Like all civil litigation, the issue of costs is an important consideration for litigants and lawyers alike. Overriding the general costs principles, New Zealand defamation claims are subject to some unique procedures.
How do courts determine the issue of costs?
In the ordinary course, costs are awarded to the successful party in terms of a scale set by the High Court Rules (or by the District Court Rules when the case is heard in that court). These are known as ‘scale costs’.
Scale costs entitle a successful party to seek reimbursement from the losing party for a certain amount of costs incurred for the particular steps taken in the proceeding. This includes everything from the filing of pleadings, documents in relation to case management, lists of documents for discovery, inspecting the other side’s documents, preparing briefs of evidence and legal submissions, and court appearances by a party’s lawyer.
Scale costs may also be awarded following an interlocutory decision, in respect of the relevant steps taken in making or resisting an application.
A successful party will also be entitled to their ‘disbursements’. These are out-of-pocket expenses, so include court fees, photocopying and printing charges, and sometimes, travel and accommodation expenses.
If in a particular decision—whether interlocutory or trial—there is no clear ‘winner’, the Court will normally order that costs “lie where they fall”. This means neither party is entitled to any reimbursement.
Costs are always ‘at the discretion of the court’. This means the Court has power to do as it sees fit in a particular case. That said, the Court must abide by general costs principles, the most fundamental being that costs ‘follow the event’ – i.e. the loser reimburses the winner.
Do scale costs cover all legal costs?
No, and they are not intended to do so. Scale costs aim to reimburse a party approximately two-thirds of the costs they have paid to their lawyer. But as anyone with litigation experience will attest, a successful party will often be lucky to be reimbursed even half their actual costs incurred.
On the other hand, sometimes the successful party may be awarded reimbursement of more than scale costs. The successful party may be awarded what are called ‘increased costs’ or, more rarely, ‘indemnity costs’.
What are ‘increased costs’?
Sometimes, the Court will see fit to order costs to the successful party that are more than scale costs. What happens here is that the court will outline the successful party’s scale costs entitlement and then ‘uplifts’ those costs by a certain percentage – the limit of an uplift seems to be 50%.
When can a party be awarded increased costs?
The most common situation is when the losing party has acted unreasonably, such as pursuing an argument the party should have known would not succeed, or failing to comply with an order of the Court. In essence, when the losing party has needlessly wasted everyone’s time, the Court is likely to award increased costs.
What are ‘indemnity costs’?
In rare cases, the Court will see fit to order costs to the successful party that cover their legal fees entirely (provided those fees were reasonably incurred in the context of the litigation).
When can a party be awarded indemnity costs?
This usually requires severe misconduct by the losing party, wherein the Court can adjudge their conduct as “vexatious”, “frivolous” or “improper”. Indemnity costs have been awarded in situations where:
- allegations of fraud have been made which are either known to be false or simply irrelevant to the case at hand;
- a party engages in misconduct that causes loss of time to the court and to other parties;
- a party commences or continues proceedings for some ulterior motive;
- a party pursues an argument in wilful disregard of known facts or clearly established law;
- a party makes allegations which ought never to have been made;
- a party unduly prolongs a case with groundless contentions – a “hopeless case”.
How does the issue of costs differ in defamation cases?
The Defamation Act modifies the indemnity costs principle in certain circumstances:
- A plaintiff may seek only a declaration from the Court that they have been defamed, rather than seeking damages. If the Court grants the declaration, the plaintiff is presumptively entitled to indemnity costs, although the Court retains a discretion.
We note that Courts have only rarely awarded indemnity costs under this provision. - A plaintiff may ask the Court to make a recommendation to the defendant to publish a correction (normally at an early stage of the proceeding). If the Court makes this order, the defendant will have a choice. If they agree to publish the correction, the plaintiff will be entitled to indemnity costs but no other remedy. If they fail to publish the correction, proceed to trial and lose, the plaintiff will be entitled to indemnity costs and the defendant’s failure will be taken into account on the issue of damages.
- A person who claims to have been defamed in a “news medium” may request, in terms of a specific provision in the Defamation Act, a prompt retraction or opportunity to publish an explanation and/or rebuttal. If the publisher agrees, it must offer to pay all the person’s costs, including compensation for any financial loss suffered as a direct result of the news medium’s publication.
We note this provision does not limit the plaintiff from suing afterwards. As a result, news media are only likely to agree to publish a retraction or reply in terms of the specific provision where the potential plaintiff quantifies their total costs and loss and agrees to forgo any right to then sue. The provision may be helpful where both parties want to resolve a claim quickly and cost-efficiently, but in practice almost most settlements occur without any mention of this provision. - If a plaintiff wins at trial but receives only a small sum compared to their claim, the Court may award the defendant indemnity costs if the Judge considers the claim to have been “grossly excessive”.
We note that despite countless legal threats that have been made by defendants in relation to this provision, it has never actually been directly applied.
In line with general costs principles, any award of indemnity costs must be based upon costs reasonably incurred in the context of the litigation.
Can a party who is not represented by a lawyer be awarded costs?
Generally speaking, no. Only litigants who are represented by lawyers in court may be awarded costs. On the other hand, a litigant in person will be entitled to have their disbursements covered.
In some cases, if a party has paid for legal advice ‘behind the scenes’, such as paying for a lawyer to help draft pleadings in a complicated case, or even appear at trial as a McKenzie friend, the Court might order the losing party to pay at least some of those costs as a claimable disbursement.
Can a party claim GST on costs and/or disbursements?
It depends. A GST-registered party cannot claim GST on an award of costs and/or disbursements. This is because they can claim a GST credit from IRD on the costs and disbursements originally incurred. If the Court were to award GST, then as well as obtaining an award of costs and disbursements, the party could then obtain a double recovery of GST.
However, a non-GST-registered party is entitled to claim GST on an award of costs and/or disbursements. This is because the party does not have an ability to recover GST from IRD. However, the party must inform the Court about the party’s GST status in advance of any award, so the Court can take this into account.
If the losing party cannot afford to pay a costs award, what happens?
If a party fails to pay a costs award made during the course of the proceeding—such as following a failed interlocutory application—the Court can take steps to limit their involvement for the duration of the proceeding. If the plaintiff is in default, the Court will in some cases ‘stay’ the proceeding until the costs have been paid, or sometimes even strike out the claim altogether. If the defendant is in default, the Court can strike out their statement of defence—which prevents them from calling evidence or cross-examining the plaintiff’s witnesses at trial—or sometimes even bar them from taking any further step to defend the proceeding. How the Court approaches this issue will very much depend on the circumstances of the case.
If a successful party obtains a costs award and then has the Court ‘seal’ that order, this then becomes a enforceable judgment debt – bankruptcy and/or liquidation procedures may then ensue.
What can a party do to protect themselves from a losing party refusing or failing to pay an award of costs?
Plaintiffs should really assess the defendant’s creditworthiness before embarking on proceedings – if indeed assumptions of reimbursement were a driver of the litigation.
Defendants can, in some cases, protect themselves by applying for what is known as ‘security for costs’. If the Court can be satisfied that the plaintiff is either based overseas or will be unable to meet a costs award if unsuccessful, the Court has discretionary power to require the plaintiff to lodge a sum of money in the Court before the case proceeds to a trial. Over the last decade where such orders have been made in defamation cases, orders for security for costs seem to average out at around $10,000-$20,000 per defendant