Laverty v Para Franchising Ltd CA104/04

[2005] NZCA 436

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IN THE COURT OF APPEAL OF NEW ZEALAND

CA104/04

BETWEEN  MARTIN DOMINIC LAVERTY First Appellant

AND  RHONDA JEAN LAVERTY Second Appellant

AND  PARA FRANCHISING LIMITED Respondent

Hearing:         19 April 2005

Court:            Anderson  P, McGrath and William Young JJ Counsel:          J O Upton QC and J H Rennie for Appellants

C T Patterson for Respondent

Judgment:      19 September 2005

JUDGMENT OF THE COURT

A.       The appeal is allowed and the order for costs made by the High Court is

set aside.

B.       The   appellants   must   pay   the   respondent   costs   comprising   their respective  contributions  to  the  cost  of  legal  services,  required  under s 15(1) of the Legal Services Act 2000.

C.      The Court specifies under s 40(3) of the Legal Services Act that, if the appellants had not been legally aided in the High Court, there would have been a costs order made against them in that Court in favour of the respondents of a total of $81,900.

D.      The respondent must pay the appellants costs of $6,000 in respect of the appeal together with reasonable disbursements.

LAVERTY And Anor V PARA FRANCHISING LIMITED CA CA104/04 [19 September 2005]

REASONS

(Given by McGrath J)

[1]      This is an appeal against a judgment awarding costs against legally aided parties following a trial.   The respondent, Para Franchising Limited, had obtained judgment in a proceeding it had brought against Walop No. 3 Limited (Walop) and the present appellants, Mr Laverty and Mrs Laverty.  The respondent also obtained judgment on the appellants’ counter-claim.   Despite the constraints in the Legal Services Act 2000 on making legally aided persons liable for costs, Wild J decided that in the particular circumstances the appellants should be ordered to pay the respondent costs and disbursements in a total sum of $96,750.   Their appeal is against that order.

Background facts

[2]      In 1999 the respondent entered into a franchise agreement with Walop, a company owned by the  appellants,  to  operate a  “Para”  store  in  Hastings.    The appellants guaranteed Walop’s obligations under the agreement.  Walop operated the store until it was destroyed by fire in March 1999.   The Para business was not re-established on that site and the respondent terminated the franchise agreement with effect from 5 August 1999.  Walop then opened a new business, which it called Parallel Enterprises, at other premises in Hastings.   Even though the nearest Para franchise  was  in  Napier,  Walop’s  new  business  sold  the  same  products  and effectively was in competition with the respondent.

[3]      In December 1999 the respondent obtained an interim injunction to restrain Walop from trading, but that injunction was set aside by this Court in a judgment delivered on 22 March 2000.  Nevertheless, Walop was not able to resume operating its business.

[4]      The respondent pursued to a trial its substantive proceeding against Walop and the appellants for breach of a restraint of trade clause in the franchise agreement, breach of the Fair Trading Act 1986, passing off and trade-mark infringement.  The respondent also claimed under the franchise agreement for unpaid royalties. The appellants  counter-claimed  seeking  damages  for  wrongful  termination  of  the

agreement. They also issued separate proceedings against their solicitors, claiming that the firm had been professionally negligent in its advice to the appellants concerning the establishment of the Parallel Enterprises business.  An attempt by the appellants  to  have the proceedings  against  their solicitors  consolidated  with  the franchise agreement proceedings was unsuccessful.

[5]      Both appellants were granted legal aid for the litigation, each being required to contribute $50 towards the cost of the services under s 15 of the Legal Services Act.

[6]      Wild  J  delivered  judgment  in  the  franchise  agreement  proceeding  on

20 December 2002.  The Judge held that the respondent had lawfully terminated the agreement on 2 August 1999 and he dismissed the appellants’ counterclaim.   He found that Walop and the appellants were in breach of the restraint of trade clause in the agreement, which prevented them from competing with the respondent for a period expiring two years after termination.  He also upheld the claim for royalties. Having made these findings the Judge did not need to consider liability in the other causes of action.   He awarded total damages of $102,095 against Walop and the appellants.

The costs judgment

[7]      The respondent applied to the High Court for costs on 17 September 2003 but the Court deferred hearing that application pending the outcome of the appeal against the substantive judgment.  The appeal to this Court was dismissed on 23 February

2004.   Both parties then filed written submissions in the High Court concerning costs.

[8]      The respondent claimed that it was entitled to indemnity costs under the franchise agreement and sought an order in those terms against both Walop and the appellants   as   guarantors.      Judgment   on   that   application   was   delivered   on

3 May 2004.  Wild J decided that the respondent had not claimed the indemnity costs as   contractual   damages,   but   had   rather   applied   for   indemnity   costs   under Rule 48C(4)(e),  which  confers  a  discretion  on  the  Court  to  order  payment  of indemnity costs.  He proceeded on that basis.

