Strickland v DFW Holdings Limited (formerly NZInvest Limited)

[2023] NZHC 3856

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2019-404-000667

[2023] NZHC 3856

BETWEEN

GEORGE CLASSIE STRICKLAND and NICHOLA LENORE SUTHERLAND

First Plaintiffs

STRICKLY PROPERTIES LIMITED
Second Plaintiff

AND

DFW HOLDINGS LIMITED (formerly NZINVEST LIMITED)

First Defendant

KYLIE SHEREE TURGIS
Second Defendant

CITY LAW BARRISTERS AND SOLICITORS

Third Defendant

Hearing:	On the papers
Appearances:	T J P Bowler for the Plaintiffs R Butler for the First Defendant
Judgment:	21 December 2023

COSTS JUDGMENT OF ASSOCIATE JUDGE GARDINER

This judgment was delivered by me on 21 December 2023 at 4.00 p.m. pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date.......................................

Solicitors:

Heimsath Alexander, Auckland Mackenzie Elvin Law, Tauranga Neilsons, Auckland

R Butler, Auckland

STRICKLAND v DFW HOLDINGS LTD [2023] NZHC 3856 [21 December 2023]

Introduction

[1]    The first plaintiffs, Mr Strickland and Ms Sutherland, who are husband and wife,  are  the  sole  directors  and  shareholders   of   the   second   plaintiff,   Strickly Properties Ltd (Strickly). Strickly was registered by the first plaintiffs for the purpose   of   purchasing   a   property   at   Hill   Street,    Onehunga,   Auckland (the Hill Street Property).

[2]    The first plaintiffs engaged  the  services  of  the  first  defendant, NZINVEST Ltd (NZINVEST), to learn about property investment. The second defendant, Kylie Turgis, was the General Manager of NZINVEST and the vendor and registered proprietor of the Hill Street Property.

[3]    The third defendant, City Law Barristers and Solicitors acted for the plaintiffs in the purchase of the Hill Street Property.

[4]    The plaintiffs’ statement of claim was first  filed  on  15 April  2019.  The first defendant filed a statement of defence on 29 May 2019. The second defendants filed a statement of defence on 23 July 2019.

[5]    The claim did not advance until it was placed in a Chambers List for review on 19 August 2022. At the list appearance, the plaintiffs and their new representation, were granted an adjournment of the list mention until 23 September 2022.1 Before the next mention, the parties agreed by joint memoranda on a new timetable whereby the plaintiffs would serve an amended statement of claim by 21 October 2022 and that the proceedings would be further adjourned until 18 November 2022.

[6]    No amended claim was filed by this date. The day prior to the Chambers List mention, the defendants applied to strike out the plaintiffs’ claim and the plaintiffs applied for legal aid. In response to these applications, a half-day hearing was set

1      Strickland v NZINVEST Ltd HC Auckland CIV-2019-404-667, 19 August 2022 per Associate Judge Taylor.

down for the strike-out application and the plaintiffs were required to file any documents in opposition by 29 November 2022.2

[7]The plaintiffs’ notice of opposition was filed on 17 March 2023.

[8]    The hearing was vacated by Moore J in accordance with a joint memorandum by counsel on 21 March 2023, stating that the plaintiffs and the first defendant had resolved the strike-out application. Costs memoranda on the interlocutory application were then filed.

[9]    Mr Strickland was granted legal aid on 16 March 2023. An amended statement of claim was filed by the plaintiffs on 4 April 2023.

[10]   The first defendant seeks scale costs and disbursements totalling $6,953 against the plaintiffs on the basis that it was substantially successful in its strike-out application. The plaintiffs submit that no order for costs should be made against the plaintiffs due to their impecuniosity and homelessness. In the alternative, the plaintiffs submit that the costs order should be reserved or payments of it delayed until the completion of the substantive proceeding.

Issues

[11]There are two primary issues:

(a)Whether NZINVEST was substantially successfully in its strike-out application and should be awarded costs; and

(b)If so, whether an order for costs should not be made against the plaintiffs due to the grant of legal aid.

