MCLELLAN v SPRINGVALE CENTRAL WATER CO LTD [2016] NZHC 1128

MCLELLAN v SPRINGVALE CENTRAL WATER CO LTD [2016] NZHC 1128 [30 May 2016]IN THE HIGH COURT OF NEW ZEALANDDUNEDIN REGISTRYCIV-2013-412-000468[2016] NZHC 1128BETWEEN SHAUN MCLELLANPlaintiffAND SPRINGVALE CENTRAL WATER COLIMITEDDefendantHearing: 26 May 2016Appearances: D J More for PlaintiffJ E Bayley for DefendantJudgment: 30 May 2016JUDGMENT OF ASSOCIATE JUDGE MATTHEWS[1] The defendant (Springvale) applies for an order dismissing this proceeding on the ground that the plaintiff (Mr McLellan) has not complied with orders of this court to pay two sums by way of costs, $4,331 on 14 October 2014, and $6,136.50 on 18 May 2015. Both were adverse costs awards on interlocutory applications. The former was an award of costs on an application by Springvale to strike out thisproceeding as a result of Mr McLellan's failure to pay an earlier costs award. The plaintiff (Mr McLellan) asks that the case be listed for formal proof as Springvale has not filed a statement of defence.Listing for formal proof[2] On 19 May 2014 the Court dismissed an application by Mr McLellan for summary judgment and made timetabling directions which included a direction that a statement of defence was to be filed by 13 June 2014. However, by a minute dated 18 June 2014 the Court suspended the timetable pending resolution of a security for costs application which had then been made. Although that application was decided on 17 July 2014, the Court has not at any point since reinstated timetable directions.Therefore Springvale is not currently in breach of any order to file and serve a statement of defence.[3] Rule 12.13 provides that on dismissal of an application by a plaintiff for summary judgment a statement of defence of a defendant must be filed within 10 working days of the application being dismissed. Rule 12.12 overrides this rule and provides that on dismissal of an application for judgment the Court must give directions on the future conduct of the proceedings, as may be appropriate. The directions made on 19 May 2014 were given under r 12.12 but then suspended. Rule 12.13 therefore applies. Springvale has not complied with the time limit specified. I note that the learned authors of McGechan observe that where an application for summary judgment has been dismissed and a defendant has not filed a statement of defence either at the time of filing a notice of opposition, under r 12.10, or within 30 days of the dismissal of summary judgment, there does not seem to be any reason why judgment by default cannot be entered.1 They note that this practice was endorsed in Alexander Crescent (No 1) Ltd v Taylor.2 Similarly I do not see anyreason why a plaintiff's case cannot be proved by formal proof in this circumstance,if it is not a claim in respect of which judgment may be entered by default. To interpret the rules differently would leave a plaintiff in a position where it could not effectively pursue its claim to judgment when a defendant has not filed a statement of defence after dismissal of a summary judgment application, either pursuant to a timetabled order to do so, or pursuant to r 12.13.[4] The result is that Mr McLellan's case is now eligible to be listed for formalproof. However, Mr Bayley argues that the case cannot proceed to formal proof as his client intends to defend it and has believed, since receipt of the minute of 18 June, that it was not under any time limit to do so.[5] In the minute dated 18 June the Court referred to the defendant wishing to pursue its existing application for security for costs which had been filed in 2013. Timetable directions were made in relation to bringing that application on for hearing, and a fixture date was set. The minute then concluded in paragraph [5]:1 McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [HR12.10.02].2 Alexander Crescent (No 1) Ltd v Taylor (1997) 11 PRNZ 281 (HC).Pending resolution of this application, the balance of the timetable orders made on 19 May 2014 are suspended. I note that the amended statement of claim was filed and served by 23 May as directed. Associate Judge Osborne will make further timetable directions when deciding the application for security for costs.[6] In fact, the Court did not make further timetable directions as indicated, and has not at any point since set a deadline by which a statement of defence is to be filed. On this basis Mr Bayley argues that he and his client have had an expectation that a statement of defence could be filed at any time, subject to being given a new deadline at some point, and have not done so to date out of a wish to avoid incurring unnecessary costs. Although an order for security for costs has been made, and met,he says his client's concern over costs was justified by the fact that the plaintiff has failed to meet two adverse costs awards. As well, from the information Mr McLellan has put before the Court, Springvale is at risk of not recovering a costs award against the plaintiff if it succeeds in its defence, as the security for costs order will not cover the costs it may be awarded.