Ngata Tama Custodian Trustee Limited v Phillips

[2020] NZCA 252

IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

 CA160/2018
 [2020] NZCA 252

BETWEEN	NGATI TAMA CUSTODIAN TRUSTEE LIMITED Appellant
AND	DAVID WILLIAM PHILLIPS Respondent

Court:	Williams, Peters and Gendall JJ
Counsel:	D M Hughes and L A Player -Bishop for Appellant P M Webb and A C McCormick for Respondent
Judgment: (On the papers)	24 June 2020 at 2.00 pm

JUDGMENT OF THE COURT

AThe costs award made in this Court in [2019] NZCA 647 is set aside.

BFor the foregoing reasons, no award of costs in relation to proceedings in this Court is appropriate.

CCosts in the High Court are to be dealt with in that Court.

____________________________________________________________________

REASONS OF THE COURT

(Given by Williams J)

Introduction

1. On 2 March 2020 this Court recalled its costs order[1] made in Ngati Tama Custodian Trustee Ltd v Phillips,[2] the terms of which were to apply the indemnity costs clause in the settlement agreement.  As it transpired, Mr Phillips was legally aided, so we invited the parties to make submissions on whether, and if so to what extent, exceptional circumstances exist in this case in terms of s 45 of the Legal Services Act 2011.[3]

Legal principles

[1]Ngati Tama Custodian Trustee Ltd v Phillips [2020] NZCA 34.

[2]Ngati Tama Custodian Trustee Ltd v Phillips [2019] NZCA 647.

[3]Mr Phillips sought leave to appeal the substantive decision.  Leave was declined: Phillips v Ngati Tama Custodian Trustee Ltd [2020] NZSC 46.

1. Section 45(2) of the Legal Services Act provides that a legally aided person shall not be liable for costs in a civil proceeding unless the court is satisfied there are “exceptional circumstances”.  Section 45(3) provides a non-exhaustive list of examples of what the court may take into account in assessing whether there are exceptional circumstances.  They include conduct that causes the other party unnecessary cost, failure to comply with procedural rules or court orders, misleading or deceitful conduct, and any unreasonable pursuit of issues or refusal to negotiate a settlement.  While these are merely examples, the list makes clear that the focus should be on any unreasonable conduct on the part of the aided person.

2. If the court finds there are exceptional circumstances, the court must only award costs that are “reasonable for the aided person to pay having regard to all the circumstances”.[4]  This is a separate limb of the test, and under it the court may consider circumstances such as the assets and income of the aided person.[5]

   [4]Legal Services Act 2011, s 45(1).

   [5]Laverty v Para Franchising Ltd [2006] 1 NZLR 650 (CA) at [20].

3. This provision reflects one of the purposes of the Legal Services Act: to establish a system that provides legal services to people of insufficient means.[6]  It does so by reducing the risk that a person may be required to pay substantial costs if the litigation is not successful, despite having limited means.  Without this protection, people of limited means might be deterred from accessing the courts even with the help of legal aid.[7]

   [6]Section 3(a).  See also Laverty v Para Franchising Ltd, above n 5, at [19] (referring to s 40 of the Legal Services Act 2000).

   [7]Laverty v Para Franchising Ltd, above n 5, at [19].

4. But this protection must not be unalloyed.  That would risk disadvantaging opposing parties who are unaided: an unaided party who succeeds over an aided party would have to bear its own costs even if such costs were unnecessary or the action should not have been brought at all.[8]  Section 45 balances this by permitting costs to be awarded against aided parties in “special circumstances”.

   [8]At [21].

5. The s 45 assessment is to be made with this purpose in mind.  Whether the aided party’s conduct is worthy of disapproval is therefore an important factor in considering whether there are exceptional circumstances.  But it is not the sole factor: also relevant will be, for example, the aided party’s actual financial means despite coming within the criteria for being granted legal aid.[9]  As always, it is impossible to predict all the circumstances that might arise in s 45 applications, and in the end each case must be considered on its own merits, taking into account the means and conduct of all the parties.[10]

   [9]At [24].

   [10]At [31].

