Bank of New Zealand v Patrick

[2017] NZHC 2777

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

I TE KŌTI MATUA O AOTEAROA

AHURIRI ROHE

CIV-2016-441-106 [2017] NZHC 2777

BETWEEN

BANK OF NEW ZEALAND

Plaintiff

AND

JOHN STEPHEN PATRICK Defendant

Teleconference:	10 October 2017
Counsel:	C A E Carey for the Plaintiff P N Ross for the Defendant
Judgment:	13 November 2017

JUDGMENT OF ASSOCIATE JUDGE SMITH

[1]      The plaintiff (the Bank) applied for summary judgment against Mr Patrick for certain monies said to be owing by him on a guarantee signed by him on 8 December

2013.  On 1 June 2017, I gave judgment for the Bank, and reserved the question of costs.   The Bank now seeks indemnity costs on the basis of cl 5 in Mr Patrick’s personal guarantee.

[2]      Mr Patrick was granted legal aid on an interim basis on 7 December 2016. The grant was retrospective in scope.   However, the Legal Services Agency (the LSA) declined to grant any further legal aid (interim or otherwise) after 7 December

2016.

[3]      Mr Ross submitted that as Mr Patrick had an interim grant of legal aid, he was an “aided person” under s 45 of the Legal Service Act 2011 (the Act).1

1      An order for costs against an aided person can be made only in exceptional circumstances: Legal

Services Act 2011, s 45(2).

BANK OF NEW ZEALAND v PATRICK [2017] NZHC 2777 [13 November 2017]

[4]      The Bank submitted that, as Mr Patrick was only granted interim legal aid, he should be liable for $18,728.95 in costs for the period in which he was no longer legally aided.  The Bank also seeks an order under s 45(5) of the Act specifying that, but for the interim grant, indemnity costs of $21,256.50 would have been ordered.

[5]      I heard submissions from counsel in a telephone conference convened on 10

October 2017,  in the course of which Mr Ross clarified Mr Patrick’s  legal aid position and made brief submissions in support of the position that Mr Patrick was an aided person, and that any award of costs against him is precluded by s 45 of the Act.

Statutory framework

[6]      As noted, s 45(2) of the Act states that no order for costs may be made against an aided person in a civil proceeding unless the court is satisfied that there are exceptional circumstances.   No claim of exceptional circumstances has been raised in the Bank’s costs application.

[7]      Section 45(5) of the Act provides that if, because of s 45(2), no order for costs is made against the aided person, an order may be made specifying what order for costs would have been made against the aided person if the section had not affected that person’s liability.

[8]      “Aided person” is defined in s 4 of the Act as:

(1) In this Act, unless the context otherwise requires, –

aided person –

(a)  means a person who is granted legal aid under this Act or the former Act; and

(b) includes –

(i)  a person who is granted legal aid on an interim basis:

(ii) a person whose grant of legal aid has been withdrawn under section 30.

Mr Patrick’s submissions

[9]      I recorded Mr Ross’ submissions in my minute of the 10 October telephone

conference, as follows:

[6]       In the course of the conference, Mr Ross confirmed that no final grant of legal aid was made for the proceeding; the only grant was the interim grant made on 7 December 2016.

[7]       Clarifying the position, Mr Ross explained that the interim grant was made largely for the purposes of covering his attendances in protecting Mr Patrick’s position up to the date of the interim grant.  By that date, Mr Ross had filed a notice of opposition and two affidavits for Mr Patrick.

[8]       Mr  Ross  acknowledged  that  no  grant  of  legal  aid  was  in  place covering his attendances after 7 December 2016, and it appears that he completed his brief on a pro bono basis after that date.

[9]       Mr Ross confirmed at today’s conference that no letter was ever

received from the Commissioner withdrawing the interim grant.

[10]     Notwithstanding the interim nature of the grant and its apparently limited scope, Mr Ross submitted that Mr Patrick may be protected by s

45(2) of the Act for the duration of the proceeding, on the basis that his status as an “aided person” following the grant of interim legal aid was never withdrawn or revoked, and therefore subsisted for the purposes of s 45(2)

through to the conclusion of the hearing on 3 February 2017.

[10]     Mr Patrick’s legal aid position having been so clarified, I allowed the Bank to

file written submissions on costs by 25 October 2017.  Mr Ross was allowed until 8

November 2017 to file any memorandum in reply.

[11]     I have received and considered a further memorandum from the Bank, but no reply memorandum has been filed for Mr Patrick.

The Bank’s further memorandum

[12]     Ms Carey accepts that Mr Patrick is not liable for costs in respect of the period when he was legally aided.   However, she submits that the protection of s

45(2) applies only when a person is legally aided – not before a grant is made, not when  a  grant  has  been  refused,  and  not  after  a grant  terminates.  She therefore submits that Mr Patrick should be liable, on a solicitor/client basis, for the Bank’s costs incurred after 7 December 2016.

[13]    Ms Carey cites Carter v Western Viaduct Marine Ltd in support of the submission that:2

It must follow that, even though grants of legal aid are retrospective from the date of the application, there is no basis in statute to take the view that once litigants are granted legal aid they are immune from orders for costs at any stage of the proceeding, either before or after the grant begins or terminates.

