McPhail v Director of Proceedings for the Health and Disability Commissioner
[2025] NZHC 1039
•2 May 2025
IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTEPOTI ROHE
CIV-2024-412-32
[2025] NZHC 1039
BETWEEN WILLIAM MCPHAIL
Appellant
AND
DIRECTOR OF PROCEEDINGS FOR THE HEALTH AND DISABILITY COMMISSIONER
Respondent
Hearing: On the papers Appearances:
J E Beck for Appellant
J V Herschell for Respondent
Judgment:
2 May 2025
JUDGMENT OF DUNNINGHAM J
RE: Costs
This judgment was delivered by me on 2 May 2025 at 3.45 pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
MCPHAIL v DIRECTOR OF PROCEEDINGS FOR THE HEALTH AND DISABILITY COMMISSIONER [2025] NZHC 1039 [2 May 2025]
[1] On 18 February 2025 the appellant, Mr McPhail, discontinued his appeal against a decision of the Health Practitioners Disciplinary Tribunal which had found him guilty of professional misconduct.
[2] Costs were not agreed on the discontinuance and the respondent now makes an application for costs.
[3] That application is opposed by the appellant, noting that he is legally aided and the Court cannot make an order for costs unless it finds that there are exceptional circumstances.1
Submissions for the respondent
[4] The respondent, the Director of Proceedings, Ms Herschell, submits that there are “exceptional circumstances” justifying an award of costs against Mr McPhail, noting that while exceptional circumstances require something “quite out of the ordinary”,2 it does not require “extraordinary” circumstances.3 The respondent seeks a costs award of $9,799 calculated on a 2B basis.
[5] The respondent advances two circumstances which she submits are exceptional. First, she submits there has been a failure to comply with the procedural rules and orders of the Court and this has caused the respondent to incur unnecessary cost.
[6] The respondent points out that during the appeal process and prior to Mr McPhail’s discontinuance, Mr McPhail’s counsel, Ms Beck, missed several deadlines. These are as follows:
(a)Prior to the first case management conference, Ms Beck did not engage with the respondent or file a memorandum. This meant the respondent had to prepare a memorandum addressing the matters in Schedule 6 of the High Court Rules (the standard directions for appeals) and appear
1 Legal Services Act 2011, s 45.
2 Laverty v Para Franchising Ltd [2006] 1 NZLR 650 (CA) at [31].
3 Wilson v Carter [2023] NZHC 3220 at [8], [10].
in person at the conference. At the conference, Ms Beck explained that Mr McPhail’s legal aid had been granted two weeks prior and she agreed with the respondent’s memorandum, but she did not communicate this in advance.
(b)The respondent contacted Ms Beck five times seeking a draft index for the proposed common bundle of documents, and only received this four working days before the already extended filing deadline. The index contained documents previously ruled inadmissible and not compliant with Preston J’s directions as to content. When the respondent advised Ms Beck of these issues she did not respond, meaning the respondent had to file an urgent memorandum to the court and a teleconference was scheduled to address the matter. On the due date for the bundle, Ms Beck confirmed she would not be filing any of these documents.
(c)Ms Beck then missed the deadline for filing the bundle of documents, which meant the respondent had to compile and file their own.
(d)The appeal itself was discontinued at short notice, after the respondent had filed detailed written submissions and prepared for the hearing. The respondent notes that although Ms Beck advised Mr McPhail was unable to continue with the appeal due to his health, no details were provided.
[7] Second, the respondent submits that Mr McPhail has “claimed impecuniosity without financial transparency”, and that this is conduct that should attract condemnation in the form of a costs award. The respondent raises concerns that Mr McPhail did not provide a full accounting of his financial position in his affidavit of means.
[8] Mr McPhail created a family trust (the Kenrick Family Trust) on 17 February 2023, six days before the charges against him were filed and when he was aware that these charges were about to be laid. Mr McPhail transferred his family
home to that trust on 8 March 2023. In his affidavit of means, Mr McPhail did not advise of the recent property transfer, and it appears the transfer was effected as a gift. The home has a capital value of $565,000. The respondent expresses a suspicion that this transfer is what made Mr McPhail eligible for legal aid.
[9] In submitting that this is a circumstance which could justify making a costs award, the respondent cites the Court of Appeal in Laverty v Para Franchising Ltd (decided under earlier legislation):4
[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 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… 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.
