Para Franchising Ltd v Legal Aid Review Panel HC Auckland CIV 2006-404-6601
[2008] NZHC 8
•18 January 2008
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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2006-404-6601
UNDERThe Judicature Amendment Act 1972 and the Legal Services Act 2000
IN THE MATTER OF Judicial Review of decisions by the Legal Aid Review Panel and the Legal Services Agency
BETWEEN PARA FRANCHISING LIMITED Plaintiff
ANDLEGAL AID REVIEW PANEL First Defendant
ANDLEGAL SERVICES AGENCY Second Defendant
Hearing: 17 August 2007
Appearances: C T Patterson and E J Grove for plaintiff
No appearance for first defendant
G D S Taylor for second defendant
Judgment: 18 January 2008 at 3 p.m.
JUDGMENT OF POTTER J
In accordance with r 540(4) High Court Rules
I direct the Registrar to endorse this judgment with a delivery time of 3 p.m. on 18 January 2008.
Solicitors: Connor & Ferguson, P.O. Box 3897, Auckland
Bartlett Partners, P.O. Box 10852, Auckland
Copy to: C T Patterson, P.O. Box 2886, Auckland
G D S Taylor, P.O. Box 5294, Lambton Quay, Wellington
Legal Aid Review Panel, P.O. Box 33837, North Shore, Auckland
PARA FRANCHISING LIMITED V LEGAL AID REVIEW PANEL AND ANOR HC AK CIV 2006-404-6601
18 January 2008
TABLE OF CONTENTS
Introduction [1] Issues [7]
Application to the LSA [8]
Issue 1 : Does the LSA have a discretion under s 41 of the Act as to the amount of costs it decides to pay the successful opponent of a legally aided litigant?
Relevant statutory provisions [12] Para’s submissions [19] LSA’s submissions [24] Discussion and conclusions [29]
Issue 2 : Was the exercise by the LSA of its discretion in the circumstances of this case unreasonable such as to give rise to reviewable error?
Approach on judicial review [37] Para’s submissions [40] LSA’s submissions [48] Discussion and conclusions [58]
Issue 3 : Did LARP make an error of law in determining that it lacked jurisdiction to review the decision of the LSA dated 15 November 2005 approving a payment to
Para of $20,000? [78] Result [87] Costs [90]
Introduction
[1] This application for judicial review concerns the nature and extent of the discretion of the Legal Services Agency (“LSA”) under s 41 of the Legal Services Act 2000 (“the Act”) in paying costs of a successful opponent of a legally aided person, and the exercise of the discretion in the circumstances of this case.
[2] The plaintiff Para Franchising Limited (“Para”) was involved in lengthy litigation with Walop No.3 Limited and its shareholders Mr and Mrs Laverty. Walop held a franchise from Para which Para determined. The Lavertys then set up in opposition to Para in a different town. Para sued under a restraint of trade provision. The Lavertys counterclaimed on the basis of unlawful termination of the franchise.
[3] The Lavertys were unsuccessful. On 20 December 2002, Wild J in the High Court awarded damages of $102,095 in favour of Para. The Lavertys appealed unsuccessfully an aspect of the award of damages (CA20/03). Wild J then determined costs in the High Court proceedings. He awarded costs of $60,000 and disbursements of $36,750 in favour of Para, applying r 48C High Court Rules.
[4] The Lavertys appealed. The Court of Appeal allowed the appeal and ordered Mr and Mrs Laverty to pay costs fixed at their respective contributions under s 15(1) of the Act, in each case $50 (CA104/04). The Court specified under s 40(3) of the Act that had the Lavertys not been legally aided, costs would have been awarded on a 2B basis comprising $45,150 costs plus disbursements of $36,750, a total of
$81,900 (CA104/04) (“the Court of Appeal judgment”).
[5] Para applied to the Legal Services Agency under s 41 of the Act for payment by the LSA of $81,800 (“the costs differential”), being the difference between the costs awarded against the Lavertys ($100) and the costs that would have been awarded as specified by the Court of Appeal under s 40(3). The LSA decided that a payment of $20,000 should be made to Para. That decision is at the heart of Para’s application for judicial review.
[6] Para’s application to the Legal Aid Review Panel (“LARP”) for review of the LSA’s decision was declined by LARP. LARP concluded that it had no jurisdiction to review the LSA’s decision, based on the judgment of Ellen France J in Burcher v Legal Services Agency HC AK CIV 2004-404-2546 3 December 2004 (LARP No 173/06).
Issues
[7] The issues in this case are:
1)Does the LSA have a discretion under s 41 of the Act as to the amount of costs it decides to pay the successful opponent of a legally aided litigant?
2)If the LSA has a discretion, was the exercise of its discretion in the circumstances of this case unreasonable such as to give rise to reviewable error?
3)Did LARP make an error of law in determining that it lacked jurisdiction to review the decision of the LSA dated 15 November 2005 that a payment of $20,000 be made to Para?
Application to the LSA
[8] On 21 September 2005, two days after the Court of Appeal judgment, Para made an application to the LSA under s 41 of the Act for payment of the costs differential.
[9] The Court of Appeal contemplated this course of action at [48] of its judgment when, having specified costs under s 40(3) of the Act in the sum of
$81,900, it said:
That will enable the respondent to apply to the Legal Aid Agency under s 40(1) of the Act for payment of some or all of the $81,800 difference between the specified sum and the costs awarded.
