Barron v Hutton
[2013] NZHC 2281
•3 September 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2010-404-7270 [2013] NZHC 2281
BETWEEN SUSAN PATRICIA BARRON Plaintiff
ANDANTHONY MORRIS HUTTON First Defendant
GRAEME TREVOR STEPHENS and
MARY STEPHENS Second Defendants
IAG NEW ZEALAND LIMITED Third Defendant
Hearing: 18 July 2013
Counsel: D M Law for the Plaintiff
No appearance for the First Defendant
R Parmenter for the Second Defendant (leave to withdraw) P Smith and M Mitchell for the third Defendant
Judgment: 3 September 2013
JUDGMENT OF WOODHOUSE J
This judgment was delivered by me on 3 September 2013 at 4:00 p.m. pursuant to r 11.5 of the High Court Rules 1985.
Registrar/Deputy Registrar
……………………………………
Solicitors / Counsel:
Ms D M Law, Law & Associates, Solicitors, Auckland
Mr R O Parmenter, Barrister, Auckland
Daniel Overton & Goulding (Instructing solicitors for the 2nd Defendant), Solicitors, Onehunga
Mr P Smith / Ms M Mitchell, Fortune Manning, Solicitors, Auckland
BARRON v HUTTON [2013] NZHC 2281 [3 September 2013]
[1] On 30 August 2012 Associate Judge Doogue made an order that the plaintiff, Mrs Barron pay $100,000 security for the costs of the second and third defendants.1
Mrs Barron has applied for leave to proceed out of time to review the order. This is on the basis that there has been a material change of circumstances in that, on 22
January 2013, she was granted legal aid for this proceeding.
[2] Mrs Barron’s applications are opposed by the third defendant, IAG. Although the second defendants wish to preserve the order they took no active steps to oppose the review application. Mr Parmenter, for the second defendant, was granted leave to withdraw. No steps have been taken in the proceeding by the first defendant.
Application for leave
[3] For IAG, Mr Smith, acknowledged that there would be no material prejudice to IAG if leave is granted. And he acknowledged, in the light of authorities, that a grant of legal aid is a material change of circumstances warranting an application for review out of time.2
[4] These were responsible acknowledgements. I am satisfied that there should be an order granting leave to proceed and order accordingly.
Discussion
[5] Under s 116 of the Legal Services Act 2011 (the Act) there is no bar to an order for security for costs against a legally aided person. However, if a legally aided person is unsuccessful in the proceeding, the power of the Court to award costs against the legally aided person is circumscribed by the Act. I come to the statutory provisions in a moment. These broad principles are relevant because they inevitably influenced the main focus of the argument which was directed to this material
change of circumstances.
1 Barron v Hutton [2012] NZHC 2183 at [76]-[105].
2 O’Malley v Garden City Helicopters Ltd (1994) 8 PRNZ 182 (HC).
[6] Ms Law, for Mrs Barron, and Mr Smith both argued on the basis that, if Mrs Barron fails in her claim, any order for costs against her, now that she is legally aided, could not exceed the amount she is required to repay under the grant of legal aid unless there are exceptional circumstances. The prescribed repayment for Mrs Barron is $30,608.49. The submissions of both counsel were accordingly directed in considerable measure to the question whether there are exceptional circumstances which could warrant an award in excess of this sum.
[7] This approach was based on a summary of principles in McGechan.3
However, in my opinion the summary does not accurately reflect the current legislation.
[8] The summary in McGechan is in the commentary on r 5.45 being the rule making provision for an order for security for costs. In respect of a legally aided plaintiff the principles are said to be:
(a) There is no statutory bar to ordering a legally aided plaintiff to give security for costs. The right to apply is one of the rights of the other party to the proceeding preserved by s 116 of the Legal Services Act
2011.
(b) Although important, the fact that a party is legally aided is just one circumstance to be taken into account with all the other relevant circumstances in the exercise of the Court’s discretion under r 5.45.
(c) Because an applicant will need to show exceptional circumstances before costs exceeding a legally aided plaintiff’s personal contribution will be ordered, security should not exceed that personal contribution, unless the applicant can demonstrate that a higher costs order is likely. A claim wholly without merit or grossly exaggerated, conduct prior to trial, the state of the pleadings and whether any other party may benefit from the proceeding are amongst factors which may be relevant to a finding of exceptional circumstances.
