Hurlimann v Lilley
[2023] NZHC 352
•28 February 2023
IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY
I TE KŌTI MATUA O AOTEAROA TE PAPAIOEA ROHE
CIV-2021-454-23
[2023] NZHC 352
BETWEEN JOSHUA HÜRLIMANN
Plaintiff
AND
PAUL LILLEY AND MELANIE LILLEY
Defendants
Hearing: On the papers Counsel:
M Freeman for Plaintiff
D I Shepherd for Defendants
Judgment:
28 February 2023
JUDGMENT OF ISAC J
[Costs]
Introduction
[1] In 2020, Mr Hürlimann entered into an agreement to purchase a section from the respondents, Mr and Mrs Lilley. Subsequently, there was a dispute about a range of restrictive covenants that the Lilleys wished to register over the title. Mr Hürlimann eventually settled the purchase without prejudice to his ability to challenge the imposition of the covenants. In a judgment of 20 July 2022, I dismissed Mr Hürlimann’s proceeding seeking removal of the covenants.1
[2]The question now is what costs, if any, ought to follow the event.
1 Hürlimann v Lilley [2022] NZHC 1751.
HÜRLIMANN v LILLEY [2023] NZHC 352 [28 February 2023]
[3] Mr Hürlimann is legally aided, having obtained a grant of legal aid partway through the proceeding on 10 May 2022. Section 45(2) of the Legal Services Act 2011 provides that no costs may be awarded against a legally aided person unless there are “exceptional circumstances”.
[4] The Lilleys accept Mr Hürlimann has the benefit of the protection under s 45(2) for steps taken after the grant of legal aid. However, they submit that the protection does not apply “retrospectively”, and that they are entitled to recover their costs incurred prior to the grant of legal aid. In any case, they argue that there are exceptional circumstances which justify an award of costs against a legally aided party.
[5] Mr Hürlimann submits that he has the protection under s 45(2) for all steps taken in the proceeding and argues there are no exceptional circumstances warranting a costs award. In addition, Mr Hürlimann also seeks his own costs of $13,384 in relation to his “first cause of action”, a summary judgment application in which he sought specific performance (settlement) of the sale and purchase agreement. The parties settled the first cause of action with costs reserved.
Issues
[6]There are three issues that require determination:
(a)Does the costs protection of a legally aided person under s 45 of the Act apply to steps taken in a proceeding before a grant of legal aid is made?
(b)Are there exceptional circumstances in terms of s 45(2) of the Act which justify ordering costs against Mr Hürlimann in this case?
(c)Is Mr Hürlimann entitled to costs in relation to his first cause of action?
Consideration
Timing of the protection under s 45 of the Legal Services Act 2011?
[7]Section 45(1) and (2) of the Act provide:
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.
[8] The Lilleys submit that there is diverging authority on the scope of the s 45(2) protection where a grant of legal aid has been made partway through a proceeding. On one hand, it is said that Ngati Tama Custodian Trustee v Phillips, B v A, Hollands v Sorensen and Bach v Prison Director stand for the proposition that the protection in s 45(2) only applies from the time a defendant is granted legal aid.2 The Lilleys say this is the correct approach. On the other hand, the decisions in AA v LA, Gill v Lethlean and Shi v So suggest that the availability of the protection under s 45(2) will depend more on the terms on which legal aid was granted, rather than the date.3 So, a comprehensive grant of legal aid was found to afford retrospective protection against costs (Gill v Lethlean), whereas an interim grant of aid was not (Shi v So).
[9]The Lilleys draw attention to the comments of Wylie J in B v A:4
A person only becomes an aided person once a grant is made. There is nothing in s 45 to suggest that once a grant is made, immunity is conferred retrospectively. Rather, when a grant is made in civil proceedings, there is then an obligation to notify every other party and the Registrar of the relevant court. The obligation to notify arises on the grant of legal aid — not the date of application. Various decisions as to the conduct of proceedings will be based on whether the other party is legally aided. As has been observed by Judge Spear in the District Court, a party to civil proceedings might conceivably spend considerable resources pursuing a claim against a person believed not to be legally aided only to find at some later stage that the other party has protection from costs by the operation of s 45(2). I agree with the Judge that if the intention of the legislature in respect of s 45(2) was for the immunity to apply retrospectively, either from the commencement of the proceedings or
2 B v A [2020] NZHC 765 at [13]; Ngati Tama Custodian Trustee Ltd v Phillips [2021] NZHC 5; ad Hollands v Sorensen [2021] NZHC 575; and Bach v Prison Director, Auckland South Corrections Facility – Serco [2022] NZHC 3138.
