Chapter 5 - Some judicial powers

Wasted costs in civil proceedings

Introduction

Regrettably, there are sometimes civil cases in which counsel are responsible for litigation dragging on. There may be completely inappropriate discovery demands, interminable interlocutory applications, endless and unfocussed briefs, or a complete inability to conduct the case in a professional manner in court. This inflicts additional costs on the opposing parties and wastes valuable court resources. Where such situations arise, what can be done by the court in relation to the offending counsel?

The present law

The High Court has inherent jurisdiction to award costs against a lawyer for a “serious dereliction of duty to the court”. This would include such things as a power to disallow costs between a lawyer and their own client, and the power to order a lawyer personally to pay the costs of the other side. The authoritative decision on this in New Zealand is the judgment of the Judicial Committee of the Privy Council in Harley v McDonald.106

The District Court has no inherent jurisdiction to award costs against lawyers.107 Other courts without the inherent jurisdiction of the High Court, including specialist courts and the Supreme Court, are also unable to award costs against lawyers.

New Zealand is unusual because the power to require lawyers to personally pay costs in civil proceedings is grounded in the inherent jurisdiction of the court. It has not been altered by rules or statute.

In the criminal jurisdiction, however, the Criminal Procedure Act 2011 has introduced a statutory jurisdiction to make an order of costs for a procedural failure against the defendant, a defendant’s lawyer, or even the prosecutor. This jurisdiction does not apply to appellate proceedings.

 

Section 364 of that Act provides:108

364 Costs orders

(1) In this section and section 381,—

costs order
means an order under subsection (2)

procedural failure
means a failure, or refusal, to comply with a requirement imposed by or under this Act or any rules of court or regulations made under it, or the Criminal Disclosure Act 2008 or any regulations made under that Act

prosecution—

(a)means any proceedings commenced by the filing of a charging document; but

(b)does not include an appeal.

(2)A court may order the defendant, the defendant’s lawyer, or the prosecutor to pay a sum in respect of any procedural failure by that person in the course of a prosecution if the court is satisfied that the failure is significant and there is no reasonable excuse for that failure.

(3)The sum must be no more than is just and reasonable in the light of the costs incurred by the court, victims, witnesses, and any other person.

(4)A costs order may be made on the court’s own motion, or on application by the defendant, the defendant’s lawyer, or the prosecutor.

(5)Before making a costs order, the court must give the person against whom it is to be made a reasonable opportunity to be heard.

(6)A costs order may be made even if the defendant has not yet been convicted, or is eventually discharged, or the charge is dismissed.

(7)The court may make more than 1 costs order against the same person in the course of the same prosecution.

(8)The court may order that some or all of the amount ordered to be paid under a costs order be paid to any person connected with the prosecution.

(9)Subsections (2) to (8) do not limit or affect the Costs in Criminal Cases Act 1967.

The United Kingdom has statutory provisions and court rules which clarify the bounds of the power to award costs against counsel.109 Australia relies on a mixture of legislation in some States, and also has detailed provisions in court rules which guide the exercise of the court’s inherent jurisdiction. In Canada, court rules also contain provisions on the award of wasted costs.

 

The standard for the exercise of costs jurisdiction

The position in New Zealand under the common law, as set out by the Privy Council in Harley v McDonald, is that costs will only be awarded for a “serious dereliction of duty to the court”.110  The standard in the United Kingdom and Australia has been modified through statute, and extends to conduct which is “improper, unreasonable, or negligent”. This has been held to include conduct which is not in breach of the Professional Code of Conduct, but which nonetheless would be considered reprehensible by the consensus of professional opinion. Negligence is to be interpreted on its ordinary meaning, and it is not necessary to demonstrate that the conduct met the standard for a tortious claim of negligence.111

Notwithstanding these apparently different formulations in New Zealand, the United Kingdom,112 and Australia,113 the case law as a whole appears to emphasise the following:

(a)The purpose of the jurisdiction is to compensate for a failure of duty to the Court, where this failure causes unnecessary costs. The jurisdiction also has a punitive element.

(b)The power to award costs against lawyers should not be used to compensate a client for a failure of duty to the client, though this may be a spin-off effect.

(c)The jurisdiction should be confined to questions which are apt for summary disposal, and should ordinarily be decided as part of the overall decision as to the costs.

(d)Complex factual questions about the lawyer’s conduct and actions, including breaches of duties to their client, should not be addressed through an award of costs. This should be addressed through disciplinary proceedings or through a claim against the lawyer directly.114

(e)Litigants have the right to be represented, however weak their case, and the courts should take care that the use of the jurisdiction to award costs against counsel does not encourage lawyers to act as gatekeepers and refuse to take on weak briefs.

(f)The presumption should be that a lawyer is acting on their client’s instructions, including in pursuing an unlikely claim, running tenuous arguments, and presenting highly unlikely accounts of the facts.

(g)An award of costs is not appropriate merely because the lawyer is doggedly pursuing a case that is doomed to fail.

(h)There must be a causative link between the misconduct of the lawyer and the costs incurred.

(i)Legal professional privilege will be waived if a party applies for an award of costs against their own lawyer.

