‘Costs’ means the costs of handling a legal case. Costs refer to the expense of hiring a lawyer and run from the time in which the proceedings were instituted. 'Disbursements' refers to other expenses incurred in taking the case to court, such as the court filing fees and witness expenses.
Costs may be dealt with in various ways.
- In the United States, for example, each party to a court case pays their own costs no matter who wins the case.
- In England the losing party may have to fully compensate the winning party for their costs.
- New Zealand (and other countries such as Canada and Australia) take a middle-ground approach. The losing party to a court case is usually ordered to pay the winning party costs, however the winner will not fully recover their costs and will have to pay the shortfall themselves.
Court costs can be very high, sometimes beyond the actual worth of a case.
Taylor v Roper
The recent case Taylor v Roper [2019] NZHC 16 (21 January 2019) has been in the headlines because of a costs award. The plaintiff in this case, Ms Taylor, took a civil case against Mr Roper and her former employer, the RNZAF. She wanted compensation for mental harm that she alleged was caused by Mr Roper’s actions against her between 1985 and 1987 while she was an employee of the RNZAF.
Ms Taylor was unsuccessful in her civil case, because the time had run out for making a claim (under the Limitation Act 1950). However, the High Court Judge, Justice Edwards, commented that it was likely that the actions of Mr Roper were a substantial and material cause of her post-traumatic stress disorder, but the Limitation Act 1950 meant that she could not succeed in her case. Also, there was insufficient evidence that she was suffering from a disability that would have prevented her from bringing her claim within time.
Both Mr Roper and the RNZAF sought an award of costs against Ms Taylor. The RNZAF later withdrew its application. Mr Roper claimed $55,638.50 (actual costs incurred totalled $100,213.21), calculated according to the scale set out in the High Court Rules 2016 (more about this shortly).
Ms Taylor opposed costs and said that Mr Roper had failed on the issue of whether the alleged assault occurred and those matters significantly increased her costs at trial. Justice Edwards agreed on that point and reduced the costs award by 50 percent.
Justice Edwards discussed the purpose of costs:
- Costs awards are to compensate a successful party and should not to be seen as a punishment nor as a reward.
- Costs awards are also a check on unmeritorious litigation and to encourage litigants to consider cost-effective alternatives to court litigation, but also an award of costs should not inhibit litigants from seeking to enforce their rights through the courts.
High Court Rules (HCR)
Usually, when a judge orders the unsuccessful party to pay costs, the judge will refer to a scale to calculate costs.
The costs will be allocated a category (1, 2, 3) which reflects the amount of money that can be claimed each day in legal fees (rule 14.3, HCR). Category 1 is for straightforward cases, category 2 is for cases that are of average complexity and category 3 is for cases that are complex and may require lawyers who have special skills and experience.
These categories are not related to the particular lawyer that is involved in a case – they relate to the nature of the case itself.
There are bands (Schedule 2 of the HCR) that relate to the reasonable time that can be claimed in costs (A, B, C). Band A is for steps where a comparatively small amount of time is reasonable, Band B allows for a normal amount of time and Band C allows for a comparatively large amount of time.
Schedule 3 does not allocate time for all steps in a case but is aimed at providing a simple way of allocating costs.
Discretion of the courts
‘Discretion’ refers to the choice of a judge to decide upon a consideration themselves as opposed to being strictly confined to a set of rules or guidelines. In New Zealand the courts do have a discretion regarding costs, but the scale system is intended to provide a level of certainty. The HCR provide guidelines as to when costs can be higher or lower than the scale.
Rule 14.7 of the HCR provides guidelines for the court to reduce costs. There must be a convincing and logical reason for the court to depart from the scale.
Rule 14.7 (d) was applied in Taylor v Roper and the costs award was reduced. This rule allows the court to reduce costs in a situation where “although the party claiming costs has succeeded overall, that party has failed in relation to a cause of action or issue which significantly increased the costs of the opposing party.”