[9]      The Judge was not aware of any case in which a legally aided defendant had been ordered to pay indemnity costs to a plaintiff contractually entitled to them.  He saw nothing in the Rules or legal principle precluding that course.   He noted that under s 40(2) of the Legal Services Act the amount of the liability of a legally aided person for costs was not to exceed the amount of the contribution that person is required to make to the cost of legal services “except in exceptional circumstances”.

[10]     The Judge decided that there were exceptional circumstances in the present case, which he identified by reference to the written submissions of counsel for the respondent, Mr Patterson.  In this Court counsel were agreed that we should read the judgment as adopting the “exceptional circumstances” described by Mr Patterson in his submissions to the High Court as follows:

(a)       The existence of the plaintiff’s contractual entitlement to recover indemnity costs;

(b)The defendants have failed to respond to the plaintiff’s Calderbank offer;

(c)       The defendants have pursued applications that were without merit;

(d)The defendants have failed to comply with Court  directions  and timetable orders;

(e)       The defendants have caused the plaintiff to incur additional expenses as a result of attending various call overs and teleconferences as a result of the defendants’ failure to expeditiously apply for legal aid;

(f)      The plaintiff has incurred additional expenses for opposing the defendants’  unsuccessful  counterclaim,  application  for consolidation,  application  for  waiver  of  security  for  costs  and appeal;

(g)      The plaintiff has incurred additional expenses for reviewing the defendant’s three amended lists of documents and two amended pleadings.   The last amended pleading was filed three days before the hearing;

(h)The   second   and   third   defendants   own   their   home   with   an approximate   equity   of   $144,000.00.      The   second   and   third defendants have full time jobs with an approximate weekly income of $920.00.   The second and third defendants are able to satisfy a costs award against them;

(i)        The first and second defendants have contingent asset in their claim against Bramwell Grossman solicitors in CP 5/00.   I would expect

that  contingent  asset  to  be  significant  given  the  quantum of  the defendants’ counterclaim in this matter.

[11]     The   Judge   did   not   elaborate   on   his   finding   concerning   exceptional circumstances other than to say that the circumstances concerned closely resembled those which had been held to be exceptional by Hammond J in the High Court in Awa v Independent News Limited (No. 2) [1996] 2 NZLR 184.

[12]     In fixing the quantum of his costs order the Judge saw it as relevant that the respondent’s  claim  at  the  trial  had  been  for  $125,505  and  that  Walop  had counter-claimed for damages of $6,303.   The damages awarded to the respondent accordingly amounted to 82% of what it had claimed, while Walop’s counter-claim was dismissed.   The Judge also referred in this context to the interim injunction application brought by the respondent at the outset of the proceedings,  and the subsequent judgment of the Court of Appeal setting it aside.   He said that  the substantive hearing before him had occupied three days.

[13]     The Judge also had regard to the appellants’ financial position.  He had no details of the debts or other commitments of the appellants.  He said that they had an equity in their home of $144,000 and a joint weekly income of $920.  He would also have been aware that they had a contingent asset, being the claim against their former solicitors, whom they consulted prior to establishing the new Hastings business.

[14]     Wild J  said  that  although  their  business  failure  and  the  outcome  of  the litigation  had  been  financially  disastrous  for  them,  the  appellants  had  (through Walop) been operating a business, and the litigation in question was of a commercial kind resulting from breaches of the franchise agreement.  He recognised that from their total assets of $144,000 the appellants would have to meet a judgment of

$125,500 and that this meant that the prospect of their meeting a substantial award of costs in addition was problematic.   The respondent had incurred actual costs of

$92,900 and calculated the costs it would be entitled to on a 2B basis at $45,150.  In addition it had incurred disbursements of $36,750.

[15]     The Judge then concluded:

Weighing up the circumstances I have listed…as best I can, and in particular not  overlooking  the  predicament  of  the  second  and  third  defendants,  I consider that the appropriate order under s40 of the Legal Services Act is an order that the first, second and third defendants pay the plaintiff costs of

$60,000 plus disbursements of $36,750, a total of $96,750.   I order accordingly.