[10] Para’s application was referred by the LSA to Mr P J Dymond, a National Special Advisor for LSA. The referral sought advice as to whether to pay the costs claimed of $81,800 and said:
The judgment has set the costs at the amount of the legally aided people’s contribution. In the judgment this is $50 each. However, the contribution of the LAPs is actually $42,000 for the High Court file and $2,000 each for the Court of Appeal files. It appears that this information was not before the Court. I am not sure what to do in relation to this issue.
[11] In his recommendation made on 20 October 2005 Mr Dymond referred to the following matters:
• This had been long running and complex litigation.
• Mr and Mrs Laverty were granted aid in respect of the proceedings brought against them by Para.
• Mr Laverty was granted aid for proceedings against Bramwell Grossman, solicitors, arising out of the same matter.
• No contribution was ever imposed before trial in December 2002.
• The initial grant was made under the 1991 Act under which a discretionary charge could be registered at the conclusion of proceedings without the need to fix a contribution. The 2000 Act came into force on 1 February 2001 and a number of amendments were made under the current Act.
• Because no contribution had been fixed and no authority had been given by the Lavertys to register a charge, the LSA could not register a charge or recover a contribution in respect of aid granted to that point.
• A further grant of aid was made for the appeal of Wild J’s decision. The LSA paid $3,500 as security for costs. The appeal was dismissed and the Court of Appeal ordered $3,000 costs plus disbursements. Para sought $3,539.67 under s
41. There was no indication that a contribution was fixed on this appeal file.
• A further application was made by the Lavertys to argue the question of costs in the High Court. On 8 October 2003 the LSA increased the grant by $3,638.25. They also advised that the contribution had been “re-assessed” at $45,563.39 with the charge over the property to be “increased”. An acceptance letter was forwarded. Mr Laverty signed this on 6 November 2003.
• The costs judgment was delivered by Wild J on 3 May 2004.
• On 11 August 2004 the LSA granted a further retrospective amendment to the grant of legal aid of $5,400. It “re-assessed” the contribution at $48,138.39. No letter of acceptance was signed.
• No contribution (other than the $50) was ever fixed prior to the amendment in the grant made on 8 October 2003. There is no authority to fix a contribution retrospectively. A contribution could have been fixed prospectively at that point which would have been $9,038.25. However, the contribution must be specified by the LSA when the grant or amendment is made (s 15(1) of the Act). The contribution was not specified. It was too late and impracticable to seek to correct the situation. He did not think the question of contribution could be taken any further. In any event at the time the contributions were imposed the judgment of Wild J had been entered against the Lavertys for $102,095 which had “drastically changed the Lavertys’ financial circumstances”.
• He concluded that a valid contribution was not imposed. He stated:
I have paid careful attention to the contribution as it would be a significant step to suggest that the Court of Appeal judgment is wrong on this point.
• He then considered the s 41 applications by Para for $3,539.67 (the 2003 Court of Appeal judgment in CA20/03) and $81,800 (the 2005 Court of Appeal judgment in CA104/04).
• In relation to the application for the costs differential of $81,800, he expressed the following views:
•Para’s right to claim contractual costs under the franchise agreement is not relevant.
•The Calderbank offer made by Para was made after judgment and is of marginal relevance (it was an offer to settle costs).
• The pursuit of interlocutory applications by the Lavertys was held by the
Court of Appeal to be not unreasonable.
• The failure to comply with Court timetable and directions was found by the
Court of Appeal to be not the fault of the Lavertys.
•The Court of Appeal found that problems during the proceeding arose from delays and processing the legal aid applications and could not be attributed to the Lavertys.
•The Court of Appeal found nothing of particular significance in relation to the Lavertys’ counterclaim or their opposition to the security for costs application.
•Similarly, filing documents and pleadings was not conduct of a kind relevant to s 40.
•The Court of Appeal said that the inconsistency of the stance taken by the Lavertys in the Para litigation and the Bramwell Grossman proceedings was not unusual and was in the present case “a perfectly understandable precaution”.
• The Lavertys’ financial circumstances are irrelevant to s 41.
• Hardship was not established.
• He stated that while the Court of Appeal was dealing with the “exceptional circumstances” test in s 40(2), relevant conduct under s 41(2)(a) does not have to
be exceptional. However, the findings of the Court of Appeal were highly relevant when considering conduct.
• He concluded:
There is no question that the Lavertys’ case lacked merit, and that for various reasons (including delays by the Agency) Para’s costs were probably higher than they should have been. In all the circumstances, I think that a payment of $20,000 should be made under s 41.
• On the smaller claim for costs, he concluded that the 2003 appeal “totally lacked merit and should probably never have been brought”. He recommended a payment of $3,500 subject to security being recovered.
• Mr Dymond’s advice was essentially conveyed to Mr Patterson, counsel for Para, as the decision of the LSA in a letter dated 15 November 2005. The letter advised that LSA did not accept that Para would be caused hardship under s 41(2)(c) if costs were not paid by the Agency, because hardship under this section is “financial hardship” and no evidence of that had been provided. However, the Agency acknowledged that the Lavertys’ defence to Para’s claim, and their counterclaim, were found to be without merit, that Para did incur additional expenses as a result of the conduct of the proceedings by the Lavertys (even though this was not exceptional), and costs were also increased by delays in processing legal aid applications. The LSA stated:
Taking all of these factors into account we have decided that a payment of
$20,000 will be made under s 41 of the Legal Services Act 2000.
• In respect of CA20/03 it was advised that the costs would be paid in full.
Issue 1 : Does the LSA have a discretion under s 41 of the Act as to the amount of costs it decides to pay the successful opponent of a legally aided litigant?