[9] It is noted, immediately following this summary, that the principles emerge from O’Malley v Garden City Helicopters Ltd4 and Bloor v IAG NZ Ltd.5 The foundation for the principle recorded in paragraph (c) of McGechan is the judgment
of Tipping J in the O’Malley case in 1994. However, the relevant statutory
3 McGechan on Procedure (looseleaf ed, Brookers) at [HR5.45.14(1)], a summary adopted in
Apatu v Apatu HC Napier CIV-2010-441-195, 19 December 2011 at [8].
4 O’Malley v Garden City Helicopters Ltd, above n 2, at 185.
5 Bloor v IAG NZ Ltd HC Rotorua CIV-2004-463-425, 2 July 2007.
provisions were changed in a material way as from 1 March 2007. The amendments further restrict the power of the Court to award costs against a legally aided person.
[10] The statutory provision applying in O’Malley was s 86 of the Legal Services
Act 1991 (the 1991 Act). The relevant part was as follows:
86 Liability of aided person for costs
(1) Subject to subsection (2) of this section, where any person receives civil legal aid in respect of any proceedings, that person's liability by virtue of an order for costs made against that person with respect to the proceedings shall not exceed the amount (if any) that is a reasonable one for that person to pay having regard to all the circumstances, including the means of all the parties and their conduct in connection with the dispute.
(2) Notwithstanding anything in subsection (1) of this section, except in exceptional circumstances, the amount that a person to whom that subsection applies shall be liable to pay under any such order for costs shall not exceed the amount of the contribution which that person is required to make to the Board under section 37 of this Act.
[11] The 1991 Act was replaced by the Legal Services Act 2000 (the 2000 Act). Until 28 February 2007, s 40(1) and (2) of the 2000 Act were essentially the same as s 86(1) and (2) of the 1991 Act. Section 40 of the 2000 Act was amended as from 1
March 2007. The amended provisions are now found, without any change, in s 45 of the Act. The material provisions of s 45 of the Act are as follows:
45 Liability of aided person for costs
(1) If an aided person receives legal aid for civil proceedings, that person's liability under an order for costs made against him or her with respect to the proceedings must not exceed an amount (if any) that is reasonable for the aided person to pay having regard to all the circumstances, including the means of all the parties and their conduct in connection with the dispute.
(2) 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.
(3) In determining whether there are exceptional circumstances under subsection (2), the court may take account of, but is not limited to, the following conduct by the aided person:
(a) any conduct that causes the other party to incur unnecessary cost:
(b) any failure to comply with the procedural rules and orders of the court:
(c) any misleading or deceitful conduct:
(d) any unreasonable pursuit of 1 or more issues on which the aided person fails:
(e) any unreasonable refusal to negotiate a settlement or participate in alternative dispute resolution:
(f) any other conduct that abuses the processes of the court.
[12] As will be seen, the significant changes are:
(a) Pursuant to s 45(2) there can be no order for costs at all unless there are exceptional circumstances. This compares with s 86(2) of the
1991 Act which required exceptional circumstances only for the purpose of awarding costs in excess of the amount of the contribution. In other words, applying the current provision to the present case, there could be no order for costs against Mrs Barron for any amount unless there are exceptional circumstances, notwithstanding the fact that Mrs Barron is required to repay some $30,000.
(b)Unlike the earlier legislation, s 45(3) now lists circumstances the Court may take account of in determining whether there are exceptional circumstances. As the subsection makes clear, it is not necessary to identify one or more of the listed circumstances to find exceptional circumstances, although the list may have some influence on the Court’s assessment.
[13] In my opinion, an appropriate summary of the principles relating to applications for security for costs against a legally aided plaintiff is as follows:
(a) There is no statutory bar to ordering a legally aided plaintiff to give security for costs: Legal Services Act 2011, s 116.
(b)However, the Court’s general discretion as to the amount of any security for costs pursuant to r 5.45(3) must take account of s 45 of the Act.