Statutory provisions concerning costs

[16]     Section 3 of the Legal Services Act states the Act’s purpose, so far as it is relevant to this appeal, as follows:

3         Purpose of Act

The purpose of this Act is to promote access to justice by—

(a)       providing a legal aid scheme that assists people who have insufficient  means  to  pay  for  legal  services  to  nonetheless  have access to them; and

(b)       providing other schemes of legal assistance; and

(c)       …

[17]     Under s 40(1) of the Legal Services Act the liability of a legally aided person, under an order for costs, must not exceed a reasonable amount for that person to pay. That is to be determined having regard to all the circumstances, including the means of all the parties and their conduct in connection with the dispute.  As well, a costs order must only exceed the amount of the contribution that the aided person has been required to make towards the cost of the legal services in exceptional circumstances (s 40(2)).  In its context we read this provision as generally limiting the extent of an order for costs against an aided party to the contribution that was required as part of the grant of legal aid.   No additional liability over and above that contribution is envisaged.

[18]     A costs order may additionally specify the amount that the aided person would have been ordered to pay but for the restraining effect of s 40 on that person’s liability (s 40(3)).  In that instance, the party prejudiced by the operation of s 40 may apply to the Legal Aid Agency for payment of some or all of the difference between the  costs  awarded  and  the  specified  amount  (s 41(1)).    In  considering  such  an application the Legal Aid Agency must have regard to the conduct of the parties to the proceedings, whether the costs were unnecessarily increased by the conduct of the applicant or the person providing services under legal aid, and the hardship that

would be caused to the applicant if the costs were not paid by the Agency (s 41(2)). After considering these matters and all relevant circumstances, if the Agency considers any payment should be made to the applicant, it must make that payment (s 41(2)). The Agency can also require any person to furnish information on the financial circumstances and needs of the applicant.

[19]     Section 40, reflecting s 3(a), facilitates access to legal services by restricting the amount of costs orders that the Courts may make against a legally aided person. Its effect is to reduce, although not to remove, the risk such a person otherwise faces that, despite having legal aid, if unsuccessful in the litigation, the person may be required to pay substantial costs despite having limited means.   Without such protection the potential for such a costs order would deter persons of limited means from exercising their right of access to the courts, even with the support of legal aid. To counter that disincentive, s 40 limits the circumstances in which a substantial order for costs can be made on normal cost principles against a litigant who has legal aid.

[20]     The potential for an order for costs in excess of the amount of the aided person’s contribution up to a reasonable amount remains, if the circumstances are exceptional.  Here the considerations that may be taken into account are not confined to those normally applicable in fixing costs under the rules: Amev Life Insurance v Dixon  McIver  [1993] 1 NZLR 733, 740 Greig J. In Marston  v  Lane  CIV

2003-419-0315,  Hamilton,  15 September  2004,  Paterson  J  at  [25]  said  that  one relevant consideration not normally applicable in fixing costs in these circumstances might be the assets and income of the aided person.  We agree that the means of an aided person will often be a circumstance relevant to a decision on what it is reasonable for an aided person to pay on an order for costs made under s 40 of the

2000 Act.

[21]     The corollary to the better access to legal services that legal aid provides is that the unaided opponent of a litigant granted legal aid can be put at a disadvantage in the conduct of the litigation.  In Saunders v Anglia Building Society (No. 2) [1971]

1 All ER 243 Lord Reid recognised this situation and the way in which legislatures have addressed it:

It seemed obvious to many people when the 1949  Act  was passed that granting legal aid to one party would in many cases cause serious loss to his opponent if the opponent was not poor enough also to get legal aid.   By means of legal aid unsuccessful actions would be brought which otherwise would never have been brought and the unaided defendant would have either to give in or to bear his own costs.  Perhaps Parliament thought that legal aid would seldom be given to plaintiffs who failed to succeed or perhaps there were other reasons for not giving any relief.  By 1964 it had become clear that  the  existing  system was  causing  substantial  injustice.    In  that  year Parliament enacted provisions calculated to afford a limited degree of relief. A successful unassisted party was enabled to recover part or all of his costs from the legal aid fund, if certain conditions were satisfied.

[22]     Section 41 is a provision of the kind that Lord Reid had in mind.  It reflects s 3(b)  by  providing  a  further  scheme  of  legal  assistance.    Under  this  scheme contributions are made from public funds to the costs of an unaided person who, but for the restraining effect of s 40, would have been entitled to a more substantial award of costs against the aided party.  Parliament has sought, in enacting the two provisions, to achieve the twin purposes of securing access to justice for persons of limited means while at the same time compensating, to the extent appropriate, part or all of the countervailing disadvantage thereby caused to unaided parties.   In administering these provisions the Courts, and for that matter the Legal Aid Agency, must have due regard to these purposes.

