Liability for Wasted Costs when Withdrawing as Counsel

The High Court in Bligh v Earthquake Commission [2018] NZHC 2392 has quashed orders that a solicitor pays costs incurred after the solicitor withdrew as counsel

The High Court has inherent powers to order a solicitor pay a party’s costs where the solicitor has seriously breached duties to the Court.

Where a solicitor seeks leave to withdraw as counsel, it is not a serious breach where that solicitor has reasonably taken steps to avoid an adjournment or other adverse effects for that party in the event leave is not granted.

If there are consequences after the solicitor’s withdrawal, they must be caused by the withdrawal.

There have lately been a number of decisions arising from Mr Bligh’s proceedings against EQC and IAG. The latest, in Bligh v Earthquake Commission [2018] NZHC 392 concerns whether his original solicitor, Grant Shand, should be liable for costs incurred after it withdrew. 

Mr Bligh’s property allegedly suffered damage during the Canterbury Earthquake Sequence. He obtained funding from a litigation funder to pursue claims against EQC and IAG in the Christchurch High Court. 

Just prior to the trial commencing, Mr Bligh’s litigation funder cancelled its funding agreement and Grant Shand ceased to represent Mr Bligh. After Grant Shand was given leave to withdraw, judgment was entered against Mr Bligh as he failed to attend the hearing.¹ 

Mr Bligh then sought to set aside that judgment. He was successful,² although his claims were later dismissed against EQC and IAG.³ 

In the course of the proceeding, AJ Osborne ordered Grant Shand to pay 40% of Mr Bligh’s reasonable solicitor/client costs and disbursements incurred in instructing new solicitors for applying and setting aside that default judgment.⁴ 

Grant Shand reviewed this order.

No one took issue with the legal basis on which a Court might make a costs order against a party’s solicitor.⁵ That is, the Court has inherent jurisdiction to do so, both as a compensatory and punitive jurisdiction, where the solicitor has breached duties owed to the Court.⁶ That breach must be serious, and cannot be a simple mistake, oversight, or error judgment.⁷

The concern for Grant Shand was with the circumstances of its withdrawal as solicitors. The withdrawal arose after Grant Shand identified weaknesses with Mr Bligh’s case and made recommendations to settle for a substantially reduced sum. Mr Bligh and his litigation funder differed on Mr Bligh’s prospects of success, and consequently whether to settle. The litigation funder implored Mr Bligh to accept a reduced sum. Mr Bligh refused. Ultimately, on the morning of the trial, the litigation funder withdrew funding and Grant Shand applied for leave to withdraw as Mr Bligh’s solicitors.

Nation J found that this withdrawal, approved by the trial Judge, was not such a dereliction of duties to the Court that it justified Grant Shand being liable for costs Mr Bligh incurred in setting aside the default judgement.⁸

• Although there had been potential for Grant Shand to withdraw earlier, Grant Shand had done what was reasonably expected of counsel to avoid either an adjournment or the entering of a default judgement by continuing to prepare for trial and being ready to proceed if necessary.
• Grant Shand genuinely believed it would be in Mr Bligh’s interests to settle, despite the firmness of his views, and continued to make efforts to obtain an increased offer from EQC and IAG despite the prospects of needing to withdraw at the commencement of trial.
• Withdrawal as counsel cannot be seen as breaching duties owed to the Court when the Court gave leave to withdraw.⁹

Importantly, His Honour found that while the withdrawal led to judgment against Mr Bligh, it was not the reason for that judgment or the reason why an adjournment was refused:¹⁰

• Grant Shand had advised Mr Bligh that he had to attend the Court for the hearing. It was, however, ready to proceed if necessary.
• Had the application for withdrawal not been granted, the trial would have proceeded.
• Judgment was not entered upon withdrawal. Rather the trial Judge adjourned the hearing.
• Judgment was entered because Mr Bligh had not appeared (when he had been told to do so).

There were other findings as to whether the retainer between Mr Bligh and Grant Shand remained on foot at the time of that application (it was not).11 However, that was immaterial to Nation J’s decision.¹² The costs order against Grant Shand was, therefore, quashed.

Nation J also noted that the litigation funder remained liable for a 40% share of Mr Bligh’s costs, and also (but without determining the issue) might have liability for all costs because of the “no win, no pay” funding agreement.¹³ 

Solicitors seeking leave to withdraw as counsel where there are issues with funding have always been a tricky issue.14 

The Court has, however, made clear that a solicitor should only be liable for a party’s costs where their withdrawal involved a serious dereliction of duties that has unnecessarily caused those costs to be incurred. 

A solicitor who may need to apply for leave to withdraw for any reason and wants to minimise the risk of adverse costs award should, at the very least: 

• Outline to the party why they are withdrawing; 
• Explain to that party what that party needs to do next; and 
• Do what is reasonably necessary to continue representing that party in the event the application is not granted. 

1. Bligh v Earthquake Commission [2016] NZHC 2619 (Withdrawal) 
2. Bligh v Earthquake Commission [2017] NZHC 995 (Setting Aside) 
3. Bligh v Earthquake Commission [2018] NZHC 2102 (Substantive) 
4. Bligh v Earthquake Commission [2017] NZHC 3179 (Costs)  
5. [14] 
6. [14] citing Bligh (Costs) at [53] to [56] 
7. [15] 
8. [108], [110] and [126  
9. Nation J was noted another Judge may have refused leave to withdraw – [125] 
10. [126] – [131] 
11. [102] 
12. [103]  
13. [133]
14. See Burgess v Monk [2017] NZHC 2618