Relevant statutory provisions
[12] Sections 40 and 41 of the Act have been amended as from 1 March 2007 by s 28 of the Legal Services Amendment Act 2006. At the time of these proceedings the relevant provisions were -
[13] Section 40:
Liability of aided person for costs
(1)Subject to subsection (2), if a person (in this section, the aided person) receives legal aid for civil proceedings, the aided person’s liability under an order for costs made against him or her with respect to the proceedings must not exceed the amount (if any) that is a reasonable one 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)Except in exceptional circumstances, the amount that the aided person is liable to pay under any such order for costs must not exceed the amount of the contribution that the aided person is required to make under section 15(1).
(3)Any order for costs made against the aided person may specify the amount that the person would have been ordered to pay if this section had not affected that person’s liability.
(4)Where, because of this section, no order for costs is made against an 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.
. . .
[14] Section 41:
Costs of successful opponent of aided person
(1)If an order is made under section 40 that specifies that an aided person would have incurred a liability, or a greater liability, for costs if that section had not affected his or her liability, the party to the proceedings who is prejudiced by the operation of that section may apply to the Agency in the prescribed manner for payment by the Agency of some or all of the difference between the costs (if any) actually awarded to that party against the aided person and those to
which that party would have been entitled if that section had not affected the aided person’s liability.
(2)In considering any such application, the Agency must have regard to the following matters:
(a) the conduct of the parties to the proceedings:
(b)whether the costs of the proceedings were unnecessarily increased by the conduct of the applicant or of any person providing legal services under the grant:
(c) the hardship that would be caused to the applicant if the costs were not paid by the Agency.
(3)For the purposes of subsection (2)(c), the Agency may require any person to furnish information on the financial circumstances and needs of the applicant.
(4)If, having regard to the matters specified in subsection (2) and to any information received under subsection (3), and to all relevant circumstances, the Agency considers that any payment should be made by the Agency to the applicant, it may order accordingly, and must make the payment.
[15] The effect of these provisions may be summarised relevantly to this case, as follows. By reason of s 40 where a legally aided person is unsuccessful in legal proceedings, other than in exceptional circumstances, the liability for costs of the aided person is limited to the amount of the contribution the aided person is required to make. In this case the Court of Appeal determined the liability for costs of the Lavertys at $50 each being the amount of the contribution they were required to make under s15(1) of the Act. The Court did not find “exceptional circumstances” within the meaning of s 40(2).
[16] Where costs are ordered, under s 40(3) the Court may specify the amount the aided person would have ordinarily been ordered to pay. In this case the Court of Appeal specified that amount to be $81,900.
[17] Under s 41 the successful opponent of the aided person may apply to the LSA for payment of some or all of the difference between the costs they would ordinarily been entitled to and those that were actually ordered. The Court of Appeal contemplated that this course of action would be available to Para in respect of the
$81,800 costs differential, and this was the application made by Para to LSA on 21
September 2005.
[18] The LSA’s response was to approve costs of $20,000. The LSA also approved payment of the full costs in respect of the Court of Appeal proceeding in CA20/03.
Para’s submissions
[19] Para submits that s 41(4) gives the LSA discretion to decide, after considering the factors set out in s 41(2), whether or not to pay the costs applied for by the successful opponent of the aided person, but does not give the LSA discretion as to the amount to pay. Para contends that if the LSA in the exercise of its discretion decides to grant an application under s 41, it is obliged to award the full amount specified by the Court under s 40(3), such a determination being a prerequisite pursuant to s 41(1), to entitlement under s 41.
[20] Para submits that therefore the decision of the LSA to substitute its own quantum assessment for that of the Court of Appeal in this case, was ultra vires.
[21] Para argues that the Court is best placed to determine the quantum of costs, having heard or reviewed the evidence and having the expertise, experience and the legal framework of precedent and legislative guidance to draw upon to determine the appropriate quantum of costs. Para contends it is not within the scope of the LSA’s expertise or authority to impugn the costs determination of the Court. It notes that the LSA has no discretion to make an award of costs on its own initiative or without a determination of the Court first having been made under s 40(3). Thus, the LSA acts as a “gatekeeper” to determine whether a shortfall between costs awarded and a costs entitlement as specified by the Court, should be met from the public purse. But, Para contends, having made that determination after taking into consideration the factors in s 41(2), the LSA must apply the quantification of costs made by the Court.
[22] Para further submits that in s 41(4) the phrase “any payment” does not confer on the LSA a discretion as to quantum and means no more than “a payment” or simply “payment”. Mr Patterson submitted that if s 41(4) was intended to grant the LSA a discretion as to quantum Parliament could have avoided all ambiguity by using words such as “considers that the payment or any part of the payment should be made …”. Reference was made to a number of other sections in the Act where such phrasing is used, for example s 37 which provides that:
The Agency may write off all or any part of any interim repayment …
[23] Likewise, he submitted, even within s 41 itself, s 41(1) authorises a successful opponent to apply to the Agency for payment by the Agency of some or all of the difference between the costs awarded and the costs to which the successful opponent is entitled. He contrasted that wording with the wording of s 41(4) in support of the contention that s 41(4) does not confer on the LSA a discretion as to quantum.
LSA’s submissions
[24] Mr Taylor noted that provisions equivalent to s 41 have existed in all civil legal aid legislation in New Zealand, its predecessors being s 87 of the Legal Services Act 1991 and s 33 of the Legal Aid Act 1969. The provisions have remained materially identical until the 2006 amendment, which does not apply to the decision being reviewed. (I observe, however, that the new s 41 introduced by the
2006 amendment makes no change to the effective provision which appears in the new s 41 as subsection (5)).