[23]     Mr Upton submitted to us that the general approach of the Courts to the application of s 40 when fixing costs, in cases involving exceptional circumstances, had been to impose a figure by way of costs which marked the Court’s disapproval of the way that litigation on behalf of an aided person had been conducted but which also had regard to what the person concerned realistically could afford to pay.  We agree that an approach to ss 40 and 41 which takes those conflicting considerations into account will also be in accordance with the purpose of these provisions.

[24]     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 case 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.  Or possibly the aided party may succeed against one of multiple parties and accordingly be in a position to meet or pass on an award of costs.  In other words, the question whether there are

exceptional circumstances needs to be examined on a case by case basis, whether or not those involve disapprobation.

Effect of statute on Court’s discretion

[25]     A central feature of the present case is that clause 20.20 of the franchise agreement made provision for the indemnification of the respondent for the costs incurred in enforcing the agreement:

20.20    Costs

The Franchisee must pay and bear all legal costs and expenses on a solicitor and own client basis incurred by Para Franchising in exercising or enforcing its rights under this Agreement including those arising from default by the Franchisee, and including all expenses and stamp duty charged in connection with this Agreement.

[26]     The respondent undoubtedly brought the proceeding to exercise and enforce its rights  under  the  franchise  agreement,  and  in  particular  the  restraint  of  trade clause.   It also defended the counterclaim for the same purpose.   Clause 20.20 accordingly applies, and on its face, gives the respondent a contractual right to be indemnified by the appellants for all costs incurred in the proceedings.

[27]     That claim could have been brought as one for recovery of a debt pursuant to the agreement but was not.   Instead, as Wild J decided, it was brought under the High Court Rules which relevantly provide:

48C  Increased costs and indemnity costs

(4) The Court may order a party to pay indemnity costs if-

…

(e) The party claiming costs is entitled to indemnity costs under a contract or deed;…

[28]     The principle underlying this rule, which came into effect on 1 January 2000 as part of a new costs regime, is that an agreement between parties is a factor which may justify the Court in exercising its discretion to make an order for indemnity costs.  That principle had been recognised in ANZ Banking Group (NZ) Ltd v Gibson [1986] 1 NZLR 556 at 566 where Richardson J held, as an alternative ground of his judgment, that the High Court Judge “was entitled to give the contractual stipulation the weight he did” in ordering guarantors pay to a bank the costs of enforcement of

their guarantee on an indemnity basis.  Casey J, at 571, agreed with Richardson J in a separate judgment.  Somers J dissented but on a different point.

[29]     The ANZ Banking Group case did not, however, require the Court to consider the effect on the exercise of the Court’s discretion to award costs, of the provisions in legal aid legislation which were equivalent to ss 40 and 41 of the Legal Services Act 2000.   Those provisions control the Court’s discretion to make “an order for costs” against an aided person in civil proceedings for which he or she receives legal aid.   All orders for costs made under the powers given to the Court by the High Court Rules are clearly covered.  To the extent that a contractual stipulation provides a different basis for payment of costs of legal proceedings it cannot carry significant weight in the exercise of the Court’s discretion.  To treat that factor otherwise would frustrate the statutory purpose of facilitating access to legal services.

[30]     The High Court was accordingly required, in this case, to apply the principles arising from ss 40 and 41 in determining the respondent’s application for costs.  In particular, the Court was required not to make an order in excess of the amount that was reasonable for the appellants to pay, and only in exceptional circumstances could it make an order that exceeded their nominal contribution to the cost of legal services required of them under s 15(1) of the 2000 Act.

[31]     Subject to these stipulations the inquiry the Court must undertake under s 40 is a broad one, which importantly includes the means of all the parties and their conduct.   For circumstances to qualify as exceptional, however they have to be “quite out of the ordinary”: Awa v Independent News Auckland Ltd at 186.   As indicated, the fact that the party against whom an order is sought is contractually obliged to pay costs will generally carry only limited weight because of the statutory policy.  In the end, albeit within these strict parameters, the Court has a discretion as to whether it should make an award of costs against the aided party and if so in what sum.

[32]     If s 40 has impacted on the amount of costs awarded, the Court will generally go on to specify the figure, or the higher figure, that the costs against the aided person would have been had the party concerned not been legally aided (s 40(3) and

(4)).  In that case the way is open for an application to the Legal Services Agency under s 41.

