LCRO 33/2016

CONCERNING an application for review pursuant to section 193 of the Lawyers and Conveyancers Act 2006

AND

CONCERNING a determination of the [City] Standards Committee [X]

BETWEEN GW Applicant

AND

AX Respondent

DECISION

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

been changed.

Introduction

[1] Ms GW, supported by the partners of SGS & Partners, Ms YN, Mr PY and Mr

US (SGS) who employ her have applied for a review of a decision by the [City]

Standards Committee [X] (the Committee) holding Ms GW’s conduct in relation to the

retention of the passport of a former client, TK (Ms TK), to have been unbecoming of a

lawyer and unprofessional.1

[2] The original complaint was made by AX, an immigration adviser subsequently

retained by Ms TK. Mr AX elected to take no active part in the review.

1The partners were not the subject of the original complaint, but can rely on s 153(3)(c) of the Lawyers and Conveyancers Act 2008 (the Act) and their position as related persons for their intervention before the Standards Committee and on s194(2)(c) for their review rights.

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Background

[3] In December 2017, [SGS] accepted instructions from TK, an Indian national.

At that point, she saw Ms YN.

[4] On 10 December 2014, Ms TK signed terms of engagement with [SGS] which

identified an application for a work visa and a passport for a child as the work to be

done for her. Included in paragraph 2.7 of those terms was the provision that:

Until you have paid your account in full, we shall be entitled to retain all your deeds, documents and files and all the deeds and documents and files of third parties provided to us on your behalf in relation to your work.

[5] Ms GW was then deputed to attend to Ms TK’s instructions. At some point Ms

TK gave [SGS] her Republic of India passport as it was required for submission to

Immigration New Zealand (INZ) to support the work visa application.

[6] [SGS] later rendered a tax invoice for their fees in relation to the work visa

application (which had been unsuccessful), but that was not paid within the 14 days

stipulated in the terms of engagement.

[7] In February 2015, first by phone to Ms GW and thereafter in writing, Mr AX

requested the release of Ms TK’s passport on her behalf. Mr AX had emailed Ms GW

on 20 February 2015 saying “we are actin [sic] for her student visa application under

s 61 and therefore the passport is must require documents (sic) for INZ”. On Ms YN’s

instructions that request was declined by Ms GW.

[8] At the review hearing Ms GW asserted that, once the original passport had

been so submitted to and returned by INZ (which would have copied it), re-submission

of the original document was in fact only necessary if residency was sought and I note

that the INZ website advice about applications under s 61 says “It is not necessary to

send us your original passport”.2

[9] Ms TK’s ability to stay in New Zealand (as obviously was her wish) was clearly

in distinct jeopardy once the work visa was refused unless some other kind of visa

could be obtained from INZ.

[10] [SGS] was eventually obliged to surrender the passport to INZ when it gave

notice to do so under s 281A of the Immigration Act 2009 on the basis that Ms TK had

2Immigration New Zealand “Risks of remaining in New Zealand after your visa has expired” <www.immigration.govt.nz>.

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become liable for deportation. Whatever efforts Mr AX had at any point made on her

behalf, were obviously fruitless.

The complaint

[11] Mr AX lodged a complaint with the New Zealand Law Society Complaints

Service (NZLS) on 2 March 2015 which:

(a) questioned whether Ms GW had represented Ms TK’s interests

competently; and

(b) asserted that there had been no good reason for the retention of the

passport.

The Standards Committee decision

[12] The Committee delivered its decision on 22 January 2016, and concluded:

(a) the complaint that Ms GW’s representation of Ms TK had been

incompetent should be dismissed; but that

(b) her conduct in retaining the passport on a creditor’s lien remedy basis

was unbecoming of a lawyer and unprofessional; because

(c) the effect was to seriously prejudice her freedom of movement, and in

any event; and

(d) Ms TK had no property in the passport over which a lien could be

claimed.

[13] In the Committee’s view, lawyers of good standing would regard such conduct

as unacceptable. Thus there had been unsatisfactory conduct as defined in s 12(b) of

the Act.

[14] It therefore:

(a) fined Ms GW $1000;

(b) ordered her to pay $950 costs;

(c) reprimanded her; and

(d) directed the return of the passport if that had not already occurred

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[15] Considering it to be in the public interest to do so, the Committee also ordered

pursuant to s 142(2) of the Act that an anonymised summary of its decision should be

published as the New Zealand Law Society saw fit.

Application for review

[16] The lawyers filed an application for review on 2 March 2016. The outcome

sought is cancellation of the orders made including that for publication.

[17] In essence, they submit that:

(a) the decision that [SGS] was not entitled to claim a lien over the passport

and retain it on that basis was wrong in law;

(b) the decision not to release the passport was that of Ms YN, as Ms GW’s

supervising partner; and

(c) [SGS] held a belief, based on case law, in a right of retention and so no

question of unsatisfactory conduct arose.

[18] Mr AX was invited to comment on the review application. He explained that

his client had left New Zealand and he was not now in touch with her, so he had no

additional information to add. He could only reiterate that she had “suffered in this

scenario”. He has taken no further part in the current process.

Review Hearing

[19] I heard Ms GW and Mr PY (speaking for her and [SGS]) at an applicant only

hearing on 1 February 2018.

[20] The hearing was conducted by me and Mr Joyce QC, a delegate duly

appointed pursuant to cl 6 of sch 3 of the Lawyers and Conveyancers Act 2006 (the

Act) who, within the scope of his statutory delegation, has shared with me the task of

investigating the merits of this review.

[21] However, and as the Act requires, the final determination of the outcome of

this review, as set out in this decision, is made by me following my personal

consideration of all relevant matters.

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Nature and scope of review

[22] 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.

