Goodwin v Rocket Surgery Limited
[2015] NZHC 749
•17 April 2015
IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY
CIV-2013-454-000397 [2015] NZHC 749
UNDER Section 145 of the Land Transfer Act 1952 BETWEEN
WAYNE ERNEST GOODWIN AND MARY ELIZABETH GOODWIN Applicants
AND
ROCKET SURGERY LIMITED Respondent
Judgment: 17 April 2015
JUDGMENT (ON THE PAPERS) OF COLLINS J [Costs]
Introduction
[1] This judgment determines an application for costs brought by Rocket Surgery Limited (RSL) against Mr and Mrs Goodwin (the Goodwins). The application relates to a proceeding in which RSL initially obtained summary judgment and an order for costs against the Goodwins. That judgment and costs order was made by Associate Judge Abbott.
[2] The summary judgment was set aside, as was the costs order. The Court of Appeal quashed the costs order made by Associate Judge Abbott because the Goodwins’ legal aid application had not been resolved by the time Associate Judge Abbott considered s 45 of the Legal Services Act 2011 (the Act) when he awarded costs against the Goodwins.
[3] The Court of Appeal ruled the costs application should have been adjourned until resolution of the Goodwins’ legal aid application. I have now been assigned this matter. The parties are content for me to determine the application on the
papers.
GOODWIN v ROCKET SURGERY LIMITED [2015] NZHC 749 [17 April 2015]
[4] As the Goodwins were in receipt of legal aid, RSL is prevented by s 45(2) of the Act from obtaining a costs order against the Goodwins personally, unless there are exceptional circumstances. RSL seeks costs on a 2B basis notwithstanding that the Goodwins were in receipt of legal aid.
[5] Against this background, the key issues I must determine are:
(1)Are there exceptional circumstances justifying an order of costs against the Goodwins?
(2)If so, having regard to the means of the Goodwins as well as their conduct, should an order of costs be made against the Goodwins personally?
(3)If, because of s 45, no order for costs is made against the Goodwins, what is the quantum that would have been made under s 45(5) of the Act?
Background1
[6] The Goodwins owned a residential property in Mosgiel near Dunedin. They fell into financial difficulties and faced a sale by the mortgagee, Westpac Banking Corporation (Westpac).
[7] The Goodwins’ son-in-law, Mr Harvey, assisted them in holding onto the property. Mr Harvey and some colleagues were shareholders in RSL, which is a small private company. RSL agreed to borrow a sufficient sum to buy the property at the mortgagee’s sale and to cover financing costs for a year while the Goodwins recovered financially. The ultimate purpose was to enable the Goodwins to buy the property back in their own names or through a nominee.
[8] It was agreed that RSL would derive some reward for providing the finance. Apart from an understanding that when repurchasing the Goodwins would repay
RSL all outgoings spent on the property, they were also to pay a fee for providing the
1 Background summary taken from Goodwin v Rocket Surgery Ltd [2013] NZCA 172 at [3]-[6].
finance. That fee was never settled but the parties discussed figures ranging between
$20,000 and $40,000. If the Goodwins were unable to repurchase the property, it would be sold and RSL would recover its expenditure.
[9] RSL purchased the property at the mortgagee sale by Westpac in April 2010. Thereafter relations between the parties gradually deteriorated. Attempts to settle written terms of an agreement were unsuccessful. Proposals and counter proposals were exchanged. The Goodwins did not repurchase the property within a year.
[10] In May 2012, RSL filed a proceeding against the Goodwins in the High Court. The company sought summary judgment for a range of remedies on the grounds that the Goodwins had no right of occupation or interest in the property and no defence to RSL’s claim.
Subsequent litigation
[11] As I have noted in paragraph [1] of this judgment, RSL obtained summary judgment in the High Court.2 The Goodwins successfully appealed that decision.3
In allowing the appeal, the Court of Appeal accepted that there was a factual dispute regarding the terms of the arrangement between the parties.4 However, in allowing the appeal the Court of Appeal said:5
We add that this litigation was unnecessary from the outset. RSL is the registered proprietor of [the property]. It had an absolute right to exercise its powers of sale whenever it asserted that it was no longer obliged to retain the property. The Goodwins could have lodged a caveat against the title if they wished to oppose sale, alleging the existence of an equitable interest in the property. The Goodwins, not RSL, would have carried the burden of proving the nature and extent of their interest.
Assuming the Goodwins did lodge a caveat, a Court would likely have discharged it on terms requiring RSL to pay any net proceeds of sale after settlement of all indebtedness into a solicitor’s trust account pending determination of the Goodwins’ claim. The evidence of [the property’s] value and the compounding amounts charged against it would have dictated a direction for sale. If a surplus was available, which seems unlikely, its amount would have fallen within the jurisdiction of the District Court. Even
2 Rocket Surgery Ltd v Goodwin [2012] NZHC 2752, (2012) 13 NZCPR 867.
3 Goodwin v Rocket Surgery Ltd [2013] NZCA 172, (2013) 14 NZCPR 110.
4 At [19].
5 At [26]-[27].
now, despite the wasted efforts of the past year, there is nothing to prevent
RSL from taking steps to sell the property.
[12] Shortly after the appeal was allowed the Goodwins lodged a caveat over the property. Upon receiving notice of the caveat, RSL applied to have it set aside. The Goodwins then applied for an order that the caveat not lapse.
[13] On 13 August 2013 Associate Judge Abbott concluded that the Goodwins could not establish an arguable case for maintaining the caveat.6 Associate Judge Abbott dismissed the Goodwins’ application to sustain the caveat but directed that, in the event of the sale of the property, the balance of any surplus proceeds of sale was to be held and paid to the parties either in accordance with their agreement or as directed by the Court.7 The Associate Judge awarded costs against the Goodwins.