Application to this case

[33]     We  turn  to  consider  whether  the  circumstances  relied  on  by  the  Judge provided a sound basis for the exercise of his discretion to award costs of $60,000 plus disbursements of $36,750, a total of $96,750.   We start by examining the circumstances which the Judge found to be exceptional.

[34]    The reference in counsel’s submissions to “the Calderbank offer” as an exceptional  circumstance  is  to  a  letter  sent  by  the  respondent’s  counsel  on

24 January 2003 following the delivery of judgment after the trial.  In the letter the successful respondent offered to settle its claim for costs on the basis that the appellants,  as  guarantors  of  Walop,  would  pay  the  respondent  $50,000  within

30 days.  The appellants’ position on this offer, according to Mr Upton, was that as the appellants were entirely reliant on legal aid for funding for making costs payments, it was impractical for them to compromise any claim for costs on the basis put to them by the respondent.   Mr Patterson’s response was that the appellants should have put forward a counter-proposal which accommodated their dependence on legal aid approvals.   As the Calderbank offer was only made after judgment, however, when all the costs of trial had been incurred, we do not regard it as being a circumstance  which  can  carry  any  significant  weight  under  s 40  of  the  Legal Services Act.

[35]     The interlocutory applications which the respondent claimed, and the Judge accepted, were without merit were first, an  application to have the  proceedings against the appellants’ solicitors consolidated with the franchise agreement proceeding between the respondent, Walop, and the appellants, and secondly, an application to dispense with security for costs on the appeal.  The first of those was dismissed by the Associate Judge, because there were “very few common issues with respect to the two proceedings”.   We are satisfied nevertheless that, in all the circumstances, it was reasonable for Walop to make that application.  Similarly, in the legal aid context, we do not consider that it was unreasonable for Walop to apply

for waiver of security for  costs on the appeal  against  the  High Court  judgment following trial.

[36]     The reference to Walop’s failure to comply with Court timetabling orders refers to a late application by the appellants, and Walop, to amend particulars of their defence.   Mr Patterson told us that there had also been several other failures to comply with Court directions and orders, which increased the respondent’s costs. Mr Upton  referred  to  particular  difficulties  that  had  arisen  during  a  transitional period,  when  there  was  a  change  in  solicitors  and  counsel  representing  the appellants, and delays in the new lawyers securing a grant of legal aid.  He said the delays in compliance with Court orders reflected the practicalities of dealing with the Legal Aid Agency or, on occasion, counsel’s other commitments.    These circumstances can be linked with the respondent’s complaint concerning the need for its attendance at call overs and teleconferences.

[37]     We are conscious that Wild J was the trial judge and had also dealt with interlocutory applications prior to the trial.   The Judge’s  finding was, however, expressed in general terms and does not go so far as to indicate that there was anything gross or even unusual about the appellant’s lack of  compliance in the context of a hard fought case, in which one party is legally aided.

[38]     Nor are we prepared to attribute any of these problems to a delay by the appellants or Walop in applying for legal aid.   We are satisfied from what both counsel told us at the hearing of the appeal that the problems with legal aid approvals arose from delays in processing legal aid applications, which cannot be attributed to the appellants.

[39]     We see nothing of particular significance in the circumstances said to have given rise to “additional expenses” in relation to defending the counter-claim or opposing the application for waiver of security for costs.   While the stance of the appellants in the franchise agreement litigation was not consistent with that in its claim against the solicitors in separate proceedings, that is not unusual and, in the present case, a perfectly understandable precaution.  Nor is the complaint concerning the need for the respondent’s advisers to review amended lists of documents and

pleadings capable of amounting to conduct of the kind that is relevant to a costs order under s 40.

[40]     Looking at the circumstances overall, clearly this litigation was hard fought at all stages, and delays and inconvenience to the respondent were caused from time to time by the legal aid status of the opponent.  Having examined the criticisms made of  the  conduct  of  the  case  for  the  defendants,  however,  we  accept  as  correct Mr Upton’s submission that there was nothing in the circumstances in the conduct of the defence before or during the trial of this proceeding that was out of the ordinary for litigation of this kind.  In particular, the events identified by the respondent in its counsel’s submission on costs to the Judge are not capable of supporting the Judge’s finding that there were circumstances quite out of the ordinary that were exceptional.