[23] 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.

[24] 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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Analysis

Preliminary

[25] Before the Committee (to which [SGS] made submissions for Ms GW and on

its own account) the fundamental position advanced was that retention of the passport

was fully justified.

[26] Although those submissions made reference to Ms GW acting on the direction

of Ms YN, that (as, having heard from her and considered the contemporary

documentation, I accept was the factual case) was not pressed before the Committee

as a complete answer to the complaint. That no doubt explains why it was not an issue

that figured in the determination of the Committee.

[27] It was only in further written submissions lodged on the eve of the 1 February

2018 hearing that [SGS] sought to contend that the first and fundamental point in the

given circumstances was that Ms GW should not be held liable for unsatisfactory

conduct because her material acts or omissions had been in complete conformity with

her employers’ directions — specifically those of Ms YN.

[28] A review is generally confined to the issues determined by the Committee.

The High Court has recognised that I am entitled to make my own investigations, but

that does not derogate from the general principle that reconsideration of a judicial or

(as here) quasi-judicial decision should not involve consideration of it as a new case

with different or further issues. That principle ensures that in this jurisdiction those

concerned can have the benefit of a committee adjudication5 with review rights6 on all

of the issues in question.

[29] However, given that this is a case where the complainant/respondent has

chosen not to participate in the review process and with Ms GW the sole subject of the

complaint he made, there would be nothing to be gained by returning the case to the

Committee.

[30] I shall deal with this review by reference to these issues:

(a) Whether as a matter of law a lawyer may be entitled to claim a lien on

account of unpaid fees over, and so retain for that purpose, a passport.

5 Comprised of practising lawyers and a lay member. 6 Determined by someone well qualified for the task who is not a practising lawyer.

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(b) Whether, in any event, such retention may amount to unsatisfactory

conduct.

(c) Whether, if retention would amount to unsatisfactory conduct, an

employee lawyer who retains a passport can avoid such a finding

because they acted on the instructions or directions of a principal of the

employer firm.

Right of retention by way of lawful lien?

Preliminary

[31] The LCRO is not a court of record with the power authoritatively to determine

general law issues such as the scope of a lawyer’s lien. But, and this is such a case,

matters of general law — or of mixed fact and law — often arise in the disciplinary

context so as to render some consideration of them unavoidable.

[32] A useful starting point in this case is the purported compass of the lien

provision as spelt out in [SGS]’s engagement agreement form signed by Ms TK. The

lawyers rely on the term of that which materially reads:

… Until you have paid your account in full, we shall be entitled to retain all your deeds, documents and files or the deeds, documents and files of third parties provided to us on your behalf in relation to your work. (emphasis added)

[33] It was apparent from the course of discussion at the review hearing that

immigration work forms a significant part of [SGS]’s practice. It requires no particular

direct evidence to recognise that this raises a special set of fee recovery problems.

[34] The clientele will often be financially insecure, will generally have few if any

assets of substance in the jurisdiction and their foothold in New Zealand will be

tenuous. It is not I think an overstatement to suggest that their most precious

possession will be their passport. Thus if [SGS] can retain that, by way of lien, its

position regarding fee payments is likely to be much more secure. That is what

underlies this case.

[SGS’s] case

[35] [SGS] contends that the New South Wales Court of Appeal case of Xu v

Council of the Law Society of New South Wales stands persuasively for the law being

that one such as Ms TK is bailee of her passport vis a vis the Indian Government which

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owns it with [SGS] enjoying sub-bailee status (reinforced by cl 2.7) sufficient to render

the document amenable to their lien claim.7

Origin and scope of lawyers’ lien rights

[36] Thomson Reuters Westlaw notes that:8

… Lawton LJ said in Woodworth v Conroy, the kind of work … professionals do is “very different from that of a craftsman who is making or repairing a chattel”, but the law has recognised that “arbitrators, architects, conveyancers and parliamentary agents” all have particular liens and “solicitors, bankers, factors, stockbrokers and insurance-brokers” have long had general liens.

The right of a lawyer to retain personal property of a client until his or her fees have been paid has been recognised since at least the 18th century. Lord Mansfield stated the proposition in Welsh v Hole without seeing any need to provide authority. The lien takes two forms: the lien against property of the client in the possession of the lawyer, and the lien against the fruits of the lawyer’s work. The existence of these two liens was recognised by the Court of Appeal in Shand v MJ Atkinson Ltd (in liq) ... In most jurisdictions there is some form of statutory recognition of the first lien, and the second lien has been either superseded or added to by statute. In New Zealand there is no statutory lien, but there is statutory preservation of liens that the lawyer may otherwise have in relation to money9.

There are significant limits to the lien. In particular, the documents must have been delivered to the lawyer to be worked upon in the capacity of lawyer, rather than in his or her personal capacity or merely for safekeeping. If the papers are intended to be deposited with the lawyer for a particular purpose and not be subject to the general lien, then according to the Sterling case special arrangements are needed. It may well be sufficient to state the sufficient purpose. For example, the High Court of Australia saw it as important that documents were delivered to the lawyer for the “sole” purpose of registering a change of ownership. To avoid doubt, stating that the documents are to be returned when the purpose for which they are given to the lawyer is achieved or abandoned will almost certainly prevent a lien.

Another limitation is that the fees must actually be payable before they can be relied upon to support a lien. At the very least, the lawyer must have submitted an account for those fees. By reg 9 of the Lawyers and Conveyancers Act (Trust Account) Regulations 2008, trust accounts are not to be debited with fees unless either a dated fees invoice has been issued (and delivered or posted to the client) or written authority has been obtained from the client.

