Hollands v Sorensen [2021] NZHC 575 (22 March 2021)

Last Updated: 3 May 2021

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY I TE KŌTI MATUA O AOTEAROA AHURIRI ROHE

CIV-2019-441-025 [2021] NZHC 575

BETWEEN	PETER KEVIN HOLLANDS Plaintiff
AND	MICHAEL IAN SORENSEN SONYA SORENSEN as Trustees of the Trudy Hollands Family Trust First Defendants
AND	TRUDY HOLLANDS Second Defendant

On the papers:
Counsel:	P Ross for the Plaintiff S Robertson QC and A Harris for the First and Second Defendants
Judgment:	22 March 2021

JUDGMENT OF GRICE J

(Costs)

• [1] The plaintiff was unsuccessful in all respects in relation to his claims.¹

• [2] He made claims against trust owned property in which he and his wife, the second defendant had lived, based on constructive trust, proprietary estoppel and knowing receipt.

• [3] The defendants have applied for costs. Mr Hollands has taken no steps to oppose this application.

¹ Hollands v Sorensen [2020] NZHC 103 [“Substantive High Court Judgment”].

HOLLANDS v SORENSEN [2021] NZHC 575 [22 March 2021]

• [4] The costs claimed are calculated on a 2B basis in accordance with schedule 1 of the High Court Rules 2016 for the steps in the proceeding up to the first day of hearing, 1 December 2020. In a separate calculation, also on a 2B basis, the defendants have calculated costs from 1 December 2020, including the hearing. On the morning of the hearing, on 1 December 2020, Mr Ross, acting for Mr Hollands, advised the Court that Mr Hollands had just been granted legal aid for this matter.

• [5] Therefore, the defendants argue that they are entitled to costs in the ordinary course up to 1 December 2020, and they are seeking costs for steps taken after 1 December 2020 including the hearing. This is on the basis that there are exceptional circumstances in terms of the legal aid provisions,² that the Court may take into account to make an order for costs against Mr Hollands.³ It is only in exceptional circumstances that costs in civil proceedings may be awarded against a legally aided person.⁴

• [6] I deal with first the application for costs up to 1 December 2020 (the grant of legal aid) and secondly, the costs sought after that date.

• [7] I apply the general principles in relation to costs up to the date of the grant of legal aid. The defendants are successful and are entitled to costs. The proceedings justify costs on a 2B basis. The defendants seek costs up to the date of the hearing, including preparation for the hearing. They claim disbursements relating to court filing fees and expert witnesses’ invoices.⁵ The claim is appropriate in the circumstances.

² Legal Services Act 2011, s 45(3).

3. Under s 24, a party to civil proceedings “must at once give notice” that they have been granted legal aid to every party to the proceedings and to the Registrar of the relevant Court. This was given orally by counsel for Mr Hollands on the first day of the hearing, but there is no written record of confirmation of Mr Hollands being granted legal aid being received by the Registrar. I do not consider this affects the application for costs, especially on the issue of exceptional circumstances: see below at [12]–[16]. See also JAG v SJM HC Wanganui CIV-2005-483-223,

22 November 2005 at [29], affirmed in Bull v Walker HC Auckland CIV-2009-404-6257, 22 April 2010 at [45]–[46].

⁴ Legal Services Act 2011, s 45(2).

5. The invoices were referred to in submissions but no invoices seemed to be attached to the submissions received.

• [8] Accordingly, I award costs as sought based on a 2B basis as set out in schedule 1 up to and including step 33B, for preparation for the hearing, together with the court filing fee disbursements. However, in relation to the expert disbursements, the cost of their attendances will require apportionment between preparation and appearance at the hearing. There do not appear to be any breakdown of the relevant attendances therefore leave is given for further evidence on the quantum of the expert witnesses costs up to 1 December to be filed for consideration.

Costs claimed post grant of legal aid

• [9] The defendants claim for the costs of the hearing a total of approximately

$10,755: step 34 for appearance at hearing for counsel of $7,170 (on a category 2B basis) and, if allowed by the Court, step 35 for appearance of second counsel of $3,585.

