Cost-claims judgement upsets applecart

A precedent-setting High Court judgement has stopped organisations and companies that use salaried in-house lawyers from claiming for costs when they have won a case.

Tens of millions of dollars in costs are estimated to be awarded annually across New Zealand courts.

It is widely expected by the legal community that IRD, which has had a recent costs claim denied by Associate Judge John Matthews in the High Court at Christchurch, will take the issue to the Court of Appeal.

Those who could miss out on costs claims include city and regional councils, government organisations such as IRD, large corporates or listed companies; any entity that employs its own in-house lawyers.

The more than century-old discretion of the courts to award costs came under scrutiny in Judge Matthews' decision, released last week.

In a decision where IRD was seeking liquidation of an Otago company, which eventually paid its debts following several adjournments, the IRD still made a claim for legal costs incurred.

However, the company opposed awarding of costs, as there was no evidence IRD had incurred costs.

Judge Matthews cited two recent Court of Appeal decisions where lawyers who were representing themselves in two separate cases were not awarded costs, and denied IRD its costs claim.

Anderson Lloyd civil litigation partner Frazer Barton was contacted and said while the case was ''precedent setting'' and ''significant'', he believed the decision would be appealed by IRD's commissioner.

Since Judge Matthews' decision, it has been reported that in subsequent cases involving costs claims, the winning lawyers had sought to have costs claims deferred to another time for consideration.

Mr Barton said cost claims, ''by rule of thumb'', were made for about 40%-50% of the actual costs incurred.

He said there was potential for councils to win a case brought against them but not be able to claim its costs, ''which could become a ratepayer burden'', albeit the council was likely to have some insurance against such losses.

He said while a person might consider taking an organisation to court, he did not believe litigation would be underpinned by them being unconcerned that if they lost the case, there would be no award of costs against them.

When asked, he said a ''short term fix'' could be for affected organisations to employ contract lawyers, or seek a deferred time on costs, in expectations a decision would come from the Court of Appeal.

He noted that over time, higher-priced contract lawyers meant it was ''likely'' cheaper to use in-house lawyers, even though costs could not be claimed.


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