[37] In Leeper v Primary Producers’ Bank of Australia Ltd (in Liq) the High Court of

Australia’s majority judgment said in relation to lawyers’ retention of a certificate of title

provided for the purpose of preparation and registration of a transfer that:10

7 Xu v Council of the Law Society of New South Wales [2009] NSWCA 430, (2009) 236 FLR 480. 8 Equity – A to Z of New Zealand Law (online ed, Thomson Reuters) at [7.701]. The case citations upon which Westlaw relies have been omitted from all excerpts which follow. 9 Section 113(2) of the Act. 10 Leper v Primary Producers’ Bank of Australia Ltd (in Liq) (1935) 53 CLR 250.

9

… A solicitor’s general lien extends to documents which have come into his possession in this professional capacity even for a particular purpose, at any rate after that purpose has been served.

[38] In a separate judgment Starke J said:

A solicitor has, no doubt, a right to hold papers of his client, which come to him in the course of business in his professional capacity, until his bill is paid. The lien, unless limited, is general, and it is not confined to the particular occasion on which the papers are delivered. But a lien may be excluded by contract, or the exclusion may be inferred from the conduct and course of dealing between the parties. …

Public Policy

[39] Westlaw goes on to say11:

The whole question of whether public policy continues to favour the lawyer’s particular lien was answered affirmatively by the High Court (Thomas J) in Re H & W Wallace Ltd (in liquidation). The Official Assignee had argued that lawyers should just stand in line like any other unsecured creditor, and to privilege them was “archaic”. Thomas J noted that the original justification for the lien was that if lawyers were not so protected, they would not assist “needy people” who were in danger of insolvency. He saw the justification as more broadly based, founded on the rights of access to the courts and to legal representation. The increasing cost of litigation was putting it out of the reach of citizens with meritorious claims. Abandoning the lawyer’s particular lien would simply make things worse, as lawyers could be expected to be unwilling to undertake litigation. He also noted that lawyers are often not paid in advance for litigation, and indeed take on disbursements and other liabilities with no guarantee of being paid, and that payment by the client may depend on success. …

That case did not involve a passport.

Passports

[40] A passport is an official document issued by a government, certifying the

holder's identity and citizenship and entitling them to travel under its protection to and

from foreign countries.12

[41] Section 31 of the Passports Act 1992 says:

31 Other offences

(1) Every person commits an offence who—

…

11 Thomson Reuters Westlaw, above n 8, at [7.704]. 12 Black’s Law Dictionary definition is: “evidence of permission from a sovereign to its citizens to travel to foreign countries and to return to the land of his or her allegiance as well as a request to foreign powers that such a citizen be allowed to pass freely and safely.”

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(d) without lawful authority or reasonable excuse, takes or retains in his or her possession or under his or her control a New Zealand travel document against the will of the holder.

[42] Section 33 of that Act says:

Passports, etc., are property of New Zealand Government

(1) All New Zealand travel documents issued by or on behalf of the Government of New Zealand, whether before or after the commencement of this Act, shall be the property of the Government of New Zealand.

(2) The right in a New Zealand travel document conferred on the Government of New Zealand by subsection (1) shall not be defeated or affected by any security, pledge, deposit, or encumbrance given, made or accepted in respect of the New Zealand travel document by the holder or by any other person.

(3) No holder or any other person shall give, make, or accept as a security, pledge, or deposit, or otherwise encumber, a New Zealand travel document issued by or on behalf of the Government of New Zealand, and any term of an agreement which would otherwise have that effect shall be void.

[43] Section 17 of the Passport Act 1967 of the Republic of India simply says:

17. Passport and travel document to be property of Central Government

A passport or travel document issued under this Act shall in all times remain the property of the Central Government.

[44] In Xu, the solicitor obtained the passport for surrender to the court if that were

to be (as he not unreasonably anticipated) a condition of bail. That immediate and

legitimate purpose for which the solicitor held the passport came to an end when his

instructions were terminated without bail having been granted either on the anticipated

condition of surrender of the passport or at all.

[45] His continued right to retain the passport depended upon a right to assert a

lien to secure his costs in the matter in the course of which he received the passport,

and subject to any order of the Court: s 728 Legal Profession Act 2004 (since

repealed).

[46] Xu was decided with reference to sections 6A and 9A(1)–(2) of the Passports

Act 1938 (CTH), legislation which was in force at the time of the relevant conduct in

mid-2004. Section 6A provided that an Australian passport was to always remain the

property of the Commonwealth. Section 9A set out the offences which might arise from

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the improper use or possession of a passport. These included (s 9A(1)(d)) possession

of the passport of another without reasonable excuse13.

[47] The applicable Australian law is now the Australian Passports Act 2005, which

replicates s 6A of the previous legislation in s 54, and s 9A in s 32(4).

[48] Both Acts, in affirming that passports remain the property of the

Commonwealth, achieve similar outcomes to s 33(1) of the New Zealand Act. And, as

noted above, s 17 of the Republic of India’s Passport Act 1967 says that “A passport or

travel document issued under this Act shall in all times remain the property of the

Central Government”.”

[49] Objection to asserting a lien on a passport has fundamentally rested on

argument that the property in the passport, remains the property of the issuing

government (in all the jurisdictions noted above) and that a lien cannot be exercised

over property that the client does not own.

[50] In examining this pivotal issue, the majority in Xu approached the argument by

examining the extent to which, if any, third parties could have a property interest in a

passport issued by the Commonwealth.

[51] It concluded that the attribution to it of “property” in a passport, was to be seen

as providing a basis upon which the Commonwealth could exercise its statutory powers

to control the use and misuse of documents issued by it to holders.

