HONG v AUCKLAND STANDARDS COMMITTEE NO 5 [2020] NZCA 561

HONG v AUCKLAND STANDARDS COMMITTEE NO 5 [2020] NZCA 561 [12 November 2020]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA401/2020[2020] NZCA 561BETWEEN BOON GUNN HONGApplicantAND AUCKLAND STANDARDS COMMITTEENO 5RespondentCourt: Kós P and Cooper JCounsel: Applicant in PersonP N Collins for RespondentJudgment:(On the papers)12 November 2020 at 10 amJUDGMENT OF THE COURTA The application for leave to appeal is declined.B Mr Hong must pay the Standards Committee's costs calculated for astandard application for leave to appeal on a Band A basis.____________________________________________________________________REASONS OF THE COURT(Given by Cooper J)Introduction[1] The applicant, Mr Hong, seeks leave to appeal to this Court under s 254(1) ofthe Lawyers and Conveyancers Act 2006 (the Act) against a determination of Gault Jin the High Court dismissing Mr Hong's appeals against decisions of the New ZealandLawyers and Conveyancers Disciplinary Tribunal (the Tribunal).1 The application tothis Court is necessary because the Judge declined leave to appeal on the basis thatthe intended appeal did not raise questions of law that by reason of their general orpublic importance or for any other reason ought to be submitted to this Court fordecision.2[2] The High Court judgment dealt with two decisions of the Tribunal. In the first,referred to by the Judge as the liability decision, the Tribunal considered Mr Hong'sconduct of refusing to make client files available as requested by an audit inspectoremployed by the New Zealand Law Society to conduct a general trust account reviewof Mr Hong's solicitor's trust account.3 The Tribunal held that Mr Hong had a duty tomake the files available under reg 29 of the Lawyers and Conveyancers Act(Trust Account) Regulations 2008 (the Regulations).4 It rejected an argumentadvanced by Mr Hong that he was entitled to refuse to do so in circumstances wherethe files contained information confidential to the clients and the clients had not agreedto him handing the files over.5 Mr Hong also justified his refusal to providethe information on the basis of a narrow interpretation of the definition of "trustaccount records". He maintained that expression, as used in the relevant provisions ofthe Regulations, was limited to records relating to the trust account or to trust moneyreceived. The Tribunal accepted the argument of the Auckland Standards CommitteeNo 5 (the Standards Committee) that the definition was more comprehensive.6[3] The Tribunal found that Mr Hong's actions amounted to misconduct unders 7(1)(a)(ii) of the Act, which relevantly defines "misconduct" as meaning conduct"that consists of a wilful or reckless contravention of any provision of this Act or ofany regulations made under this Act that apply to the lawyer". The Tribunalconsidered that Mr Hong's conduct was a "wilful" contravention of the Regulations.71 Hong v Auckland Standards Committee No 5 [2020] NZHC 744 [High Court judgment].2 Hong v Auckland Standards Committee No 5 [2020] NZHC 1572 [High Court leave judgment] at[13].3 Auckland Standards Committee No 5 v Hong [2019] LCDT 28.4 At [30].5 At [31]–[32].6 At [27].7 At [35].[4] The High Court took the same view holding that, in the circumstances of thiscase, Mr Hong's refusal to make the files available for inspection was contrary tohis obligations under reg 29 of the Regulations.8 The Judge also concluded thatMr Hong had refused to permit the inspector to perform the review, buthe acknowledged Mr Hong had done so in the mistaken belief that he was onlyrequired to produce trust account records and that client confidentiality prohibited himfrom disclosing client files.9 The Judge determined:[64] In the particular circumstances, even accepting Mr Hong'scontravention was not a "wilful" contravention, I consider it was reckless. He was persistent in his obstruction of the inspector's trust account review andfailed to acquaint himself with his legal obligation to permit the inspector tocarry out the review notwithstanding client confidentiality, and his obstructionhad the effect of compromising the inspector's trust account review. Withoutthose features, his contravention of reg 29 may more appropriately have beencharacterised as unsatisfactory conduct in terms of s 12(c) of the Act. But inthe circumstances, I conclude that Mr Hong's actions amounted to misconductin terms of s 7(1)(a)(ii) of the Act.[5] In its second decision, the Tribunal dealt with the appropriate penalty.10The Tribunal made orders suspending Mr Hong from practice for three months,prohibiting him from practising on his own account until approved to do so bythe Tribunal and ordering him to pay costs to the Standards Committee of $35,850.