• [10] On the basis that a grant of aid did not occur until the first day of hearing, 1 December 2020,the immunity from costs available under s 45(2) of the Legal Services Act 2011 applies from that date. The immunity does not apply for steps taken by the plaintiff in the proceeding before the grant of aid for the reasons set out by Campbell J in Ngāti Tama Custodian Trustee Ltd v Phillips:⁶

[15] The prima facie immunity under s 45(2) appears to apply from the date that the grant is awarded. The reasoning for this was set out by Wylie J in B v A:

A person only becomes an aided person once a grant is made. There is nothing in s 45 to suggest that once a grant is made, immunity is conferred retrospectively. Rather, when a grant is made in civil proceedings, there is then an obligation to notify every other party and the Registrar of the relevant court. The obligation to notify arises on the grant of legal aid – not the date of application. Various decisions as to the conduct of proceedings will be based on whether the other party is legally aided. As has been observed by Judge Spear in the District Court, a party to civil proceedings might conceivably spend considerable resources pursuing a claim against a person believed not to be legally aided only to find at some later stage that the other party has protection from costs by the operation of s 45(2). I agree with the Judge that if the intention of the legislature in respect of s 45(2) was

6. Ngāti Tama Custodian Trustee Ltd v Phillips [2021] NZHC 5 at [15] (footnotes omitted); citing See Carter v Western Viaduct Marine Ltd (2003) 16 PRNZ 1034 (HC); Haydock v Gilligan Sheppard HC Auckland CIV-2007-404-2929, 11 September 2008; Drummond v Townsend [2011] NZCA 185, [2011] 2 NZLR 567 (all under the 2000 Act). Under the 2011 Act, see B v A [2020] NZHC 765. But compare AA v LA [2017] NZHC 646 at [15]–[17]. See also B v A [2020] NZHC 765.

for the immunity to apply retrospectively, either from the commencement of the proceedings or the time of application for the grant of legal aid, it would have been a simple matter to have so specified. The legislature has not so specified and to construe s 45(2) as having such retrospective effect could well create injustice for a successful party who has conducted his or her proceedings assuming that the other party was not legally aided.

• [11] His Honour in Ngāti Tama described the reasoning set out in B v A as “persuasive”⁷ as was that in Drummond v Townsend.⁸

• [12] Section 45 of the Legal Services Act 2011 provides:

45 Liability of aided person for costs

(1) If an aided person receives legal aid for civil proceedings, that person’s liability under an order for costs made against him or her with respect to the proceedings must not exceed an amount (if any) that is reasonable 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) 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.

(3) In determining whether there are exceptional circumstances under subsection (2), the court may take account of, but is not limited to, the following conduct by the aided person:

(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 1 or more issues on which the aided person fails:

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

(f) any other conduct that abuses the processes of the court.

(4) Any order for costs made against the aided person must specify the amount that the person would have been ordered to pay if this section had not affected that person’s liability.

⁷ Ngāti Tama Custodian Trustee Ltd v Phillips [2021] NZHC 5 at [18].

8. Drummond v Townsend [2011] NZCA 185, [2011] 2 NZLR 567 at [20]. The Court of Appeal awarded the appellant costs for a standard appeal with usual disbursements for the period before legal aid was granted.

(5) If, because of this section, no order for costs is made against the 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.

...

• [13] Therefore, the Court must be satisfied that there are “exceptional circumstances” before an order for costs can be made against Mr Hollands, for the costs claimed after the grant of legal aid.

• [14] The defendants submit that Mr Hollands’ conduct caused them to incur necessary costs in that:⁹

(a) he failed to comply with the procedural rules and orders of the Court;¹⁰ and

(b) he unreasonably pursued one or more issues on which he failed.¹¹

• [15] The defendants say it is reasonable for Mr Hollands to pay the costs sought having regard to all the circumstances, including the means of all the parties and their conduct in connection with the dispute.¹²

• [16] The rationale for the immunity in s 45(2) was explained by McGrath J in Laverty v Para Furnishing Ltd¹³. That is to reduce the risk that a legally aided person, if unsuccessful in the litigation may be required to pay substantial costs despite having limited means. The protection prevents legally aided persons being deterred from exercising their right of access to the courts. For circumstances to qualify as exceptional under s 45(2) and (3), they must be “quite out of the ordinary”.¹⁴

• [17] I now turn to the grounds that the defendants raise in support of exceptional circumstances.