Justice Edwards declined to apply the exception under rule 14.7(g) to refuse costs in this case. Mr Taylor’s lawyer argued that “Mr Roper’s conduct was outrageous, disgraceful and deplorable and yet he has not suffered any penalty for his treatment of Ms Taylor”. The Edwards J agreed that the conduct was heinous, but said that costs could not be used as a “backdoor means of granting relief to a plaintiff who failed to get their claim past the front door.”
Andrew Beck is a Wellington and Wairarapa based barrister with experience as an advocate, law teacher and legal writer. He is the author of Civil Procedure – A -Z of New Zealand Law.
Looking at the decision in Taylor v Roper, Mr Beck says the general principle has always been that the losing party pays a cost contribution.
"The Supreme Court has endorsed that principle. The overlying rule, rule 14 of the HCR provides guidelines which are expected to be applied. This also means that any discretion will be applied in accordance with the guidelines. The guidelines are designed to make it easy work out costs – In a High Court case reference to the schedule should mean that costs can be calculated before a case.”
With the Taylor v Roper decision, the problem is one of perception, not a legal problem – while Mr Beck understands why the public might think the decision is unfair, he says this is a ‘knee-jerk’ reaction.
Mr Beck considers that Taylor v Roper was a well-reasoned decision and "hard to fault". He says the discount of 50 percent was probably quite generous. A refusal of costs would have been bringing irrelevant considerations into the argument. The fact that the defendant is a ‘bad guy’ cannot be used as a cost consideration. The plaintiff was unsuccessful in the substantive decision and the defendant was therefore entitled to recover a portion of the costs incurred defending himself.
Mr Beck points out that the fact that Mr Roper was legally aided meant that his costs were lower than otherwise would have been the case. Mr Roper was not the person who benefited from the reduced costs award. The award will go to repay legal aid and not to Mr Roper.
Refusal of costs
Refusal of costs is rarely granted under s14.7 (g) and would have been incorrectly applied in this case. Again, costs awards are not intended to be a punishment or a reward. This section is rarely used. One example would be if there was a case that was run in the ‘public interest’ – a broad issue, so while the case might not succeed a higher interest would be taken into account.
“To refuse costs in a case like Taylor would be a big change and would need to be carefully canvassed. It would change the goal-posts," says Andrew Beck.
"The court does have that discretion – although the rule is that the costs follow the event and it is hard to get the court to depart from that general approach to rule 14.”
Lawyer’s duty
The case fell over and failed on the substantive issue due to the Limitation Act 1950. Cases are not always straight-forward. The law allows the extension of limitation periods in certain circumstances.
Section 24 of the Limitation Act provides that a limitation period will be extended where a claimant was suffering from a “disability” at the time the action accrued. Time does not start running until the disability ceases. This section was considered in the substantive case above, however, the Judge found that there was ‘little in the way of objective evidence of the plaintiff suffering from any sort of mental injury in 1988 or shortly thereafter, let alone on which left her incapable of commencing these proceedings.’
Mr Beck suggests that perhaps the Limitation Act issue could have been raised as a preliminary matter which would have meant less time and costs for the decision.
Barrier to Justice
Mr Beck is also the convenor of the Law Society Civil Litigation and Tribunals Committee. The committee has not yet looked at general costs in the High Court, but he agrees that costs (and potential costs awards) in civil proceedings are a barrier to justice. Costs can easily overrun the amount sought in a case. “Taking a case of a value less than $50,000 might not be worth it.”
“This is always the way,” he comments. “No matter what system is adopted any litigant will require a large amount of money.”
He says that legal aid is designed to address that problem, but the income threshold for eligibility is low. The other advantage of legal aid is that costs won’t be awarded against a party who is funded by legal aid.
Alternative costs systems
Litigation is expensive and costs awards add to the uncertainty. Mr Beck points out that the adoption of any alternative method for apportioning costs would not be without problems. The United States system, for example, would mean a successful party to a dispute would have no recourse to recoup their losses incurred in defending themselves – this itself would also be a barrier to justice. No matter how well you do in a case, you will have to pay costs – this would also be a deterrent in bringing a matter to court.