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LEGAL SERVICES AGENCY V RUSSELL HC AK CIV-2009-404-3107 [2009] NZHC 1223 (10 September 2009)

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
                                                                 CIV-2009-404-3107

               UNDER                      the Legal Services Act 2000

               IN THE MATTER OF           an appeal from
a decision of the Legal Aid
                                          Review Panel dated 27 April 2009

               BETWEEN  
                 LEGAL SERVICES AGENCY
                                          Appellant

               AND                  
     RICHARD THOMAS RUSSELL
                                          Respondent


Hearing:       27 August 2009
               (Heard
at Wellington)

Appearances: G D S Taylor for the appellant
             J Oliver as amicus

Judgment:      10 September 2009



                         JUDGMENT OF CLIFFORD J



Introduction


[1]    The appellant, the Legal Services Agency ("the Agency"),
granted the
respondent, Mr Russell, legal aid in February 2006. That grant was to assist Mr
Russell to consider issuing negligence
proceedings against the Southland District
Health Board, on the basis that the sudden withdrawal of lithium medication for Mr
Russell's
bipolar disorder had caused him a major depressive episode.


[2]    In August last year the Agency withdrew Mr Russell's legal aid.


[3]    Following an application by Mr Russell, the Legal Aid Review Panel ("the
Panel") reversed the Agency's decision.




LEGAL
SERVICES AGENCY V RUSSELL HC AK CIV-2009-404-3107 10 September 2009

[4]    This is an appeal by the Agency against that decision
of the Panel.


[5]    Mr Russell has elected not to take any steps in this appeal. He has decided to
give up his substantive claim
against the Health Board.            The Court therefore
appointed Mr Oliver as amicus curiae.


Leave to appeal out of time


[6]
   An appeal from a decision of the Panel is required to be brought within 20
working days after the decision: r 20.4(2)(b) of the
High Court Rules. As the Panel's
decision was given on 27 April 2009, the Agency's appeal was required to be
brought by 25 May 2009.
The appeal was filed on 25 May 2009, but was not in fact
served until 8 June 2009.


[7]    The Agency therefore applies for an enlargement
of time for appeal pursuant
to r 1.19 and r 7.41(1)(a) of the High Court Rules. Mr Oliver as amicus consents to
that application.


[8]    The Agency's notice of appeal was initially served on Mr Russell's former
lawyer, who in the meantime had ceased to act
for him. This resulted in service of
the notice being delayed. Because the delay was limited, and because Mr Russell
has decided
not to participate in this appeal, no specific prejudice arises as a result of
service of the appeal being delayed. I accordingly
grant the Agency's application for
leave to appeal out of time.


Background


[9]    On 18 November 2005, Mr Russell first applied
for legal aid for a claim in
negligence against the Health Board.


[10]   The application for legal aid was supported by an opinion
from Mr A C Beck,
a barrister instructed by Mr Russell's solicitor. Mr Beck's opinion:

       a)     Identified the need for a
medical report as to whether the Health
              Board's decision to stop Mr Russell's lithium constituted negligence
     
        and caused the onset of the depressive episode;


       b)     Noted the need for economic loss evidence;


       c)  
  Assessed general damages ("I would not anticipate an award of more
              than $30,000"); and


       d)     Recognised
that Mr Russell's pre-existing alcoholism would be likely
              to reduce damages.


[11]   Mr Beck's opinion concluded Mr
Russell had a good chance of establishing
that there was negligence on the part of the Health Board, and that he had suffered
damage
as a result.


[12]   The Agency subsequently provided legal aid for various aspects of the
investigation of Mr Russell's claim:


       a)     A medical report was obtained, which expressed the view that an
              abrupt cessation of lithium, without its replacement by another mood
              stabiliser,
was not accepted medical procedure. It was more probable
              than not that that occurrence had caused the relapse of Mr
Russell's
              bipolar-affective disorder.


       b)     Specialist legal advice was obtained that concluded that Mr Russell
              had reasonable prospects of success in a negligence claim against the
              Health Board. Nevertheless, his
losses needed to be quantified.


       c)     An independent chartered accountant, having reviewed the history of
            
 Mr Russell's business, concluded that the failure of that business was
              not caused by Mr Russell's medical condition.


[13]   On 9 April 2008, Mr Russell's provider, Mr Sara of Dunedin, wrote to the
Agency expressing the view that, although the quantum
of loss was insufficient for

proceedings in the High Court, damages could still be sought in the District Court
and were "worthwhile
pursuing".


