New Zealand Law Society - Court costs: end of the lawyer-litigant exception

Court costs: end of the lawyer-litigant exception

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In Joint Action Funding Ltd v Eichelbaum [2017] NZCA 249 the Court of Appeal has concluded that the rule that litigants in person are not entitled to recover costs except in exceptional cases should now extend to lawyer-litigants. The previous exception, that lawyer-litigants can recover their costs of a proceeding, should no longer be applied.

The court reached that conclusion, essentially, because it is not satisfied that the exception is compatible with the costs regime that has formed part of the High Court Rules since 2000. It says so for two main reasons:

  1. Recoverable costs are only those “actually incurred” and costs actually incurred are only those encompassed within “invoices rendered for legal services provided by a legal practitioner to a litigant” (at [41]); and
  2. The costs regime does not accommodate the qualification to the exception that the lawyer-litigant cannot, in any case, recover costs in respect of “consulting, instructing, or attending upon him or herself” (at [57]).

The Court recorded that the submissions it received did not focus upon this question of compatibility with the High Court Rules and as a consequence it was bound to undertake its own research into the matter (at [20]). That may have disadvantaged the court somewhat and I submit, with considerable bias and with all due respect, that the exception does, to the contrary, sit harmoniously with the High Court costs regime and that if that regime meant to eradicate the exception, it would have said so.

Actual costs

It is important to understand why it is that a lawyer-litigant has been able to recover costs of this ilk whereas other, lay, litigants in person have not. Various policy reasons have been espoused throughout the cases (traversed by the Court of Appeal), but the starting point always seems to have been it is because the value of the application of the lawyer’s professional skill, even when acting for herself, can be quantified – see London Scottish Benefit Society v Chorley (1884) 13 QBD 872 (CA). Conversely the “private expenditure of labour and trouble by a layman cannot … it depends on the zeal, the assiduity or the nervousness of the individual” (Chorley at 877 per Bowen CJ).

That the reasonable value of the legal professional skill and labour required by the main stages of a civil proceeding can be so quantified is at the heart of the High Court costs regime. Clause 14.2(d) records that one of the principles applying to the determination of costs is that the appropriate daily recovery rate “should normally be two-thirds of the daily rate considered reasonable in relation to the proceeding or interlocutory application”.

What the appropriate daily recovery rate is in any given case depends on the categorisation of the proceeding under clause 14.3. This ranges from category 1 proceedings – being those of a straightforward nature able to be conducted by counsel considered junior in the High Court – through to category 3 proceedings – being those that, because of their complexity or significance, require counsel to have special skill and experience – irrespective of counsel actually retained (r 14.2(e)). The appropriate daily recovery rate for each category of proceeding is as set by schedule 2 of the rules. Then, by applying the appropriate band to each of the steps in schedule 3 of the rules, it is possible to, at least notionally, determine how much time the hypothetical lawyer applying the reasonably required care and skill can be reasonably expected to spend in attendance upon each step (see r 14.5 and schedule 3).

That notwithstanding, in Joint Action Funding the Court was concerned by r 14.2 and in particular sub-rules (e) and (f). The relevant part of r 14.2(e) states:

“[What] is an appropriate daily recovery rate and what is a reasonable time should not depend on the skill or experience of the solicitor or counsel involved or the time actually spent … or on the costs actually incurred …” (emphasis added)

Rule14.2(f) states:

“[A]n award of costs should not exceed the costs incurred by the party claiming costs”

The Court of Appeal has interpreted r 14.2(e) as emphasising the concern with “costs actually incurred” (that the Court believes can only be reflected in an invoice). I submit, to the contrary, that the rule is entirely unconcerned with such matters and its object is to ensure, as the cases since 2000 show us, that the question of costs is approached in accordance with the scale and not by reference to actual time spent or costs incurred or on the actual qualities of the lawyer actually engaged (subject to certain exceptions, such as applications for indemnity costs). Indeed, r 14.2(e) tells us that the scale is to apply irrespective of what costs have actually been incurred.

Contrary to the Court’s conclusion, I respectfully submit that the use of the word “actually” in r 14.2(e) is not to emphasise the importance of “the actuality”, but to marginalise it.

Rule 14.2(f) is, in fairness to the Court, the sub-rule that was predominantly relied upon and the Court could not reconcile the exception in issue with the proscription upon an award of costs that exceeds those “incurred”. The Court, for obvious reasons, took the view that the reference in r 14.2(f) must be a reference to costs “actually incurred”.

Undoubtedly that is so but my premise is that it simply does not follow from the rules that costs incurred, or even those actually incurred, must be those found in a bill of costs rendered by a lawyer to her client. In my submission that is an artificial reading down of the rules. Not only is it inconsistent with the regime’s disdain for costs actually incurred, it goes some way to minimising the value of the professional skill and judgement we are expected to bring to proceedings as well as the obligations we owe the court irrespective of the party for whom we may be acting.

In many ways, the Court appears to have treated our “costs” when representing ourselves – or our firms – as simply an “opportunity cost” which is not one “actually incurred”. For my part, I do not think it necessary to be too concerned about whether we are concerned with an indirect opportunity cost for there is a more direct means of addressing the issue.

The High Court of Australia decision in Cachia v Hanes (1994) 179 CLR 403 that is particularly critical of the exception (but did not and could not over-rule it for it was not in issue before it) appears to have been mindful of the fact that other litigants cannot recover any reimbursement for time lost in the preparation or presentation of their case. That being so, the High Court opined (at 414) there was insufficient justification for the exception in favour of lawyers. However, the response to that lies in the traditional justification for the exception: the value – be it lost opportunity or otherwise – can be quantified in the case of lawyer-litigants in the sense that the very thing they have lost the opportunity of performing for fee paying clients is the very thing (the application of professional skill) that is being applied in the course of the litigation. On the assumption the lawyer cannot be doing two things, or be in two places, at once then there is a loss and it is quantifiable.