[52] Until the Commonwealth elected to exercise its powers in respect to the

passport, the person to whom the passport was issued also retained a “property” in the

passport. A client of a solicitor, as the holder of the passport, retained a property in the

passport. This, the Court said, brought the passport within the category of property

which might be attached by a lien. The grantee of an Australian passport, it concluded,

was a bailee at will of the Commonwealth with good title against everyone except the

Commonwealth.

[53] This analysis led the Court to conclusion that:14

The solicitor having obtained possession of the passport for a legitimate forensic purpose, was entitled to retain possession against his client, and exercise a lien over it until his proper costs and disbursements were paid or payment thereof was secured.

13 The Court in Xu did not dwell on the possible implications of this provision, but took another tack — see [67] below. 14 Xu v Council of Law Society of New South Wales, above n 7, at [54].

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[54] However, a careful reading of Xu, suggests that a degree of care must be

exercised before a lawyer elects to refuse to release a passport upon client or former

client request.

[55] Basten JA, noted that:15

A passport is not necessarily to be treated as equivalent to any other document or property of the client for the purposes of a solicitor’s lien. Rather, it is a document issued by a central government to a citizen to facilitate travel outside the country of issue.

[56] Handley AJA who delivered the majority judgment also accepted that although

a lawyer may have a lien on his client’s passport, the Court may decline to enforce it if

its exercise would deprive an impecunious client of his liberty.16

[57] In New Zealand the general ability of a lawyer to exercise a lien over a client’s

file is recognised in r 4.4.1 of the Lawyers and Conveyancers (Lawyers: Conduct and

Client Care) Rules 2008 (the Rules) which obliges a lawyer, upon any written request

to uplift documents, to release them without undue delay subject only to any lien that

the lawyer may claim.

[58] Not all documents a lawyer holds relating to the affairs of their client,

necessarily belong to the client.17 Items that are, in unqualified terms, the property of a

third party, not of the lawyer or client, cannot be the subject of the retaining lien, but

must be delivered up to that party, unless the lawyer has some valid security as against

the third party.

[59] The critical question is whether [SGS]’s right to assert a lien over Ms TK’s file

contents as security for payment of fees included a right to retain her passport.

[60] That question necessarily involves a consideration as to whether a passport is

to be treated differently from other documents that may be on a client’s file.

[61] The only New Zealand decision that has, to my knowledge, referred to the

question of whether a lawyer can assert a lien over a passport, is that of the High Court

in [AB v Z].18

[62] That case involved an appeal against a decision of the Complaints Review

Tribunal, which had held that a lawyer’s actions in retaining a client’s passport to

15 Xu at [18]. 16 Xu at [57]. 17 GE Dal Pont Lawyers’ Professional Responsibility (6th ed, Thomson Reuters, Sydney, 2017), at 133. 18 [Citation Redacted]

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secure payment of an outstanding account amounted to discrimination under the

Human Rights Act 1993. The passport in contention was an Indian passport, and the

property of the Indian Government.

[63] In an obiter observation, the Court said:

… that we have a real doubt whether it was ever possible to claim a solicitor’s lien over any passport in the first place. Clearly s 33 of the Passports Act prevents such a lien in the case of New Zealand passports.

[64] Mr PY contends that Xu should be relied on as highly persuasive and the

obiter observation in [AB], which he variously criticised in his submissions, rejected.

[65] In Commissioner of Taxation v American Express Wholesale Currency

Services Pty Ltd Dowsett J questioned the correctness of the decision in Xu by

reference to the High Court case of Palgo Holdings Pty Ltd v Gowans and the English

case of The Odessa.19 However, that questioning related to doubting whether a

pledgee could have a proprietary, as opposed to a possessory, right.

[66] Xu referred to [AB] but notes that, unlike s 33(3) of the Passports Act 1992

(NZ), “the Commonwealth Act did not in terms prohibit the grant or acceptance of any

security or pledge over an Australian passport”.20 Nor does the Republic of India’s s 17.

[67] Whether an Indian passport may be the legitimate subject of a lawyer’s lien

claim is an issue of some debate that, so far as I know, has yet to be resolved

authoritatively in New Zealand. The possible outcomes range from the upholding of a

pledgee’s possessory right unless the issuing government has stepped in to the

conclusion that the special character and purpose of a passport precludes any claim

that in effect would leave a client’s lawyer, rather than the issuing government, in sole

charge control of decisions concerning possession of a passport.

[68] What outcome might one expect when the issue does, in direct terms, arise in

New Zealand?

[69] In the Civil Court of the City of New York case of Bonner v Goonewardene the

court said:21

Allowing an attorney to retain a passport in order to enforce a claim for legal fees is patently unfair and allows an individual to act as the equivalent of a

19 Federal Commissioner of Taxation v American Express Wholesale Currency Services Pty Ltd [2010] FCAFC 122; (2010) 187 FCR 398 at [44], citing Palgo Holdings Pty Ltd v Gowans (2005) 221 CLR 249 at [17] and The Odessa [1916] 1 AC 145 (PC) at 158–159. 20 Xu v Council of Law Society of New South Wales, above n 7, at [51]. 21 Bonner v Goonewardene 9 Misc 3d 1059 (2005); 800 N.Y.S 2d 821

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government and restrict the movements of the foreign citizen. The recognition of which nations have passport privileges in the United States is a function of the national government, specifically the Department of State. Passports cannot be subject to being held “hostage” in disputes between individuals absent authorization by a Court or written agreement of the parties, neither of which situation is present. In fact, 22 NYCRR 1400.5 severely restricts the instances of when an attorney can obtain a security interest in the property of a client.22 None of the criteria of that section are met in this case.