[25] He submitted that the Act confers separate powers on separate decision- makers in s 40 (the Court) and s 41 (LSA). The objective, context and relevant factors for the Court in s 40 and the LSA in s 41 are different. The Court’s conclusions answer a different question from that which the LSA is required to address under s 41, namely whether there are “exceptional circumstances”.
[26] It is submitted that s 41 needs to be read as a whole. The applicant makes a request, defining what it is seeking (s 41(1)). The LSA considers the matter and reaches a decision (s 41(2)-(4)). Each of the mandatory factors in s 41(2) is an evaluative one in which a range of conclusions may be drawn. Section 41(4) does not refer to “the payment”. “Any” means “one or more or some of” (Shorter Oxford English dictionary). Therefore, the amount needs to be determined. The phrase in s 41(4) “… may order accordingly” refers to the payment the LSA has determined to make. Had the assessment not been an evaluative one, such a phrase would not have been used.
[27] Mr Taylor referred to two decisions in support of the interpretation advocated by the LSA: LAA Decision 22/84 (1984) 5 NZAR 26 and LAA Decision 79/90 [1990] NZAR 378. In the first of those cases the Legal Aid Appeal Authority awarded a part payment on appeal. In the second, the Legal Aid Committee awarded a part payment, and on review, the Legal Aid Appeal Authority increased the payment to the quantum indicated by the Court, on the basis that all of the relevant circumstances had not been considered. However, no issue was taken with the making by the Legal Aid Committee of a part payment.
[28] Counsel for Para responded that there has been no critical examination of the nature of the discretion under s 41 in these cases and that it has simply been assumed that the discretion to award less than the amount specified by the Court, exists.
Discussion and conclusions
[29] The starting point for any statutory interpretation is to ascertain the meaning with reference to the text and purpose of the enactment: s 5 Interpretation Act 1999. I have to agree with Mr Patterson that there would be clearer ways in which s 41(4) could be expressed to authorise part payments. However, it must be assumed that the use of the word “any” was deliberate, and the contrary argument is also available that if it were intended that the amount of the payment was always to be the difference between the costs actually awarded and those to which the successful opponent of the aided person would have been entitled (or so much of the difference
as is applied for), as explained in subsection (1), then subsection (4) would simply have referred to “payment” or to “the payment”.
[30] Section 41(2) requires the LSA to consider the conduct of the parties, whether the costs of the proceedings were unnecessarily increased by the conduct of the applicant for the costs payment or the provider of legal services under the grant of legal aid, and the hardship that would be caused to the applicant if the costs were not paid by the LSA. Further, under subsection (4) the LSA is also to have regard to “all relevant circumstances”. Either these considerations are directed solely to whether payment should be made (Para’s position) or to determining whether payment should be made and at what level or in what amount (LSA’s position).
[31] I consider the extent of the considerations to which the LSA is required to have regard in s 41(2) and the further reference to “all relevant circumstances” in s 41(4) suggest strongly that the phrase “any payment” is indicative that the discretion vested in the LSA extends not only to determining whether payment should be made, but how much the compensation should be.
[32] There may well be situations where full reimbursement or compensation is not appropriate and the factors listed in subsection (2) are directed to that possibility.
[33] I agree with counsel for the LSA that the mandatory considerations in subsection (2) are evaluative in nature, giving rise to a range of assessments which ultimately inform the discretionary decision of the LSA whether to order “any payment” under subsection (4). They are not in the nature of criteria that must be met for the costs to be paid.
[34] I further agree with the LSA that the costs issue addressed by the Court under s 40 is different from the costs issue addressed by the LSA under s 41. The Court considers whether there are “exceptional circumstances” warranting costs liability beyond the aided person’s contribution. The Court may also specify what the aided person would ordinarily have been liable to pay. In making that order the Court does not have reference to the legal aid scheme.
[35] The factors the LSA must consider, inform the decision as to what should be paid from public funds to make up the shortfall in costs suffered by the applicant, using the Court’s order as to what costs would otherwise have been awarded to the applicant, as an upper limit. The Court determines the quantum of costs as they would be in ordinary circumstances; the LSA has a discretion to pay from the public fund the shortfall or less than the shortfall depending on what the LSA determines is appropriate in all the circumstances (for example, by reference to the applicant’s conduct in the proceedings).
[36] I conclude that neither the language nor the context of s 41 support the “all or nothing” approach advocated by Para. My interpretation of s 41 is that the legislature has granted the LSA a discretion both as to whether payment should be made and as to the quantum that should be paid, foreseeing that there may be occasions where payment of the full shortfall suffered by the applicant would not be warranted. The answer to the first issue is accordingly “yes”.
Issue 2 : Was the exercise by the LSA of its discretion in the circumstances of this case unreasonable such as to give rise to reviewable error?
Approach on judicial review
[37] Counsel for the LSA submits that the appropriate test for reasonableness in this case is that stated by Richardson P in Wellington City Council v Woolworths (No 2) [1996] 2 NZLR 537 (CA)):
In summary, judicial review of the exercise of local authority power, in essence, is a question of statutory interpretation. The local authority must act within the powers conferred on it by Parliament and its rate fixing decisions are amenable to review on the familiar Wednesbury grounds. Rating authorities must observe the purposes and criteria specified in the legislation. So they must call their attention to matters they are bound by the statute to consider and they must exclude considerations which on the same test are extraneous. They act outside the scope of the power if their decision is made for a purpose not contemplated by the legislation. And discretion is not absolute or unfettered. It is to be exercised to promote the policy and objectives of the statute. Even though the decision maker has seemingly considered all relevant factors and closed its mind to the irrelevant, if the outcome of the exercise of discretion is irrational or such that no reasonable
body of persons could have arrived at the decision, the only proper inference is that the power itself has been misused.