[7] Whilst on the information before the Court it can be understood why Springvale may have come to this view, it could have filed a statement of defence at any time after it was served with the proceeding, whether before or after the plaintiff's application for summary judgment over two and a half years ago. Time limits imposed for the filing of statements of defence either by the High Court Rules or by Court order protect a defendant against a plaintiff taking peremptory action to seek judgment while a defendant is considering its position. They do not amount to directions that a proceeding must be defended. A decision on whether to defend or not is entirely up to a defendant. Whilst I accept the contention made on behalf of Springvale that it was not required to file a statement of defence until such time as the Court imposed a new deadline, having suspended the deadline set in the minute of 19 May, there is no merit in the converse proposition that Springvale could not file a defence as the timetable was suspended. By failing to do so Springvale has taken a risk that Mr McLellan would seek to formally prove his case, and it can scarcely be surprised that exactly that has occurred.[8] On the other hand the minute of 18 June clearly stated that a new timetable would be fixed at a certain point and that has not occurred. I accept Mr Bayley'ssubmission that Springvale drew an inference from this that time was open-ended, in the knowledge that if the plaintiff pursued the case, a time would come when it had to file its defence.[9] It has also been clear throughout the interlocutory phase of this proceedingthat the defendant is actively opposing the plaintiff's claim, and its wish to now file astatement of defence could scarcely come as a surprise to Mr McLellan. Springvale opposed the entry of summary judgment and actively engaged in each interlocutory application which has come before the Court. And as Mr McLellan must know, the order for security for costs was made without a defence having been filed but after assessment of the quantum of a possible adverse costs award against him should he lose at trial.[10] Weighing up all factors, therefore, I have formed the view that Mr Bayley is right in his contention that even if this case were now listed for formal proof, the Court would almost certainly grant Springvale leave to file a statement of defence. As a result I decline to list the case for formal proof.Application by Springvale to strike out[11] Rule 7.48 of the High Court Rules provides that if a party fails to comply with an interlocutory order a Judge may, subject to any express provision of the rules, make any order that the Judge thinks fit. The rule gives examples of orders that may be made, one of which is that the proceeding be stayed. Mr Bayley says that the proceeding should be stayed, and a brief period should be given for payment of the outstanding costs orders. An unless order should be made directing that the proceeding will be struck out if payment is not made by the end of that period.[12] Mr Bayley points to three breaches of Court orders by Mr McLellan. The first was a failure to pay security for costs as ordered, or to pay the costs anddisbursements ordered on Mr McLellan's unsuccessful defence of Springvale'sapplication for security. Only when the Court advised that there would be an unless order if the default continued were the security and the costs paid.[13] The second and third breaches of Court orders are those for payment of costs made on 14 October 2014 and 18 May 2015 to which I have referred.[14] The breaches of the orders of this Court are significant. On all it has been necessary for Springvale to invoke the enforcement procedures of this Court to attain compliance. The second and third breaches are still unsatisfied. Mr More did notattempt to justify his client's actions other than by saying that he has been unable topay the costs because he simply does not have funds to do so. Previous payments of costs and security have been funded by advances from family members which are exhausted.[15] Mr McLellan's impecuniosity has been accepted by legal aid which will now fund this case through to the conclusion of a trial. Mr McLellan's position is that itwould be unjust to dismiss this claim now when funding has been secured in this way, and Mr McLellan has a credit balance in court of over $15,000 which is available to meet the outstanding costs orders, and any adverse award of costs that may be made against Mr McLellan for the period leading up to the date of the granting of legal aid. Mr More notes that s 45(2) of the Legal Services Act 2011 provides that 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. He also accepts, as does Mr Bayley, that costs may be awarded for steps taken in the proceeding prior to a grant of legal aid.3 Mr Bayley calculates that this would be $14,941 plus disbursements, a total of $15,683.[16] Mr Bayley says the outstanding orders should be met by Mr McLellan and that the security held in the Court pursuant to the Court order should be retainedagainst a costs order in Springvale's favour, to which the fund would nearly equate.Mr More says the security for costs held in the Court should be applied first to the outstanding costs orders, rather than those orders being enforced as now sought.[17] I pause to observe that if Mr McLellan's financial position is that he cannotpay any more money to Springvale, there are two self-evident consequences. The3 Drummond v Townsend [2011] NZCA 185, [2011] 2 NZLR 567 at [20]. Barry v Carlisle [2015] NZHC 2980 at [21].first arises if the case continues to trial and fails. A costs award for attendances prior to the grant of legal aid, added to the extant costs orders, would impose on Mr McLellan a liability of around $25,000 to $26,000. After offsetting the security held in court he would be liable for approximately $10,000.[18] The second consequence applies now: unless the sum held by way of security for costs is used to pay the outstanding costs awards, the ground for dismissing the claim for non-compliance is strong, but the consequence would be to prevent Mr McLellan bringing his case to court and having it decided.