6. The cases are clear on one thing: for circumstances to be exceptional, they must be “quite out of the ordinary”.[11]  The court should be cautious not to assess the reasonableness of conduct with the benefit of hindsight.[12]

Submissions

[11]At [31].

[12]Reid v Castleton-Reid [2016] NZHC 1609 at [52].

1. The submissions from both parties addressed the circumstances they considered to be relevant in relation to conduct before this Court and in the High Court.  Indeed, most submissions related to High Court conduct.  Generally speaking, this Court will leave costs in relation to the High Court to be assessed there.  We see no reason to depart from that general approach in this case, particularly given the complex and convoluted history of proceedings in the High Court. 

2. In deference to the parties’ submissions, however, we set them out as they relate both to the High Court and this Court:

   (a)Mr Phillips engaged in conduct that caused the appellant to incur unnecessary cost

   (b)Mr Phillips repeatedly failed to comply with procedural rules and court orders

   (c)Mr Phillips unreasonably pursued a number of issues on which he failed

   (d)Mr Phillips made personal allegations against a number of non‑parties, including counsel for Ngāti Tama, without evidential basis

   (e)Mr Phillips needlessly delayed resolution of the proceeding by failing to progress his legal aid application in a timely manner

   (f)Mr Phillips agreed to a contractual indemnity clause in the Settlement Deed

3. Ngāti Tama has attached a chronology to its submissions illustrating the above, but some key dates are as follows:

   (a)Mr Phillips applied for legal aid on 30 March 2017.

   (b)Legal aid was granted it on 21 September 2017, part way through the High Court litigation.

   (c)Ngāti Tama filed its notice of appeal on 2 April 2018.

4. The majority of the circumstances cited by Ngāti Tama relate to events that occurred in the High Court.  As we have said, we will leave the assessment of those matters to that Court.  The events relevant to proceedings in this Court which Ngāti Tama submits justify awarding costs against Mr Phillips are as follows:

   (a)For a brief period after the Ngāti Tama filed its notice of appeal in April 2018, it appeared that Denham Bramwell was acting for Mr Phillips (Mr Phillips had dismissed his counsel in March 2018 in the High Court and sought to represent himself).  The parties agreed on a hearing date for 28 August 2018.  This was to allow Mr James to appear for Ngāti Tama before he was to leave the firm, as he had appeared in the High Court.

   (b)On 25 July 2018, Mr Phillips sought an adjournment of the hearing date because his counsel had withdrawn.  Counsel for Mr Phillips indicated to Winkelmann J in a teleconference that Mr Phillips refused to follow his advice.  Ngāti Tama strongly opposed the adjournment application.

   (c)Winkelmann J granted the application principally due to concerns that Mr Phillips would be entirely unrepresented at the hearing otherwise, but she noted that the adjournment would prejudice the Ngāti Tama: Mr James would be unable to act for it, and it would cause expense and delay.[13]  The hearing would now take place on 26 November 2018.

   (d)After receiving the adjournment, Mr Phillips confirmed that Denham Bramwell would again be acting for him.  Ngāti Tama submits that this:

   suggests that the adjournment was in all likelihood unnecessary and was either a result of Mr Phillips’ capricious nature or some ulterior purpose.

   (e)Ngāti Tama submits that Mr Phillips acted with little regard for the case management process and cost implications for both the Court and Ngāti Tama.

   (f)After the hearing, Mr Phillips attempted to file a further affidavit which purported to be “new relevant evidence” that corrected alleged mistakes put to the Court. 

   (g)Mr Phillips also sent emails counsel for Ngāti Tama and the Court Registrar demanding his additional evidence be accepted for filing.  The Registrar responded noting that the evidence was rejected and Mr Phillips would need to apply for leave for it to be admitted.

   (h)Ngāti Tama submits that it was forced to deal with this late correspondence and assess whether and to what extent a response was required.

   [13]The minute refers to expense and delay to the “respondent”, but the appellant submits that this was inadvertent and that Winkelmann J intended to refer to expense and delay to the appellant.

5. Ngāti Tama also submits that the fact that Mr Phillips agreed to the indemnity clause in the Settlement Deed counts against him. 

