Order of St John Northern Regional Trust v Gemini 10 Limited HC Auckland CIV 2002-404-1559

[2007] NZHC 2036

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2002-404-01559

BETWEEN  THE ORDER OF ST JOHN NORTHERN REGIONAL TRUST

Plaintiff

ANDGEMINI 10 LIMITED First Defendant

ANDTWINS 10 LIMITED Second Defendant

ANDJUNE 10 LIMITED Third Defendant

ANDQIN RUI KENNETH JOHN LU Fourth Defendant

Counsel:         Michael S Cole and Sophie Duncan for plaintiff

Evgeny Orlov for defendants

Judgment:      23 August 2007 at 4:30pm

JUDGMENT OF WILLIAMS J

[on application for leave to appeal order rescinding stay of costs orders against Fourth Defendant]

This judgment was delivered by

Hon. Justice Williams on

23 August 2007 at 4:30pm

Pursuant to Rule 540(4) of the High Court Rules

……………………………………………..

Registrar/Deputy Registrar

Date:………………………

ORDER OF ST JOHN  V GEMINI 10  HC AK CIV 2002-404-01559  23 August 2007

AThe application for leave to appeal Potter J’s order of 2 May 2007 rescinding the stay of costs orders against the Fourth Defendant is dismissed.

BThere will be no orders for costs on this application, the Fourth Defendant being legally aided.

TABLE OF CONTENTS

Paragraph Introduction  [1] Potter J’s judgment  [6] Submissions  [15]

Discussion  [17]

Introduction

[1]      During the course of this proceeding, a number of costs orders have been made against the defendants.  They were summarised by Potter J in her judgment of

2 May 2007:

[16] Costs have been awarded against the defendants as follows:

28 April 2005 following orders made against the

defendants as set out in [5] above  6,255.00

19 July 2005 awarded by Williams J when he dismissed the defendants’ application for a stay of costs except in

relation to Mr Lu as set out in [6] above  2,755.00

16 August 2005 – Williams J awarded costs against all

defendants on making the orders set out in [7] above                   7,850.00

4,515.00

2 September 2005 - Williams J ordered a stay as set out in [8] and awarded costs on a 2B basis in favour of the plaintiff.  (He noted that costs against Mr Lu personally

came within the stay previously ordered )  2,900.00

$24,275.00

[2]      So far as those costs orders are concerned, Potter J reviewed some of the interlocutory history of this claim in the following paragraphs of her judgment:

[3]   Proceedings were issued by the plaintiff on 15 November 2002.   The plaintiff’s current pleading is a fourth amended statement of claim dated 23

December 2005 in response to which the defendants have filed a fourth

amended statement of defence dated 24 February 2006.

[4]       There have been many interlocutory applications.  On some of these applications  costs  have  been  awarded  against  the  defendants,  details  of which are given in the section of this judgment headed “Costs Awarded”. No  costs  on  interlocutory  applications  have  been  awarded  against  the plaintiff.

…

[6]       The defendants sought a number of interlocutory orders including that the costs order be stayed, set aside or that costs be ordered to be payable as costs in the cause.   That application was the subject of a judgment by Williams J dated 19 July 2005.  Williams J dismissed the application to stay costs in respect of the corporate defendants being the first, second and third defendants.  But in respect of the fourth defendant Mr Lu, he ordered that the order for payment of costs be stayed until such time as Mr Lu’s Legal Aid appeal  had  been  finally  determined.    He  required  Mr  Lu  to  advise  the plaintiff and the Court of the outcome of his application for legal aid within

14 days of his being advised.  The judgment recorded that the application for legal aid by Mr Lu had no effect in respect of the corporate defendants who

were not entitled to legal aid.

[7]       On 16 August 2005, Williams J made various orders including that the corporate defendants were to meet the orders for costs against them; the defendants were to comply with their obligations as to discovery and inspection; the defendants were to file and serve an amended statement of defence and counterclaim; all other orders in the judgment were to be complied with and those matters were to be attended to without regard to the state of Mr Lu’s legal aid application.

…

[11]     In his minute of 16 June 2006 Williams J stated in relation to costs ordered against the defendants:

[8]The defendants owe substantial sums to the plaintiff by way of costs on orders made against them.  As at 2 September 2005, they owed

$21,375.  Extra orders have been made since.

[9]There has never been any bar to the plaintiff executing those orders as against the three corporate defendants but, as far as the Court is aware, no enforcement action has as yet been undertaken.

