Jefferies v Pagan

[2025] NZHC 2441

IN THE HIGH COURT OF NEW ZEALAND BLENHEIM REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WAIHARAKEKE ROHE

CIV-2023-406-006 [2025] NZHC 2441

UNDER  the Insolvency Act 2006

IN THE MATTER             of the bankruptcy of Walter Richard Pagan BETWEEN  CLAIRE BRIDGET JEFFERIES

Judgment Creditor

AND  WALTER RICHARD PAGAN

Judgment Debtor

Hearing:                   On the papers

Counsel:                   S E England for Judgment Creditor

D G Dewar and T A Moore for Judgment Debtor

Judgment:                26 August 2025

JUDGMENT OF ASSOCIATE JUDGE PAULSEN (COSTS)

This judgment was delivered by me on 26 August 2025 at 3.30 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date:

JEFFERIES v PAGAN [2025] NZHC 2441 [26 August 2025]

[1]    Ms Jefferies obtained a judgment against Mr Pagan in the District Court and is now pursuing bankruptcy proceedings against him. The creditor’s application has been before the Court for a very long time. Mr Pagan has been represented by counsel throughout.1

[2]    The creditor’s application filed in April 2023 has been adjourned successively on the basis Mr Pagan would sell his property and pay Ms Jefferies from the proceeds of sale. However, in February 2025 Mr Pagan gave notice of his intention to apply to halt the creditor’s application on the basis that the District Court judgment had been stayed, as a result of that Court having made an order on 20 June 2023 under s 153 of the District Court Act 2016 for payment of the judgment debt by instalments.

[3]    The circumstances under which the instalment payment order was made are set out in in my judgment of 27 June 2025.2 In that judgment I dismissed Mr Pagan’s application to halt the creditor’s application. I also directed that if any orders were sought in respect of costs, memoranda could be filed.3

[4]    Ms Jefferies has applied for costs against Mr Pagan in respect to the application to halt the creditor’s application. Both parties are in receipt of legal aid. Mr Pagan opposes that application, arguing that there are no exceptional circumstances justifying the making of a costs award against him when he is legally aided.

The law

[5]    For present purposes, the relevant statutory provision is s 45 of the Legal Services Act 2011 (the Act) which provides:

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

1      Mr Pagan had a change of counsel in around February 2025.

2      Jefferies v Pagan [2025] NZHC 1738.

3 At [52].

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.

(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.

(6)If an order for costs is made against a next friend or guardian ad litem

of an aided person who is a minor or is mentally disordered, then—

(a)that next friend or guardian ad litem has the benefit of this section; and

(b)the means of the next friend or guardian ad litem are taken as being the means of the aided person.

[6]    In McCollum v Thompson the Court of Appeal described the purpose of s 45 as follows:4

[77]  The purpose of s 45 is to reduce, but not eliminate entirely,  the risk  that a legally aided person, if unsuccessful in the litigation, may be required to pay substantial costs despite having limited means. This promotes access to justice by ensuring that persons of limited means are not deterred from

4      McCollum v Thompson [2017] NZCA 269, [2017] NZAR 1106 (footnote omitted).

pursuing or defending claims by the prospect of an obligation to pay costs that they cannot afford to meet.

[7]    As will be noted, s 45(1) provides that the liability under an order for costs made against a person in receipt of legal aid for civil proceedings must not exceed an amount “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”.

[8]    Section 45(2) provides that an order for costs may not be made against a legally aided person unless the Court is satisfied there are “exceptional circumstances”. Section 45(3) sets out a list of non-exhaustive matters the Court may consider in determining whether there are exceptional circumstances.

[9]    There have been several decisions of the Court that provide assistance in assessing what amounts to “exceptional circumstances”. In Lowrie v Hutt City Te Awa Kairangi, Dobson J said:5

[4]        The test for exceptional circumstances is a broad one. It takes into account the means of all the parties and their conduct and, to qualify, the circumstances must be “quite out of the ordinary”. In Reid v Castleton-Reid, it was noted:

[52]      Subsection 3(d) makes it clear that the issues on which the plaintiff failed must have been such that the legally aided person behaved in an unreasonable fashion. Unreasonable conduct could arise in a number of ways. It might be considered that the plaintiff had acted unreasonably by insisting that a claim be brought in the first place. The court making a decision under s 45(2) would have to try and place itself in the position of the party at the time when the decision was made to initiate or continue a proceeding. Retrospective reasoning based only on the fact that the case turned out to be an unsuccessful one would not be enough on its own to attract the operation of s 45. It may be influenced too heavily by the advantage of hindsight. In making a decision under s 45(2), proper weight needs to be given to the consideration that the outcome of litigation is inherently a difficult matter to predict.