2      Strickland v NZINVEST Ltd HC Auckland CIV-2019-404-667, 18 November 2022 per Associate Judge Gardiner.

Legal principles

[12]The general principles of costs are as follows:3

(a)the party who fails with respect to a proceeding or an interlocutory application should pay costs to the party who succeeds:

(b)an award of costs should reflect the complexity and significance of the proceeding:

(c)costs should be assessed by applying the appropriate daily recovery rate to the time considered reasonable for each step reasonably required in relation to the proceeding or interlocutory application:

(d)an appropriate daily recovery rate should normally be two-thirds of the daily rate considered reasonable in relation to the proceeding or interlocutory application:

(e)what is an appropriate daily recovery rate and what is a reasonable time should not depend on the skill or experience of the solicitor or counsel involved or on the time actually spent by the solicitor or counsel involved or on the costs actually incurred by the party claiming costs:

(f)an award of costs should not exceed the costs incurred by the party claiming costs:

(g)so far as possible the determination of costs should be predictable and expeditious.

[13]   The awarding of costs against aided parties is governed by the Legal Services Act 2011 (LSA).

[14]   A costs award cannot be made against parties in receipt of legal aid in civil proceedings unless the court is satisfied that exceptional circumstances warrant that award.4 Litigants are unlikely to obtain a costs order against an aided party as the costs regime reflects the common law principles governing parties appearing in forma pauperis.5

[15]   In determining whether there are exceptional circumstances to permit a costs award against an aided party the court may take account of the following non‑exhaustive considerations:6

3      High Court Rules 2016, r 14.2(1).

4      Legal Services Act 2011, s 45(2).

5      Reekie v Attorney-General [2014] NZSC 63, [2014] 1 NZLR 737 at [34].

6      Legal Services Act 2011, s 45(3).

(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 one or more issues on which the legally aided person fails;

(e)any unreasonable refusal to negotiate a settlement or participate in alternative dispute resolution; or

(f)any other conduct that abuses the court process.

[16]   Any costs award against an aided person must not exceed an amount that is reasonable for the aided person to pay with regard to all the circumstances — including the means of all parties and their conduct in connection with the dispute.7 Any award for costs against an aided person must specify the amount that the order would have been for, if not for the impact of s 45 on the person’s liability.8

[17]   If no order for costs is made, an order specifying what order for costs would have been made if not for the person’s reduced liability under s 45 of the LSA may be made.9 Successful parties impacted by the s 45 of the LSA limitation on costs award may apply to the Legal Services Commissioner for payment by the Commissioner for some or all of the difference in the costs awarded and the costs that would have been awarded if not for the LSA.10

Was NZINVEST substantially successful in its strike-out application?

[18]   NZINVEST’s application for strike out had two main grounds arising from the plaintiffs’ failure to advance the claim. First, that the claim was unnecessarily prolix and sought grossly excessive non-compensatory damages. Second, that the claim

7      Section 45(1).

8      Section 45(4).

9      Section 45(5).

10     Section 46(2).

included two time-barred causes of action under the Fair Trading Act 1986 (FTA) and Consumer Guarantees Act 1993 (CGA).

[19]   The plaintiff’s initial statement of claim contained nine causes of action — four of which were against the first defendant. In the second cause of action the plaintiffs alleged that the first defendant breached s 9 of the FTA by engaging in misleading or deceptive conduct. In the fourth cause of action the plaintiffs alleged that the first defendant breached s 29 of the CGA by providing the plaintiffs with a service and resulting product not fit for their particular purpose.

[20]   Similar causes of action were alleged against both the second and third defendants.

[21]   On 21 March 2023, a joint memorandum was filed stating that the plaintiffs and the first defendant had resolved the strike-out application. Terms of the resolution included that the plaintiffs would serve an amended statement of claim, that the causes of action under the FTA and the CGA would be withdrawn and that the claims for general and exemplary damages would be amended.

[22]   The amended statement of claim was filed 4 April 2023. All claims relating to breaches of the FTA and the CGA, including those against the second and third defendants, were removed from the amended claim. The plaintiffs’ claims for general and exemplary damages were also altered, to seeking an amount to be determined by the Court instead of specified amounts for each cause.

[23]   These amendments directly reflect the main grounds of the first defendant’s strike-out application. I am therefore satisfied that the first defendants were substantially successful in its application and should be awarded costs. I now turn to whether costs can be awarded against the plaintiffs.

Should  an  order  for  costs  not  be   made   against   the   plaintiffs   due   to Mr Strickland’s grant of legal aid?

[24]   Mr Strickland was granted legal aid on 16 March 2023. The grant only refers to Mr Strickland as the recipient of aid and does not refer to Ms Sutherland or Strickly.