[38] Further guidance is provided in Pring v Wanganui District Council [1999] NZRMA 519 at 523:
It is well established that in judicial review [proceedings] the Court does not substitute its own factual conclusions for that of the consent authority. It merely determines, as a matter of law, whether proper procedures were followed, whether all relevant, and no irrelevant considerations were taken into account, and whether the decision was one which, upon the basis of the material available to it, a reasonable decision-maker could have made. Unless the statute otherwise directs, the weight to be given to particular relevant matters is one for the consent authority, not the Court, to determine, but of course, there must be some material capable of supporting the decision.
[39] I consider that review of the decision of the LSA at issue in this case can properly be approached on the basis of these principles. This is not a case where there is a high policy content in the decision, which on the authority of Woolworths would indicate a high threshold for review such that the Courts must be less inclined to intervene (Woolworths at 546). While there is significant policy content underpinning the legal aid scheme which is the purpose of the Act, the decisions of the LSA are amenable to review by the Court in accordance with the usual principles.
Para’s submissions
[40] Para submits that the LSA’s decision was manifestly unreasonable because the LSA either:
a) Failed to take into account the matters specified in s 41(2)(a) and (b);
or
b) Failed to give sufficient weight to those matters.
[41] In particular Para submits that the LSA failed to give sufficient importance to the Court of Appeal’s findings with regards to the purpose of ss 40 and 41 and the LSA’s role in achieving that purpose. While the Court of Appeal recognised the
mischief that can arise from the granting of legal aid and the protection of legally aided parties from exposure to awards of costs, and the consequent responsibility of the LSA to have due regard to the purpose of ss 40 and 41 to address the prejudice created by the operation of s 40 for the successful opponents of non-legally aided parties, it says that in this case the LSA has failed to appreciate its responsibility to extend fair and equal treatment to both categories of claimant from the public purse.
[42] Para submits that in awarding only $20,000 the LSA failed to address the prejudice quantified by the costs differential (being the financial measure of the actual prejudice caused to the successful non-legally aided party) and provided no reasons as to why it decided not to fully meet that prejudice.
[43] In support of its contention that the LSA failed to take into account or gave insufficient weight to the matters in s 41(2)(a) and (b), Para points to the following:
• Para attempted to resolve its proceedings against the Lavertys as efficiently as possible.
• It expended a considerable amount for costs in defending the Lavertys’
counterclaim.
• An offer was made to settle for payment by the Lavertys of $50,000 but the offer was ignored.
(This appears to be a reference to an offer to settle costs on payment of $50,000, made after the High Court judgment. This Calderbank offer is referred to at [34] of the Court of Appeal judgment. The Court of Appeal considered that since the offer was only made after judgment when all the costs of the trial had been incurred it was not a circumstance which could carry any significant weight under s 40 of the Act).
• The LSA also provided the Lavertys with legal aid in respect of their proceedings against their former solicitors, Bramwell Grossman. The success of the two separate claims, i.e. against Para and against Bramwell Grossman, was clearly
mutually exclusive and should not have been assisted by legal aid funding to act “beyond the manner in which any financially secure litigant would in pursuing two cases in which only one could succeed”.
• Para’s conduct was not blameworthy, but the conduct of the Lavertys was.
• Costs were higher than they should have been, as stated in Mr Dymond’s recommendation to the LSA, but there was no translation of that into a reasonable determination of how much should be paid to Para under s 41.
• Full payment was made in respect of the Court of Appeal’s costs assessment in the 2003 judgment and there was no significant difference in the matters due for consideration in both costs applications. The difference in the way they were treated by the LSA is inexplicable and appears to have been wholly arbitrary.
[44] Para further alleges that the LSA breached its duty of procedural fairness by determining that Para would not suffer any hardship, without requesting evidence of Para’s financial position or considering Para’s financial position. It is submitted that procedural fairness required the LSA to advise Para of what further information was required under s 41(3), if insufficient information had been provided. It was also argued that while it has been held that hardship means financial hardship (B v Legal Services Agency HC WN CIV 2004-404-2546 19 October 2005, McKenzie J), that does not mean financially distressed circumstances.
[45] Complaint was also made about certain guidance documents referring to the LSA’s “hardship” policy which appear to be inconsistent with the judicial interpretation of hardship in B v Legal Services Agency. However, Mr Patterson accepted that Para did not rely on hardship other than financial hardship, so there is little relevance in this submission in the circumstances of this case.
[46] Further, Para submits that the LSA failed properly to consider the prejudice resulting to Para as a result of the Court of Appeal being advised that the Lavertys’ respective contributions were $50 each when the Court of Appeal should have been advised that their contributions had been incorrectly calculated and/or applied, and
should have been as much as $48,138.39. Yet the LSA does not appear to consider that any prejudice has resulted to Para as a result of this miscalculation. The LSA failed to consider that had the Court of Appeal been advised of the contributions the Lavertys should have made this may well have persuaded the Court of Appeal there were exceptional circumstances justifying an award of costs in excess of their actual contributions. It is submitted that this is a factor that should have weighed heavily with the LSA on the side of payment of the total costs differential.