[19] So far as all the steps in this case prior to the award of legal aid are concerned, the consequence for Springvale of holding the security in court and leaving the extant orders unpaid on one hand, and paying the extant orders from the security on the other hand, are the same. Either way Springvale is exposed to MrMcLellan's personal financial position to the tune of approximately $10,000.[20] For that reason I specifically raised with Mr Bayley whether the correct course might be to permit Springvale to elect to receive payment of the extant costs now from the security, but he specifically disavowed that option.[21] So far as future costs are concerned, now that Mr McLellan is in receipt oflegal aid, Springvale's position in relation to being unable to recover costs in the event of succeeding at trial is the same as the position of any defendant facing a claim from a legally-aided party. Section 45 applies. If Springvale is successful in its defence it can only recover an award of costs for attendances after the grant of legal aid if it can show exceptional circumstances. Because this is the position established by the Legal Services Act I put it to one side as irrelevant to my consideration of the present application.[22] In the judgment issued on 17 July 2014 in relation to security for costs, theJudge undertook a detailed analysis of Mr McLellan's claim.4 I need not repeat orsummarise that analysis, but record the Judge's conclusion:[29] The impression I draw from the material as to obligations, breach anddamages is that Mr McLellan's case has recognisable merit and a reasonableprospect of success.[23] In my view this is relevant to my assessment of the present application. Also relevant, in my view, is the fact that Mr McLellan has paid security for costs into court in a sum sufficient to pay around 60 per cent of his present liability under court orders and the projected figure for an adverse costs award in the event of his failing at trial. Payment of security was certainly late and only made under the pressure ofpotential dismissal of the claim, but it was in fact made. Mr McLellan'simpecuniosity has cost him dearly in adverse costs awards, and his lack of compliance with court orders is not to be condoned, but the assessed strength of his claim and the fact that Springvale has protection for a significant percentage of any future costs award and outstanding orders weighs heavily in favour of Mr McLellan not being denied the opportunity to present his case.[24] Given the analysis I have made of Springvale's apparent inability to recoverboth the extant costs orders and a sum which might be awarded in its favour at trial, it does not matter whether Springvale elects to receive payment of its costs from the security now, or to leave the fund in court to be reconsidered after the trial. Mr Bayley made a clear election not to receive payment now, pinning his case on the prospect that an unless order on this application would result in a further sum being paid by Mr McLellan. In view of the recent scrutiny of his financial position which led to the award of legal aid I think the prospect of an unless order having any such effect is extremely low.[25] Weighing up all factors I am satisfied that the application to dismiss the claim cannot succeed.4 McLellan v Springvale Central Water Co Ltd [2014] NZHC 1677 at [9] - [29].Statement of defence[26] Mr Bayley informed the Court that despite not having filed a statement ofdefence Springvale wishes to defend the case. I have declined Mr More's request tolist the case for formal proof. As a result Springvale does not need leave to file a statement of defence. I direct that if it wishes to do so, it will file and serve that statement within the next 10 working days.Outcome[27] Mr McLellan's request to direct that the case is listed for formal proof isdeclined.[28] Springvale's application to dismiss the claim fails.Costs[29] Mr McLellan has succeeded on Springvale's application to dismiss theproceeding and is entitled to costs.[30] Springvale has succeeded on the issue of whether the case should now be listed for formal proof. However, this was not raised by way of an interlocutory application. It was requested in a memorandum from Mr More to which Mr Bayley filed one memorandum in response. Argument on this issue was integrally tied up with argument on the application for dismissal. I have found that Mr McLellan'scase is eligible to be listed for formal proof, but for reasons given have declined todo so. On this issue both parties have enjoyed a measure of success. Springvale'ssuccess on this issue must be seen in the context of a situation which it largely brought upon itself by failing to file a statement of defence while apparently waiting for a deadline to be imposed. On balance I have decided that costs should lie where they fall on this issue.[31] Springvale will pay to Mr McLellan costs on a 2B basis on its application, together with disbursements fixed by the Registrar.[32] I direct that these costs will be set off against the outstanding costs owing by Mr McLellan. If the sum now awarded to Mr McLellan exceeds the total of the two outstanding costs awards together with interest from the dates of those awards calculated under the Judicature Act, any excess will be paid to Mr McLellan._______________________J G MatthewsAssociate JudgeSolicitors:Scholefield Cockroft Lloyd, Alexandra (Counsel: D J More, Dunedin).Rhodes & Co, Christchurch (Counsel: J E Bayley, Christchurch).