The retention of an individual's passport severely restricts that person's freedom of movement and comes dangerously close to the frowned upon concepts of the long abandoned “debtor's prison” or “civil arrest” which is almost non-existent in New York. “Body execution as a tool for enforcement of judgment was abolished by the CPLR, and the provisional remedy of civil arrest that was carried into the CPLR as Article 61 was repealed in 1979” (Siegel, New York Practice, 4th edition, section 513). In fact, when body execution did exist, it was for the enforcement of judgments and not for compulsion of payment prior to the existence of a judgment.

[70] That view was adopted without qualification by the Supreme Court of Colorado

which said:23

20 We find nothing in section 12-5-120 that would permit an attorney to assert a possessory, or retaining, interest in a United States passport in order to assure payment for legal services. A possessory lien is a "right to hold a thing" until payment is made. Wenz v McBride, 20 Colo. 195, 197, 36 P. 1105, 1106 (1894) …. Here, Attorney G had no "right to hold" Nunez's passport. Not only is a United States passport the property of the federal government, it must be surrendered upon demand. Thus, an attorney's retaining lien is inconsistent not only with the type of property involved, it is also inconsistent with the type of control the United States government asserts over the property. See id. at 198, 36 P. at 1106 (holding that a possessory lien is not available where putative lienholder's right to the property was "qualified and mixed"). In sum, a United States passport is a sui generis type of federal property that does not fall within a client's "papers" on which a retaining lien may be asserted under section 12-5-120.

21 We are aware of only two cases in which a court considered whether an attorney could assert a retaining lien over a passport. Both cases concluded that the attorneys could not assert retaining liens on their clients' passports, and, in both cases, the attorneys were ordered to return the passports. See United States v Bakhtiar, No. 91 CR. 782, 1997 WL 573408, at *1 (S.D.N.Y. 1997); Bonner v Goonewardene, 9 Misc.3d 1059, 800 N.Y.S.2d 821, 823, 825 (N.Y.Civ.Ct. 2005). Both courts recognized that retaining liens on passports were inconsistent with federal policy regarding passports. For example, in Bakhtiar, the court concluded that the attorney usurped a "high policy of the United States" that permitted an Iranian citizen to leave the country, concluding that "an attorney's lien which frustrates that purpose must give way." 1997 WL 573408, at *1. Similarly, in Bonner, the court observed that permitting an attorney to assert a lien on a Sri Lankan passport "allows an individual to act as the equivalent of a government." Bonner, 800 N.Y.S.2d at 823. Bonner went one step further and declared the practice unethical. Id.; but see Bakhtiar, 1997

22 See also Lazar Emanuel “Taking Security Interest to Secure Payment of Fees” New York Legal Ethics Reporter November 2002) <http://www.newyorklegalethics.com>. It is noteworthy that emphasis is laid on the need for a full and given in advance explanation to the client of what the attorney is setting out to achieve by way of fees protection. 23 Re: Attorney G 302 P 3d 248 (Co 2013). In Colorado lawyers’ liens are statutory constructs, there being no recognition of a common law right.

15

WL 573408, at *1 (finding "nothing unethical or shocking" with the idea of retaining a passport as a security device to coerce payment of legal fees).

22 Bonner's holding has been widely accepted; it is cited approvingly for the proposition that an attorney may not hold a client's passport pursuant to a retaining lien. See ABA/BNA Lawyers' Manual on Prof'l Conduct ch. 41, § 112; 7 Am. Jur. 2d Attorneys at Law § 313; 7 N.Y. Jur. 2d Attorneys at Law § 281; 1B Carmody-Wait 2d New York Practice with Forms § 3:548. No contrary authority has been cited to us, and we have found none

[71] My view, which for the reasons explained at [31] above is not authoritative, is

that a New Zealand Court would adopt a similar stance to that of the New York and

Colorado Courts. Their focus was fairly and squarely on the unique qualities of a

passport, whereas Xu appears to have attached principles of bailment to passports

without attending in any meaningful degree to those qualities. What in any event can

confidently be said is that this is an area where lawyer caution is highly advisable. And

that brings me to the next issue.

Professional conduct

[72] If a lawyer is contemplating retaining a client’s passport to secure payment of

outstanding fees, it is important that they consider that decision not only in the context

of the relevant statutory provisions and case law (limited as that is) but also within the

context of a lawyer’s professional obligations and responsibilities.

[73] In the present case I must consider, from that (the disciplinary) perspective the

implications for a lawyer of retaining a non-New Zealand passport.

[74] New Zealand statute law absolutely prohibits retention of a New Zealand

passport by a third party and to that extent nullifies cl 2.7 of [SGS]’s terms of

engagement.

[75] I regard that as a plain message from this country’s Parliament that passports

are a special kind of chattel. That is understandable because retention of a passport

has the potential to frustrate an individual’s ability to exercise a fundamental right, the

right to freedom of movement.

[76] Retention of a passport presents, at first blush, as being at odds with the rights

under s 18 of the New Zealand Bill of Rights Act 1990 to freedom of movement that is

afforded to any person who is lawfully in New Zealand.

[77] While s 3 of that Act makes plain that it serves to curb acts of state that are

contrary to the rights it upholds, lawyers, as upholders of the law and protective

guardians of such rights, ought to be slow indeed to impede their enjoyment in any way

16

that the state itself should not. True, immigration clients may at times be unlawfully in

New Zealand, but the range of forms of possible visa relief from that status that the

immigration legislation affords demonstrates a relatively benevolent approach.

[78] The area of legal work which may, most frequently, require a lawyer to obtain

a passport from their client, is immigration work. That is often carried out by licensed

immigration advisers, whose conduct is subject to statutory regulation. So I now

consider the manner in which immigration advisers are required to deal with the

management and control of their clients’ personal documents.

[79] The conduct of immigration advisers is regulated by a code. That code is

approved by the Minister of Immigration in accordance with s 37(4)(b) of the

Immigration Licensing Advisers Act 2007.

