Washikita v Smith
[2024] NZHC 980
•27 June 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-001132
[2024] NZHC 980
BETWEEN HISAKO WASHIKITA
Plaintiff and Second Counterclaim Defendant
AND
JOHN SOLOMON SMITH
First Defendant and Counterclaim Plaintiff
ROBYN CHRISTINE McALLISTER
Second DefendantAKIRA WASHIKITA by his litigation guardian, Tetsu Washikita
First Counterclaim Defendant
Hearing: On the papers Appearances:
P J Davey for Counterclaim Defendants No appearance by or for J Smith
Judgment:
27 June 2024
COSTS JUDGMENT OF ASSOCIATE JUDGE GARDINER
This judgment was delivered by me on 27 June 2024 at 4.00 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
Solicitors:
Rosebank Law, Auckland P Davey, Auckland
WASHIKITA v SMITH [2024] NZHC 980 [27 June 2024]
Introduction
[1] This judgment determines costs on John Smith’s (Mr Smith) discontinued counterclaim against Hisako Washikita (Mrs Washikita) and the late Akira Washikita (Mr Washikita). Mr Smith is a pensioner of no means and was in receipt of legal aid for most of the relevant period.
[2] The main issue is whether exceptional circumstances warrant an award of costs being made against Mr Smith despite him being legally aided.
Background
[3] Mrs Washikita commenced proceedings against Mr Smith and Robyn McAllister (Ms McAllister) for an order requiring them to vacate a property in Auckland which Mr and Mrs Washikita had purchased from a company of which Mr Smith was a director. From the time the Washikitas purchased the property, Mr Smith and Ms McAllister (the defendants) had been allowed to live in the property rent-free, while paying outgoings and maintaining the property. Mrs Washikita required them to vacate the property. They refused. Mrs Washikita applied for summary judgment of her claim.
[4] Mr Smith defended the claim and counterclaimed that he had an informal agreement with the Washikitas granting him a right of first refusal to purchase the property and agreeing to reimburse him for all costs incurred in respect of the property. He sought an order for specific performance of the agreement requiring Mr Washikita to acknowledge his entitlement to be reimbursed for the reasonable costs, and to negotiate in good faith to sell the property to him with a set-off for his expenses. Alternatively, Mr Smith brought a second cause of action against both Mr and Mrs Washikita, claiming that he had an interest in the property under a constructive trust by virtue of his contributions to it. He made similar claims in a cause of action against both Mr and Mrs Washikita for proprietary estoppel.
[5] In a judgment delivered on 19 December 2022, Associate Judge Paulsen entered summary judgment for Mrs Washikita.1 He rejected the argument that there was an oral agreement and stated: 2
…I am satisfied that Mr Washikita did not grant Mr Smith a right of first refusal and did not agree to reimburse Mr Smith his costs. The evidence is quite overwhelming that this is the case.
[6] He also concluded that there was no arguable case to an interest in the property based on a constructive trust.3 The Associate Judge rejected the defence that it would be unconscionable to require Mr Smith to vacate the property at that time. He ordered that the defendants were to deliver up possession of the property.
[7] Associate Judge Paulsen acknowledged that Mr Smith was entitled to pursue the counterclaims whether he had possession of the property or not. However, he considered that “…Mr Smith’s counterclaims are without merit and have no realistic prospect of success.”4
[8] The Associate Judge held that Mrs Washikita was entitled to costs. Following the judgment, Mr Smith agreed to a costs order on a 2B basis in the sum of $21,918.93. He paid the costs in April 2023.
[9] Mr Smith progressed his counterclaim through 2023. On 24 March 2023, a litigation guardian was appointed for Mr Washikita, who was suffering from dementia and unable to participate in the proceeding.
[10] In April 2023, Mrs Washikita counterclaimed against Mr Smith for occupation rent under the Property Law Act 2007, or mesne profits for lost rent. Mrs Washikita also sought orders pursuant to the Property Law Act 2007 for the sale of the property and distribution of proceeds between Mr and Mrs Washikita. Mr Washikita filed a statement of defence to Mr Smith's counterclaim on 28 April 2023. The parties made discovery.
1 Washikita v Smith [2022] NZHC 3524.
2 At [56].
3 At [83].
4 At [86].
[11] In a joint memorandum filed on 11 September 2023, counsel for Mr and Mrs Washikita and Mr Smith advised the Court that they were exploring settlement.
[12] At the next conference in November 2023, Mr Smith’s counsel sought leave to withdraw because Mr Smith’s legal aid grant had been withdrawn and he no longer had instructions.
[13]Mr Smith subsequently filed a notice of discontinuance of his counterclaim.
[14]Sadly, Mr Washikita passed away on 12 February 2024.
