Protective Costs Orders

Awards of costs in civil proceedings are at the court’s discretion. The general costs rule is simple: the unsuccessful party is required to pay costs to the successful party. The award of costs is normally made on a 'scale' basis – the scale comprising certain daily rates and certain time allocations for certain steps in a proceeding, both prescribed in schedules to the courts publishes rules of procedures. This, in practice, means that a party to a proceeding will always incur irrecoverable costs to some extent. Much less frequently, awards of costs are made on an indemnity basis, so the unsuccessful party must pay the actual legal costs incurred by the successful party.

In some cases, courts may increase, reduce, or even decline to award costs to the successful party. You may wonder can a party apply to the court before the hearing for a declaration that, in the event they prove unsuccessful in bringing their case, they will be protected from an adverse costs award?

On 27 October 2022, in the case of Gordon v Attorney General [2022] NZHC 2801, Justice Palmer made an order – potentially the first of its kind in New Zealand – that no award of costs would be made against the plaintiffs in that case if they were unsuccessful in the outcome of the case.

Facts

The proceedings relate to an application by two academics for declarations about the interpretation of provisions of the Mental Health (Compulsory Assessment and Treatment) Act 1992. Prior to the case proceeding to trial, the plaintiffs sought a protective costs order that no award of costs would be made against them if they are unsuccessful.

Discussion

The judgment is an interesting one because two months before the judgment was published, Justice Palmer initially refused to make the order sought by the plaintiff. However, his Honour then rescinded his decision (in reliance of r 7.49 of the High Court Rules 2016) because new information came to light that favoured granting the protective order sought.

Justice Palmer accepted that the High Court has jurisdiction to make protective costs orders. They are only made “in the extreme case that a public interest point which ought to be heard is likely not to be ventilated if a party without any personal stake is at risk of an undetermined exposure to costs”.

The following factors are considerations relevant to the exercise of the Court’s discretion to make a protective costs order:

• While not fatal to an application, does the claimant have a private interest in the outcome of the case?

• Will the claimant have to discontinue the proceedings without such an order?

• Are the issues of general public importance and resolution of them in the public interest?

• Is it fair and just to make the order, having regard to the financial resources of all parties?

• Are those acting for the claimant doing so on a pro bono basis?

His Honour held that the case before him was an exceptional proceeding. First, it was clear that the proceedings would not be pursued without the costs order; the plaintiffs stated that they were not willing to bear the risk of the costs award themselves.

Second, the human rights issues at stake in the proceeding give rise to significant general public importance, such that their resolutions are themselves in the public interest. The right to refuse medical treatment, to be free from discrimination, not to be arbitrarily detained, and when a mental health patient is fit to be released, are important domestic and international human rights.

Third, it was clear to his Honour that what the plaintiffs are seeking is a clarification of the law pending the outcome of the current law reform exercise. Law reforms take time and are often uncertain. Pending the outcome of the law reform process, the human rights at stake in these proceedings remain important. Their importance is strengthened by the fact that those directly affected by mental health law are unable to advocate for themselves.

Fourth, the plaintiffs do not have a material private personal interest in the outcome of the proceedings. Instead, they are acting in the interest of the public to vindicate the human rights of those subject to current mental health law. However, a private personal interest in the outcome of the proceedings does not prevent a party from seeking a protective costs order from the court, although it will likely affect the bona fides of the party seeking protection. Where the private personal interest is financial in nature, the court will likely be more sceptical.

The fundamental principle of access to justice underlies the rationale for granting protective costs order. New Zealanders with genuine concerns should not be disincentivised from bringing meritorious proceedings out of concern that a costs award may be made against them should their claim fail.

The court might apply a costs cap where a protective costs order is made, reducing the costs that may be payable by a defendant. This is seen as providing a reciprocal protection to defendants in the proceedings. However, where the plaintiffs are acting pro bono and had made clear they would not be seeking costs if successful, costs cap are unnecessary.

Conclusion

Protective costs orders are rare and will only be granted where a case presents itself as an exceptional one. It is a useful tool that allows plaintiffs to pursue proceedings that are in the public interest without having to risk bearing any potential adverse costs awards. Defendants responding to claims brought by 'costs protected' plaintiffs will have to plan their litigation strategy accordingly, because they will not be able to recover costs from the plaintiffs if they win.  

For more information, please contact:

Craig Andrews (Partner) on (09) 306 6745 (candrews@mcveaghfleming.co.nz)

Eryanto Widjaya (Solicitor) on (09) 306 6740 (ewidjaya@mcveaghfleming.co.nz)

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Litigation & Dispute Resolution

‍Written by Craig Andrews and Eryanto Widjaya