(c) Unless an applicant for security can establish exceptional circumstances under s 45 of the Act it is unlikely that an order for security for costs could be justified.
(d)If an applicant establishes exceptional circumstances, s 45(1) of the Act should be taken into account in determining the amount of the security.
Exceptional circumstances in this case
[14] Mr Smith submitted that there are two exceptional circumstances. The first was that there is a third party with an interest in a successful outcome for Mrs Barron who can be expected to contribute to costs. This is said to be the Official Assignee in the estate of Mrs Barron’s husband, from whom she has separated. The authority for the proposition that this would be an exceptional circumstance is another case decided under the 1991 Act, Caldwell v Gaze Burt.6
[15] This circumstance was advanced in oral submissions following an enquiry from me. The Official Assignee on behalf of Mr Barron had been a second plaintiff. The Official Assignee agreed to being a party subject to Mrs Barron’s agreeing to indemnify the Official Assignee against costs. The Official Assignee subsequently discontinued the claim for Mr Barron and paid the defendants’ costs incurred up to the discontinuance. Mrs Barron is liable to indemnify the Official Assignee for that payment. I am satisfied, given the circumstances in which the Official Assignee was involved and then withdrew, that there is no proper basis for considering that there could be a contribution towards costs from the Official Assignee.
[16] The principal argument for IAG, as to exceptional circumstances, was that
Mrs Barron has little chance of success. In support of this submission Mr Smith
6 Caldwell v Gaze Burt (1994) 7 PRNZ 491 (HC) at 500.
referred to the Associate Judge’s assessment of the strength of the case.7 One of the passages relied on by Mr Smith was as follows, with the emphasis being Mr Smith’s emphasis:
[85] Overall, I do not consider that the plaintiff’s claim is a strong one. There is at best a chance, which I would set at a relatively low level of probability, that she will succeed against any of the defendants. At the same time I would not say that her claim is so weak that she has negligible chances of success.
[17] I am not persuaded that the Associate Judge’s assessment justifies the submission that the prospects of success for Mrs Barron are such that her pursuit of the claim constitutes an exceptional circumstance. In terms of s 45(3), the submission for IAG would probably need to come within paragraph (d) – “any unreasonable pursuit of one or more issues on which the aided person fails”. The Associate Judge’s assessment of the strength of Mrs Barron’s claim does not justify a conclusion that Mrs Barron’s pursuit of her claim is unreasonable. As already discussed, exceptional circumstances do not have to come within the list in s 45(3). However, if the question is addressed by reference to authorities under the earlier legislation, the apparent strength of the claim is at a level well above what would be an exceptional circumstance. For example, in Caldwell v Gaze Burt Thorp J was of
the opinion that the Court would have to assess the claim as “wholly without merit”.8
[18] There is a further consideration. In addition to the applications for security for costs, the Associate Judge determined applications by the second and third defendants for defendants’ summary judgment and alternative applications to strike out the plaintiff’s claim. These applications were unsuccessful. The failure on the summary judgment applications, in particular, is a reasonably firm pointer to a conclusion against IAG on the question as to whether there are exceptional circumstances as contended for IAG.
[19] Mrs Barron’s claim is that her home was badly contaminated, with long term effects, as a consequence of carpet spraying and separate spraying to eliminate insects. One observation by Associate Judge Doogue, in discussing the strength of
Mrs Barron’s claim, was as follows:
7 Barron v Hutton, above n 1, at [80], [81], [83], [85], [94] and [95].
[83] My overall assessment is that very real difficulties lie in the plaintiff’s path in establishing that this property is a contaminated one, which is the essence of her claimed loss. That depends largely upon interpreting the observed damage to the house and on analysis of what residues remained after the spraying. The outcome of that part of the enquiry will be crucially dependent upon what the Court makes of the evidence of the various experts.
