Once the Court proceeding has been heard, and judgment has been given, the Court would consider an award of costs. Generally, the successful party in the proceeding would seek a reimbursement of costs, such as the legal fees paid to their lawyers and disbursements (e.g. Court filing fees, expert witness costs etc), from the unsuccessful party.
The determination of costs is at the discretion of the Court. The Judge may:
- Order the unsuccessful party to pay the costs of the successful party (usual position).
- Order that costs lie where they fall, in other words, that no party is ordered to pay the costs of the other (less common).
- Rarely, the Court could order the successful party to pay the unsuccessful party.
If there is an award of costs from one party to another, the costs are generally ordered on a scale basis (i.e. determined in accordance with Court’s rates and time allocations and does not represent the actual amount incurred by the party). However, in special cases, the Court may award indemnity costs (i.e. the awarded costs represent the actual amount incurred by the party).
All references to Rules below are references to District Court and High Court Rules (same rule numbers apply for both Courts).
General principles
Under r 14.2(1), the following general principles apply to the determination of costs:
- The unsuccessful party should pay costs to the successful party.
- Costs should reflect the complexity and significance of the proceeding.
- Costs should be assessed by applying the appropriate daily recovery rate to the time considered reasonable for each step reasonably required.
- An appropriate daily recovery rate should normally be two thirds of the daily rate considered reasonable.
- Costs should not relate to the actual time spent or rates charged.
- Costs should not exceed the actual costs incurred.
- Costs should be predictable and expeditious.
Under r 14.2(1)(a), the unsuccessful party is generally liable to pay money to the successful party.
Complexity and significance under r 14.2(1)(b) are assessed objectively, based on what the case really involves and how significant it really is. Actual time spent and costs incurred are irrelevant. Depending on the complexity and significance determined under r 14.3, a category (ranging from category 1 – 3) is allocated.
The aim of r 14.2(1)(c) – (d) is to provide for a daily recovery rate which is designed to represent twothirds of a rate considered reasonable for the proceeding. Appropriate daily recovery rates are imposed by r 14.4 and depend on the category determined under the previous step.
In accordance with r 14.5, the daily recovery rate is then applied against the allocated time for a particular step. In determining a reasonable time for a particular step, the proceeding should be allocated to a band (ranging from band A to C).
Rule 14.2(f) limits costs to those actually incurred (although, it is rare that the scale costs would exceed the actual costs), which gives effect to the principle that no party should profit from the conduct of litigation. Rule 14.2(f) comes into play only after the Court has determined category, daily recovery rate and applied it against allocated time in accordance with the band.
Rule 14.2(g) states that the determination of costs should be predictable and expeditious. Predictability enables parties to assess the likely cost of litigation from the outset. The costs rules are designed to be “self-calculating”, removing from Judges the burden of having to determine costs in every case.
The scale of costs is a legislative direction as to a reasonable contribution in an ordinary case. If compliance with that direction will not achieve the purpose of an award of costs, the Court is entitled to award less or more (Morton v Douglas Homes Ltd (No 2) [1984] 2 NZLR 620 (HC)).
Reduced costs
Under r 14.7, the Court may order reduced costs, or refuse costs all together, where:
- The time required is substantially less than band A.
- The amount at stake in the proceeding was exceptionally low.
- The issues in the proceeding were of little significance.
- Although the party claiming costs has succeeded overall, that party has failed on an issue or a cause of action which significantly increased the costs to the other party.
- The proceeding concerned a matter of public interest, and the party opposing costs acted reasonably in the conduct of the proceeding.
- The costs claimant has unnecessarily contributed to the time or expense of the matter.
- Sufficient other reason exists.
Reduction is often done by applying a set reduction percentage (e.g. 30% reduction) to the scale cost amount determined in accordance with the steps outlined above. The reduction could apply to all or limited steps in the proceeding.
Increased costs
Under r 14.6, the Court may order increased costs where:
- Actual and reasonable time substantially exceeds band C.
- The other party has contributed unnecessarily to time or expense of the proceeding.
- The proceeding was of general importance to persons other than just the parties.
- Some other reason exists that justifies the Court making an order for increased costs.
The party claiming increased costs carries the onus of persuading the Court that their award is justified.
Increased costs may be ordered where there is a failure by the paying party to act reasonably (e.g. see Bradbury v Westpac Banking Corp [2009] 3 NZLR 400, (2009) 19 PRNZ 385 (CA)). The Court should consider the extent to which the failure to act reasonably contributed to the time or expense of the proceeding. Any percentage uplift from scale can only be justified to that extent.
The Court of Appeal provided guidance on the correct approach to an award of increased costs in Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA) as follows:
- Step 1: categorise the proceeding under r 14.3.
- Step 2: work out a reasonable time for each step in the proceeding under r 14.5.
- Step 3: as part of the step 2 exercise a party can, under r 14.6(3)(a), apply for extra time for a particular step.
- Step 4: the applicant for costs should step back and look at the costs award it could be entitled to at this point. If it considers it can argue for additional costs under r 14.6(3)(b) it should do so, but any increase above 50 per cent on the costs produced by steps 1 and 2 is unlikely, given that the daily recovery rate is two-thirds of the daily rate considered reasonable for the particular proceeding.
Increased costs have in the past been awarded where the party opposing costs pursued an entire claim that lacked merit, failed to admit the facts, failed to accept an offer of settlement, or proceeded with an inappropriate statutory demand.
Indemnity costs
The Court may order the payment of the actual costs incurred, instead of costs on a scale basis, where:
- A party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding.
- A party has breached any order or direction of the Court or undertaking given.
- Costs are payable by a fund.
- The costs claimant is a non-party and has acted reasonably.
- A contract or deed provides for indemnity costs.
- Some other reason exists which justifies an award of indemnity costs.
The party claiming indemnity costs carries the onus of persuading the Court that their award is justified.
Indemnity costs are awarded where a party has behaved either badly or very unreasonably.
To justify indemnity costs, misconduct must be flagrant. But, where indemnity costs are sought in a “hopeless case” situation, it is not necessary that there be flagrant misconduct (Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue [2014] NZCA 348, (2014) 22 PRNZ 322).
Brent is the Director of Norling Law. He has a wealth of experience in the District Court, High Court, Court of Appeal and Supreme Court. Brent is passionate about negotiating favourable outcomes for his clients and able to implement this in his daily negotiations.