[47] In summary, Para submits that the $20,000 approved by the LSA was not sufficient to address the actual financial prejudice caused to Para by the operation of s 40. The LSA should have provided some reasons as to why it considered that the actual prejudice should not be fully met, particularly when it was fully met in respect of the 2003 Court of Appeal judgment. It is submitted that the difference in how the two applications were treated by the LSA is inexplicable and appears to have been wholly arbitrary. Mr Patterson suggested that the only material difference between the two applications was in the quantum of the two amounts sought by way of compensation: $81,800 in CA104/04 and $3,500 in CA20/03. He submitted that the decision to pay only $20,000 in respect of the costs differential, appears to be arbitrary and contrary to the purpose of the Act, and accordingly is manifestly unreasonable.
LSA’s submissions
[48] In response to the allegations of failure to take into account or to give sufficient weight to the matters in s 41(2)(a) and (b) as well as the failure to give sufficient importance to the Court of Appeal’s findings as to the purpose of ss 40 and
41 of the Act, the LSA submits that those grounds must fail on the facts appearing in
Mr Dymond’s recommendation as confirmed in his affidavit sworn 2 March 2007.
[49] Mr Taylor noted that Mr Dymond says in his affidavit that he had regard to s
41(2)(a) and (b) when considering the matter and that he also carefully read the Court of Appeal and High Court judgments and applied what he thought was relevant to the application, particularly the Court’s findings relating to the conduct of the proceedings by the parties. While the Court of Appeal was considering whether
the circumstances were exceptional, he (Mr Dymond), considered those parts of the judgment which were relevant in an assessment of the conduct of the parties and whether the costs were unnecessarily increased by Para or the Lavertys’ counsel.
[50] It is submitted that matters of weight are for the LSA: Isaac v Minister for
Consumer Affairs [1990] 2 NZLR 606.
[51] As to the allegation of failing to act in accordance with the purpose of ss 40 and 41, reference was made to [21] and [22] of the Court of Appeal judgment where the Court said:
[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.
[52] Mr Taylor observed that these passages were obiter. In particular the statement in [22] that s 41 reflects s 3(b) by providing a further scheme of legal assistance, was in error, as “scheme” has a particular definition in s 4 of the Act and s 41 does not fall within that definition. It is therefore not “a further scheme of legal assistance”. In fact, Mr Taylor said, ss 40 and 41 are positioned in the Act distant from the provisions that deal with “schemes”. However, he accepted that s 41 is “a provision of the kind that Lord Reid had in mind”.
[53] He submitted therefore, that Para’s pleading that the LSA’s decision to only pay the plaintiff costs of $20,000 was contrary to the intent of s 41, can only be reliance on the decision being manifestly unreasonable or a reliance on the primary argument (on statutory interpretation).
[54] As to Para’s complaint that the LSA acted in breach of natural justice and fairness in deciding there was no hardship without seeking further information from Para, the LSA points to the discretion conferred upon the LSA by s 41(3) to require information as to financial circumstances and needs of the applicant.
[55] The LSA submits that where the applicant is represented the LSA can expect that the best case has been put forward. Here financial information had been provided. A brief of evidence of Barry Phillip Jordan attached to the application assessed losses arising from the actions of Walop/the Lavertys in opening another retail store in breach of the franchise agreement with Para, though it did not address hardship. But hardship was specifically addressed in the application submitted by Para’s counsel. The LSA considers there was no need to ask for further information in the circumstances and says there can have been no breach of natural justice because it did not do so.
[56] As to the matter of the Lavertys’ contributions, Mr Taylor submitted that the position was fully explained in Mr Dymond’s report dated 20 October 2005. Here the only contribution fixed was $50. Subsequent letters re-assessing the amount of the contribution were “unlawful” because contributions could not be assessed retrospectively. Therefore the amount of the contributions was correctly advised to the Court of Appeal. In the LSA’s written submissions it was stated at paragraph 24:
The agency officers might well have mismanaged things in purporting to levy contributions retrospectively, but even if this were negligent, it does not assist Para because the Court of Appeal was not misled. That is the end of it.
[57] In relation to the pleading that the LSA failed to provide any reasons for its decision, the LSA says that this ground must fail on its facts as the letter provided by the LSA to Mr Patterson for Para informing him of the decision did set out reasons. Mr Taylor noted that there is no statutory obligation to give reasons, but here reasons were given.
Discussion and conclusions
[58] It is clear that the LSA gave consideration to the mandatory factors in s 41(2). They were considered by Mr Dymond in his report to the LSA dated 20 October
2005 and detailed in the letter from the LSA to Mr Patterson dated 15 November
2005 which advised the decision of the LSA. A proper distinction was drawn between the criterion of “exceptional circumstances” under s 40 which was the focus of the Court of Appeal considerations, and the factors the LSA must consider under s 41(2) which do not have to meet the “exceptional circumstances” test.
[59] The weight to be given to these factors was a matter for the LSA. In considering the weight to be attached, the LSA appropriately regarded the findings of the Court of Appeal as “highly relevant”. While Para submitted that on various aspects the LSA should have reached different decisions from the Court of Appeal, including that the Lavertys’ conduct in relation to the High Court proceedings was blameworthy and that they should not have been funded to pursue “two mutually exclusive claims”, the LSA properly considered both the evidence before it and the Court of Appeal findings, in reaching its own decision on such aspects. The determinations reached were available to it.
[60] The LSA found there was no evidence provided of financial hardship. This was a conclusion available to the LSA on the evidence and information provided by Para through Mr Patterson. I do not consider that s 41(3) imposes any obligation on the LSA to seek further information as to financial circumstances where the information provided by the applicant raises no ambiguity or lacuna which infers to
the LSA that further information is required to enable it fully to understand the circumstances which inform a hardship claim.
