Arbitrary or Appropriate? The Rules on Costs for Litigants-in-person in New Zealand

By Nithya Narayanan

Many thanks to the ADLS Civil Litigation Committee for their valuable input on drafts of this article.

What are costs?

“Costs” may be awarded by courts to the successful litigant(s) in a dispute. Costs refer to the expenses incurred in hiring a lawyer.[1] Costs are different from disbursements, which refer to other expenses incurred by the lawyer while representing the client.[2] Costs are independent of any damages or compensation awarded. When awarded, costs are intended to allow the successful party to (partially) recover the legal expenses incurred.[3]

In New Zealand, costs are currently awarded to successful parties under the “reasonable contribution” model. This model is predicated on the idea that parties should receive a realistic contribution towards the expense of engaging counsel.[4] This is supposed to be two-thirds of what the Committee considers a “reasonable amount” for proceedings in each category.[5] The High Court Rules 2016 provide that categories are to be determined based on the complexity of the matter. For example, Category 1 proceedings are “straightforward” proceedings “able to be conducted by counsel considered junior in the High Court”.[6]

The situation is different where unrepresented parties (“litigants-in-person”) are concerned. In New Zealand, operation of the “primary rule” means that successful litigants-in-person are not eligible to be awarded costs.[7] There are, however, two key exceptions to the primary rule. First, if the litigant-in-person is a lawyer representing themselves, they will be entitled to seek costs.[8] Secondly, parties who go through the litigation process using an employed lawyer can also recover costs.[9] In other words, if a party is represented by a lawyer employed by that party, that party is entitled to seek costs.[10] This is known as the ‘employed lawyer’ exception.

In the 2018 decision of McGuire v Secretary for Justice, the New Zealand Supreme Court decided that if there is to be law reform of the issue of costs for litigants in person, such reform should be undertaken following careful consultation.[11] The Court suggested that the Rules Committee was well-placed to review the primary rule and its exceptions.[12] The Rules Committee has now initiated a review of the regime.

Is the primary rule justified?

In McGuire, the Supreme Court discussed some of the policy justifications for the primary rule and its exceptions. First, awarding costs against the party who loses “incentivises potential litigants”, and thus has an inhibiting effect on access to justice.[13] This “inhibiting” effect is limited by restricting costs awards to costs arising from work carried out by lawyers.[14] According to the Rules Committee, the “primary rule” arises from the fact that costs have traditionally been understood as denoting compensation for lawyers’ fees.[15] Lawyers’ fees provide a fairly simple basis for determining the amount of costs. By contrast, compensating lay-litigants might involve entering into more difficult exercises such as comparing the “value” of the work done by the lay-litigant to the value of the work done by lawyers.[16]

Another, more controversial justification for the primary rule is that the concept of litigants-in-person should not be encouraged, given that litigants-in-person may cause substantial delays in proceedings. This justification for the rule was advanced by the High Court of Australia in Cachia v Hanes.[17] However, there is a tension between this view and the fundamental right to represent oneself in court.[18] Furthermore, the argument is out of line with recent informal observations, which suggest that most lay-litigants would prefer to have legal representation but find the costs of representation unaffordable.[19]

It is interesting to compare these arguments with the position in Canada, where the primary rule has been abolished. In Sherman v Minister of National Revenue, the Court of Appeal set out a number of reasons why the primary rule no longer represents a principled distinction. Central to the Court’s judgment was the idea that offsetting the expenses of engaging a lawyer is not the sole purpose of a costs award. Costs have a regulating function; they “[promote] early settlements and restraint”.[20] They also deter frivolous or abusive litigation.[21] The Court considered that these “legitimate purposes” were essentially undermined by a rule that litigants-in-person must not be awarded costs; under such a regime, litigants-in-person are not compensated for the time spent in preparation.[22] In addition, the opponent may not be sufficiently incentivised to settle, since they will incur no costs if they lose but will recover full costs if they win.[23]

Exceptions to the primary rule

It is worth examining the specific arguments for and against the first exception. Why should lawyers representing themselves be entitled to costs, when lay-people in the same position are not? In McGuire, the Court reiterated that costs are intended to offset the expenses of legal work carried out by a lawyer. Since a self-representing lawyer is carrying out essentially the same kind of work that would be compensated by a costs award if performed by another lawyer, it is appropriate for costs to be awarded.[24] Further, where the work being considered is that of a practising lawyer, the “mechanisms” for cost assessment currently set out in the High Court Rules are well-suited to the calculation of costs.[25] This can be contrasted with the practical difficulties involved in trying to equate the value of work done by a lay-litigant to the value of work done by a lawyer.

