly sought to attract media attention to

Mrs YP’s proceedings against the M partnership.

27

[142] The Committee noted in its decision on Ms WL’s complaint that Ms XC denied

this issue of complaint, and through her counsel had said that “journalists were free to

report on any matter heard in open court, and that any interest taken in the case was

beyond the control of Ms XC”.24

[143] Although noting that as an issue of complaint, the Committee did not make a

finding about it in either decision.

[144] I do not accept that Ms XC “courted publicity” as was complained about by

both Ms WL and Mr HF. The complete answer to that (putting to one side Ms XC’s

denial of having done so) is that the proceedings were open to the public and the

media, who were free to report what took place.

Penalty

[145] The allegations pleaded by Ms XC, which included fraud, money laundering

and conspiring to defeat Mrs YP of actual or potential rights and remedies under the

PRA, are amongst the most serious that can be levelled against a firm of lawyers.

They include allegations of criminal offending.

[146] I am mindful that Ms XC was dealing with a well-informed client who was

giving her very specific instructions. Frequently for lawyers there is a tension between

instructions given, and wider duties to the court and to third parties.

[147] A lawyer is required to give their client objective advice arrived at following the

exercise of independent professional judgement and based upon their understanding of

the law.25

[148] Ms XC appears to have initially advised Mrs YP that reasonable grounds did

not exist to plead the serious allegations, consistent with her obligations under rr 5.3

and 13.8.1. Although I am persuaded that initially Ms XC took appropriate steps, I am

not satisfied that there were reasonable grounds for her to have pleaded those

allegations. It is not enough for Ms XC to have said that she considered that there

were reasonable grounds to do so; objectively, plainly there were not.

[149] In the circumstances I consider that Ms XC’s conduct warrants the imposition

of a fine of $3,500. The fine is to be paid to the New Zealand Law Society within 30

days of the date of this decision.

24 Standards Committee determination on Ms WL's complaint at [16]. 25 Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008, r 5.3.

28

Costs

[150] Where a finding of unsatisfactory conduct is made or upheld against a

practitioner on review it is usual that a costs order will be imposed. I see no reason to

depart from that principle in this case.

[151] Taking into account the Costs Guidelines of this Office, Ms XC is ordered to

contribute the sum of $1,200 to the costs of the review, that sum to be paid to the New

Zealand Law Society within 30 days of the date of this decision.

[152] The order for costs is made pursuant to s 210(1) of the Lawyers and

Conveyancers Act 2006.

Enforcement of costs order

[153] Pursuant to s 215 of the Lawyers and Conveyancers Act 2006 I confirm that

the order for costs made by me may be enforced in the civil jurisdiction of the District

Court.

Decision

[154] Pursuant to s 211(1)(a) of the Lawyers and Conveyancers Act 2006 the two

decisions of the Standards Committee to take no further action on the complaints of

Ms WL and Mr HF that Ms XC breached r 13.8.1, are reversed. In their place:

(a) Ms XC is guilty of unsatisfactory conduct for breaching rule 13.8.1 in

relation to the fourth amended statement of claim.

(b) Ms XC is fined the sum of $3,500, such sum to be paid to the New

Zealand Law Society within 30 days of the date of this decision.

(c) Ms XC is to pay costs of $1,200, such sum to be paid to the New

Zealand Law Society within 30 days of the date of this decision.

Anonymised publication

[155] Pursuant to s 206(4) of the Act, this decision is to be made available to the

public with the names and identifying details of the parties removed.

29

DATED this 16th day of May 2019

_____________________

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: Ms WL and Mr HF as the Applicants Ms XC as the Respondent Ms RG as counsel for Ms XC Ms TD as the Related Person [Area] Standards Committee [X] New Zealand Law Society