[80] Clause 27 of the code directs that a licensed immigration adviser is, when

requested or required, obliged to return passports and other personal documents to the

client without delay and in a secure manner.

[81] The Immigration Advisors Complaints and Disciplinary Tribunal, when

considering a case where an immigration adviser had refused to release a passport,

concluded that:24

[a]n elementary principle all licensed immigration adviser’s must understand is that there is never a justification for withholding travel documents to force a person to pay fees; or indeed for any other purpose.

[82] It would seem odd that lawyers should be held to a less demanding standard

of conduct than that for immigration advisers in the exercising of control over a

passport.

[83] Because of the importance a passport has for its holder, and the potential for

the interests of the holder to be significantly compromised if they are unable to access

the passport, any decision by a lawyer to retain a client’s passport in the face of their

client’s objections can readily give rise to consideration of whether the lawyer’s refusal

to release the passport raises disciplinary issues.

[84] It would present as unsatisfactory if a lawyer’s right to control the release of a

passport, through the vehicle of exercising a lien for unpaid fees, was not properly

subject to the scrutiny of the disciplinary regime. That point has already been

considered in the United Kingdom.

24 Chand v Prakash [2012] NZIACDT 85 at [27].

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[85] In Malik v Legal Complaints Service, a decision of the High Court of England

and Wales, the Court in considering a lawyer’s appeal from a decision of the English

Lawyers Complaints Service to compel a lawyer to return a file to a client over which a

lien had been claimed, rejected an argument that a lawyer could not be compelled to

deliver up a file.25

[86] The Court concluded that a lawyer’s decision to assert a lien must properly be

open to disciplinary scrutiny. The Court observed that:26

there may well be circumstances where it would be unreasonable to exercise a lien, even bearing in mind that the more valuable the property withheld then the more likely it is that payment would be obtained. The mere fact that it is legal for the solicitor to exercise a lien does not mean that it cannot be unreasonable to do so nor is there any reason why the Defendant [the Law Society] should not regulate those occasions.

[87] A lawyer should not be put in the position of determining whether a client’s

requirement to travel is sufficiently important to merit release of the passport.

[88] I find it difficult to perceive any circumstances in which it would present as

professionally acceptable for a lawyer to refuse to release a passport in the face of

indication from a client or former client of their need to have the passport to facilitate

travel plans.

[89] Yet during the hearing of this review I understood Mr PY to say that if a client

with unpaid fee obligations wanted their passport released, the decision the firm made

would relate to the circumstances as [SGS] saw them. Ms GW really said much the

same thing when she remarked that had Ms TK wanted the passport for travel she

would have gone straight to Ms YN.

[90] In any event, it is not the case that potentially adverse to the client

consequences arising from retention of a passport are limited to impeding the ability to

travel. A passport can be a critical source of identification for a host of other reasons,

many of which may arise at short notice.

[91] A client’s ability to open a bank account, obtain temporary employment, or

conduct other transactions where identification by production of the passport is

required, may be jeopardised, if not totally compromised, if they are unable

immediately or at least promptly to produce their passport.

25 Malik v Legal Complaints Service [2010] EWHC 981 (Admin). 26 At [15], italics for emphasis. That being intended to highlight that even if it is legal to claim a lien on a passport, circumstances may render retention a matter for discipline.

18

[92] New Zealand does not have an ID card system for its citizens: driver’s

licences, passports and 18+ ID cards fill the gap. Closer to the current point, those

who are foreign nationals with residency status here will presumably only have ability to

provide immediate evidence of identity, by producing their foreign passport.

[93] The consequence of refusing to release a passport may be significant. I have

noted that in this case there appears to be a difference of opinion between Ms GW and

Mr AX as to whether tendering the actual passport to INZ for s 61 purposes was

essential. The INZ website advice appeared to support Ms GW.

[94] But that does not address the question of whether it is professionally right to

refuse to release a passport once the purpose for which it came into the lawyer’s hands

is historical.

[95] In the present case, email exchanges between Ms TK and Ms YN in

September 2015 do not make happy reading. Even when INZ had demanded

surrender of the passport for deportation purposes Ms YN emailed Ms TK “inviting” full

payment of the [SGS] bill. Three days later, having rejected Ms TK’s pleas to return

the passport to her, Ms YN emailed “As you can appreciate we are a business” and

invited a settlement offer. There is no sign here of consideration of whether ethical

issues might trump “business”.

[96] A driver’s licence is another special category of personal document. It is an

offence to drive without carrying a driver’s licence. Such must be produced to a police

officer on demand.

[97] It would be imprudent for a conveyancing lawyer who had obtained

possession of a client’s drivers licence to facilitate the necessary A & I identification for

a conveyancing transaction, to have expectation that the licence could be retained and

assimilated into the raft of documents over which the lawyer could subsequently assert

a lien to secure payment of an account. Equally, and more so, a passport.

[98] Despite the Xu decision, the New South Wales Law Society advises its

members to exercise caution before deciding to take a lien over a passport, noting

that:27

solicitors should be cautious before choosing to assert a lien over any passport, including an Australian passport, and should not do so unless the passport was obtained for a legitimate forensic purpose.

27 New South Wales Law Society “Professional Ethics FAQ” (January 2017) <www.lawsociety.com.au>.

19

[99] In my view, once that purpose has passed (and in this case the evidence of

Ms GW is that it had) a refusal to return a passport is to risk unsatisfactory conduct

repercussions.

Did cl 2.7 of the terms of engagement – a contractual document – enable [SGS] to

claim a lien over Ms TK’s passport?

[100] The pertinent element of cl 2.7 of the terms and conditions of engagement

said:

Until you have paid your account in full, we shall be entitled to retain all your deeds, documents and files and all the deeds and documents and files of third parties provided to us on your behalf in relation to your work.