[53]      The court is required to balance giving effect to the objective of the Legal Services Act to promote access to justice against the harm that can be done if a litigant who has been armed by state funding misuses his or her position. Such a person could cause considerable

5      Lowrie v Hutt City Te Awa Kairangi [2019] NZHC 1030 (footnotes omitted). See also Ngāti Tama v Custodian Trustee Ltd v Phillips [2020] NZCA 252, (2020) 25 PRNZ 465 at [7], citing Laverty v Para Franchising Ltd [2006] 1 NZLR 650 (CA).

damage to his or her opponent in litigation particularly by bringing complex and expensive litigation which calls for a proportionate expenditure by the opposite party in obtaining assistance in the formulation and advancing of his or her case when it comes to court.

[10]   Under s 45(4) of the Act, any order for costs made against an aided person must specify the amount the person would have been ordered to pay if s 45 had not affected his or her liability.

The parties’ submissions

[11]Ms Jefferies argues that:

(a)Mr Pagan has the ability to pay an award for costs; and

(b)there are exceptional circumstances justifying the making of a costs award.

[12]   In respect to Mr Pagan’s ability to pay, it is submitted that Mr Pagan has sufficient equity in his property which can be realised once the property is sold. It is said, in contrast, Ms Jefferies has no equity in any property, is living on limited earnings and her only meaningful asset is the monies owed to her by Mr Pagan. It is said if an award of costs is not made Ms Jefferies will be prejudiced, as any amount she eventually receives will be first applied to repay her legal aid debt.

[13]   In respect to the existence of exceptional circumstances, several matters are relied upon. First, it is said Mr Pagan’s application had little, if any, prospect of success and should not have been made. Second, that Mr Pagan has engaged in misleading and deceitful conduct by informing the Court that the application was sought for a limited time only for settlement options to be explored, but then informing the Court at the hearing that the halt in fact was sought indefinitely and he had no proposals to make. Third, it is said there has been an unreasonable refusal to negotiate a settlement, and despite clear directions from the Court Mr Pagan did not file a synopsis of argument as required until late in the day before the hearing on which  Ms Jefferies’ response was due which resulted in her incurring unnecessary costs and largely having to rewrite her response.

[14]   In terms of quantum of the costs award sought, it is said that Ms Jefferies has incurred costs in relation to this application at legal aid rates totalling $3,841 including GST, compared to scale 2B costs which would amount to $6,214.

[15]   For Mr Pagan, it is submitted the late filing of documents did not disadvantage Ms Jefferies or increase costs and would not meet the threshold of an exceptional circumstance. Mr Pagan does not accept that he engaged in any misleading or deceitful conduct as the application to halt the creditor’s application was made only after a change of counsel, and it becoming apparent to new counsel there had been an instalment payment order made by the District Court.

[16]   It is then said that it was at that stage that Mr Pagan was issued with a Property Law Act Notice by the ANZ Bank, which meant he was no longer able to obtain alternative finance to make a settlement offer to Ms Jefferies. On this view it is said it was simply a change of circumstances that meant a settlement offer could not be made.

[17]   Mr Pagan also argues that the application to halt the creditor’s application was not pursued unreasonably because counsel had to report on the prospect of success before the grant of legal aid was made, and the fact the application was unsuccessful did not change what Mr Pagan’s prospect of success was when seeking legal aid.

[18]   It is also said there has been no unreasonable refusal to negotiate a settlement because, whilst Mr Pagan was originally in a position to make a settlement offer, a change of circumstances meant his only achievable settlement was to continue payments already being made under the District Court order.

My analysis

[19]   Ms Jefferies and Mr Pagan are both in receipt of legal aid but their circumstances are dissimilar. Ms Jefferies has no significant assets apart from the debt owed to her by Mr Pagan. Mr Pagan, on the other hand, has his own home with sufficient equity to pay Ms Jefferies what is owed to her from its sale. I am satisfied that Mr Pagan has the means to pay what will be a modest award of costs from the same source.

