Controversial court ruling prevents in-house lawyers from receiving costs

A Court has refused to award costs to an in-house lawyer acting for the IRD in court proceedings.  The controversial High Court decision is a departure from longstanding authority that in-house counsel can recover scale costs under the High Court Rules.  While there are rumours of an appeal on the horizon, for the meantime in-house counsel should be aware of the risk that they may not be awarded costs.

A link to the decision is available here.

Departure from longstanding authority

Associate Judge Matthews dismissed the IRD’s application for costs in The Commissioner of Inland Revenue v New Orleans Hotel (2011) Limited. In doing so, he departed from longstanding authority that costs will usually be awarded in litigation where the successful party is represented by in-house counsel.

Costs of in-house lawyers are not “costs actually incurred”

AJ Matthews found that the Court of Appeal’s interpretation of “costs actually incurred” in the High Court Rules excludes the work of in-house lawyers.  In Joint Action Funding v Eichelbaum, concerning a self-representing lawyer, the Court of Appeal found that “costs actually incurred” are legal costs billed by a lawyer employed by a party litigant.  In a later case, a full bench of the Court of Appeal commented that this approach is consistent with the fundamental idea, recognised for hundreds of years, that costs awards should be limited to professional legal costs actually incurred.

AJ Matthews decided that these decisions should be followed because the Court of Appeal decision did not explicitly limit its decision to self-representing lawyers. His Honour added that given these decisions, awarding costs by resort to the Court’s discretion would be inappropriate.

Decision subject to scrutiny

This ruling has been criticised.  In a recent case, Associate Judge Bell expressed his displeasure at having to follow the decision, going as far as suggesting that the IRD should appeal the decision. Unless and until there is an appeal or other clarification, in-house litigation teams acting in court proceedings may find they cannot recover any costs at all.  If the decision is not reversed on appeal, this will have a disproportionate impact on government agencies such as the IRD.

If you have any questions in relation to this issue and how it may affect you or your organisation, please contact one of our experts.

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