[6] The High Court quashed the order for payment of costs in the sum of $35,850,and substituted an order for payment of $30,850.11 The appeals were otherwisedismissed.The requirement for leave[7] Under s 254 of the Act, any party to the proceeding in the High Court may seekleave to appeal to this Court. Initially, the application is to the High Court, but if thatCourt refuses leave, this Court may grant leave in the circumstances set out in s 254(2).That subsection provides:In determining whether to grant leave to appeal under this section, the Courtof Appeal must have regard to whether the question of law involved in8 High Court judgment, above n 1, at [53].9 At [59].10 Auckland Standards Committee No 5 v Hong [2019] LCDT 40.11 High Court judgment, above n 1, at [97].the appeal is one that, by reason of its general or public importance or for anyother reason, ought to be submitted to the Court of Appeal for its decision.[8] The authorities are clear that leave to appeal may be granted only in caseswhere the appeal raises one or more questions of law capable of bona fide and seriousargument, and the case involves some interest, public or private, of sufficientimportance to outweigh the cost and delay of a further appeal. Ultimately, the questionis whether granting leave is in the interests of justice.12 The applicant mustdemonstrate that the alleged error of law is sufficiently important to "justify furtherpursuit of litigation which has already been twice considered and ruled upon bya Court".13The proposed questions of law[9] Mr Hong identifies no less than five separate questions in relation tothe misconduct finding. A further two questions are claimed to arise out ofthe penalties imposed and two more questions are set out in relation to the order thathe pay costs.Misconduct questions[10] The first question asks whether, under the relevant provisions of the Act andRegulations, the audit inspectorate of the New Zealand Law Society could requireproduction of "non trust account records or documents of Clients from a Lawyer whenthe Clients of that Lawyer had refused to grant consent and instructed [the lawyer] notto release their files (other than trust account records)".[11] The High Court rejected Mr Hong's argument and held that a narrow readingof the term "trust account records" in the Regulations would be contrary to the purposeof maintaining public confidence and protecting consumers of legal services.14[12] Section 6 of the Act defines the term "trust account records" broadly:12 Deliu v National Standards Committee of the New Zealand Law Society [2015] NZCA 399 at[18(c)].13 Waller v Hider [1998] 1 NZLR 412 (CA) at 413.14 High Court judgment, above n 1, at [49].trust account records—(a) means records relating to a trust account; and(b) includes any information which relates to a trust account and whichis recorded or stored by means of any tape-recorder, computer, orother device, and any material subsequently derived frominformation so recorded or stored[13] There is a more detailed definition in reg 3 of the Regulations. There, "trustaccount records" are defined as meaning, "in relation to a practitioner":(a) all records (including all books, papers, files, accounts, statements,invoices or copies of invoices, documents, receipts and evidence ofauthority for payments, cheques, securities, and trust receipt formsused and unused) relating to the practitioner's trust accounts or totrust money received by the practitioner, whether kept in writing oron computer or machine or in any other manner; and(b) if any of those records are kept on computer, includes the relevantcomputer equipment and software[14] It is clear from the definition in reg 3 that the concept of trust account recordsincludes not only what might be described as the primary financial records, but alsorelates to "files", "documents" and "evidence of authority for payments" to name justsome of the categories referred to. It is self-evident that further information beyondthe bare monetary transactions must be able to be the subject of legitimate inquiry byinspectors under reg 29 and other regulations in carrying out their functions. It isan important part of the protection of the practitioner's clients. The breadth ofthe definition in the Regulations confirms that to be the case. On this basis we are notpersuaded that there is a bona fide and serious argument in favour of the narrowinterpretation for which Mr Hong contends.[15] The second question proposed in Mr Hong's application concerns the findingof misconduct. The question is in the following terms:Is it lawfully correct for a Lawyer who had [a] relied on the literal meaning ofthe TAR provisions that Inspectorate did not have the power to requirethe production of non tAC RECs in my decision to abide by my clients'instructions not to release the files to Inspectorate [b] undertaken a thoroughsearch of judicial decisions affecting the interpretation of the TAR, did notfind any and decided then to challenge such as their lawyer, to be found guiltyof Misconduct pursuant to LCA, s 7(1)(a)(i) my conduct being dishonourableor disgraceful and/or being willful or reckless contravention of the said L&Rby s 7(1)(a)(ii)?