LEGAL SERVICES AGENCY V RUSSELL HC AK CIV-2009-404-3107

LEGAL SERVICES AGENCY V RUSSELL HC AK CIV-2009-404-3107 10 September 2009IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV-2009-404-3107UNDER 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 2009JUDGMENT 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.[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 forproceedings 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 causationdifficulties. 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.DiscussionApplicability 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. InGlancy, 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 "otherinterests" – 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 ofthe 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)