[14]   At the same time Mr Sara sought a further grant of aid for work "which is
proposed to be completed". He referred
to a letter from Mr Beck of 17 January
2008. In that letter Mr Beck had noted it was necessary for proceedings to be issued
immediately
in order to ensure that the claim was not statute-barred. Mr Beck also
noted it was necessary for an application for leave to be
made to commence
proceedings pursuant to s 4(7) of the Limitation Act 1950. Mr Beck had advised:

       The best outcome for Mr
Russell would be to negotiate a settlement with
       Southern CHE Ltd, and it would be in his interests to seek a settlement
 
     conference at an early stage, if possible before any discovery processes take
       place.

[15]   Mr Beck therefore advised
that legal aid should be sought to cover the
drafting of a statement of claim and an application for leave and, in effect,
preparation
and attendance at a settlement conference.


[16]   On 14 May 2008, the Agency wrote to Mr Sara and to Mr Russell, giving
notice
of its intention to withdraw aid under s 27(2)(a) of the Legal Services Act
2000 ("the Act"). The letter referred to the absence
of evidence of economic loss. It
stated that it was clear that the proceedings were not economically viable.


[17]   In its letter,
the Agency also referred to s 9(4)(d)(i) and (ii) of the Act,
suggesting that there were insufficient prospects of success, and that
aid was not
justified having regard to the respondent's interest in the proceedings in relation to
likely legal costs. The Agency
then expressed its belief that, in the present
circumstances, a "reasonable self-funding person would not pay to issue proceedings
with no prospect of financial return" (per the test in Timmins v Legal Aid Review
Panel  [2004] 1 NZLR 708).


[18]   Following further correspondence between the Agency and Mr Beck, the
Agency confirmed its decision on 12 August 2008, stating
that:

       ... the case is beset with problems. Economic loss cannot be recovered and a
       figure cannot be put on what damages
Mr Russell would be awarded for
       mental injuries during the six months he was off lithium. There are causation

       difficulties.
Proceedings are likely to be expensive and the outcome is very
       uncertain. Even if the applicant succeeds on liability, any
damages awarded
       are likely to be modest.

       We have concluded that a reasonable self funding person would not pay the
       considerable cost of taking this case further.


The Panel's decision and the Agency's appeal


[19]   On 13 February 2009
Mr Russell applied to the Panel for a review of the
Agency's decision. The review application was filed outside the statutory time
limit,
but the Panel granted an extension of time. By this time Mr Russell was acting for
himself, and his submissions were hand-written.


[20]   In its decision of 27 April 2009 ­ by which time it would appear Mr Russell's
proceedings were statute-barred by the six
year limitation period ­ the Panel
concluded that the Agency's decision to withdraw aid had been manifestly
unreasonable.   It reached
that overall conclusion by reference to a number of
findings of fact and law.


[21]   The gist of the Panel's decision was that,
notwithstanding the difficulties as
regards economic loss, Mr Russell had a reasonable prospect of success in his claim
for damages
for mental injury and suffering. These had been assessed, in the only
assessment available to the Agency, at $20,000 to $30,000.
Likely actual costs had
been assessed as being somewhat less than that, and if successful Mr Russell would
be entitled to scale costs.
On that basis it was manifestly unreasonable to conclude,
as the Agency had done, that a reasonable self-funding person would not
pay the cost
of taking the case further. In particular, there could be a significant gain from a
successful application for leave
to bring the proceedings, given that that application
would involve some analysis of the prospects of success.             On that
basis, the
Agency's decision not to at least fund the further step of the leave application was
flawed.


[22]   In considering the
possibility of settlement, the Panel held that the reaction of
a defendant to a costs protected litigant was a relevant factor. Moreover,
the Agency
had been wrong to rely on s 9(4)(d)(ii) of the Act.

[23]   The Agency filed four points on appeal. Very much in summary:


       a)         Point 1 argued that the Panel was wrong to find that it was irrational
                  and logically flawed
for the Agency to make an assessment of the
                  economics of the proceeding on any other basis than counsel's
    
             opinion on quantum and 2B costs.


       b)         Point 2 challenged the Panel's finding that the Agency had been
                  incorrect as a matter of law in relying on s 9(4)(d)(ii) of the Act.


       c)         Point 3 challenged the
way the Panel had analysed the prospects of
                  success of Mr Russell's proceedings and, more particularly, the leave
                  application, relative to the costs involved.


       d)         Point 4 challenged the Panel's overall conclusion
that the Agency had
                  erred by not properly assessing the rationality for a self-funded
                  litigant
of at least proceeding as far as the application for leave.