[16] There are obvious infelicities in the wording of this question.15 Leaving thoseon one side, this question is couched in terms too personal to Mr Hong to qualify asa question of "general or public importance". We have already quoted the key passageof the High Court judgment.16 Mr Hong essentially seeks to argue that becausehe acted in accordance with his view of his legal obligations, he should not have beenfound to have acted recklessly. That is tantamount to claiming he was entitled to actin accordance with his view of the law even though it was untenable. The justificationfor his approach is the claim that he carried out a thorough search for relevantprecedent. But a straightforward reading of the relevant provisions of the Act andRegulations did not require research. Further, his research was clearly not thorough(as will be apparent when we discuss the next proposed question). In addition, thereis no suggestion he took independent advice. Once again, we do not consider that thisis a question capable of bona fide and serious argument.[17] The third proposed question is whether reg 33, which requires the inspectoratenot to disclose information that is obtained in the course of the review of the trustaccounts of a practice, will "protect us lawyers, if we go against the Clients'instructions releasing the non tAC RECs in their Files to Inspectorate, whenthe Clients do not trust Inspectorate and had refused consent and instructed us not torelease such?" The wording of this question again appears to turn on Mr Hong'snarrow interpretation of "trust account records" but to the extent it does not, it is clearfrom the wording of the Regulations that the practitioner's obligation is to providethe documents necessary to comply with the inspectorate's requests. Under reg 29,every practice "must":(a) permit the inspectorate to perform a review of the trust accounts ofthe practice; and(b) produce to the inspectorate any trust account records of the practicethat the inspectorate requires, and assist the inspectorate to take copiesof those records; and(c) give to the inspectorate any information relating to the trust accountrecords of the practice that the inspectorate may require; and(d) take all practicable steps to obtain from a client any informationrelating to trust money required from that client by the inspectorate.15 We have assumed that "TAR" was intended to refer to the relevant provisions of the Regulationsdealing with trust account records, and "tAC RECs" is a reference to trust account records.16 See above at [4].[18] It is in this context that reg 33(1) obliges the inspectorate not to disclose to anyperson any information that the inspectorate has obtained in the course of a review ofthe trust accounts of a practice.[19] There are exceptions in reg 33(2), some of which are designed to enablethe procedure set out in the Act to work. Another example is where the information isrequired by any member of the police or Serious Fraud Office acting inthe performance of their duties. There is nothing difficult or controversial in this.It reflects the law summarised by Duncan Webb, Kathryn Dalziel and Kerry Cook inthe text Ethics, Professional Responsibility and the Lawyer:17Lawyers are subject to rigorous supervision by the Law Society. To ensuresuch supervision is effective, the Society has the power to inspect andinvestigate lawyers' affairs. Such inspections necessarily requirethe disclosure of clients' affairs, but are justified on the basis that suchinspections are in the client's best interests to protect against dishonest orincompetent advisers. Further, the harm from the disclosure is minimal asthe information disclosed remains confidential and, in most circumstances,goes no further than the inspecting officers. In such cases, the disclosureis effectively required by law, so displaces the duty of confidence usuallyowed by a lawyer.[20] It is also in accordance with the position in England, discussed in Parry-Jonesv Law Society, and succinctly summarised by Lord Denning MR:18In my opinion the contract between solicitor and client must be taken tocontain this implication: the solicitor must obey the law, and, in particular, hemust comply with the rules made under the authority of statute for the conductof the profession. If the rules require him to disclose his client's affairs, thenhe must do so.[21] The contrary position which Mr Hong apparently wishes to assert is notseriously arguable. The proposed question must be rejected for that reason.