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You are a plaintiff and you want to bring a claim but there is a cost for you to do so – will you get these costs back?  You are a defendant served with a claim and it will cost you to defend it – if you successfully defend the claim will you get these costs back?

A win in a legal claim can be a double edged sword for the client when the concept of “costs” comes into the equation. The award of costs is ultimately at the discretion of the Judge but generally costs will be awarded to the successful party.

Clearly then costs are an important part of a legal claim and while the successful party may have an expectation that costs will be awarded in its favour unfortunately it is rare that the party will receive a full reimbursement of the expenses incurred.  In this article we briefly outline when costs will be awarded, the type of costs and when no costs might be awarded even if a party is successful.

When are costs awarded?

Costs are generally awarded after a hearing has concluded and judgment has been given. It involves the losing party paying the successful party a certain amount of money to cover the legal finances of the hearing.

Costs can also be awarded during the course of the litigation process.  For example, if an argument arises between the parties over an issue such as the disclosure of documents (discovery) and that argument requires a judge to determine that issue then costs can be awarded in favour of the successful party.

The types of costs awarded

There are two types of costs that can be awarded by the Court – these are contributions towards the legal fees and disbursements incurred.

The amount of money you get to cover legal fees is determined by a “fixed scale”, rather than actual costs. The scale is intended to lead to recovery of approximately a half to two–thirds of the reasonable legal costs incurred. The award to cover legal fees cannot exceed the actual costs incurred.

The scale is based on a daily rate which differs based on the complexity of the case and/or the complexity or work involved in each part of the litigation process.

Disbursements include Court fees (filing and scheduling fees), and expert witnesses’ fees. These are based on actual costs rather than a scale but must be reasonable in the circumstances. You will generally get all of the disbursement costs back, provided that the expense is reasonable, necessary for the conduct of the proceeding and proportionate. However, where very substantial expert costs are involved the Court will require to be satisfied that the costs were properly incurred and reasonable having regard to the charging practices of the relevant profession.

Can scale costs be increased?

The answer is “yes” and involves applications for “increased costs” or “indemnity costs.”

Increased costs
There are also two arguments available to seek an increase in the “fixed scale” legal costs.

The first involves an increase in costs dealing with a particular step in the proceeding where the time taken for that particular step substantially exceeded the maximum time allowed under scale, but was required to be performed to comply with the party’s obligations under the rules.

A second ground is that the other party has contributed unnecessarily to the costs of the proceeding by acting unreasonably in its conduct, e.g by failing to follow the rules or court directions or by pursuing arguments that were without merit. The potential increase of costs from a ruling on this ground can go up to 50% above scale.

Indemnity costs
Indemnity costs are a further way that you can seek an increase on the “fixed scale” rule. These costs are a complete reimbursement of all legal costs incurred. In general civil proceedings, indemnity costs are reserved for cases where a party has acted frivolously or improperly in the conduct of the proceedings. This is a very high threshold and will only be satisfied in truly exceptional cases. Sometimes the contract between the litigating parties over which they are arguing, will itself provide for indemnity costs but ultimately in all cases, the award of costs and how much is always at the discretion of the Court.

Calderbank offers

Prior to going to trial, a tactic called a “Calderbank” offer can be used.

An offer is made to a party to pay or accept something less than the full claim. For example, the plaintiff may be suing the defendant for $100,000, but the defendant wants to settle without going to trial, so offers the plaintiff $70,000 to settle. If the plaintiff refuses this settlement offer and the case continues to a hearing the “Calderbank offer” may be taken into account when the Court decides on the costs.

If the plaintiff has been “successful” but only awarded a sum less than the $70,000 offered, the Judge can reduce the costs payable by the defendant.  In a truly worst case scenario, those costs may not only be reduced but costs will have to be paid by the plaintiff on the theory that the plaintiff should have accepted the offer.

Again using the above example, if the plaintiff was to make a “Calderbank offer” and offer to accept $70,000 as a reduced sum but received a judgment for a higher sum, then the plaintiff could seek increased or indemnity costs against the defendant.

Generally, costs awarded based on a successful “Calderbank offer” are awarded from the date the offer was refused.  Strategically then it is important to work out if and when you would want to make such an offer.

Security for costs

If you are a defendant and you believe that you could win the case, but also are worried that the plaintiff does not have enough money to pay your costs, you can apply for security for costs. If the application is granted the plaintiff has to pay a sum set by the Court into Court to be held for the defendant’s costs should it ultimately be the successful party.

There are two grounds on which the Court may grant security for costs. The first is that the plaintiff is resident outside of New Zealand. The second is that there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if the plaintiff is unsuccessful in the plaintiff’s proceeding. Once one of these boundaries have been crossed, it is in the Court’s hands whether to award security and how much is awarded. Security for costs can be a useful tool in cases where there are genuine doubts about the plaintiff’s financial means – although an award will generally not provide a party with full security.

Conclusion

Court awarded costs retrieve some of the burden of bringing or defending legal proceedings if you are the successful party. Only in rare cases however do they meet the full cost of legal proceedings.

Please contact David Clark if you have any queries about the contents of this article.