In Van Essen v Attorney-General [2016] NZSC 23, a short three-paragraph judgment, the Supreme Court has:

• preferred one of two conflicting approaches to the issue of when a court has jurisdiction to consider making a discretionary 'but for legal aid' order under s 45(5) of the Legal Services Act 2011 (2011 Act); and
• exercised the discretion and made a s 45(5) order.

It is submitted that the judgment is more noteworthy than its length might suggest.

The legislation

Section 45 deals with an aided person's liability for costs in civil proceedings. Section 45(5) provides:

"(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."

The reasons why a costs order might not be made against an aided person are provided in s 45(1)–(2):

"(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."

Section 45(3) then provides a list of possible conduct by an aided person that "the court may take account of, but is not limited to," in determining whether there are exceptional circumstances:

"(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."

(Section 45(4) goes on to provide for a mandatory 'but for legal aid' component to any costs order that is in fact made against an aided person. These mandatory specifications are distinct in some respects from discretionary specifications under s 45(5) and are not examined here.)

The conflicting approaches to s 45(5) jurisdiction

Approach 1

The first approach is that s 45(5) comes into play when no costs order is made for either one of two reasons:

• there are no exceptional circumstances (in terms of s 45(2)–(3)); or
• there are exceptional circumstances (in terms of s 45(2)–(3)), but payment of any amount of costs is not reasonable in all the circumstances (in terms of s 45(1)).

A key point here is that Approach 1 does not always require exceptional circumstances to be present before for a s 45(5) order can be made. Indeed, in many cases the absence of exceptional circumstances will trigger the s 45(5) jurisdiction.

Approach 1 has long been the predominant approach to s 45(5) and its predecessors. Notable examples under the Legal Services Act 2000 (2000 Act) include:

• Knight v Crown Health Financing Agency HC Wellington CIV-2005-485-2678, 13 February 2008 (no exceptional circumstances; 'but for legal aid' specification of $88,160.78).
• J v Crown Health Financing Agency HC Wellington CIV-2000-485-876, 2 April 2008 (no exceptional circumstances; 'but for legal aid' specification of $122,006.19).
• EGW v Attorney-General HC Wellington CIV-1999-485-85, 25 September 2008 (no exceptional circumstances; 'but for legal aid' specification of $811,631.82).
• McGarvey v Temo [2009] NZCA 29 (no exceptional circumstances; 'but for legal aid' specification of $9,600 plus disbursements).
• A (CA182/06) v Roman Catholic Archdiocese of Wellington [2009] NZCA 57 (no exceptional circumstances; two 'but for legal aid' specifications of $12,000 plus disbursements in respect of multiple respondents).
• P v Attorney-General (2010) 20 PRNZ 78 (HC) (no exceptional circumstances; 'but for legal aid' specification of 2B costs (suggested by defendant to be $140,843.12)).

Examples under the 2011 Act include:

• Lawrence Riverside Ltd v Colliers International New Zealand Ltd HC Auckland CIV-2011-404-1486, 12 October 2011 at [9]–[18] (no exceptional circumstances; 'but for legal aid' specification of $5,877.33).
• BWC v LLH [2012] NZFC 7138, [2013] NZFLR 51 (exceptional circumstances but payment of costs not reasonable; 'but for legal aid' specification of $7,500).
• AB v Attorney-General [2012] NZHC 3626 (no exceptional circumstances; 'but for legal aid' specification of $108,337.89).
• Murphy v Murphy (No 3) [2013] NZHC 2145 (no exceptional circumstances; 'but for legal aid' specification of $37,810).
• Rippey v Hunt [2014] NZHC 2900 (no exceptional circumstances; 'but for legal aid' specification of $10,884.90).
• Goodwin v Rocket Surgery Ltd [2015] NZHC 749 (exceptional circumstances but payment of costs not reasonable; 'but for legal aid' specification of $11,362.26).

Approach 2

The second approach is that s 45(5) only comes into play when no costs order is made because of the second reason above, namely:

• there are exceptional circumstances (in terms of s 45(2)–(3)), but payment of any amount of costs is not reasonable in all the circumstances (in terms of s 45(1)).

On this approach, exceptional circumstances are a prerequisite for a s 45(5) order.

Thus in S v I (2009) 28 FRNZ 13 (HC) at [57(d)] the High Court held in relation to s 45(2) and (5)'s predecessors (s 40(2) and (5) of the 2000 Act):

"If no order for costs is made against the aided person because his or her ability to pay does not permit, the Court may make an order specifying what costs would have been ordered if s 40 had not affected the aided person’s liability for costs: s 40(5). Reading s 40(2) and (5) together means that 'exceptional circumstances' must still exist for s 40(5) to bite." (emphasis added)

Accordingly, upon the Court finding in S v I that there were no exceptional circumstances, this meant "there was no jurisdiction to make an order under s 40(5)" (at [74]).

While perhaps not full-blown examples, at least a hint of Approach 2 also appears in:

• Singh v K & MK Singh Farms HC Hamilton CIV-2007-419-911, 2 July 2008 at [11] and [71].
• JPS v KNB (B No 1) FC Palmerston North FAM-2006-054-888, 18 December 2008 at [29].
• BDH v PSD FC Hamilton FAM-2002-019-1137, 15 July 2009 at [14].
• JFS v IJI FC Waitakere FAM-2009-090-731, 1 December 2010 at [14].