[10]As  far  as  Mr  Lu  is  concerned,  enforcement  of  the  costs  orders against him is stayed and one of the issues raised at this hearing on

16 June 2006 was whether that stay should be rescinded and, if so, with effect from what date.

[11]As recorded in earlier judgments, in 2004 it appears Mr Lu applied for legal aid but his application was dismissed on 6 December of that year.  It appears no action was taken by Mr Lu or his then advisers to challenge that decision.

[12]     Instead, in what would appear to have  been  approximately mid-

2005, a fresh legal aid application was filed on Mr Lu’s behalf.  On

16 June 2006, counsel advised the applications had been successful but gave no information as to the date of grant or any conditions which might be attached.

[13]On the face of it, therefore, it would appear that Mr Lu has now been able to demonstrate his impecuniosity to the Legal Services Agency but the date from which his impecuniosity is said to have arisen is unknown (apart from assertions Mr Lu made in an affidavit filed in mid-2005).

[14]Mr Orlov submitted the stay should not be rescinded because, if it was, that would clear the way for St John to issue a bankruptcy notice and, if it were not satisfied, a bankruptcy petition against the fourth defendant.  However, that is an issue which must be regarded as speculative, particularly given that St John has taken no enforcement action against the other defendants.

[15]In light of that, it would appear appropriate to rescind the stay of execution, at least in relation to any costs orders made against Mr Lu which preceded the date of his successful application for legal aid although that comment may be tempered if Mr Lu is prepared to disclose his latest legal aid application and the evidentiary material on which it was based.

[16]It is also somewhat unsatisfactory that rescission of the stay of execution was sought only in the plaintiff’s memorandum of 13 June

2006 and not by application.

[17]In those circumstances, while there may turn out to be a basis for rescinding the stay at least to some limited extent, the possible repercussions of rescission for Mr Lu are such that the Court should not deal with the application solely on a comment in a memorandum sought to be answered by submissions made by Mr Orlov orally.

[18]In those circumstances, the Court proposes to deal with this matter on the following basis:

[a]       That paras [7]-[10] inclusive of the plaintiff’s memorandum of 13 June 2006 are to be treated as an application for rescission  of  the  stay  of  costs  orders  against  Mr  Lu personally on the grounds set out therein.

[b]Within 14 days of the date of this Minute, Mr Lu is to file and serve any notice of opposition to the application and any affidavit in support.

[c]Within 21 days of the date of this Minute, the plaintiff is to file any affidavit in reply.

[d]The matter will then be set down for hearing at the fixture for dealing with any interlocutory applications set out earlier in this Minute.

[12]     Mr Lu filed an affidavit dated 30 June 2006 which annexed a letter from the Legal Services Agency dated 9 January 2006 advising a grant of

$1600 to Mr Lu, but no evidence had been provided by Mr Lu in response to

[15] of the minute of Williams J dated 16 June 2006, by the time of the hearing before me on 16 February 2007.

[13]     However, Mr Orlov advised from the bar that although the initial grant of $1600 had been exhausted, Mr Lu was continuing to receive legal aid.  No evidence to support this contention was provided.

[14]      On 12 March 2007 in response to a minute I issued on 5 March

2007,  Mr  Lu  filed  an  affidavit  to  which  he  annexed  a  letter  dated

14 September 2006 from the Legal Services Agency advising an increase of legal aid totalling $4,250 plus $300 for office costs.  The letter stated that this yielded a balance of legal aid available of $5,800 plus $350 office costs. Mr Lu also annexed a copy of his application for legal aid which is dated 6

October 2005 and stamped by the Legal Services Agency as received on 10

October 2005.

[3]      In her judgment, Potter J granted the plaintiff’s application to rescind the stay of the various costs orders made against Mr Lu personally.

[4]      On  17  May 2007,  Mr  Lu  applied  for  leave  to  appeal  against  Potter  J’s judgment.  As Mr Cole, leading counsel for St John observed, the application was outside the seven days within which leave needs to be sought (Judicature Act 1908, s 24G(1)).  So, technically, Mr Lu should additionally have sought leave to file his application.

[5]      The parties agreed that Mr Lu’s application for leave could be dealt with by Williams J and determined on their memorandum of 9 August 2007 filed by Mr Cole (attaching his memoranda of 26 January 2007, 7 June 2007 and 18 July 2007), and Mr Orlov’s memorandum filed on 3 August 2007.

Potter J’s judgment

[6]      After extensively reviewing the background and the contrasting submission, Potter J dealt seriatim with the grounds of opposition.