[14] Associate Judge Abbott noted that RSL had sought costs on a solicitor/client basis in the event that it was successful. The Goodwins had applied for legal aid, but as of the date of the hearing, the application had not been determined. The Associate Judge considered that if the “exceptional circumstances” criterion in s 45(2) of the Act was set aside, the Court should not be required to await the legal aid determination before making an award for costs. He considered this was because the granting of legal aid does not prevent the Court from awarding costs against the legally aided party in those exceptional circumstances.
[15] Associate Judge Abbott found that the case was one of exceptional circumstances which warranted an order for costs being made for the following reasons:8
(a) The application to sustain the caveat was unreasonable given that: (i) the caveat did not state an interest in the land;
(ii) the applicants did not have the evidence to establish a caveatable interest;
(iii) the Court of Appeal had indicated (on the stay application)
that the likely outcome was a discharge on terms; and
6 Goodwin v Rocket Surgery Ltd [2013] NZHC 2046.
7 At [35]-[36].
8 At [41].
(iv) these points were advanced by RSL from the outset, and appropriate terms for discharge were advanced by RSL.
(b) The applicants put [RSL] to unnecessary costs.
[16] When considering the costs award made by Associate Judge Abbott, the
Court of Appeal held:9
As the Goodwins were not given the opportunity to be heard on the issue of their means, we allow the appeal in relation to the award of costs in the High Court. However, given the approach of the Goodwins to this litigation, particularly in light of the clear comments of this Court on the previous appeal, we consider RSL should have the opportunity to seek costs, despite the fact the Goodwins are in receipt of legal aid. Costs can be dealt with on the papers, by either a duty judge or the Civil List Judge after an exchange of memoranda. The memoranda should address the issues in s 45 of [the Act].
[17] In light of this decision, RSL now brings an application to the High Court seeking costs.
Were there exceptional circumstances justifying an order for costs against the
Goodwins?
[18] Costs would normally follow the event on a 2B basis. However, the Goodwins are legally aided. Costs may not be awarded against a legally aided plaintiff unless the Court is satisfied there are exceptional circumstances.10
[19] Section 45 of the Act states:
…
(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:
9 Goodwin v Rocket Surgery Ltd [2014] NZCA 540 at [30].
10 Legal Services Act 2011, s 45(2).
(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.
(4) Any order for costs made against the aided person must specify the amount that the person would have been ordered to pay if this section had not affected that person’s liability.
(5) If, because of this section, 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 that person with respect to the proceedings if this section had not affected that person's liability.
…
[20] RSL says that for the purposes of s 45(2) and 45(3):
(1)the Court of Appeal had earlier indicated a likely income of a discharge on terms;
(2) a discharge on terms was offered (but not accepted); (3) the caveat lodged did not identify an interest in land;
(4) no evidence was produced to establish a caveatable interest; and
(5)the Goodwins’ claim was so weak that it was disposed of on the Goodwins’ evidence alone. The Court of Appeal noted that the Goodwins’ caveat “[fell] at a first hurdle”.11
[21] After carefully considering the judgments of Associate Judge Abbott, the Court of Appeal and both parties’ submissions, I am satisfied that there are exceptional circumstances that prima facie make it appropriate to award costs against the Goodwins. I am satisfied that the Goodwins pursued the appeal unreasonably and put RLS to unwarranted expense.
Having regard to the means of the Goodwins as well as their conduct, should an order of costs be made against the Goodwins?
[22] When considering whether the Goodwins should be personally liable for costs, I am required by s 45(1) to take into account all the circumstances of the proceeding including the means of all the parties.
[23] The means of the Goodwins include: (1) Mr Goodwin is bankrupt;
(2) Ms Goodwin relies on superannuation from WINZ for her income; (3) Ms Goodwin owns a car worth $9,500;
(4) the Goodwins’ second hand furniture and personal effects in storage;
(5) the Goodwins have credit card debts of approximately $41,000;
(6) the Goodwins have debts for legal services of approximately $36,000;
and
(7)there are claims by RSL totalling approximately $80,000 plus interest against the Goodwins.
[24] I also note the Court of Appeal in considering costs on appeal said:12
… Given that [the Goodwins] are in receipt of legal aid and that Mr Goodwin is bankrupt it would, however, appear to be pointless to make an award of costs …
[25] In my view, both parties have been put to considerable expense. The fact that Mr Goodwin is now bankrupt speaks for itself. Although I have found that the Goodwins pursued the appeal unreasonably, their expenses far exceed their income and assets. Their only asset of identifiable worth is Mrs Goodwin’s car.
[26] The Goodwins’ lack of means seems to me to be the decisive consideration. I do not consider it would be reasonable to impose on them a personable liability to meet a costs award even at a scale 2B level.
If, because of s 45, no order for costs is made against the Goodwins, what is the quantum that would have been made under s 45(5) of the Act?
[27] As I have determined that no order for costs is to be made against the Goodwins personally, I must determine the quantum that would have been made under s 45(5) of the Act.
[28] I have carefully reviewed the schedule of category 2B costs annexed to RSL’s memorandum of 12 December 2014. I am satisfied that the sum claimed ($11,362.26) is appropriate and in accordance with the High Court Rules.
Result
[29] I make an order under s 45(5) of the Act specifying that a costs award on a
2B basis together with disbursements ($11,362.26) would have been made against the Goodwins if the means of the Goodwins had not prevented the making of such an
order against them personally.
D B Collins J
Solicitors:
Jenny Beck Law, Dunedin for Applicants
Gallaway Cook Allan Lawyers Dunedin for Respondent
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