[15] Mrs Washikita seeks costs in relation to Mr Smith’s discontinued counterclaim, on a standard 2B basis. This equates to an award of $24,120, including disbursements.
[16] Mr Smith has filed a memorandum stating that he understood that a costs award could not be made against him if he was receiving legal aid. In an email to the Registrar, he states that he has tried to obtain legal advice but has been unsuccessful, that his only income is a fortnightly pension payment, and that he lives in rented caravan in a Holiday Park. At the Court’s request, he has filed a copy of the letter from the Legal Services Commission granting his legal aid. This letter, dated 17 February 2023, states that legal aid has been granted “for the application received 09/02/2023” and “other activities” of case management and discovery.
Legal principles
[17]Rule 15.23 of the High Court Rules 2016 states:
Unless the defendant otherwise agrees or the court otherwise orders, a plaintiff who discontinues a proceeding against a defendant must pay costs to the defendant of and incidental to the proceeding up to and including the discontinuance.
[18] Accordingly, there is a presumption that Mr Smith, as a counterclaim plaintiff, is required to pay costs to Mrs Washikita now that his counterclaim is discontinued. The presumption may be displaced if the Court considers that it would be just and equitable not to apply it.5
[19] In FM Custodians Ltd v Pati, the High Court stated that the following factors are to be taken into consideration: 6
(a)As the general rule the Court will not consider the merits of the respective cases (unless they are so obvious that they should influence the costs issue).
(b)The Court will consider the reasonableness of the stance of both parties in the proceeding (whether it was reasonable for the plaintiff to bring and continue the proceeding, and for the defendant to oppose and continue to oppose it, up to the point of discontinuance).
(c)Conduct prior to the commencement of the proceeding may be relevant (for example, if any conduct by a defendant has precipitated the litigation), as may be the reason for discontinuing (for example, where a change of circumstances has made the proceedings unnecessary).
[20] Rule 14.6(3)(b)(ii) of the High Court Rules also provides that a court may order a party to pay increased costs if “the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by… taking or pursuing an unnecessary step or an argument that lacks merit”.
[21] However, a legally aided person’s liability for costs awarded against him or her in civil proceedings must not exceed an amount (if any) that is reasonable for the legally aided person to pay having regard to all the circumstances, including the means of the parties and their conduct in connection with the dispute.7
5 Kroma Colour Prints Ltd v Tridonicatco NZ Ltd [2008] NZCA 150, (2008) 18 PRNZ 973 at [12].
6 FM Custodians Ltd v Pati [2012] NZHC 1902 at [11].
7 Legal Services Act 2011, s 45(1).
[22] No order for costs may be made against an aided person in a civil proceeding unless the Court is satisfied that there are exceptional circumstances.8
[23] In determining whether there are exceptional circumstances the Court may take into account, amongst other things, any conduct by the legally aided person that causes the other party to incur unnecessary cost,9 the unreasonable pursuit of one or more issues on which the aided person fails,10 or any unreasonable refusal by the aided person to negotiate a settlement or participate in alternative dispute resolution.11
Mrs Washikita’s claim to costs
[24] Mrs Washikita claims that Mr Smith should be required to pay the costs associated with counterclaim, either because it does not appear that Mr Smith obtained legal aid until after judgment was delivered by the Court in December 2022 (and so the grant of legal aid may not have covered the commencement of the counterclaim), or because exceptional circumstances justify costs against Mr Smith. Mrs Washikita submits that this Court considered and rejected the matters raised in Mr Smith’s counterclaim in the summary judgment decision.
[25] Mrs Washikita also appears to rely on the fact that when the solicitors for the Washikitas made enquiries with the Legal Services Commissioner as to whether Mr Smith should be entitled to receive legal aid in respect of the counterclaim given the comments made by Associate Judge Paulsen about the merits of Mr Smith’s counterclaim, the Legal Services Commissioner investigated and on 18 October 2023 advised the solicitors that Mr Smith was not in receipt of legal aid.
[26] Mrs Washikita submits that Mr Smith unreasonably pursued his counterclaim after the comments made by Associate Judge Paulsen, and when it appears that he was not eligible for legal aid; and that this conduct gave rise to an “exceptional circumstance” justifying a costs award against Mr Smith.
8 Legal Services Act, s 45(2).
9 Section 45(3)(a).
10 Section 45(3)(d).
11 Section 45(3)(e).
Does the prima facie immunity apply?
[27] To determine whether the prima facie immunity contained in s 45(2) of the Legal Services Act 2011 applies to Mr Smith’s counterclaim and the steps taken by the Washikitas in response, it is necessary to consider the timeline.
[28] Mr Smith filed and served his statement of defence and counterclaim on 24 August 2022.