⁹ Legal Services Act 2011, s 45(3)(a).

¹⁰ Section 45(3)(b).

¹¹ Section 45(3)(d).

¹² Section 45(1).

¹³ Laverty v Para Furnishing Ltd [2005] NZCA 436; [2006] 1 NZLR 650 (CA) at [19] and [20].

¹⁴ At [31]; citing Awa v Independent News Auckland Ltd (No 2) [1996] 2 NZLR 184 (HC) at 186.

Unreasonable pursuit of claims

• [18] The defendants point out that the plaintiff’s claim was entirely unsuccessful in relation to every cause of action and factual allegation. They further say that the plaintiff’s evidence was vague, inconsistent and unreliable and that it was not accepted by the Court.¹⁵

• [19] The defendants also say that Mr Hollands did not make any reasonable attempts to obtain documents to support his claims. If he had done so, it would have been apparent that his claim was misconceived, and it was unreasonable to pursue it. The defendants also point out Mr Hollands did not dispute the figures paid to the plaintiff as recorded in an attachment to the judgment, nor did he dispute the sums which the defendants said were provided as benefits by the trust and the Sorensens to Mr Hollands and Trudy Hollands.

• [20] As the defendants point out, I found Mr Hollands’ evidence on the material issues to be unreliable for various reasons. However, I did not find there was any intent to mislead by Mr Hollands. He clearly felt he had an entitlement to a share in the house that he and Trudy shared with their young family for some years. Trudy’s parents’ trust had in effect bought the house for them and put it in a trust for Trudy. I found Mr Hollands could not establish that entitlement under the various heads of claim that were pleaded.

• [21] These claims are by their nature difficult to establish in view of the ownership structure in which the house was held. However, there was not much difference between this claim and many claims brought in relation to issues of constructive trust proprietary estoppel and knowing receipt as in this case. Mr Hollands was subject to cross-examination that was effective in undermining his initial claims. It may well be that further documentation could have been obtained by him, which might have convinced him not to proceed. However, it appears that Mr Hollands had some difficulty in getting legal assistance at various stages of the proceeding and this contributed to his ability to gather evidence.

¹⁵ Substantive High Court Judgment, above n 1, at [100], [108], [109], [111] and [114].

• [22] I do not consider that the way Mr Hollands’ case was pursued was sufficiently unreasonable to count as conduct to amount to conduct that meets the exceptional circumstances requirement under s 45(3). The procedural failures and attendant work required, were in the period when no legal aid grant was in place, are claimable in the usual course on a 2B basis, as decided above.¹⁶

Defendants forced to incur unnecessary costs

• [23] The defendants say that because Mr Hollands did not produce the relevant documentation they were required to source contemporaneous and often historical documents and so were put to extra trouble. Most of the documentation was more readily accessible by the defendants. The defendants also say that they provided the relevant documents to the plaintiff for inspection on 22 May 2020 with supplementary documents on 31 August 2020. They say at this point it should have been obvious to the plaintiff that his claim was hopeless, nevertheless he persisted with his claim.

• [24] In addition, the defendants say the pleadings did not define the issues with precision. The claim based on the Property (Relationships) Act 1976 was abandoned but not until the first day of hearing after the defendants had prepared their defence on all issues. In addition, they point to the fact the plaintiff had abandoned his own case as pleaded and sought to reformulate his claim without the defendants having a proper opportunity to respond to the newly formulated claim.¹⁷ The preparation time prior to the first day of the trial is included in the 2B claim, which I have allowed.

• [25] I accept that Mr Hollands’ claim was looking weak by the end of the first day of evidence. Mr Ross, for Mr Hollands, attempted to reformulate it. I rejected the reformulated claim, which involved attempting to trace money into a property in which Trudy and Peter lived, but which the Trudy Hollands Trust had acquired. I also indicated that the defendants had not had an opportunity to respond to the newly formulated claim in any event.