[22] The fourth proposed question asks whether the inspectorate is empowered tofile a report with the New Zealand Law Society under reg 32 when it had "none ofthe causes as defined therein from its review of the months' trust transactions that ithad selected for the review?" This appears to be a new issue, not dealt with in17 Duncan Webb, Kathryn Dalziel and Kerry Cook Ethics, Professional Responsibility andthe Lawyer (3rd ed, LexisNexis, Wellington, 2016) at [8.8.3] (footnotes omitted).18 Parry-Jones v Law Society [1969] 1 Ch 1 (CA) at 7.the High Court judgment. The question is inappropriate for that reason. The purposeof a second appeal is to correct errors in the judgment of the first appeal court,as is apparent from s 254(1) of the Act. That section contemplates a second appealwhere a party is dissatisfied with a determination of the High Court as being erroneouson a point of law. Here, the Judge made no determination about the meaningor application of reg 32, because he was not asked to do so.[23] But the question is also inappropriate for another reason. Regulation 32(1)relevantly provides that the inspectorate is required to give a report of the results ofa review of the trust accounts of a practice as soon as practicable after the completionof a review. But the report need only be made when the inspectorate has reasonablecause to suspect one or other of the matters listed under reg 32(2). These includevarious problems with trust accounts, dishonesty and failures to account for trustmonies. But other matters that may require the inspectorate to file a report includereasonable cause to suspect that:(d) there is or has been any failure by a practice to comply withthe provisions of the Act relating to trust accounts, these regulations,or any rules (being a failure that, in the opinion of the inspectorate,is material to the risk to client assets); or(e) there is any other matter relating to the duties of, and restrictions on,practices under the provisions of the Act relating to trust accounts,these regulations, or any rules that should be reported.[24] It seems that Mr Hong wishes to argue that his failure to providethe information sought by the inspectorate should not have been reported because itwas conduct which could not be brought within reg 32(2). But that is untenable:there was clearly reasonable cause for the inspectorate to conclude Mr Hong had failedto provide information relevant to the review of his trust account, in breach of hisobligations under reg 29. Both paras (d) and (e) of reg 32(2) apply. An argument tothe contrary is not capable of bona fide and serious argument.[25] The fifth question would ask whether Mr Hong had a "lawful justification orexcuse or claim of right" as a defence to the misconduct allegation. Its lengthywording (which we do not need to set out) again invokes Mr Hong's narrowinterpretation of "trust account records", his obligation to comply with his clients'instructions, his duty of confidence owed to them and his ability to resist providingthe requested information pending clarification by the courts. This is essentiallya repetition of Mr Hong's argument about the meaning of "trust account records"covering the same ground as the first and third questions. For reasons alreadyexplained we do not consider the question raises a legal issue capable of bona fide andserious argument.Penalty questions[26] Questions six and seven both relate to the penalties imposed by the Tribunal.Question six would ask whether the imposition of a penalty of suspension was lawfulwhen, under s 262 of the Act, the penalty for the offence of wilful obstruction ofan investigator is a maximum fine not exceeding $25,000. The short answer to thisproposed question is that Mr Hong was not charged with an offence under s 262 ofthe Act. Rather, he was charged with misconduct under ss 7(1)(a) and 241(a).The penalties imposed were properly within the contemplation of s 242 of the Act.Once again, the question did not appear to have been asked in the High Court andMr Hong can point to no error in the High Court judgment as a consequence. But inany event, the argument that Mr Hong apparently wishes to pursue under this questionis not capable of bona fide and serious argument.[27] Proposed question seven asks whether the three months' suspension andthe order made under s 242(1)(g) prohibiting Mr Hong from practising on his ownaccount until authorised by the Tribunal to do so was "fair and reasonable inaccordance with the objectives and purposes of the Act". This is not a question of law.Rather, it relates to the merits of the penalties imposed. The question is accordinglynot a proper subject of a second appeal.Costs questions[28] Question eight concerns the costs ordered by the Tribunal. It would askwhether they were fair and reasonable. It does not raise a question of law, still lessone that is capable of justifying a second appeal.[29] Question nine purports to ask whether the Law Society has proceeded inthe most cost expedient manner. As with the previous question it does not raisea question of law.Result[30] For the reasons we have given, the application for leave to appeal is declined.[31] Mr Hong must pay the Standards Committee's costs calculated for a standardapplication for leave to appeal on a Band A basis.Solicitors:New Zealand Law Society, Auckland for Respondent