[20] The Judge’s observations are naturally directed to the expert evidence that was available at the time and drawn to his attention. On this application for review, Ms Law (who was not earlier acting for Mrs Barron) provided a detailed schedule of what she submits is the scientific evidence, and other technical evidence, presently available to Mrs Barron in support of her claim. This was firmly contested by Mr Smith. I am satisfied that it is not realistically possible to conclude that there is little merit in the scientific argument in support of Mrs Barron’s case, let alone conclude that it would be unreasonable for her to pursue the claim. As the Court of Appeal said in McLauchlan v MEL Network Ltd, in a complex case an assessment of merit “at the interlocutory stage can be no more than impression and cannot be a definite
indicator of the ultimate outcome after trial”.9
[21] The Associate Judge was not required to consider whether there are any exceptional circumstances in terms of s 45 of the Act. I am required to make that determination for the reasons discussed in O’Malley v Garden City Helicopters Ltd:10
There is no point in having security unless there is a reasonable likelihood of the security being required.
As earlier noted, that was assessed against the possibility of an order up to the amount of the legally aided person’s contribution, provided an exceptional circumstance was established. For the reasons discussed I am not satisfied that an exceptional circumstance is made out. In consequence, although Mrs Barron’s financial circumstances mean that the applicants meet the general threshold for an order for security for costs in r 5.45, the further and higher threshold required by s 45
of the Act is not met.
9 McLauchlan v MEL Network Ltd (2002) 16 PRNZ 747 (CA) at [21].
[22] If these questions were being assessed at the commencement of the proceeding, with Mrs Barron having already obtained legal aid, I am satisfied that the appropriate result would be to dismiss the application for security for costs. However, in this case the change of circumstances has occurred some 3 years 10 months after the proceeding was commenced. Mr Smith submitted that the grant of legal aid is not retrospective and from this submitted that, if Mrs Barron has made out grounds for review, the relief should be limited to relieving her of an obligation to provide security for costs incurred from the date of the grant of legal aid (or the application for legal aid a few months before) to the conclusion of the proceeding. He further submitted, as indeed did Ms Law, that there should in any event be security in the sum of $30,608.49, being Mrs Barron’s legal aid repayment obligation. As earlier indicated, both counsel approached the latter point on the basis of the commentary in McGechan.
[23] It is relevant in this regard that the plaintiff has paid into Court the sum of
$100,000 as security for costs. She borrowed this sum. I was advised from the bar that she borrowed it from a friend. There is no suggestion that the friend has any interest in the proceeding.
[24] It is unnecessary to consider whether Mr Smith’s retrospectivity argument is correct in principle. This is because it was apparent from discussions with counsel, and the course of the proceedings, that any security that might be required in respect of defendants’ costs incurred before the grant of legal aid would be small. An earlier application for security for costs was dismissed.11 In addition, as earlier noted, costs incurred by the defendants up to the date that the Official Assignee discontinued the claim on behalf of Mrs Barron’s husband’s estate were met by the Official Assignee
and are now a potential liability of Mrs Barron. It appears that the only costs of any consequence incurred by the defendants following the discontinuance through to this application for review would be the costs on the security for costs application determined by Associate Judge Doogue.
[25] I have concluded that the appropriate response to these matters is an essentially pragmatic one arising from the fact that Mrs Barron has had the good
11 Barron v Hutton & Ors HC Auckland CIV-2010-404-7270, 13 September 2011 (per Toogood J).
fortune to be able to borrow from a friend and some security is therefore available. My conclusion is that, of the total of $100,000 paid into Court, $5,000 should remain as security for costs incurred by the second and third defendants between the date of the discontinuance by the Official Assignee and the grant of legal aid to Mrs Barron.
Result
[26] The order that the plaintiff pay $100,000 as security for costs is quashed.
[27] There is an order that the plaintiff pay $5,000 as security for costs of the second and third defendants between the date of discontinuance by the Official Assignee and 22 January 2013 when the plaintiff was granted legal aid.
[28] Unless the second or third defendants apply for an order for stay of the preceding orders within 10 working days of the date of this judgment, the sum of
$95,000 paid into Court by the plaintiff, and all interest earned on that sum, is to be repaid forthwith to the plaintiff. If an application for stay is made those sums are to be retained by the Court pending further order on the application for stay.
[29] Costs on the application for review are reserved provided that, if the plaintiff is required under the Legal Services Act 2011 to seek an order for costs, a memorandum in that regard for the plaintiff is to be filed within one month of the
date of this judgment and a memorandum for the third defendant two weeks later.
Woodhouse J