¹⁶ See above at [7].

¹⁷ Substantive High Court Judgment, above n 1, at [74].

• [26] As I indicated earlier, the plaintiff was unsuccessful in all respects in relation to his claim. However, the fact that a claim has been unsuccessful and was exposed to be unsustainable following the testing of evidence does not, in itself, reach the threshold required in s 45(3). It is common for a claim to be reformulated to meet the deficiencies of evidence exposed during the hearing.

• [27] In addition, while Mr Hollands was unsuccessful and his evidence was not credible as I found, I do not believe that he engaged in misleading conduct in the sense that he intended to mislead. His evidence was inconsistent, but I do not consider this establishes “misleading or deceitful conduct” of the nature referred to in s 45(3)(c).

• [28] I do not consider that exceptional circumstances are established based on the conduct of the proceedings.

The plaintiff failed to comply with the orders of the Court

• [29] The defendants provided a chronology detailing the plaintiff’s non-compliance and lack of responsiveness to communications. This included “unless orders” made by the Court.

• [30] The plaintiff did not prepare a common bundle of documents, pursuant to the Court directions and consequently the defendants had to prepare their own separate bundle of documents.

• [31] The defendants claim that the degree of non-compliance with procedural orders, the poor communication from plaintiff’s counsel in combination with the poorly formulated claim was prejudicial to the defendant. They say the defendants, not the plaintiff, had to take the lead in the plaintiff’s case.

• [32] I am of the view that the failure to comply with procedural rules and orders of the Court in general terms are a proper factor to be taken into account here in relation to exceptional circumstances. However, it appears that Mr Hollands has had some difficulty gaining legal aid and the assistance of counsel. That does not excuse the failure to comply with procedural rules but in the circumstances I do not consider that

those failures fall into the realm of “exceptional circumstances” as used under s 45 of the Legal Services Act.

• [33] As McGrath J noted, the restriction on the amount of cost orders that the Court may make against a legally aided person is intended to reduce, although not remove the risks such a person otherwise faces that if unsuccessful he may be required to pay substantial costs despite having limited means.

• [34] Such circumstances therefore need to be truly exceptional. I do not consider that exceptional circumstances have been established in this case.

Financial circumstances

• [35] The defendants advised the Court that the plaintiff’s financial circumstances were that he is in employment as a pest controller, that he received a vehicle, trailer and chattels as well as $64.18 from the defendant to achieve an equality of division of property. Ms Hollands took responsibility for all the joint debts apart from Peter and Trudy Hollands’ joint liability for a debt to pay forward of $466.50.

• [36] Mr Hollands has chosen not to put his financial circumstances before the Court. In that situation, as he is apparently in employment, I would have concluded that his means would enable him to make a payment of reasonable costs in this matter.

• [37] For the purposes of reasonable costs in this matter,¹⁸ I consider the calculation by the defendants in relation to steps 34 (appearance at hearing) and step 35 (second and subsequent counsel where certified) is justified. In view of the complexity of the causes of action and the volume of evidence it was appropriate that junior counsel was involved. I therefore certify for second counsel.

• [38] That costs sought total $10,755. I consider that amount would have been reasonable for the aided person to pay having regard to all circumstances including the means of all the parties and their conduct in connection with the dispute. However,

18. This specifies what order for costs would have been made against Mr Hollands if s 45 of the Legal Services Act 2011 had not affected his liability: Legal Services Act 2011, s 45(5).

I am not satisfied there are exceptional circumstances and make no order for costs against Mr Hollands.

• [39] Accordingly costs up to 1 December 2020 are ordered in terms of schedule 1 of the costs and disbursements together with the portion of expert fees as were incurred up to 1 December 2020. I make no order for costs from 1 December 2020 for the hearing.

Grice J

Solicitors:

Cathedral Lawn Law, Napier, for the Plaintiff

Gifford Devine Lawyers, Hastings, for the First and Second Defendants