[14]     Carter related to a litigant who had been granted legal aid, then received a lump sum payment from ACC which meant he was no longer eligible for legal aid. The  Court  concluded  that  while  the  statute  limits  litigants’  liability  for  costs otherwise payable during the period when they have “insufficient means to pay for legal services”, there is no reason to conclude that the liability of a litigant for costs

does not operate in the normal way when the insufficiency ceases.3

[15]     Ms Carey also refers to the following statement from Pickard v Ambrose:4

Section 40 [now s 45 of the 2011 Act] applies to limit an award of costs in respect of steps in the litigation taken during the period when legal aid was in place, but not to steps after the legal aid was withdrawn.

[16]     In Pickard, legal aid had been granted but was withdrawn upon the refusal of a settlement offer.   While the reason for the withdrawal of the grant of aid was different from that in Carter, the Court considered that the approach in Carter should be applied regardless of the reason for withdrawal of legal aid.   The legally aided person was accordingly liable for costs in respect of the period following the withdrawal of legal aid.

[17]     Ms  Carey  produced  copies  of  invoices  showing  that  her  firm  rendered invoices to the Bank in respect of the period 22 December 2016 to 20 February

2017, totalling $18,728.95 (including disbursements and GST of $2,442.91).

[18]     In addition, she produced copies of invoices covering the period prior to 7

December 2016 totalling $21,256.50 (again, including disbursements and GST of

$2,772.59).

2      Carter v Western Viaduct Marine Ltd [2003] 16 PRNZ 1034 (HC) at [25].

3      At 25.

4      Pickard v Ambrose HC Wellington CIV-2003-091-143, 6 October 2011 at [17].

Discussion and conclusions

[19]     I consider that the approach the Court adopted in Carter is applicable in this case, and that s 45(2) does not preclude the making of an award of costs against Mr Patrick in respect of the period after 7 December 2016.  Mr Patrick, having failed in his opposition to the Bank’s summary judgment application, is accordingly liable for the Bank’s costs of the proceeding incurred after that date.

[20]     Pursuant to r 14.6(4)(e) of the High Court Rules, the court may order a party to pay indemnity costs if the party claiming costs is entitled to indemnity costs under a contract or deed.

[21]     Clause 5 of Mr Patrick’s personal guarantee provided:

You must pay [the Bank] on demand all the costs, expenses and liabilities [the Bank incurs] in connection with, or in the actual or attempted exercise or enforcement by [the Bank] of a power or remedy under, this Guarantee or any other security or document given to us by you, the Customer or any other guarantor.  These include administration costs and our legal fees and expenses on a solicitor and client basis.

[22]     The  effect  of  this  clause  is  that  the  Bank  is  entitled  to  costs  on  a solicitor/client basis for the period after 7 December 2016.

[23]     The Bank seeks an order for indemnity costs for the period subsequent to 7

December 2016, in the sum of $18,728.95.   Mr Patrick has not challenged the reasonableness of the amount claimed by the Bank, and I am satisfied from the invoices produced by Ms Carey that the amount claimed is reasonable.

[24]     The Bank also asks for an order under s 45(5) of the Act, in respect of the period up to 7 December 2016 (when Mr Patrick was legally aided), specifying that, but for the interim grant of legal aid, additional costs of $21,256.50 would have been ordered against Mr Patrick for that period. Again, the quantum of those costs has not been challenged by Mr Patrick, and I accept that, having regard to the amount in issue in the proceeding and the wide-ranging nature of the matters traversed in the affidavits filed in opposition by Mr Patrick, they are reasonable.

[25]     I note, however, the recent statements of the Court of Appeal in New Zealand Venue and Event Management Limited v Worldwide NZ LLC, on the inclusion of GST in an award of costs:5

[13]      An award of indemnity costs will include GST if the successful party is not able to recover the GST component.  Conversely, it will not include GST if the successful party is able to recover the GST component.

[26]     The Court further noted:6

[16]      As when awarding increased costs, the Court will proceed on the basis that the successful party is GST-registered and entitled to a GST input credit.  Accordingly, a party that is not able to recover GST should inform the Court so that this may be taken into account.

[27]     I have not been informed if the Bank is registered for GST purposes.7   As the Bank has not informed the Court otherwise, I shall proceed on the basis that it is able to recover GST, and accordingly it is not entitled to the inclusion of GST in the award of costs.

Result

[28]     I make the following orders:

(a)       Mr Patrick is to pay the Bank’s costs and disbursements in respect of the period after 7 December 2016, in the total sum of $16,286.04.

(b)I specify that if it were not for the fact that Mr Patrick was an aided person under the Act in the period up to and including 7 December

2016, I would have awarded additional costs and disbursements to the

Bank (in respect of the period from the commencement of the

5      New Zealand Venue and Event Management Ltd v Worldwide NZ LLC [2016] NZCA 282 at [13].

6 At [16].

7      Clause 26.3 of the General Security Agreement dated 28 June 2006 between the Bank and Moteo Ridge Ltd suggests that it probably is (the clause commences: “… if any supply by [the Bank] to [Moteo Ridge Ltd] is … subject to GST …”).

proceeding up to and including 7 December 2016) in the total sum of

$18,483.91.

Associate Judge Smith

Solicitors:

MinterEllisonRuddWatts, Wellington for the Plaintiff