[29] Mrs Washikita filed and served her statement of defence to the counterclaim on 14 October 2022. Mr Washikita did not file and serve a statement of defence to the counterclaim until April 2023, because he was suffering from severe dementia, and it was necessary for an application to be made to appoint him a litigation guardian.
[30] Associate Judge Paulsen delivered his judgment on Mrs Washikita’s application for summary judgment on 19 December 2022.
[31] Mr Smith applied for legal aid on 9 February 2023 and was granted legal aid on 17 February 2023.
[32] There were case management conferences and Chambers List mentions between March and October 2023. On 23 May 2023, the Court made orders for standard discovery. The Washikitas subsequently filed an affidavit of documents in July 2023, as did Mr Smith.
[33] On 13 November 2023, Mr Smith’s counsel sought leave to withdraw because Mr Smith’s grant of legal aid was withdrawn on 26 October 2023.
[34] Mr Smith filed a notice of discontinuance of his counterclaim on 21 November 2023.
[35] Mrs Washikita claims costs for the commencement of her defence to the counterclaim in October 2022, the commencement of Mr Washikita’s defence in April 2023, the various case management conferences and Chambers List mentions between May and December 2023, and discovery.
[36] I put aside the final conference in December 2023 which took place after Mr Smith had discontinued his counterclaim, and primarily concerned Mrs Washikita’s counterclaim against Mr Smith and orders for the sale of the property and distribution of the net proceeds.
[37] All the steps claimed by Mrs Washikita, apart from the commencement of her defence in October 2022, were taken after Mr Smith was granted legal aid in February 2023.
[38] There are subtly different lines of authority in this Court on whether the prima facie immunity from costs available under s 45(2) of the Legal Services Act can apply to steps taken in the proceeding before the grant of legal aid.12
[39] In this case, there is no indication that the grant of legal aid was intended to attach to costs relating to the whole of Mr Smith’s counterclaim, including steps taken before the grant of legal aid.
[40] Accordingly, I find that Mr Smith should pay Mrs Washikita’s costs associated with her statement of defence on an ordinary 2B basis.
[41] The balance of the steps for which costs are claimed were taken after Mr Smith was granted legal aid. Therefore, the Court must be satisfied that there are “exceptional circumstances” before an order for costs is made against Mr Smith.
12 Recent authorities suggest that s 45(2) provides immunity against all costs to which a grant of legal aid attaches, which may include costs arising before the grant of legal aid: see AA v LA [2017] NZHC 646 at [15]– [17]; Gill v Lethlean [2021] NZHC 296 at [26]; and Stills v McCormack [2023] NZHC 3200 at [29]. But compare Hollands v Sorensen [2021] NZHC 575 at [10]; and Ngāti Tama Custodian Trustee Ltd v Phillips [2021] NZHC 5 at [15], citing B v A [2020] NZHC 765 at [13], where it has been suggested that the immunity from costs under s 45(2) does not apply to steps taken before the grant of legal aid.
Are there exceptional circumstances?
[42] In Laverty v Para Franchising Ltd,13 the Court of Appeal said that for circumstances to qualify as exceptional, they must be “quite out of the ordinary”. The Court also said that the enquiry the Court undertakes is a broad one, which includes the means of all the parties and their conduct.14
[43] In favour of an order for costs against Mr Smith are the comments of Associate Judge Paulsen, to the effect that his counterclaims were without merit. While Associate Judge Paulsen was not determining Mr Smith’s counterclaims, Mr Smith advanced essentially the same claims in defence of the application for summary judgment. The Associate Judge rejected these in a comprehensive judgment.
[44] Against that is the fact that Mr Smith is apparently a pensioner with no means. He continued with his counterclaim when he should not have; but he was legally represented at the time and can be expected to have been advised that it was worthwhile to continue. Additionally, Mrs Washikita made counterclaims in April 2023 meaning that it was not only Mr Smith’s counterclaim that was on foot and causing the parties to incur costs.
[45] The main consideration is that Mr Smith is apparently unable to pay a costs award and he prosecuted the counterclaim believing that he was immune from a costs order.
[46] Weighing these considerations, I am of the view that an order against Mr Smith for the period he was receiving legal aid is not appropriate. He must however pay costs incurred before he applied for legal aid.
[47] In terms of s 45(4) of the Legal Services Act, I would have ordered Mr Smith to pay Mrs Washikita’s full 2B costs of $23,900 and disbursements of $220 had it not been for s 45(2).
13 Laverty v Para Franchising Ltd [2006] 1 NZLR 650 (CA) at [31].
14 At [31].
Result
[48] I order Mr Smith to pay Mrs Washikita’s costs of $4,780 for filing her statement of defence and $110 for the filing fee.
Associate Judge Gardiner
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