[24]   Once Mr Russell decided not to take any further part in this
appeal, and to
abandon his claim against the Health Board, the Agency decided that it would not
take points 1 and 4 any further.
However, it still wished to pursue its appeal on
points 2 and 3.


[25]   On that basis, I think the issues raised by the Agency's
appeal can be
disposed of in a relatively straightforward manner.


Discussion


Applicability of s 9(4)(d)(ii)


[26]   Section 9(4)(d) provides that the Agency may
refuse to grant, or in effect
continue, legal aid to an appellant where:

       (i) the applicant's prospects of success are not
sufficient to justify the grant
           of legal aid; or

        (ii) the grant of legal aid is not justified, having regard
to the nature of the
             proceedings and the applicant's interest in them (financial or otherwise),
             in relation
to the likely cost of the proceedings; or

        (iii) for any other cause where it appears unreasonable or undesirable that
 
            the applicant should receive legal aid in the particular circumstances of
              the case ...

[27]    In deciding
to withdraw legal aid from Mr Russell, the Agency referred to
both subsections (i) and (ii) of s 9(4)(d).


[28]    In the relevant
part of its decision, the Panel expressed itself thus:

        Section 9(4)(d)(ii) was never engaged by this application; that provision
        governs the assessment in cases where the applicant is at some degree
        removed from the cause of action, or there
is some issue of standing to take
        the case (see Legal Services Agency v Kilpatrick (High Court, Auckland,
        CIV-2003-404-006866,
18 November 2004, Cooper J); Glancy v Legal
        Services Agency  [2003] 17 PRNZ 168 (CA)). It has no application where
        the applicant is the person with a tortious claim for harm personally suffered
      
 (subject possibly to the issues of remoteness).

[29]    I note first that there is not, in my view, any support to be found for
the
Panel's characterisation of the focus of the subsection in either of the two cases it
refers to.


[30]    In Legal Services
Agency v Kilpatrick, s 9(4)(d)(ii) was not in issue as, in the
decision under challenge, the Agency had explicitly not relied on
that subsection. In
Glancy, s 9(4)(d)(ii) had been relied on by the Agency in the context of a small
monetary result for a particular
applicant being likely. The Court of Appeal held
that, under the subsection, the importance of the case for others in the same position
was a relevant factor.


[31]    Neither case can, in my view, be read as supporting the proposition stated by
the Panel.


[32]
   As both Mr Taylor and Mr Oliver submitted, in my judgment the section, on
its terms, was relevant to the Agency's consideration
of Mr Russell's application for
legal aid. In fact, and given Mr Russell's non-economic interest in the proceedings
identified by
the Panel itself, I would have thought that the subsection was of
particular relevance to his claim.        It is, after all, by
reference to those "other

interests" ­ i.e. interests other than a direct interest in the financial outcome of the
proceedings
­ that the Panel based a considerable amount of its reasoning, and in my
view rightly so.


[33]    I therefore find that, as a matter
of law, the Panel was wrong to conclude that
the Agency had been incorrect in relying on s 9(4)(d)(ii) in assessing whether to
continue
the grant of aid to Mr Russell.


The Panel's analysis of the significance of the proposed leave application


[34]    The Agency
challenged the way in which the Panel had analysed, in effect,
the prospects of success associated with the leave application Mr
Russell wished to
make.


[35]    In the relevant part of its decision, the Panel had reasoned:

        [54] The case resolves itself
on the assertion the case should not be taken
             any further. This requires assessing where the case is at present and
             what steps need to be taken next.

        [55] The applicant needs to make an application for leave to commence
  
          proceedings given the Limitation Act 1950. In the reasonably near
             future he must persuade a judge his case
has sufficient merit to
             warrant its continuation. Counsel for the applicant drew this fact to
             the Agency's
attention in his letter of 10 July 2008. The Agency does
             not address the matter in the letter of 12 August 2008, withdrawing
             aid.

        [56] In the event a leave application fails, the case will not go any further.
             The cost of
such an application ought not to be great, given a
             substantial amount of preparation has already been done.