[10] Finally, if the court does not award costs, the respondent seeks, in the alternative, an order under s 45(5) of the Legal Services Act 2011 (the Act) specifying what order for costs would have been made against Mr McPhail but for his legal aid status. The respondent notes that the court does not need to find exceptional circumstances to make such an order.5
Submissions for the appellant
[11] Ms Beck submits that this is not a case where exceptional circumstances arise. Further, she submits that even if exceptional circumstances were present, Mr McPhail has no ability to pay any costs order at all. Section 45(1) of the Act prevents a costs order being made that would exceed the amount that is reasonable for a legally aided person to pay.
[12] In response to the delays and non-compliances identified by the respondent, Ms Beck says:
4 Laverty v Para Franchising Ltd, above n 2.
5 Van Essen v Attorney General [2016] NZSC 23 at [2].
(a)In relation to the first case management conference, counsel were invited to file jointly or separately, and both were already going to appear at the conference irrespective of Ms Beck’s failure to file a memorandum in advance.
(b)In relation to the provision of a draft index for the common bundle only four days before the “already extended filing deadline”, Ms Beck accepts this, but submits that the deadline was extended because she is busy as a legal aid provider, and had only recently been instructed so was unfamiliar with the matter and it took more time than she anticipated.
(c)In relation to the discontinuance itself, Ms Beck submits that this did not result in the respondent incurring unnecessary costs, as this work would always have been necessary even if Mr McPhail had not filed a discontinuance. Further, she points out that as a publicly funded legal aid provider, she had also undertaken substantial preparation work.
[13] In relation to Mr McPhail’s health, Ms Beck submits that Mr McPhail’s health issues have been previously detailed in evidence before the court. Ms Beck explains that Mr McPhail has undergone four major surgeries since the filing of his appeal and the resulting deterioration in his health led to the decision to discontinue his appeal.
[14] In relation to the property transfer, Ms Beck submits that it is “not out of the ordinary for ownership status of property to change over time”. Ms Beck submits that Mr McPhail lives a modest life on a limited income and is unlikely to ever work again. He receives $461.41 in pension every week,6 as does his wife, and already has a considerable liability of $70,000 in relation to the costs order from the Tribunal, so simply could not afford to meet a costs award.
6 I note this is more than in his affidavit of means but is still a modest income.
Discussion
[15] The application for costs is governed by s 45 of the Legal Services Act 2011. That provides as follows:
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.
(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.
…
[16] In Laverty v Para Franchising Ltd, the Court of Appeal considered whether the conduct of a legally aided person was “exceptional” and justified costs.7 While this case was determined under an earlier version of the legislation, the relevant Act similarly provided, under s 40(2), 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”.
[17] The Court of Appeal accepted a submission that “exceptional circumstances” under s 40 included circumstances where the Court wished to mark its disapproval of the way that litigation was conducted by the aided person. The Court also went on to say:
[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 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. … In other words, the question whether there are exceptional circumstances needs to be on a case by case basis, whether or not those involve disapprobation.
[18] In Laverty, the successful party listed a number of matters relating to the conduct of the litigation which they said warranted a costs order. These included a failure to respond to a Calderbank offer, pursuing applications that were without merit, failing to comply with Court directions and timetable orders, and filing amended lists of documents and pleadings, thus incurring additional expense for the successful party. However, on appeal, the Court of Appeal found the threshold for exceptional circumstances had not been met, saying:
[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. … however
… 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…
[19] In the present case, while I accept there was non-compliance with Court orders and other failures to advance the litigation in an expeditious and cost-effective way, I consider Ms Beck adequately explains why that was the case. This includes her having
7 Laverty v Para Franchising Ltd, above n 2.
to get up to speed with the matter at short notice, and her frankly acknowledging that her significant workload was a barrier in “meeting the optimistic timeframes originally provided”. Importantly, as she notes, none of this was the fault of Mr McPhail personally and, in any event, was not so out of the ordinary that it qualified as an exceptional circumstance.
[20] I also accept that the late discontinuance, while inconvenient, could not be said to have contributed unnecessarily to costs. Those costs would have been incurred had the matter proceeded to a full hearing. Furthermore, I consider the appellant’s serious ill health which prompted his decision to discontinue, should be taken into account in deciding whether it is appropriate to award costs. I am satisfied that the failure to comply with procedural rules and Court directions did not contribute significantly to the costs the respondent incurred nor did it constitute exceptional circumstances such as to justify exercising this Court’s discretion to order costs.