[101] It is, in my view, essential that a lawyer who includes a provision in their terms

of engagement authorising them to exercise a lien on their client’s file contents if an

account is not paid, should ensure that if the encompassing of passports (or driver’s

licences) is intended that the client fully understands that.

[102] It will not be good enough to say that the language of the clause makes that

plain — for it does not. Nor will it be good enough to say that on ordinary contractual

principles it will be too late to question the compass of the provision once, and having

had the opportunity to read it beforehand, signatures have been affixed.

[103] Given the power imbalance at the time of engagement — accentuated by the

fact that many potentially affected clients will not have English as their first language —

it will behove the lawyer to fully explain what he or she claims the provision to

encompass and, where it is so, that passports are considered to be included. This

must be a “no surprises” area. Neither I nor Mr Joyce would have picked on a mere

reading of cl. 2.7 that it was indeed intended to take in passports.

[104] Ms GW did not attend on Ms TK when she signed the terms of engagement,

so was unable to say what (if any) advice Ms TK might have been given about the

[SGS] compass of the clause, but her comments on the topic and [SGS]’s general

practice suggested to me that it was unlikely that any such advice was offered.

[105] Consideration of this application has so far engaged these issues:

(a) Whether a lawyer may be entitled to claim a lien on account unpaid fees

over, and so retain, a passport on that account.

(b) Whether such retention may amount to unsatisfactory conduct.

20

[106] My response:

(a) To (a) is that this is an issue yet to be definitively resolved by a court of

competent jurisdiction in New Zealand, but one that would most probably

be determined in the negative,

(b) To (b) is that, even given it was proved to be the case that such a claim

was generally legitimate, a host of circumstances could or would

demand that surrender rather than retention of passport to the client was

essential if disciplinary consequences were to be avoided.

That leaves the final issue.

Whether, if in this case the retention of the passport amounted to unsatisfactory

conduct, Ms GW has as a complete defence because she did so on the instructions of

Ms YN, her supervising partner at [SGS]

[107] The conclusions I reach from the materials before me drive the conclusion

that, as Mr AX (speaking for Ms TK) was made aware at the time, Ms GW acted as she

did because she was told to do so by Ms YN, her supervising partner.

[108] Mr AX’s complaint was not addressed to Ms YN and the Committee had not

taken the course of investigating Ms YN’s role as by s 130(c) of the Act as it was

empowered to do. That is understandable given that at that stage argument that Ms

GW’s actions were fully exonerated by argument that she was acting under the

instructions of her supervising partner, had not been progressed.

[109] Mr PY’s case for Ms GW was not bolstered by any prior decisions in this or

any other lawyers’ disciplinary jurisdiction concerning the availability of that form of

defence. Essentially, while standing firmly by his argument that Xu resolved the case

anyway, he argued that in the given circumstances it would be unjust to penalise Ms

GW for doing what she was told.

[110] Given the fact that the Rules are silent on the topic, I have looked afield. That

has led me to a thoughtful article in the Los Angeles Lawyer for June 2014. It appears

there along with a related test set for continuing attorney education purposes approved

for credits by the State Bar of California.

[111] The article, “The Nuremberg Defence” by Thomas E McCurnin, reviews the

operation of the Californian Rules of Professional Conduct (CRPC) in company with the

21

ABA Model Rules (ABAMR) to which resort has, he says, been had when the CRPC

have a gap.

[112] In summary, McCurnin records that:

(a) Given the CRPC definition of “lawyer”, they apply to every attorney down

to and including a new associate.28

(b) A supervising attorney has the duty not to ask the associate to act in

violation of the rules.29

(c) A law firm is required to supervise an associate and may be legally

responsible for an associate’s ethical violations.30

(d) The ABAMR impose responsibility upon any lawyer with managerial

responsibility who ratifies an associate’s ethical violation.31

(e) An associate is not responsible for a partner’s ethical violations.32

(f) In sum, the rules apply to “members” and “lawyers” and provide no

exceptions for associates who are merely following the directions of a

partner.33

[113] Those provisions, insofar as they treat all lawyers, whether partners or

associates, in essentially the same respective ways, are consistent with the Rules as

far as the latter go. In particular the Rules:

(a) Refer to “lawyers” and a “lawyer” is defined in s 6 of the Act as the

current holder of a practising certificate.

(b) Impose a supervisory and managerial duty in respect of employees —

r 11.3 — which in the case of a breach can lead to disciplinary

measures against the principal; and

(c) Nowhere in the Rules (or the Act) is there any provision excusing an

employed lawyer because they acted on a principal’s instructions or

directions.

28 Cal. Rules of Professional Conduct r 101(b)(4). 29 Cal. Rules of Professional Conduct r 1-120. 30 Crane v State Bar, 30 Cal. 3d 117, 123 (1981). 31 ABA Model Rules of Prof’l Conduct r 5.1. 32 De Roche v Commodore Cruise Line Ltd 31 Cal. App. 4th 802, 810 (1994). 33 Cal. Rules of Professional Conduct r 101(b)(2).

22

(d) In short, and although by no means all of the Rules apply to employed

as opposed to employer lawyers, each category is open to the same

disciplinary account where no obvious distinction applies.

[114] The ABAMR provide that an associate may raise as a defence that he or she

consulted a supervising lawyer (as did Ms GW consult Ms YN).

[115] Rule 5.2 of the ABAMR says:

(a) A lawyer is bound by the Rules of Professional Conduct notwithstanding that the lawyer acted at the direction of another person.