[61] Nor do I consider there is any merit in Para’s submissions about misleading information in the LSA’s guidelines outlining “general policies” and “hardship policy”. In this case Para was relying only on financial hardship which is defined in B v Legal Services Agency:
The only hardship which could be caused if the costs were not paid by the Agency is hardship resulting from having incurred costs which are not met by an award of costs, but which would have been met by an award if there had been no legal aid. … They are still costs, to compensate only for the direct financial cost incurred in the litigation, not for the indirect cost involved in such matters as the time which must be devoted to the case, or for the stress and trauma which the litigation entails.
[62] Para cannot claim to have relied on or been misled by any statement in the material that hardship would be assessed on a wider basis. While there may be merit in Mr Patterson’s observations that the guidance documents in effect at the time were confusing, there is no suggestion that Para relied on the documents or was in any respect confused by them.
[63] The LSA gave no reasons for its decision that Para was caused no hardship, beyond that “no evidence of this has been provided”. That Para suffered the significant costs differential of $81,800 was clearly evident. It can be assumed that because the financial information provided addressed an historical financial situation rather than Para’s financial situation as a consequence of the costs award, the LSA found the information provided did not support a finding of “hardship”.
[64] However, the LSA’s determination that Para would not be caused hardship if the costs differential was not paid, must have applied to both the decisions of the LSA to pay $3,500 (100%) of the costs on the earlier application and $20,000 (less than 25%) of the costs differential on the later application.
[65] Although the LSA provided reasons in its letter to Mr Patterson of 15
November 2005 for deciding to make payments under s 41 – that the Lavertys’
defence to Para’s claim and counterclaim were found to be without merit, that Para
did incur additional expenses as a result of the conduct of the proceeding by the Lavertys (even though this was not exceptional), and costs were also increased by delays in processing legal aid applications – there was no explanation nor reasons provided for the different approach to compensation in relation to the two claims. The differing determinations are not easily rationalised when, as Para submits, at least some of the circumstances would have been the same in both cases including, it appears, the determination that hardship had not been made out.
[66] Mr Dymond analysed the Lavertys’ case in the High Court as follows:
There is no question that the Lavertys’ case lacked merit.
He said that the 2003 appeal:
Totally lacked merit and should probably never have been brought.
[67] The other factors stated to support a payment, being the conduct of the proceedings by the Lavertys and delays in processing legal aid applications, appear to be attributed to the higher costs differential claim, rather than the 2003 appeal proceedings. They therefore appear to be additional grounds for assessing prejudice, and supportive of payment in respect of the higher claim, rather than explaining the
75% difference in approach to the two claims.
[68] The absence of any explanation or reasons for the difference in approach gives the appearance, at the very least, that the decision to pay $20,000 in respect of the costs differential was arbitrary.
[69] A further factor I consider a relevant circumstance, which is unexplained and indeed not referred to in the letter of 15 November 2005 from the LSA to Mr Patterson, is the factor of contributions. Mr Dymond paid detailed attention in his report to ascertaining the accurate situation in respect of the contributions required by the LSA from the Lavertys under the Act. He said he paid careful attention to this matter because it would be “a significant step to suggest that the Court of Appeal judgment is wrong on this point”. He concluded that no contribution other than $50 each was imposed in relation to the Para proceeding and that “a valid contribution” was not imposed on this file. Nor was there any indication that a contribution was
fixed on the file that concerned the appeal against the High Court judgment, where the Court of Appeal stated that $3,000 costs plus disbursements would have been awarded but for the Lavertys being legally aided.
[70] However, beyond carrying out the analysis to determine that the Court of Appeal had been given the correct information as to the contribution fixed, Mr Dymond did not take into account the LSA’s failure to correctly assess contributions. Nor did the LSA, which acted on Mr Dymond’s advice in the decision it reached as conveyed to counsel for Para.
[71] The consequence of the failure of the LSA to correctly assess and require payment of contributions by the Lavertys, which according to Mr Dymond’s advice should have been re-assessed at $48,138.39, was that the actual costs awarded by the Court of Appeal were limited to the Lavertys’ total contribution of $100, rather than an award being for the correct figure which appears to be $48,138.39. Because Para was unaware of the error, it was unable to place this situation before the Court of Appeal in support of a claim to “exceptional circumstances”.
[72] While the Court of Appeal proceeded on the basis correctly advised to them that the Lavertys’ contribution to costs was a total of $100, when the LSA came to consider Para’s application under s 41 for the costs differential of $81,800 as contemplated in the Court of Appeal judgment, the error as to the assessment of contributions was readily apparent. It was referred to Mr Dymond as a matter of concern by the instructing officer (refer [10] above), and considered by Mr Dymond in some detail. The error was analysed and acknowledged in Mr Dymond’s report.
[73] Under s 41 the LSA is required to have regard in respect of any application, not only the mandatory factors under s 41(2) but under s 41(4) to:
… all relevant circumstances.
[74] To my mind, it was no means “the end of it” that the Court of Appeal was given the correct advice, as submitted by the LSA (refer [56] above). The requirement to consider all relevant circumstances surely required the LSA to take into account that as the result of its error, Para had been denied access directly to the
Lavertys pursuant to Court awarded costs, for a sum in the vicinity of $48,000. I consider that was a circumstance which clearly should have informed the reasoning of the LSA in reaching its decision. It was a relevant consideration which formed part of the material available to the LSA, but which it failed to take into account.