That is not so with other litigants because the same, quite simply, does not apply. That is the very reason for the exception and whether or not it is “unfair” seems neither here nor there. If “unfairness” were of any relevance (and I say it is not), mention might be made of the fact that the lawyer-litigant’s usual reason for conducting such litigation in his or her own interest is to recover unpaid remuneration for the application of said professional skill and trouble previously exerted on behalf of the party from whom costs now come to be claimed.

More importantly, that the exception cannot for practical reasons extend to lay litigants is not, of itself, a reason for abolishing it.

For those reasons I submit that it is not only the case that the lawyer-litigant’s costs are costs that are “actually” incurred, if that is what the rules require the costs so incurred can never exceed an award of costs and offend against r 14.2(f). That is because the costs regime, itself, quantifies what the costs actually are and allows only for them in accordance with their own provisions.

“Attendances upon self”

The Court noted that it appears to be the case that the qualification to the exception set out in London Scottish Benefit Society v Chorley (1884) 13 QBD 872, that lawyer-litigants cannot claim costs for “consulting, instructing or attending upon him or herself”, has been, largely, overlooked in practice. The Court went on to find that the qualification could not be conveniently accommodated within the time allocations found in schedule 3 of the High Court Rules. It noted that in the High Court, in the case before it, the qualification had been recognised by recourse to r 14.7 (that provides grounds for refusal of, or reduction in, costs). It considered that approach arbitrary.

If utilisation of r 14.7 is arbitrary, a more straightforward means of allowing for the qualification (if allowance is required) is to be found in rr 14.3 and 14.5. In every proceeding the court must determine a category for costs purposes under r 14.4 and that categorisation depends upon the court’s assessment of the complexity or significance of the case. That categorisation applies to the entire proceeding. However, clearly it is only certain of the steps provided for in schedule 3 of the rules that will bring the “qualification” referred to into play. For example, article 1 of the third schedule is the commencement of the proceeding by the plaintiff. For a “band 3” proceeding three days are allowed for costs purposes. Naturally much of the work that goes into the commencement of the proceeding will be researching the law and drafting the necessary originating documentation in accordance with the rules of court. A part of the time spent will, conversely, normally involve interviewing and consulting with the client in order to obtain instructions, identify the relevant facts and so forth.

The time allocation for a band A proceeding is 1.6 days.

It is submitted that the bands in schedule 3 and the identification of the steps within a proceeding give the court sufficient scope to recognise that there are certain steps within schedule 3 that may be taken to have time allocations premised upon certain attendances that a lawyer-litigant should not, according to Chorley, recover. There will, therefore, be cases that the court may decide to allocate a band to certain steps depending upon the nature of the proceeding and to allow for the qualification. Some steps may be designated band A even if all of the others are band B.

Putting aside one’s shameless bias, one is forced to accept that even this approach requires a certain degree of arbitrariness. But the costs regime is of itself arbitrary (conceptually, not practically). It is well known, and accepted and understood, that the notional daily recovery rates and time allocations have, for a variety of reasons, little connection with the actuality of practice and the costs of litigation and that the notional two thirds recovery is seldom delivered. That is not just a reflection of the increasing complexity and cost of litigation, but also reflective of the fact that it is simply not possible for a regime designed to be “predictable and expeditious” to possibly accommodate the multitudinous permutations of any given case. The rules are designed so that “one size”, more or less, “fits all”. Unfortunately clients, facts and the substantive law applicable to any given case are not, of themselves, subject to or particularly interested in what part 14 of the High Court Rules expects them to do and the time within which they are expected to do it. The costs regime successfully delivers predictability to questions of costs but it cannot, and is not designed to, accommodate all of the steps, attendances and requirements of any given case.

That does beg the question whether the Court of Appeal’s concern with the Chorley exception is more illusory than real. If we accept, as we must, that the costs scale does not relate to actual costs and has little to no real connection with what goes on in any case outside the objectively identifiable steps that are evident from the court record, then arguably the rules do not need to accommodate the Chorley qualification at all. They are not, overtly at least, particularly concerned with those aspects of any given case.

In this vein, up until 13 June 2012 article 1 of the third schedule, while still carrying the same time allocations for each band, stated the relevant step was “[c]ommencement of proceeding by plaintiff (receiving instructions, researching facts and law, and preparing, filing, and serving statement of claim.…)”. Since 13 June 2012 the description for the same step has simply been “[c]ommencement of proceeding by plaintiff”.

The point is moot, but it is arguable that since 2012 the rules may have recognised that it is not possible, nor necessary, for them to extend their reach beyond the objectively identifiable, recorded, aspects of a civil proceeding. If that is so, there is no need for the rules to be applied differently to lawyer-litigants as the unrecoverable costs recognised by Chorley are not, necessarily, part of the regime in any case.

Conclusion

The argument, therefore, is that the costs regime in the High Court Rules is not inconsistent with the exception that has traditionally applied to the question of costs in the case of a lawyer-litigant. As the Court of Appeal did recognise, “costs are a creature of statute” (at [8]) and it is submitted that the High Court Rules should only be taken to have implicitly “repealed” the exception if that were the clear intent. I submit there is no incompatibility between the two and that, as a consequence, the rules cannot be taken to have had that effect. That they make no reference to the rule itself, or its exception, suggests no change was intended.

Sean McAnally smcanally@keegan.co.nz is a partner with Auckland firm Keegan Alexander. Sean specialises in commercial litigation with a particular emphasis upon corporate insolvency and company disputes.

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