McLellan v Springvale Central Water Co Limited

[2016] NZHC 1128

IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY

CIV-2013-412-000468 [2016] NZHC 1128

BETWEEN

SHAUN MCLELLAN

Plaintiff

AND

SPRINGVALE CENTRAL WATER CO LIMITED

Defendant

Hearing:	26 May 2016
Appearances:	D J More for Plaintiff J E Bayley for Defendant
Judgment:	30 May 2016

JUDGMENT OF ASSOCIATE JUDGE MATTHEWS

[1]      The defendant (Springvale) applies for an order dismissing this proceeding on the ground that the plaintiff (Mr McLellan) has not complied with orders of this court to pay two sums by way of costs, $4,331 on 14 October 2014, and $6,136.50 on 18 May 2015.  Both were adverse costs awards on interlocutory applications. The former was an award of costs on an application by Springvale to strike out this proceeding as a result of Mr McLellan’s failure to pay an earlier costs award.  The plaintiff (Mr McLellan) asks that the case be listed for formal proof as Springvale has not filed a statement of defence.

Listing for formal proof

[2]      On 19 May 2014 the Court dismissed an application by Mr McLellan for summary judgment and made timetabling directions which included a direction that a statement of defence was to be filed by 13 June 2014.  However, by a minute dated

18 June 2014 the Court suspended the timetable pending resolution of a security for costs application which had then been made.  Although that application was decided

on 17 July 2014, the Court has not at any point since reinstated timetable directions.

MCLELLAN v SPRINGVALE CENTRAL WATER CO LTD [2016] NZHC 1128 [30 May 2016]

Therefore Springvale is not currently in breach of any order to file and serve a statement of defence.

[3]      Rule 12.13 provides that on dismissal of an application by a plaintiff for summary judgment  a  statement  of defence of a defendant  must  be filed  within

10 working days of the application being dismissed.  Rule 12.12 overrides this rule and provides that on dismissal of an application for judgment the Court must give directions on the future conduct of the proceedings, as may be appropriate.   The directions made on 19 May 2014 were given under r 12.12 but then suspended.  Rule

12.13 therefore applies.  Springvale has not complied with the time limit specified.  I note that the learned authors of McGechan observe that where an application for summary judgment has been dismissed and a defendant has not filed a statement of defence either at the time of filing a notice of opposition, under r 12.10, or within 30 days of the dismissal of summary judgment, there does not seem to be any reason

why judgment by default cannot be entered.1     They note that this practice was

endorsed in Alexander Crescent (No 1) Ltd v Taylor.2    Similarly I do not see any reason why a plaintiff’s case cannot be proved by formal proof in this circumstance, if it is not a claim in respect of which judgment may be entered by default.   To interpret the rules differently would leave a plaintiff in a position where it could not effectively pursue its claim to judgment when a defendant has not filed a statement of defence after dismissal of a summary judgment application, either pursuant to a timetabled order to do so, or pursuant to r 12.13.

[4]      The result is that Mr McLellan’s case is now eligible to be listed for formal proof.  However, Mr Bayley argues that the case cannot proceed to formal proof as his  client  intends  to  defend  it  and  has  believed,  since receipt  of the minute of

18 June, that it was not under any time limit to do so.

[5]      In the minute dated 18 June the Court referred to the defendant wishing to pursue its existing application for security for costs which had been filed in 2013. Timetable  directions  were  made  in  relation  to  bringing  that  application  on  for

hearing, and a fixture date was set. The minute then concluded in paragraph [5]:

1      McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [HR12.10.02].

2      Alexander Crescent (No 1) Ltd v Taylor (1997) 11 PRNZ 281 (HC).

Pending resolution of this application, the balance of the timetable orders made on 19 May 2014 are suspended.  I note that the amended statement of claim was filed and served by 23 May as directed. Associate Judge Osborne will make further timetable directions when deciding the application for security for costs.

[6]      In fact, the Court did not make further timetable directions as indicated, and has not at any point since set a deadline by which a statement of defence is to be filed.  On this basis Mr Bayley argues that he and his client have had an expectation that a statement of defence could be filed at any time, subject to being given a new deadline at some point, and have not done so to date out of a wish to avoid incurring unnecessary costs.  Although an order for security for costs has been made, and met, he says his client’s concern over costs was justified by the fact that the plaintiff has failed  to  meet  two  adverse  costs  awards.     As  well,  from  the  information Mr McLellan has put before the Court, Springvale is at risk of not recovering a costs award against the plaintiff if it succeeds in its defence, as the security for costs order will not cover the costs it may be awarded.