[75] Whether or not the provisions of ss 40 and 41 provide a “scheme of legal assistance”, they were clearly enacted, as stated by the Court of Appeal at [22]:
… 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. (emphasis added)
[76] The LSA is required to have due regard to these twin purposes in reaching determinations under s 41.
[77] In deciding to pay only $20,000 towards the costs differential of $81,800, the
LSA has reached a decision which appears to be arbitrary when compared with the
100% compensation for costs reimbursed on the 2003 Court of Appeal claim, has failed to take account of all relevant circumstances and failed to address to an appropriate extent the prejudice to Para caused by the operation of s 40. It was therefore not a decision a reasonable decision-maker could have made. For those reasons the decision to make payment of $20,000 must be set aside and the matter remitted to the LSA to re-determine Para’s application for payment of the costs differential of $81,800. The answer to the second issue is accordingly, “yes”.
Issue 3 : Did LARP make an error of law in determining that it lacked jurisdiction to review the decision of the LSA dated 15 November 2005 approving a payment to Para of $20,000?
[78] LARP’s decision declining to review the LSA’s decision, was given on 28
March 2006. At that time, s 54 of the Act provided:
Grounds for review
(1)An aided person or an applicant for legal aid may apply to the Review Panel for a review of a decision of the Agency referred to in subsection (2) on the grounds that the decision is—
(a) manifestly unreasonable; or
(b) wrong in law.
(2)The decisions that may be reviewed are decisions that affect the applicant for review and that relate to any 1 or more of the following:
(a) an application for legal aid:
(b)any conditions imposed under section 15 or section 42 on a grant of legal aid:
(c)any amount payable by an aided person, whether as contribution or repayment, under a grant of legal aid:
(d) the identity of any listed provider in a grant of legal aid: (e) the maximum grant under a grant of legal aid:
(f) the withdrawal of, or amendment to, a grant of legal aid:
(g) the enforcement of any condition imposed under section 15 or section 42 on a grant of legal aid:
(h)any changes to, or dealings with, a charge on property arising out of a grant of legal aid:
(i) an application under section 41.
(3) A listed provider or former listed provider may apply to the Review Panel for a review of a decision relating to the amount payable by the Agency to that provider, on the grounds that the decision is—
(a) manifestly unreasonable; or
(b) wrong in law.
(4)In this section, decision includes a failure or refusal to make a decision.
[79] LARP declined the application for review because s 54(1) limits the class of applicants to LARP to aided persons or applicants for legal aid.
[80] LARP declined jurisdiction on the basis of the decision in Burcher. In that case, Ellen France J said:
[16]I accept the respondent’s submissions on this aspect. As I read s 54(1) and (2) they provide that the specified persons (those in receipt of aid or applying for aid) may apply for a review of the s 54(2) decisions on the specified grounds. Subsection (2) then sets out what are “the” decisions which the named person can have
reviewed. While it is odd then to refer in s 54(2)(i) to applications under s 41, I do not see that as altering the interrelationship between s 54(1) and (2).
[17]I agree with the respondent that the legislative history supports the argument that there has been, over time, a narrowing of the classes of persons who can seek a review of decisions relating to legal aid.
[81] Burcher related to an application by the successful non-legally aided party, under the relevant provision at the time, to recover costs. In that respect the applicant was in the same position as Para in this case. The submissions of Para that Burcher can be distinguished in the circumstances of this case, based on the Court of Appeal’s statements at [22] of the judgment (refer [51] above), have no merit. The Court of Appeal was not addressing the jurisdiction of LARP but rather the purpose of ss 40 and 41 of the Act. Burcher was directly on point and LARP was bound by it at the time it issued its decision declining Para’s application to review the LSA’s decision.
[82] For the sake of completeness, I note that the current s 54 of the Act includes a new subsection (4) which provides:
(4)A party who has applied to the Agency for payment of costs under section 41 may apply to the Review Panel for a review of the Agency's decision under section 41 on the grounds that the decision is—
(a) manifestly unreasonable; or
(b) wrong in law.
[83] This would appear to overcome the lack of a right of appeal for applicants under s 41, but interestingly the amendment does not alter the category of applicant who is entitled to seek review under the previous s 54, namely:
An aided person or an applicant for legal aid …
[84] Para’s argument based on [22] of the Court of Appeal judgment asserted that Para as an applicant under s 41 fell within the category of “applicant for legal aid”. Obviously the legislature considered it necessary to specifically provide a right of review for applicants under s 41.
[85] The amendment took effect from 10 April 2006 and therefore does not assist
Para. The decision of LARP was clearly correct at the time it was made. [86] The answer to the third issue is therefore “no”.
Result
[87] The decision of the LSA, as advised to Para’s counsel by letter dated 15
November 2005, to make a payment of $20,000 under s 41 of the Act in respect of the costs differential, is set aside.
[88] The matter of the determination of the payment is remitted back to the LSA to re-determine the payment in respect of the costs differential, taking into account the matters referred to under “Issue 2”, as summarised at [77] above.
[89] For the avoidance of doubt, I record that the LSA was not in error in not seeking further information as to financial circumstances under s 41(3). Whether it now decides to do so, is a matter for the LSA in the exercise of its overall discretion.
Costs
[90] Para has failed in its primary ground of review and in relation to the third issue. It has succeeded on the alternate ground of appeal which has resulted in an order remitting the LSA’s decision back to it for re-determination. In those circumstances I consider costs should lie as they fall.
[91] However, I did not hear from counsel on the issue of costs. Leave is reserved to both parties to submit memoranda within 21 days if they consider they require to be heard further on the issue of costs.
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