The application of the principles in New Zealand

There have been three cases in New Zealand since Harley v McDonald where costs have been awarded personally against lawyers involved in proceedings. In Body Corporate No 192964 v Auckland City Council, the Court awarded costs against a lawyer who instituted proceedings on behalf of all the owners of units in a leaky apartment building, despite only receiving instructions from two thirds of the owners.115  The Court ordered that the proceedings be partially struck out in respect of 67 named plaintiffs who had not instructed the lawyer, and ordered the lawyer personally to pay the costs of the strike out application.

In L v Chief Executive of the Ministry of Social Development, Harrison J stated that two lawyers “were in gross dereliction of their duties to the Court in filing and advancing this proceeding, and that their conduct throughout was contrary to the proper, fair and efficient administration of justice.”116

In ANZA Distributing New Zealand Ltd (in liq) v USG Interiors Pacific Ltd (No 2), Cooper J stated that certain costs were incurred as a result of the solicitor’s “failure to reach the minimum standard of competence that should be attained by officers of the Court.”117

There are a large number of cases in which costs have not been awarded, as the high standard of serious dereliction of duty to the Court has not been met.

Is reform needed?

Our provisional view is that reform is required. The present situation is inconsistent: there is a statutory wasted costs provision for criminal proceedings; there is inherent jurisdiction for proceedings in the High Court; but there is no jurisdiction in some other proceedings.

The existing position is also unclear. The courts have been coy about defining the standard of “misconduct” with any specificity, though they have emphasised that the standard is much higher than mere negligence or misjudgement.

The presumption in civil litigation is that costs should follow the event. This raises a concern in situations where costs are incurred as a result of the conduct of the lawyers, rather than the conduct and decisions of the parties to litigation. The jurisdiction to award costs against lawyers seeks to address this concern, on the basis that it is unjust for a party to litigation to be liable for costs incurred through the negligence or misconduct of a lawyer involved in the litigation.

On the other hand, insofar as the purpose of wasted costs orders is punitive, is it an appropriate way of dealing with gross misconduct, or would it be preferable to leave such misconduct to be dealt with by way of disciplinary proceedings?

The jurisdiction varies in breadth. There is a concern that expanding personal liability of lawyers for costs incurred in litigation could lead to greater “screening” by lawyers of potential claims, which would have a detrimental effect on access to the courts and would be contrary to the interests of justice. Also, personal liability for lawyers should not be an undue burden, especially given the need to make quick decisions in litigation, and the possibility of unreasonable or difficult clients.

Our provisional view

We are tentatively of the view that there should be legislative provision for wasted costs in New Zealand, on a similar model to that adopted recently by Parliament in section 364 of the Criminal Procedure Act 2011.

There are advantages in symmetry. But even apart from the adoption of that section by Parliament we think there are sound reasons for a limited wasted costs provision. We are not comfortable with an “open ended” discretion, as is currently provided under the inherent jurisdiction of the High Court.

Section 364 of the Criminal Procedure Act 2011 is predicated on a non-controversial pre-requisite: that there has been a procedural failure to comply with the rules of court, or with a relevant statute. If that is the case in a civil proceeding then the two evaluative factors would be whether the failure by a lawyer is “significant”, and that “there is no reasonable excuse” for that failure. That is a relatively tightly structured provision and is consistent with the principles contained in the case law. We consider that the civil wasted costs provision should also apply to appellate proceedings in the High Court, the Court of Appeal, and the Supreme Court.

A preliminary draft of such a provision is set out in appendix 4.

Q14

Do you agree that there should be a wasted costs provision in the new Courts Bill?

Q15

If so, do you agree with the draft provision set out in appendix 4?

Harley v McDonald [2001] UKPC 18, [2002] 1 NZLR 1.

Ng v Cavanagh [2000] DCR 495 (DC); Hughes v Ratcliffe (2000) 14 PRNZ 690 (HC). However, if a claim is appealed from the District Court to the High Court, there is authority for the proposition that the High Court has jurisdiction to award costs against lawyers in respect of District Court proceedings as well as the appeal: Kooky Garments Ltd v Charlton [1994] 1 NZLR 587 (HC).

This section is not yet in force.

A useful summary is available at < www.barcouncil.org.uk >.

Harley v McDonald [2001] UKPC 18, [2002] 1 NZLR 1.

Ridehalgh v Horsefield [1994] 3 All ER 848.

The leading cases in the United Kingdom are Metcalf v Mardell [2002] UKHL 27, [2002] 3 All ER 721 and Ridehalgh v Horsefield [1994] 3 All ER 848.

While there are differences in the wording of the legislation and rules in different Australian states, the general principles are the same. For the leading case at the Federal level, see Levick v Commissioner of Taxation (2000) 102 FCR 155.

In Australia, barristers have immunity from suit for the conduct of litigation, so there is no ability to claim against counsel directly. This was historically the position in the United Kingdom and New Zealand, but the immunity has been removed.

Body Corporate No 192964 v Auckland City Council HC Auckland CIV-2004-404-7207, 20 February 2006.

L v Chief Executive of the Ministry of Social Development (2008) 19 PRNZ 116 (HC) at [49].

ANZA Distributing New Zealand Ltd (in liq) v USG Interiors Pacific Ltd (No 2) CIV-2007-404-3474, 18 September 2009 at [52].