[7]      As to the suggestion that Mr Lu had a “legitimate expectation” that the stay would continue if he had claimed legal aid, the Judge held:

[22]  There is no merit in the second ground of opposition.  The defendant cannot claim any “legitimate expectation” that if he obtained legal aid the stay would continue.  He was invited by Williams J in [15] of his minute of

21 June 2006 to disclose his latest legal aid application and the evidentiary material on which it was based which could cause the Court’s view that it was appropriate to rescind the stay of execution in respect of Mr Lu to “be tempered”.  Mr Lu did not provide the material identified by Williams J.  He has  only  recently  provided  further  evidence,  in  response  to  the  Court’s minute of 5 March 2007.

[8]      The next ground of opposition was that the stay would promote an abuse of process as it would entitle St John to bankrupt Mr Lu and prevent him from pursuing his defence.  Potter J held:

[23]      There  is  no  evidence  of  abuse  of  process  of  the  Court  by  the plaintiff.  Costs awards have been made against the defendants in favour of the plaintiff.  They have not been paid by the corporate defendants but the plaintiff has not enforced recovery against the corporate defendants, as Williams J observed in his minute of 21 June 2006.   If there are proper grounds for the order for stay against Mr Lu to be rescinded there can be no abuse of process.

[9]      The next ground of opposition was that St John had $25,000 of disputed funds and accordingly it would not be just and equitable to rescind the stay.  Potter J held:

[24]     The stated ground that the plaintiff holds $25,000 of disputed funds was not developed in submissions by either party, nor does it appear to have been raised on previous occasions when the Court has been asked to address the issue of costs unpaid by the defendants.  It appears that $25,000 was paid to the plaintiff on 24 November 2003 by the defendants by cheque from the Lu Family Trust pursuant to a settlement agreement in  November  2003 which  was  not  fully  implemented.    (Refer  judgment  of  Williams  J,  16

August 2005 at [22] to [26]).  Entitlement to these funds may be determined in the substantive proceedings but that does not negate or impact upon the defendants’ obligation to meet Court ordered costs due to the plaintiff.

[10]     The final ground of opposition was that legally aided persons may not be required to pay costs and the grant of legal aid to Mr Lu confirmed he was impecunious when the stay was imposed.

[11]     In that regard, the Judge carefully reviewed counsel’s respective submissions concerning Mr Lu’s financial position and other matters raised on his behalf by Mr Orlov.  She then observed:

[43]     The annexures to Mr Lu’s affidavit dated 12 March 2007 filed in response to my memorandum of 5 March 2007, provide important and relevant information.   They confirm that Mr Lu’s application for legal aid was dated 6 October 2005 and received by the Legal Services Agency on 10

October 2005 (refer [14]).

[44]   Thus it is clear that Mr Lu’s application for legal aid was made after the last of the four costs orders which have been stayed.   The four costs orders were made between 28 April and 2 September 2005, the last having been made on 2 September 2005. (The award of costs by Allan J on 20

December 2006 of $500 is excluded from the total of $24,275.00 claimed.)

[12]     After reciting the relevant terms of the Legal Services Act 2000, ss 4 and 40 she referred to the decision of Carter v Western Viaduct Marine Ltd (2003) 16

PRNZ 1034 where it was held that where s 40 speaks of liability for costs orders made “with respect to the proceedings”, that must be taken to refer to that part of the proceedings for which the litigant is aided and not the whole of the proceedings.  It was held that there was no statutory basis for the view that once litigants were granted legal aid they were immune from costs orders at any stage of the case, either before or after the grant began or terminated.   Then, following review of further authority, the Judge held:

[51] It follows I consider, from a straightforward interpretation of s 40, confirmed by the above authorities, that Mr Lu cannot claim the benefit of any statutory protection under s 40 of the Act because he was not legally aided at the time when the orders for costs against him were made.   The earliest date upon which the protection of s 40 would have been available to him is 10 October 2005 when he filed the application for legal aid which is annexed to his affidavit of 12 March 2007.   The latest of the costs orders which are in contention was made on 2 September 2005.

[52]     The position, in my view, accords with logic.   It would be quite illogical if a wealthy or pecunious litigant who fell on hard times during the course of any proceeding and was obliged to seek and was granted legal aid to enable him to continue the proceedings, could claim the protection of s 40 for costs he was financially able and adjudged liable to pay at a time in the proceeding that preceded his impecuniosity.

[53]   At the time Mr Lu became engaged in this litigation as the named fourth defendant when the proceedings were issued in 2002 he was not impecunious.  He did not seek assistance from the Legal Services Agency, presumably  because  he  would  not  have  qualified  for  legal  aid.     An application made in 2004 was dismissed.  He successfully applied for legal

aid in October 2005, but when the costs orders which are in contention were made against him, he was not an aided person and the protection of s 40 did not extend to him.