[41]     We have also considered further matters mentioned by the Judge as relevant to the quantum of costs that he awarded the respondent.   These included the appellants’ means and the nature of the litigation concerning which the Judge said:

Although the defendants’ Para Franchise business failed, and although that business coupled with the outcome of this litigation, have been financial disasters for the defendants, they were operating a business and this was commercial litigation resulting, I found, from the defendants’ breaches of the franchise agreement which bound them.

[42]     In this passage the Judge appears to treat the fact that the dispute was a commercial one as a circumstance that counters the limited means of the appellants. The fact that the aided litigation is of a commercial character could in some circumstances be a relevant consideration if not necessarily a controlling one.  In the present case, however, given the relative inequality of resources between the parties, such commercial aspect as there may be must carry little weight.

[43]     As previously indicated, the Judge also referred to the insolvency of Walop, and the asset position and weekly income of the appellants.  In that respect, and in relation to their debts and commitments, the appellants’ final affidavit was unfortunately not put before the Judge.  We have taken its contents into account.  It confirms the very limited means of the appellants.

[44]     The conclusion we reach is that there was nothing exceptional in this case which warranted an award of total costs against an aided party in excess of $90,000. The circumstances that the Judge identified could not satisfy the requirement for exceptional circumstances for the making of such an award.  On the application of s 40 the award should have been confined to the amount of the nominal contribution that the appellants were required to make.  The respondent should, however, have the benefit of a certificate that but for the effect of s 40 it would have received costs as claimed on a 2B basis.

Contractual obligations and section 40

[45]     The procedure followed by the respondent has resulted in its application for costs being treated as made under the High Court Rules.  It is, however, by no means clear that it would have achieved a more favourable  result had it sought to be indemnified for its costs as a matter of contractual obligation, under clause 20.20 of the franchise agreement.

[46]     In ANZ Banking Group (NZ) Ltd v Gibson the High Court Judge had decided that the High Court’s discretion as to costs under the High Court Rules could not be removed by contract, so that the Bank could not recover from the guarantors the costs of litigation as damages. Richardson J, with whom Casey J agreed, rejected this aspect of the Judge’s reasoning saying:

The undertaking in the guarantee for payment of costs of enforcement on a solicitor/client basis is in my view an extending provision intended to entitle the bank to indemnity with respect to legal expenses properly incurred by it in relation to a recovery action under the guarantee.  Clearly that contractual obligation is enforceable unless contrary to public policy and I am unable to see how this contractual arrangement could be said to impede the administration of justice or otherwise be contrary to any discernible public policy considerations.  To put the point affirmatively, why should a lender be  out of  pocket  as  a  result  of  a  failure  to  pay  when  the  parties  have expressly provided that he should be indemnified in the event of default by the other.

[47]     Had the present respondent claimed costs on this basis this Court would have had to decide whether the language of ss 40 and 41, which restricts the amount of “an order for costs” that may be made against an aided person, applies to a judgment of the Court enforcing a contractual obligation to indemnify the other party for its

costs of enforcement.  On one view the scheme and purpose of ss 40 and 41 (which of course allows the other party to apply to the Legal Services Agency for part of or all of its costs to be paid) indicates that the restrictions should apply equally to orders for costs that form part of the Court’s judgment as to contractual liability as to orders made in the Court’s discretion under the costs rules.  It is arguable that the statutory policy of facilitating access to justice, by ensuring aided persons are not required to meet costs beyond what it is reasonable for them to pay other than in exceptional circumstances, would be frustrated if it could be by-passed by contractual agreement. That is not however, the way in which the statutory provisions have generally been applied in the High Court and, as the present case does not call for a decision on the point, we prefer to leave it open.   Ultimately it is an issue that is probably best resolved by amending legislation.

Conclusion in this case

[48]     The appeal is allowed, and the Judge’s award of costs is set aside.   In its place we order each appellant to pay costs fixed at their respective contributions required under s 15(1) which in each case is $50.  We specify under s 40(3) of the Act that there would have been an order in the High Court against the appellants had they not been legally aided, that they pay costs in the sum of $81,900 (comprising costs that were claimed in the alternative on a party and party 2B basis by the respondent of $45,150 plus disbursements of $36,750).   That will enable the respondent to apply to the Legal Aid Agency under s 41 of the Act for payment of some or all of the $81,800 difference between the specified sum  and the costs awarded.

[49]     The appellants are entitled to the costs of this appeal which we fix at $6,000 together with disbursements as fixed by the Registrar.

Solicitors:

Rainey Collins, Wellington for Appellants

Hesketh Henry, Auckland for Respondent