3 AA v LA [2017] NZHC 646; Gill v Lethlean [2021] NZHC 296; and Shi v So [2021] NZHC 879. This line of reasoning is said stem from a series of cases in Simpson v Elliott HC Auckland CP54-SD99, 21 August 2001; Gitmans v Alexander (2003) 16 PRNZ 653 (HC); Carter v Western Viaduct Marine Ltd (2003) 16 PRNZ 1034 (HC); and CMD v JT [2011] 2 NZLR 567 (CA).
4 B v A, above n 2, at [13].
the time of application for the grant of legal aid, it would have been a simple matter to have so specified. The legislature has not so specified and to construe s 45(2) as having such retrospective effect could well create injustice for a successful party who has conducted his or her proceedings assuming that the other party was not legally aided.
(counsel’s emphasis)
[10] While at first glance this appears to be authority for the proposition advanced by the Lilleys, a closer look at the facts suggests it stands for a rather narrower proposition. In particular, the case suggests that an award of legal aid cannot immunise a person against a pre-existing costs liability. As Dunningham J observed in Gill v Lethlean:5
I am satisfied the case of B v A can be distinguished from the present case. In B v A, the judge made a finding of liability for costs before legal aid was confirmed and so, for the purposes of costs, that party could not be a legally aided person. Importantly Wylie J did not consider his decision was inconsistent with the case of AA v LA, where costs had not been determined before the grant of legal aid. In that case, Mander J acknowledged that legal aid grants could apply retrospectively and consequently provide s 45 immunity in relation to prior steps where no costs order has already been made, saying “[t]he question is not when legal aid was approved, but to which costs the grant of legal aid attaches.” As Mander J noted, “the principle lying behind s 45 is that those who are unable to pay for their own legal services (as evidenced by a legal aid grant), should ordinarily be excused from paying the costs of the other party.” Therefore, the immunity should attach to the costs for which legal aid is provided.
[11] The purpose of the Act—the reason for providing legal aid grants— is to promote access to justice by providing legal services to people of insufficient means.6 As Mander J noted, the principle underlying s 45 is that people who are legally aided should typically be excused from paying costs.7 In my view, the policy of the Act and a plain reading of the words in s 45(2) support the view that the protection applies to costs incurred in a proceeding in relation to which legal aid is granted, regardless of the point at which the grant is made. The only exception to that is that if an existing costs liability has crystallised (for instance, costs on an interlocutory step have been fixed in a judgment) it would seem the protection cannot operate to deprive the successful party of the fruits of litigation.
5 Gill v Lethlean, above n 3, at [26] (footnotes omitted).
6 Legal Services Act 2011, s 3.
7 AA v LA, above n 3, at [19].
[12] I therefore conclude that Mr and Mrs Lilley are not entitled to costs in relation to steps in the proceeding pre-dating the grant of Mr Hürlimann’s legal aid. It also follows that I may only award costs against Mr Hürlimann if satisfied that there are exceptional circumstances. I turn to consider that issue now.
Exceptional circumstances?
[13] For circumstances to qualify as exceptional circumstances, they must be “quite out of the ordinary”.8
[14] Section 45(3) of the Act lists six non-exhaustive factors that the Court may take into account when considering the existence of exceptional circumstances:
(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.
[15] The Lilleys submit that the following factors amount to exceptional circumstances:
(a)The plaintiff became unemployed as a result of electing not to receive a COVID-19 vaccination. In those circumstances, allowing him to rely on the s 45(2) protection effectively permits him to benefit from a situation of impecuniousness he created.
(b)The defendants had adopted a litigation strategy on the basis that they would be able to recover their costs if successful. By the time the plaintiff applied for legal aid, the defendants had already incurred costs in defending the summary judgment application. The application for
8 Laverty v Para Franchising Ltd [2006] 1 NZLR 650 at [31].
and award of aid at that stage altered the strategic landscape and gave rise to exceptional circumstances.
(c)Mr Hürlimann owns an unmortgaged, freehold property. Relying on the Court of Appeal decision in Laverty,9 the respondents submit that the defendant has more than enough means to pay a costs award.
(d)Mr and Mrs Lilley were unnecessarily required to incur legal expenses responding to affidavits which were ultimately disregarded by the Court (s 45(3)(a)).