[7]      Whilst  on  the  information  before  the  Court  it  can  be  understood  why Springvale may have come to this view, it could have filed a statement of defence at any  time  after  it  was  served  with  the  proceeding,  whether  before  or  after  the plaintiff’s application for summary judgment over two and a half years ago.  Time limits imposed for the filing of statements of defence either by the High Court Rules or by Court order protect a defendant against a plaintiff taking peremptory action to seek judgment while a defendant is considering its position.  They do not amount to directions that a proceeding must be defended.  A decision on whether to defend or not is entirely up to a defendant.  Whilst I accept the contention made on behalf of Springvale that it was not required to file a statement of defence until such time as the Court imposed a new deadline, having suspended the deadline set in the minute of 19 May, there is no merit in the converse proposition that Springvale could not file a defence as the timetable was suspended.  By failing to do so Springvale has taken a risk that Mr McLellan would seek to formally prove his case, and it can scarcely be surprised that exactly that has occurred.

[8]      On the other hand the minute of 18 June clearly stated that a new timetable would be fixed at a certain point and that has not occurred.  I accept Mr Bayley’s

submission that Springvale drew an inference from this that time was open-ended, in the knowledge that if the plaintiff pursued the case, a time would come when it had to file its defence.

[9]      It has also been clear throughout the interlocutory phase of this proceeding that the defendant is actively opposing the plaintiff’s claim, and its wish to now file a statement of defence could scarcely come as a surprise to Mr McLellan.  Springvale opposed the entry of summary judgment and actively engaged in each interlocutory application which has come before the Court.  And as Mr McLellan must know, the order for security for costs was made without a defence having been filed but after assessment of the quantum of a possible adverse costs award against him should he lose at trial.

[10]     Weighing up all factors, therefore, I have formed the view that Mr Bayley is right in his contention that even if this case were now listed for formal proof, the Court would almost certainly grant Springvale leave to file a statement of defence. As a result I decline to list the case for formal proof.

Application by Springvale to strike out

[11]     Rule 7.48 of the High Court Rules provides that if a party fails to comply with an interlocutory order a Judge may, subject to any express provision of the rules, make any order that the Judge thinks fit.  The rule gives examples of orders that may be made, one of which is that the proceeding be stayed.  Mr Bayley says that the proceeding should be stayed, and a brief period should be given for payment of the outstanding costs orders.  An unless order should be made directing that the proceeding will be struck out if payment is not made by the end of that period.

[12]     Mr Bayley points to three breaches of Court orders by Mr McLellan.   The first was a failure to pay security for costs as ordered, or to pay the costs and disbursements ordered on Mr McLellan’s unsuccessful defence of Springvale’s application for security.  Only when the Court advised that there would be an unless order if the default continued were the security and the costs paid.

[13]     The second and third breaches of Court orders are those for payment of costs made on 14 October 2014 and 18 May 2015 to which I have referred.

[14]     The breaches of the orders of this Court are significant.  On all it has been necessary for Springvale to invoke the enforcement procedures of this Court to attain compliance.  The second and third breaches are still unsatisfied.  Mr More did not attempt to justify his client’s actions other than by saying that he has been unable to pay the costs because he simply does not have funds to do so.  Previous payments of costs and security have been funded by advances from family members which are exhausted.

[15]     Mr McLellan’s impecuniosity has been accepted by legal aid which will now fund this case through to the conclusion of a trial.  Mr McLellan’s position is that it would be unjust to dismiss this claim now when funding has been secured in this way, and Mr McLellan  has a credit balance in court of over $15,000 which is available to meet the outstanding costs orders, and any adverse award of costs that may be made against Mr McLellan for the period leading up to the date of the granting of legal aid.   Mr More notes that s 45(2) of the Legal Services Act 2011 provides that 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.  He also accepts, as does Mr Bayley, that costs may be awarded for steps taken in the

proceeding prior to a grant of legal aid.3    Mr Bayley calculates that this would be

$14,941 plus disbursements, a total of $15,683.

[16]     Mr Bayley says the outstanding orders should be met by Mr McLellan and that the security held in the Court pursuant to the Court order should be retained against a costs order in Springvale’s favour, to which the fund would nearly equate. Mr More says the security for costs held in the Court should be applied first to the outstanding costs orders, rather than those orders being enforced as now sought.

[17]     I pause to observe that if Mr McLellan’s financial position is that he cannot

pay any more money to Springvale, there are two self-evident consequences.  The

3      Drummond v Townsend [2011] NZCA 185, [2011] 2 NZLR 567 at [20]. Barry v Carlisle [2015] NZHC 2980 at [21].

first arises if the case continues to trial and fails. A costs award for attendances prior to  the  grant  of  legal  aid,  added  to  the  extant  costs  orders,  would  impose  on Mr McLellan a liability of around $25,000 to $26,000.  After offsetting the security held in court he would be liable for approximately $10,000.

[18]     The second consequence applies now: unless the sum held by way of security for costs is used to pay the outstanding costs awards, the ground for dismissing the claim for non-compliance is strong, but the consequence would be to prevent Mr McLellan bringing his case to court and having it decided.