(b) A subordinate lawyer does not violate the Rules of Professional Conduct if that lawyer acts in accordance with a supervisory lawyer's reasonable resolution of an arguable question of professional duty.34

[116] The accompanying commentary reads:

[1] Although a lawyer is not relieved of responsibility for a violation by the fact that the lawyer acted at the direction of a supervisor, that fact may be relevant in determining whether a lawyer had the knowledge required to render conduct a violation of the Rules. For example, if a subordinate filed a frivolous pleading at the direction of a supervisor, the subordinate would not be guilty of a professional violation unless the subordinate knew of the document's frivolous character.

[2] When lawyers in a supervisor-subordinate relationship encounter a matter involving professional judgment as to ethical duty, the supervisor may assume responsibility for making the judgment. Otherwise a consistent course of action or position could not be taken. If the question can reasonably be answered only one way, the duty of both lawyers is clear and they are equally responsible for fulfilling it. However, if the question is reasonably arguable, someone has to decide upon the course of action. That authority ordinarily reposes in the supervisor, and a subordinate may be guided accordingly.(emphasis added) For example, if a question arises whether the interests of two clients conflict under Rule 1.7, the supervisor's reasonable resolution of the question should protect the subordinate professionally if the resolution is subsequently challenged.

[117] McCurnin notes that there has been debate about how far this rule extends

and how proper it is to have it. He reports that one commentator has argued that

lawyers in law firms often have to act as one and that the rule permits an associate to

defer to the supervising lawyer’s reasonable determination of an arguable issue.

[118] In the present case, there is no evidence of any argument between Ms GW

and Ms YN. In fact there is no suggestion by Ms GW that she herself had turned her

mind to the question of the validity of retention. My impression is that a belief in

34 Compare with article 33(1) of the International Criminal Court statute: “The fact that a (wrong) has been committed by a person pursuant to an order of a ... superior shall not relieve that person of … responsibility unless: (a) The person was under a legal obligation to obey orders of the superior in question; (b) The person did not know that the order was unlawful; and the order was not manifestly unlawful”.

23

justification is so firmly embedded at [SGS] that employees or associates like Ms GW

would not think to question it.

[119] Such a circumstance could not avail Ms GW were the legal issue clear cut in

favour of the absence of an ability to claim a lien on a passport. Ms GW, like any other

lawyer is expected to know what the law is and if unsure is duty bound to research it.

[120] In Jay v Mahaffey the Court said:35

We recognize that an associate attorney is not in the same position as an attorney associating into a case. There is a clear imbalance of power between an often younger associate and an older partner or supervisor, and situations may arise where an associate is put into a difficult position by questioning a more experienced attorney's choices. Nonetheless, however, every attorney admitted to practice in this state has independent duties that are not reduced or eliminated because a superior has directed a certain course of action (emphasis added). (See Bus. & Prof.Code, § 6068.) Thus, the fact that she was following a superior's instructions is not a valid defense to malicious prosecution.

That was not a disciplinary but a civil damages claim case but, given that the court’s

view has public interest consistency, it is worthy of attention.

[121] I find the American rules and case law most recently discussed very helpful

and a useful guide to the approach I should take.

[122] As to the ethical (i.e., disciplinary) overlay, this particular case carries the

difficulty that it would not be right for me to rule on the passport issues in disciplinary

terms when that ruling would effectively be one de facto affecting Ms YN whose

conduct was not the subject of complaint from Mr AX and thus is not conduct she has

had to confront personally. Ms YN is only a party on review because, along with Mr US

and Mr US, she has chosen to be involved as a related person.

[123] I have already recognised that Ms YN’s instructions were given in an area

where the actual legal position in New Zealand is currently moot — so those

instructions were not manifestly unlawful.

[124] Having considered the extent to which Ms GW was both fairly and reasonably

required to follow the instructions of her principal, I am satisfied that no disciplinary

consequences follow, as a result of Ms GW, complying with instructions received.

[125] I take particular account of the fact that:

(a) it was Ms YN who first took instructions on the matter;

35 218 Cal. App. 4th. 1522 (2013) at 1546.

24

(b) on receiving request to release the passport, Ms GW immediately

sought advice from Ms YN;

(c) Ms GW was entitled to rely on indication and direction from Ms YN, that

it was [SGS]’s policy to retain passports, when fees had not been

settled; and

(d) it could not reasonably have been expected of Ms GW, that she was in a

position where she could have dictated the release of the passport.

To sum up

[126] My conclusions are that:

(a) When the issue is confronted by a New Zealand court of record the high

likelihood is that it will hold retention, by way of a lien claim, of passports

unlawful.

(b) In the meantime, and in any event, lawyers would be well advised to

consider with great care the ethical dimensions of passport retention

when a decision whether to retain or not arises – an “if in any way in

doubt don’t” approach would be wise.

(c) In the present case Ms GW can claim the benefit of having consulted Ms

YN on what was an arguable question of professional duty.

(d) In the circumstances as they would then have appeared to her to be,

she did not act unreasonably in falling in with Ms YN’s reported advice.

(e) But all concerned are now on notice that this is not an area where the

general law (however it might ultimately be defined) will by any means

necessarily trump professional conduct obligations.

(f) Nor either should it be thought that mere obedience of a partner’s

instructions or direction will suffice as a defence to a complaint of

unsatisfactory conduct.

(g) The public interest and the profession’s reputation is unlikely to be

served by regarding blind obedience as a ground for exoneration.

25

Decision

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

decision of the Standards Committee that Ms GW was guilty of unsatisfactory conduct

is reversed and the penalties imposed are consequently quashed.

Publication

[128] 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.

DATED this 27th day of June 2018

_____________________

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 GW as the Applicant Ms YN, Mr PY and Mr US as related parties Mr AX as the Respondent [City] Standards Committee [X] The New Zealand Law Society