(e)The respondents were also put to the expense of responding to two arguments that Mr Hürlimann elected to pursue, and ultimately failed on, despite indications from the Court that one of the points (based on the ‘default rule’ in contractual discretions) was untenable (s 45(3)(d)).10
(f)Finally, Mr Hürlimann failed to accept a $300,000 Calderbank offer before trial, an offer which would have represented a considerable capital gain on the $223,000 purchase price (s 45(3)(e)).
[16] These factors do not, in my view, collectively or individually amount to exceptional circumstances under s 45 of the Act.
[17] Mr Hürlimann’s decision to decline having a COVID-19 vaccination is one entirely consistent with his fundamental rights. I very much doubt that Mr Hürlimann wished to lose his employment as a pharmacist, so I do not accept the Lilleys’ premise that he chose to put himself in a position where he required legal aid to be able to pursue his proceedings.
9 At [24], the Court said: “We would not, however, confine the issue of exceptional circumstances to cases where the aided party’s conduct of the litigation warranted a mark of disapproval. There may, for example, be cases where the aided party is quite wealthy but significant assets have not excluded a grant of aid, perhaps because they are the subject of the dispute or otherwise exempted from calculation.”
10 Hürlimann v Lilley [2021] NZHC 2689 at [26]–[27].
[18] There is nothing in the timing or fact of Mr Hürlimann’s grant of legal aid that supports a finding of exceptional circumstances. Nor do I consider that Mr Hürlimann’s decision to commence proceedings was unreasonable. It seems the trigger for them was the Lilleys’ attempt to impose a fresh set of covenants that would have prevented Mr Hurlimann from constructing any dwelling on the section. In my view, that was not a reasonable step for Mr and Mrs Lilley to take having already sought to impose a less onerous set of covenants. Nor do I consider that there is any merit in the submission that the defendants incurred costs responding to affidavits that did not inform my judgment. And while I rejected two lines of argument Mr Hürlimann made, I do not consider they were so lacking in merit that they could support an award of costs under s 45.
[19] Finally, Mr and Mrs Lilley are on stronger ground when they refer to the rejection of their Calderbank offer which would have seen Mr Hürlimann make a
$77,000 capital gain on the section. However, the offer was made on 28 June 2022, only a few working days before the trial was to commence. And, more importantly, the letter of offer required acceptance by 12 pm the following day, 29 June. In my view, the offer did not provide a reasonable period for consideration. As the authors of The Law of Costs in New Zealand observe, “an offer that is made very late in the proceeding, or on terms where the offer is open for a very short time, is unlikely to be effective”.11 Mr Hürlimann also submits that the value of the section at the time the offer was made was greater than the offer he received. If that is correct (and there is insufficient evidence to determine whether that is so) then his refusal of the offer cannot be said to have been unreasonable.
Costs on the first cause of action?
[20] Finally, I understood Mr Hürlimann’s application for costs to be conditional on the Court finding him liable for some of the respondents’ costs. In other words, if he was found liable, that liability should be offset by his costs for the first cause of action. If that is the case, given my findings above, it is not necessary to determine the application. Nevertheless, I can deal with it briefly.
11 David Bullock and Tim Mullins The Law of Costs in New Zealand (LexisNexis, Wellington, 2022) at [3.57].
[21] The short answer is that, in light of the findings in my substantive judgment, Mr Hürlimann cannot be said to have been successful in the first cause of action.
[22] As noted, the catalyst for filing the proceedings for specific performance was the Lilleys’ attempt to impose a second set of restrictive covenants on the property that would have, among other things, prevented any building from being erected on it. As I have indicated, contrary to the respondents’ claim that the immediate resort to litigation was neither appropriate nor proper, my view is that there can be no criticism of that course of action.
[23] The difficulty for Mr Hürlimann, however, is that while the parties agreed to settle the property transaction, Mr Hürlimann received a title subject to restrictive covenants which he subsequently sought to challenge. In light of the result in my substantive judgment, in which I declined to remove the covenants, I do not consider that Mr Hürlimann achieved success such that the Lilleys should be required to meet his costs on the summary judgment application.
Conclusion and result
[24] I decline to make an order for costs against Mr Hürlimann as sought by Mr and Mrs Lilley.
[25] Pursuant to s 45(5), I make an order specifying the costs that I would have made had Mr Hürlimann not been legally aided. I would have found him liable for costs on a 2B basis together with reasonable disbursements.
Isac J
Solicitors:
Thomas Dewar Sziranyi Letts, Lower Hutt for Plaintiff Cooper Rapley Lawyers, Palmerston North for Defendants
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