[19]     So  far  as  all  the  steps  in  this  case  prior  to  the  award  of  legal  aid  are concerned, the consequence for Springvale of holding the security in  court and leaving the extant orders unpaid on one hand, and paying the extant orders from the security on the other hand, are the same.  Either way Springvale is exposed to Mr McLellan’s personal financial position to the tune of approximately $10,000.

[20]     For that reason I specifically raised with Mr Bayley whether the correct course might be to permit Springvale to elect to receive payment of the extant costs now from the security, but he specifically disavowed that option.

[21]     So far as future costs are concerned, now that Mr McLellan is in receipt of legal aid, Springvale’s position in relation to being unable to recover costs in the event of succeeding at trial is the same as the position of any defendant facing a claim from a legally-aided party.  Section 45 applies.  If Springvale is successful in its defence it can only recover an award of costs for attendances after the grant of legal aid if it can show exceptional circumstances.   Because this is the position established  by the  Legal  Services Act  I  put  it  to  one  side  as  irrelevant  to  my consideration of the present application.

[22]     In the judgment issued on 17 July 2014 in relation to security for costs, the Judge undertook a detailed analysis of Mr McLellan’s claim.4    I need not repeat or summarise that analysis, but record the Judge’s conclusion:

[29]   The impression I draw from the material as to obligations, breach and damages is that Mr McLellan’s case has recognisable merit and a reasonable prospect of success.

[23]     In my view this is relevant to my assessment of the present application.  Also relevant, in my view, is the fact that Mr McLellan has paid security for costs into court in a sum sufficient to pay around 60 per cent of his present liability under court orders and the projected figure for an adverse costs award in the event of his failing at trial.  Payment of security was certainly late and only made under the pressure of potential dismissal of the claim, but it was in fact made.   Mr McLellan’s impecuniosity  has  cost  him  dearly  in  adverse  costs  awards,  and  his  lack  of compliance with court orders is not to be condoned, but the assessed strength of his claim and the fact that Springvale has protection for a significant percentage of any future costs award and outstanding orders weighs heavily in favour of Mr McLellan not being denied the opportunity to present his case.

[24]     Given the analysis I have made of Springvale’s apparent inability to recover both the extant costs orders and a sum which might be awarded in its favour at trial, it does not matter whether Springvale elects to receive payment of its costs from the security  now,  or  to  leave  the  fund  in  court  to  be  reconsidered  after  the  trial. Mr Bayley made a clear election not to receive payment now, pinning his case on the prospect that an unless order on this application would result in a further sum being paid by Mr McLellan.  In view of the recent scrutiny of his financial position which led to the award of legal aid I think the prospect of an unless order having any such effect is extremely low.

[25]     Weighing up all factors I am satisfied that the application to dismiss the claim cannot succeed.

4      McLellan v Springvale Central Water Co Ltd [2014] NZHC 1677 at [9] - [29].

Statement of defence

[26]     Mr Bayley informed the Court that despite not having filed a statement of defence Springvale wishes to defend the case.  I have declined Mr More’s request to list the case for formal proof.  As a result Springvale does not need leave to file a statement of defence.   I direct that if it wishes to do so, it will file and serve that statement within the next 10 working days.

Outcome

[27]     Mr McLellan’s request to direct that the case is listed for formal proof is

declined.

[28]     Springvale’s application to dismiss the claim fails.

Costs

[29]     Mr  McLellan  has  succeeded  on  Springvale’s  application  to  dismiss  the

proceeding and is entitled to costs.

[30]     Springvale has succeeded on the issue of whether the case should now be listed for formal proof.   However, this was not raised by way of an interlocutory application.  It was requested in a memorandum from Mr More to which Mr Bayley filed one memorandum in response.  Argument on this issue was integrally tied up with argument on the application for dismissal.   I have found that Mr McLellan’s case is eligible to be listed for formal proof, but for reasons given have declined to do so.  On this issue both parties have enjoyed a measure of success.  Springvale’s success on this issue must be seen in the context of a situation which it largely brought upon itself by failing to file a statement of defence while apparently waiting for a deadline to be imposed.  On balance I have decided that costs should lie where they fall on this issue.

[31]     Springvale will pay to Mr McLellan costs on a 2B basis on its application, together with disbursements fixed by the Registrar.

[32]     I direct that these costs will be set off against the outstanding costs owing by Mr McLellan.  If the sum now awarded to Mr McLellan exceeds the total of the two outstanding  costs  awards  together  with  interest  from  the  dates  of  those  awards

calculated under the Judicature Act, any excess will be paid to Mr McLellan.

J G Matthews

Associate Judge

Solicitors:

Scholefield Cockroft Lloyd, Alexandra (Counsel: D J More, Dunedin).

Rhodes & Co, Christchurch (Counsel: J E Bayley, Christchurch).