      
 [57] If it is successful, then the litigation exposure of the defendant must be
             assessed; its costs in defending the
proceeding when assessed against
             the costs of settlement (particularly if the likely damages are
             "modest")
militates against defending a suit brought by a costs-
             protected litigant.

        [58] In either event and taking
into account the cumulative effect of the
             errors identified above, the Panel, objectively determines it is
        
    manifestly unreasonable for the Agency to withdraw aid prior to the
             leave application; a reasonable self-funded
litigant would take such a
             step, when the outcome is likely to resolve the case on either
             settlement or
termination of the proceeding at an early stage, thus
             limiting costs exposure.

[36]   As to the Panel's analysis of
the significance of the leave application were it
to be successful, the Agency submitted that the Panel had erred in law by including,
as a factor relevant to its consideration, that a successful
leave application would
increase the chance of a favourable settlement to the plaintiff, particularly where the
likely damages were
modest and the plaintiff was "costs-protected".


[37]   In the circumstances of this appeal, I think it is sufficient for me to
indicate
that the Panel was, in my view, wrong in law to take account of the attitude a
defendant might have towards a legally-aided,
and therefore "costs-protected",
litigant when assessing Mr Russell's prospects of success, in particular as regards the
leave application.
As the Agency submitted, I think that proposition contradicts the
basic approach that the Agency is required to take, namely that
of considering the
position of a reasonable self-funding person to the litigation in question.
Furthermore, and as a matter of policy,
I do not think it can be correct for the
Agency to assess prospects of success by reference to the fact that a legally-aided
plaintiff
may be costs protected. To do so would, in effect, be to place non legally-
aided parties at a significant disadvantage when engaging
in litigation with legally-
aided parties.


[38]   As to the Panel's analysis of the significance of the leave application were
it
to fail, the Agency submitted that the Panel was wrong to conclude that the case
would go no further, but that the costs of such
an application would not be great. It
was the Agency's position that, if the leave application failed, the aided person
would have
achieved nothing so that:

         (i) the legally correct approach under the test the Panel purported to be
             applying
is the prospects of overall success in which the need to apply
             for leave is a hurdle and a cost to be assessed as part
of the prospects
             of success, and

         (ii) the Agency addressed the test in the legally correct way.

[39]   Certainly,
if the application for leave fails the aided person will have
achieved nothing. In that context, I think the correct approach for
the Agency to
adopt is to assess the benefit to a plaintiff of a leave application, noting that a
successful application is likely
to reflect, at least in part, the Court's assessment of

the merits of the plaintiff's claim by reference to the plaintiff's overall
­ legal ­
prospects of success.


[40]   In assessing whether or not to continue a grant of aid to enable an application
for leave
to be brought, the Agency must, as it argued, have regard to the overall
prospect of success of the proceedings the applicant seeks
leave for. At the same
time, in assessing costs and benefits, it will I think be relevant for the Agency to take
some account of
the fact that an application for leave may cost less than the
proceedings taken as a whole and, if successful, will advance the applicant's
cause. I
would have thought that such an approach was essentially consistent with the
"staged" approach that the Agency takes to
the grant of legal aid. At the same time I
note Mr Oliver's submissions as to the possible cost involved in bringing a leave
application
of this nature. That consideration would also be a matter for the Agency
to have regard to.


[41]   I do comment, however, that
it is not clear to me that the Agency paid
sufficient regard to the incremental benefit of a successful leave application, in the
context of the likely lesser cost of that application relative to the cost of taking the
proceeding to trial, when the Agency considered
a continuation of Mr Russell's grant
of aid to enable his leave application to be brought. I think that may be especially
the case
where, as here, it was common ground that, in terms of legal principles, Mr
Russell's proceedings had a reasonable chance of success.
In many ways, I think
that issue was engaged by point 4 of the Agency's original points of appeal. As the
Agency has decided not
to pursue that point of appeal, I do not propose to say
anything further as regards those aspects of the Agency's approach to the
continuation of Mr Russell's
grant of aid.


[42]   As I indicated at the hearing, this appeal has essentially been brought by the
Agency to resolve for its benefit
certain questions of law. I think it is therefore
appropriate for the costs of Mr Oliver, the amicus, to be paid by the Agency itself.




                                                                           "Clifford J"

Solicitors: Bartlett Partners, P O
Box 10-852, Wellington 6143
                  (Counsel: g.taylor@barristerscomm.com
            Crown Law Office, Wellington (john.oliver@crownlaw.govt.nz)



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