Conflict previously noted

Several Family Court decisions have questioned Approach 2 in S v I and favoured Approach 1:

• ND v GGH FC Queenstown FAM-2007-002-138, 4 December 2009.
• JMP v HMC FC Hamilton FAM-2007-019-1657, 29 August 2011.
• KMS v TAR FC Tauranga FAM-2011-070-18, 29 November 2011.
• LAS v JDS [2012] NZFC 3556.
• Abbot v Young [2015] NZFC 3418.

Legal commentaries have done the same:

• McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [HRPt14.11(2)], point (e).
• Brookers Legal Services (online looseleaf ed, Thomson Reuters) at [LA45.10(2)].

The Supreme Court's view

Section 45(5) jurisdiction

In Van Essen the applicants had unsuccessfully sought leave to appeal to the Supreme Court, and the focus was now on costs. The Court observed at [1] that the applicants:

"… were legally aided and thus have qualified protection against costs under s 45 of the Legal Services Act 2011. It is not suggested that an order against them would be appropriate under s 45(2) but the respondents seek a certificate under s 45(5) …"

That is, a s 45(5) order was being sought in the absence of exceptional circumstances. The Court then briefly addressed the conflicting approaches to s 45(5) as follows:

"[2] The applicants by their counsel initially suggested that a certificate under s 45(5) cannot be given unless the s 45(3) criteria for an award of costs have been satisfied.² That, however, is not the scheme of the section, as counsel in effect acknowledged in a supplementary submission."

Footnote 2 reads:

"There is authority for this view, see S v I HC Hamilton CIV-2009-419-139, 21 August 2009. There is also authority going the other way, which we prefer, see X v Y [2000] 2 NZLR 748 (HC); and ND v GGH FC Queenstown FAM-2007-002-138, 4 December 2009 at [10]–[14]."

S v I is the judgment discussed above that applies Approach 2, and ND v GGH is one of the Family Court judgments that has questioned S v I and Approach 2. (X v Y is strictly speaking concerned with what is now s 45(4), but it does differentiate between exceptional circumstances and 'but for legal aid' specifications under either s 45(4) or s 45(5), and it was relied on in ND v GGH.) So in effect the Supreme Court here – albeit briefly – preferred Approach 1 over Approach 2.

Section 45(5) discretion

As to what would be an adequate basis for going on to exercise the discretion in s 45(5) and make a 'but for legal aid' specification, this was put in issue in Van Essen when counsel for the applicants argued that no such basis had been advanced. The Supreme Court held:

"[3] If it were not for s 45(2), an order for costs in the sum of $2,500 would have been made against the applicants.³ That this is so provides a logical basis for the making of the order which is sought by the respondents and we see no reason why such an order should not be made."

Footnote 3 reads: "And indeed such an order was initially made, the Court not being aware at [that] time of the legal aid position." (This is a reference to Van Essen v Attorney-General [2015] NZSC 101, the substantive decision on leave to appeal, in which "[t]he applicants are to pay costs of $2,500". That judgment appears to have been replaced later by Van Essen v Attorney-General [2015] NZSC 166, which is identical to [2015] NZSC 101 except that "[t]here is no order as to costs". The [2016] NZSC 23 judgment is thus a further look at costs in the full light of the legal aid position.)

So in [2016] NZSC 23 the Supreme Court exercised the discretion in s 45(5) on the basis that:

• it would otherwise have ordered costs against the legally aided parties; and
• it could see no reason why a s 45(5) order should not be made.

Again, the treatment here is brief. For an earlier and slightly broader discussion on the discretionary aspect of s 45(5), see AB v Attorney-General [2012] NZHC 3626 at [14]–[19].

Section 45(5) order

In Van Essen the Supreme Court ultimately made the following s 45(5) order (see under "Judgment of the Court" in [2016] NZSC 23):

"We certify that, were it not for s 45(2) of the Legal Services Act 2011, the applicants would have been ordered to pay the second and third respondents jointly costs of $2,500."

The significance

Section 45(5) orders are important because a recipient – an aided person's opponent who has missed out on an actual award of costs in their favour – can apply to the Legal Services Commissioner under s 46 for possible payment of some or all of the amount specified in the order. This led the Court of Appeal to observe in Laverty v Para Franchising Ltd [2006] 1 NZLR 650 (CA) at [22] (in relation to the predecessors of ss 45 and 46 in the 2000 Act):

"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."

Had Approach 2 been preferred by the Supreme Court in Van Essen, this would have limited the availability of ss 45(5) and 46 to far fewer cases – namely, only those involving exceptional circumstances but no order for costs – and curtailed these "twin purposes". Accordingly, it is submitted that Van Essen's brevity in confirming Approach 1 to the s 45(5) jurisdiction – and in providing guidance on the s 45(5) discretion – belies its significance for the legal aid system generally.

More information

Keep up to date on issues similar to this by subscribing to Brookers Legal Services the only comprehensive updated guide to civil and criminal legal aid in New Zealand.

If you would like more information about the service than is available on our website please call our Customer Care Team (0800 10 60 60) or contact your account manager.