[13]     She then held that Mr Lu could not (at [55]):

… claim the protection of s 40 in relation to these costs awarded before he became an aided person.

[14]     Though she did not find it necessary to consider whether Mr Lu’s situation involved “exceptional circumstances” in terms of s 40(2), had she done so she would have been minded to find that such circumstances existed because of the absence of information from Mr Lu on certain important aspects of his financial position.

Submissions

[15]     For Mr Lu, Mr Orlov submitted that:

a)       The natural construction of the Court’s stay of the costs orders in relation to Mr Lu made on 19 July 2005 was that the stay would continue to run if Mr Lu’s legal aid application were approved.

b)       That Mr Lu complied with the requirements of fully advising the

Court and St John of his financial circumstances.

c)       That Potter J’s interpretation of the Legal Services Act 2000, s 40 was in  error  because  the  decision  to  rescind  a  stay  of  costs  had  the practical effect of circumventing the section’s purpose.

d)That the erroneous interpretation of s 40 was contrary to the principles of natural justice and thus contrary to the New Zealand Bill of Rights Act 1990, s 27(1).

[16]     Mr Cole’s initial memorandum rehearsed what St John said were Mr Lu’s failures in relation to the provision of financial information.  His second and third memoranda dealt with the criteria for granting leave to appeal in Commercial List cases and his fourth memorandum effectively summarised his earlier submissions.

Discussion

[17]     The criteria which apply to applications for leave to appeal from interlocutory judgments in the Commercial List are conveniently summarised by the learned authors of McGechan on Procedure (para J24G.01, p 3-55), as follows:

The principles to be applied in relation to an application for leave to appeal from an interlocutory decision are now established: Clear Communications Ltd v A-G (1998) 12 PRNZ 287 (CA).   By reference to this case, and to Meates v Taylor (1992) 5 PRNZ 524 (CA) and Ernst & Young v Benchmark Jewellery Co (NZ) Ltd (in liq) (1993) 7 PRNZ 13 (CA), those principles may be summarised as follows:

(a)       A high threshold for granting leave exists, as the Commercial List is designed to secure the expeditious completion of the interlocutory stages of a case and so minimise delays in its ultimate disposition.

(b)Leave will only be granted where circumstances warrant incurring further delay.

(c)       Error of fact or law is generally insufficient; the case must be such as to create real detriment if not corrected, relate to an important question of law, or touch upon a matter of general or public importance.

(d)Challenges to discretionary orders made by a Commercial List Judge will not lightly be initiated by the Court of Appeal.

[18]     As to the high threshold for leave, it must be observed, as Potter J said, that despite this being a Commercial List proceeding, it has been plagued by a very large number of interlocutory applications and has thus been delayed in its ultimate disposition well beyond the usual run of cases, not just those in the Commercial List.

[19]     Mr Orlov suggested there were errors of law and fact in Potter J’s decision, mentioned earlier.   However, having carefully reviewed the submissions and the judgment, the only conclusion open is that it is a careful review of the factual circumstances and demonstrates no error.  And the Judge’s interpretation of s 40 is a straightforward,  indeed  virtually  inevitable,  reading  of  the  terms  of  the  section which, correctly, led her to the conclusion she reached.   That conclusion accords with the spirit and wording of s 40: absent exceptional circumstances, litigants who are legally aided are immune from costs orders during the currency of legal aid but not  immune  when  not  so  aided.     Finally,  the  submissions  concerning  the

New Zealand  Bill  of  Rights  Act  1990,  s  27,  depend  on  acceptance  of  the interpretation of s 40 for which Mr Orlov contended.   That interpretation having been rejected, his submission based on s 27 must similarly be rejected.

[20]     The Judge’s decision was accordingly reached in the exercise of a discretion following a careful and correct review of the facts, a rejection of the various grounds of opposition raised, and a correct dealing with matters of law.  There are, therefore, no circumstances warranting the further delay of an appeal to the Court of Appeal.

[21]     The application for leave to appeal is dismissed.

[22]     Mr Lu being legally aided, there will be no order for costs in relation to the leave application.

………………………………..

WILLIAMS J

Solicitors / Counsel:

Michael S Cole, Barrister, P O Box 651 Auckland (Email: Simpson Grierson, Private Bag 92518 Auckland, for plaintiff

(Email: sophie[email protected])

Copy for:

Evgeny Orlov, Dennis J Gates, Solicitors, Whangaparaoa (Email:  [email protected]

[email protected]

Tim Frampton, High Court Auckland

(Email:  Tim.  [email protected] )