New Zealand: Show me the money...recovering litigation costs

Last Updated: 28 November 2013
Article by Ben Cain

Rod Tidwell: "It's a very personal, very important thing. It's a family motto. So I want to share it with you. You ready?" Jerry Maguire: "Yes." Rod Tidwell: "Here it is. "Show me the money." (pause) Show. Me. The. Money."

Rod Tidwell was fortunate. Jerry Maguire was (eventually) able to show him the money. Unfortunately it is not the same in the court proceedings. Even if a plaintiff is successful, it will rarely recover all the money it has spent on achieving its goal. That is not to say that a win in court is a Pyrrhic victory, but the road to that victory must be tempered with realism.

An award of costs in court proceedings is not automatic. An award is made entirely at the discretion of the court and is intended to reflect the conduct of the parties during the course of litigation, not before it.

An award is determined according to a set of general principles set out in the rules which govern court procedure: for example, rule 4.2 of the District Court Rules and rule 14.2 of the High Court Rules. Perhaps the four most significant principles are:

  1. the party who fails with respect to a proceeding or an interlocutory application1 should pay costs to the party who succeeds (ie loser pays);
  2. an award of costs should reflect the complexity and significance of the proceeding;
  3. an award of costs should not exceed the costs incurred by the party claiming costs (ie actual costs);
  4. so far as possible the determination of costs should be predictable (so a party can to some degree calculate how much it might have to pay if it loses) and expeditious (so the parties don't have to wait to see how much they have to pay).

In general, an award of costs is determined, both at an interlocutory (intermediate) stage and ultimately, according to pre-defined daily recovery rates and pre-defined time allocations for particular tasks in court proceedings. These are called "scale costs".

There are three daily recovery rates: 1 (low), 2 (middle), and 3 (high). These reflect the complexity of a proceeding: the more complex, the higher the rate. Daily recovery rates are intended broadly to be approximately two-thirds of the rates that New Zealand practitioners in the relevant category currently charge to clients (HR14.4.01 commentary, High Court Rules).

There are also three 'bands' of time allocations for proceedings tasks, the allotment of which is based on what is 'reasonable' in the circumstances of a particular case: band A (comparatively small amount of time), band B (normal amount of time), and band C (comparatively large amount of time).

In the majority of instances the courts will award costs on the basis of this standard scale. However, the court does have the power to award increased costs or even indemnity (full) costs to a party. In general terms, increased costs may be awarded where there is a failure by the paying party to act reasonably, while indemnity costs may be ordered where that party has behaved either badly or very unreasonably (Bradbury v Westpac Banking Corporation [2009] 3 NZLR 400, 410).

The recent case of G-Star Raw C.V. v Jeanswest Corporation (New Zealand) Ltd [2013] NZHC 2679 is an instance of increased costs. In this case, Heath J awarded an uplift of 25% on the standard scale costs. His Honour considered there were two factors that justified increased costs being ordered against Jeanswest NZ (at [122]):

  1. the way in which Jeanswest NZ put to the Court and G-Star that a witness, Ms Laidlaw, would be a "key" witness who would give evidence at trial. Ms Laidlaw was not called as a witness in the end, which, Heath J said, "must have contributed to additional cost on the part of G-Star, in preparing for trial"; and
  2. late disclosure2 of "what was the most important document produced" (a sample order for jeans). Jeanswest NZ did not make this available to G-Star until less than a month before the trial was due to begin. Heath J expected that "some significant additional cost was incurred by G-Star in having to address such a critical document at a late stage of its preparation".

In closing, intellectual property3 litigation is never about showing a plaintiff (or a successful defendant) the money: it is about enforcing the rights you have obtained. It is also about maintaining your competitive advantage – the very thing that should show you the money.

Footnotes

1In most jurisdictions patent applications are subjected to an examination process to determine whether the subject matter is novel and inventive. The terms "application", "pending" or "patent application" are used to describe the status of the application up to grant.
2Refers to the description of the invention provided in the specification accompanying a patent application. For a patent to be valid, the invention must be described in enough detail to enable a person who is skilled in the field of the invention to put it into practice.
3Refers to the ownership of an intangible thing - the innovative idea behind a new technology, product, process, design or plant variety, and other intangibles such as trade secrets, goodwill and reputation, and trade marks. Although intangible, the law recognises intellectual property as a form of property which can be sold, licensed, damaged or trespassed upon. Intellectual property encompasses patents, designs, trade marks and copyright.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

James & Wells Intellectual Property, three time winner of the New Zealand Intellectual Property Laws Award and first IP firm in the world to achieve CEMARS® certification.

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