[25]   This means that only Mr Strickland is prima facie immune from a costs award. Accordingly, there is no bar to a costs award against Strickly.

[26]   Mr Strickland  is  joint  first  plaintiff  in  this  proceeding  with  his  wife,  Ms Sutherland. It would serve no practical benefit for Mr Strickland to be immune to a costs award whilst his wife his remains vulnerable. As husband and wife, the first plaintiffs likely have joint assets. Accordingly, any costs award against Ms Sutherland would effectively ‘sidestep’ Mr Strickland’s prima facie immunity and serve no practical purpose.

[27]   Prima facie immunity applies from the date that the grant is awarded.11 The reduction of an aided person’s liability under s 45 of the LSA only applies to the proceedings for which they are legally aided.12 The reduction does not apply to the whole of proceedings irrespective of when legal aid was granted. Accordingly, the grant of legal aid does not retrospectively afford parties immunity for costs incurred prior to the grant of legal aid.13

[28]   It has been considered that the grant of aid could provide protection to an aided person for the costs of steps taken by that aided person prior to the grant if no costs determination for those steps had been made before the date of the grant.14 AA v LA specified that the question did not concern when legal aid was granted but rather what costs the grant of legal aid attaches to.15

[29]   However, this position has not been supported by  further  case  law. Hollands v Sorensen applied the general principle affirmed  by  Campbell  J  in  Ngāti Tama Custodians Trustee Ltd v Phillips that immunity is not retrospective and

11     Ngāti Tama Custodian Trustee Ltd v Phillips [2021] NZHC 5 at [15] citing B v A [2020] NZHC 765 at [15].

12     AA v LA [2017] NZHC 646 [13]–[15] citing Carter v Western Viaduct Marine Ltd (2003) 16 PRNZ 1034 (HC) [23]–[25].

13     AA v LA [2017] NZHC 646 at [15]; and Ngāti Tama Custodian Trustee Ltd v Phillips [2021] NZHC 5 at [23].

14     AA v LA [2017] NZHC 646 at [16] considering Gitmans v Alexander (2003) 16 PRNZ 653 (HC) at [13].

15     AA v LA [2017] NZHC 646 at [17].

does not apply to steps taken in proceedings before the grant of legal aid and that costs are awarded up to the grant of legal aid.16

[30]   Accordingly, Mr Strickland is only immune to costs sought after the grant of his legal aid. As legal aid was granted on 16 March 2023 the first plaintiffs are liable for costs related to steps taken in the proceedings before 16 March 2023.

[31]   The first defendant states that the steps taken before the 16 March include, the interlocutory application for strike out and preparing the written submissions and the bundle for the hearing. It says that as the hearing was set down for 28 March 2023, the submissions and bundle had been substantially completed and approved for filing, which was timetabled to occur five working days before the hearing on 21 March 2023. I accept that these steps had been undertaken prior to the grant of legal aid and costs should accordingly be awarded.

[32]   Financial hardship and impecuniosity are not a basis to refuse costs.17 However, parties’ financial situations may be relevant to the enforcement of a costs award.18 Parties should also be minded of the financial implications of commencing and defending litigation. The first plaintiffs have not, as is preferred by the Court, verified by affidavit evidence of their financial situation.19

[33]   The fundamental principle that ‘costs follow the event’ applies to interlocutory proceedings. Unless there are special reasons to the contrary costs become payable when they are fixed.20 Given the circumstances I do not consider it appropriate to reserve or delay the payment of costs.

16     Hollands v Sorensen [2021] NZHC 575; and Ngāti Tama Custodians Trustee Ltd v Phillips [2021] NZHC 5 at [15] citing B v A [2020] NZHC 765 at [15].

17     Bruns v Gay HC Auckland CIV-2004-404-0297, 28 October 2004; and Teitiota v The Chief Executive of the Ministry of Business, Innovation and Employment [2013] NZHC 3401.

18     Teitiota v The Chief Executive of the Ministry of Business, Innovation and Employment [2013] NZHC 3401 at [6].

19     Craig v Keith [2017] NZHC 2664 at [22].

20     High Court Rules 2016, r 14.8(1)(b).

Result

[34]Accordingly, I order that the first and second plaintiffs pay the first defendants:

(a)Costs of $6,453; and

(b)Disbursements of $500.

Associate Judge Gardiner

Solicitors:

Heimsath Alexander, Auckland Mackenzie Elvin Law, Tauranga Neilsons, Auckland

R Butler, Auckland