6. In Laverty v Para Franchising Ltd, McGrath J held that to the extent a contract provides for payment of costs of legal proceedings, it “cannot carry significant weight” in the exercise of the court’s discretion as to whether to award costs against a legally aided party.  Otherwise, the Judge said, it would “frustrate the statutory purpose of facilitating access to legal services”.[14]

   [14]Laverty v Para Franchising Ltd, above n 5, at [29].

7. Despite this, Ngāti Tama submits that the existence of the indemnity clause is not meaningless.  It argues that this case is precisely why the indemnity clause exists: its sole purpose was to prevent the sort of conduct exhibited by Mr Phillips in this proceeding.  Ngāti Tama submits that Mr Phillips has now “engineered” a situation to avoid the consequences of his behaviour by virtue of his legally aided status.

8. Ngāti Tama seeks an award of costs in line with the indemnity clause.  In the alternative, Ngāti Tama seeks costs on a 2B basis with an uplift of 50%.

9. Counsel for Mr Phillips submits that the appropriate time to assess whether there are exceptional circumstances is from the time of the legal aid application (30 March 2017), not from the time when aid is granted (21 September 2017).  In addition, counsel for Mr Phillips submits generally that the “vast majority” of delay and issues with procedure occurred prior to the application for legal aid.

10. Counsel for Mr Philips submits that no weight can be given to the indemnity clause, citing the Laverty referred to above.  Counsel also refutes the proposition that Mr Phillips “engineered” his situation to get out of paying legal fees.

11. In the event the Court does award costs, counsel for Mr Phillips submits that they must be limited to Mr Phillips’ limited means.  Mr Phillips’ only personal income is superannuation; he owns no property and the companies of which he is director and shareholder are non-trading.  The property he lives at is owned by a trust established over 30 years ago.  Mr Phillips not a beneficiary, but is one of three directors of the company that is the trustee.  The property is leased to a third party, which has an arrangement with Mr Phillips that he be allowed to reside in the attic of the house on the property rent-free.

12. Counsel also notes that Mr Phillips had to borrow money in 2012 to pay the full amount of costs ordered by Venning J in 2012, and this debt remains today.

13. Finally, counsel submits that the Court may also consider the inequality of resources between the parties.

Analysis

1. We begin with the issue of the indemnity clause.  While we would not depart from the principle in Laverty, this case is somewhat different.  It is to be remembered that, unlike the franchise agreement in Laverty, the indemnity clause in this case was contained in an agreement to end litigation.  The background to that agreement was that the parties had been embroiled for some years in a dispute that was sapping both their resources.  The indemnity clause applied only to Mr Phillips.  It would have been intended to deter him from breaching the settlement and to insure Ngāti Tama against that eventuality.  We consider that circumstance cannot be irrelevant to our assessment of the respondent’s conduct in the litigation he promised not to bring, even if it will not be decisive.  

2. It seems that the only material event in this Court was the adjournment of the hearing, which as we have said was due to the withdrawal of Mr Phillips’ counsel.  This event is not addressed in submissions for Mr Phillips.  Ngāti Tama says the application was likely unnecessary and motivated by either capriciousness or an ulterior motive.  But it seems that whatever caused his counsel to withdraw was subsequently resolved and counsel was re-engaged both for the substantive appeal and in relation to this costs application.  There is no duty on Mr Phillips to explain the circumstances of that withdrawal; those circumstances will be subject to privilege.  It would not be appropriate to infer bad faith, as Ngāti Tama submits, from that silence.  The information before us does not suggest that the adjournment was “quite out of the ordinary”.  The threshold in s 45 is not met.

3. As to Mr Phillips’ attempt to file an affidavit after the hearing before us, we accept that this is irregular and no doubt productive of wasted time and resource on the part of Ngāti Tama (and not to mention the Registry of this Court), but again the threshold for an award of costs is not met.

Result

1. The costs award made in this Court in Ngati Tama Custodian Trustee Ltd v Phillips [2019] NZCA 647 is set aside.

2. For the foregoing reasons, no award of costs in relation to proceedings in this Court is appropriate.

3. Costs in the High Court are to be dealt with in that Court.

Solicitors:
Anthony Harper, Auckland for Appellant
Denham Bramwell, Auckland for Respondent