[21] The second ground on which costs are sought arises from the respondent’s concern that Mr McPhail has claimed impecuniosity without fully disclosing the circumstances which led to that position, saying this is conduct which warrants an award of costs as a mark of disapproval. In particular, the respondent relies on the transfer of the family home to a family trust at the time the respondent filed charges against Mr McPhail with the Health Practitioners Disciplinary Tribunal.
[22]Mr McPhail’s affidavit of means dated 15 December 2023, provides that:
(a)Mr McPhail retired in May 2020 and his only source of income is his superannuation;
(b)His pension is $763.64 per fortnight, as is his wife’s;
(c)His 2023 total gross taxable income was $20,425;
(d)He owns an online business selling antiques and collectables, which is currently operating at a loss;
(e)Mr McPhail and his wife have $8041.31 in a joint savings account (as at 12 December 2023);
(f)He owns a car with a value of $10,000;
(g)Mr McPhail and his wife have joint monthly outgoings of $2785 per month (although I note that this includes rates for the property owned by the Kenrick Family Trust);
(h)He is not a beneficiary of the trust that owns the family home.
[23] The family home is owned by the Kenrick Family Trust, of which Mr McPhail is neither a trustee nor a beneficiary. The home is the only asset of the trust and, as stated above, the trust was only created days before charges were laid against Mr McPhail.
[24] There can be little doubt that the timing of the transfer of the home is suspicious and suggests that Mr McPhail transferred the property in anticipation of the proceedings. Other than the property, I accept he is a man of very modest means as disclosed in his affidavit.
[25] I note that in cases under predecessor legislation, the Court has considered that exceptional circumstances could include where a legally aided person did in fact have substantial private means. For example, in Dowd v Gubay, Mr Dowd was in receipt of a legal aid grant but owned a home worth $650,000-$1,000,000 jointly with his wife.8 He was retired and in receipt of a modest pension and the Court of Appeal upheld a costs order of $1,000 made in the High Court.
[26] The principle that access to assets notwithstanding a grant of legal aid, could constitute an exceptional circumstance, has also been referred to in more recent High Court decisions.9 While s 45(3) of the Act does not include this in the list of conduct which may lead to a finding of exceptional circumstances, that list is not
8 Dowd v Gubay (1992) 6 PRNZ 158 (CA).
9 Murphy v Murphy [2013] NZHC 2145 at [16]; RMG v BJG [2017] NZHC 2470 at [96]–[98].
exhaustive. In any event, the provision under s 45(3)(c) refers to “any misleading or deceitful conduct”, and could govern circumstances such as this where it appears the legally aided person deliberately divested themselves of assets so that they are not in a position to meet an award of costs. Thus, I accept that disposition of assets in order to resist an award of costs, particularly if it appears likely they still have the practical benefit of that asset,10 could be a circumstance that justifies a cost order being made.
[27] However, I also have to consider whether it is reasonable for the aided person to have a costs award made against them, taking into account all the circumstances, including the means of all the parties. Here, it seems likely Mr McPhail would have been eligible for legal aid whether or not he had an interest in the family home. Save for that interest, it remains the case that he is a 75-year-old man with little in the way of savings or disposable assets. I accept the advice through counsel that the home is modest and in need of significant repair, and Mr McPhail would not be in a position to service any borrowing against the house to pay a costs order. This means, even taking into account the property I do not consider it would be reasonable to make a costs award having regard to his means.
[28] In all the circumstances, I am not satisfied that the threshold for making an award of costs under s 45 of the Act is met. However, as sought by the respondent, I am prepared to make an order under s 45(5) specifying what order for costs would have been made against Mr McPhail, but for his legal aid status. Had Mr McPhail not been legally aided, I would have made a costs award, on a 2B basis, of $9,799.
Result
[29]The application for costs is declined.
[30] I make an order under s 45(5) specifying that a costs award of $9,799 would have been made against the appellant if s 45 of the Act has not affected his liability.
Solicitors:
Jenny Beck Law, Dunedin
Health and Disability Commissioner, Wellington
10 Although I cannot say whether that is the case here.
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