[20]   Despite the fact I consider the application to halt the creditor’s application had little prospect of success and Mr Pagan is criticised for not complying with timetable directions, these are not matters which in isolation amount to exceptional circumstance on the facts of this case.

[21]   However, there is one matter that leads me to the view that there are exceptional circumstances justifying the making of an award of costs. Some more background is required to understand how I have arrived at that view.

[22]   Ms Jefferies commenced her bankruptcy proceedings in February 2023 and filed her creditor’s application on 28 April 2023. It had its first hearing date on 28 July 2023. The instalment payment order had already been made by that date. Despite the fact that Mr Pagan has had legal representation, he did not file any formal opposition to the creditor’s application or apply to halt the proceeding and it was successively adjourned on the basis that Mr Pagan was to sell his house and pay Ms Jefferies.

[23]   It was not until February 2025 (two years after the bankruptcy notice was issued), when Ms Jefferies’ counsel gave notice to the Court that failing any resolution she would be seeking an order for adjudication, that Mr Pagan applied to halt the creditor’s application. Even then Mr Pagan sought a halt for just three months, ostensibly so he could resolve matters with Ms Jefferies. When the application to halt the creditor’s application came before me, Mr Pagan’s counsel advised he had no settlement offer to make and wanted a permanent halt.

[24]   In my view, if Mr Pagan was to apply to halt the creditor’s application he should have done so at the outset. It is plainly unjust that Ms Jefferies has agreed to adjournments of her creditor’s application on the basis of promises that Mr Pagan would pay her from the proceeds of sale of his property, only to have Mr Pagan change position at a very late stage. Not only did this delay payment to Ms Jefferies (which she would undoubtedly have received upon Mr Pagan’s bankruptcy), but she has incurred unnecessary costs which are significant for a person with limited means.

[25]   While this change of position is said to be the result of enquiries made following the engagement by Mr Pagan of new counsel, I do not accept that is the

case. Mr Pagan’s former counsel was aware the instalment payment order had been made and referred to it in a memorandum to the Court of 18 April 2024 when agreeing to a further adjournment of the creditor’s application. There was no suggestion at that stage that the instalment order would be relied upon to halt the creditor’s application. In my view that matter was raised opportunistically once it was clear that Ms Jefferies was, quite reasonably, not prepared to wait further for Mr Pagan to sell his property and pay her.

[26]   I also do not accept counsel’s submission that Mr Pagan was prevented from making any offer to Ms Jefferies because of action taken against him by his bank. Obtaining alternative finance was just one option open to Mr Pagan. The other was to sell the property and satisfy both the bank and Ms Jefferies. I do not accept that the property could not be sold over a period of more than two years. In this regard, in his affidavit in support of the application to halt the creditor’s application Mr Pagan emphasised the need to retain his home. That is contrary to representations that had been made that the property was being actively marketed, but consistent with counsel’s advice that Mr Pagan was seeking a permanent halt of the creditor’s application and had no offers to make to Ms Jefferies.

[27]   In short, had Mr Pagan wished to rely on the instalment payment order as a ground to oppose the creditor’s application he could and should have raised it immediately upon service of the creditor’s application. Ms Jefferies incurred substantial costs and suffered delays on the basis of representations that Mr Pagan would sell his home and pay her. The application to halt the creditor’s application represented a complete about face by Mr Pagan on the understandings upon which the parties had to that point proceeded. I consider Mr Pagan acted unreasonably and improperly in advancing the application to halt the creditor’s application, entitling Ms Jefferies to an award of costs.

Result

[28]   Mr Pagan is to pay Ms Jefferies scale costs on a 2B basis in respect to the application to halt the creditor’s application plus reasonable disbursements to be fixed by the Registrar (if necessary), save that the amount fixed and payable shall not exceed

the amount paid by Legal Services to Ms Jefferies’ counsel in respect to the application including in relation to the preparation of submissions on costs.

[29]   For the purposes of s 45(4) of the Act, the amount awarded to Ms Jefferies is unaffected by the fact that Mr Pagan is legally aided to the extent that it is limited to the amount of costs actually paid by Legal Services to her counsel.

O G Paulsen Associate Judge

Solicitors:

England Law, Nelson

Thomas Dewar Sziranyi Letts, Lower Hutt