On the other hand, the Court noted that the distinction drawn between lawyers and laypersons could be seen as arbitrary.[26] When laypeople conduct litigation they, too, will suffer the loss of opportunity costs. The choice to conduct litigation involves time that the lay-litigant could have spent pursuing their own occupation.[27]  Ellen France J, writing in a separate judgment, criticised the basis of the exception. She considered the rule arbitrary, stating that she found the distinction drawn between a self-representing lawyer and other self-representing litigants “irrational”.[28] Her Honour considered that there were two responses to this problem: reforming the policy to allow costs awards to be made to any self-representing litigant, or abandoning the exception made for a self-representing lawyer.[29]

In the 2017 case of Joint Action Funding v Eichelbaum, the New Zealand Court of Appeal did not explicitly address the status of the employed lawyer rule. However, the basis of this decision was that costs should only be awarded to the extent needed to reimburse a party for legal fees actually incurred, and not a notional amount (the “invoice required” approach).[30] The invoice required approach is considered to be incompatible with the continued existence of the employed lawyer exception.[31] In McGuire, Ellen France J opined that the focus on invoiced costs in Joint Action Funding was “wrong”.[32] She felt that abolishing the exception for self-representing lawyers did not necessarily need to result in the employed lawyer exception being removed as well.[33]

Looking forward

The Rules Committee has divided the basic issue into three components, comprising five questions. The questions can be simplified as follows:[34]

1.     Should lay-litigants be allowed to pursue costs?

2.     If yes, how should these costs be determined? In other words, how should one arrive at this notional amount of compensation? How much should we allow a lay-litigant to recover, per day, for their time?

3.     If question one is answered in the negative:

a.      Should we continue to have an exception for self-represented lawyers?

b.     If so, should we have an exception for employed lawyers? If yes, how should costs be determined here?

The Committee has sought submissions on this matter, and plans to communicate future steps before the end of the year.

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[1] Ministry of Justice “Going to Court” (29 January 2020) <www.justice.govt.nz>.

[2] Ministry of Justice, above n 1.

[3] The Rules Committee Consultation Paper: Costs for Litigants-in-Person (May 2020) at [4].  

[4] The Rules Committee, above n 3, at [5].  

[5] Rachael Schmidt-McCleave “Costs” in Peter Blanchard (ed) Civil Remedies in New Zealand (2nd ed, Brookers, Wellington, 2011) 763 at [21.2.1], as cited in The Rules Committee, above n 3, at [5].

[6] High Court Rules 2016, rule 14.3.

[7] The Rules Committee, above n 3, at [8].  

[8] McGuire v Secretary for Justice [2018] NZSC 116, [2019] 1 NZLR 335 at [55].

[9] McGuire, above n 8, at [55].  

[10] Natalie Foster “Court costs when using employed lawyers – return to status quo ante” (International Law Office, 6 August 2019) <www.internationallawoffice.com>.

[11] McGuire, above n 8, at [88].

[12] At [88].

[13] At [82].

[14] At [82].

[15] The Rules Committee, above n 3, at [12].

[16] The Rules Committee, above n 3, at [12].

[17] Cachia v Hanes (1994) 179 CLR 403 at 410.

[18] The Rules Committee, above n 3, [15].

[19] Dr Bridgette Toy-Cronin “Keeping up appearances: accessing New Zealand’s Civil Courts as a litigant in person” (PhD thesis, University of Otago, 2015) at [87], as cited in The Rules Committee, above n 3, [15].

[20] Sherman v Minister of National Revenue (2003) 226 DLR (4th) 46 at [46].

[21] At [46].

[22] At [46].

[23] At [46].

[24] At [83].

[25] At [83].  

[26] At [84].

[27] At [84].

[28] At [91].

[29] At [92].

[30] Joint Action Funding v Eichelbaum [2017] NZCA 249 at [41].

[31] McGuire, above n 8, at [85].

[32] At [93].

[33] At [93].

[34] The Rules Committee, above n 3, at [3].