Local Courts (Civil Claims) Act, 1970
Small Claims Division: COSTS

The purpose of creating the Small Claims Division of the Local Court was to create a simpler, faster and less expensive method of dealing with smaller monetary claims. For that reason the normal range of preliminary procedures has been reduced. Small Claims procedure is based on the premise that parties will not employ a lawyer to assist them with the conduct of their case. The use of lawyers has not, however, been prohibited. The use of lawyers is merely discouraged by the placment of limits on the ability of a party to recover legal professional costs. Part 31A rule 12 defines the limits of costs for actions conducted in the Small Claims Division.

Legal Professional Costs.
Where a lawyer (solicitor or barrister) appears on behalf of a party, the recovery of legal professional costs is limited to an amount up to the maximum amount allowed for the entry of a default judgment for that particular action as set out in item 2 in the scale of fixed costs . Thus, if the amount of the claim on the statement of claim is for $600 the legal profession costs will be limited to the amount set out in Scale A of item 2. If the amount of the claim is $2800, the legal professional costs will be limited to the amount set out in Scale C of item 2. This paltry amount is supposed to cover the costs of taking instructions, preparing, filing and arranging service of the statement of claim, reviewing and taking instructions in relation to the Notice of Grounds of Defence, case preparation, attending the pre-trial review and attending the assessment hearing. Legal practitioners have a duty to warn clients who retain them in relation to matters in the Small Claims Division of the Local Court that cost recovery is extremely limited and that hiring a lawyer may not be cost effective. Sometimes it is cheaper for them to lose the action rather than win it by using a lawyer.

If a lawyer attends a pre-trial review or assessment hearing in the Small Claims Division and the matter has to be adjourned due to the fault of the opposing party, the lawyer may claim costs for that adjournment up to the same limited amount set out above. Some courts still have regard to the old scale of interlocutory costs but a lawyer may ask for current market rates up to the amount limited for a default judgment. Similarly, the same amount of limited costs may be claimed where a party discontinues proceedings.

Often an interlocutory action is taken in relation to a judgment already given or entered up in a Small Claims Division action. Usually this is to set aside a default judgment or stay enforcement. Hidden away in Part 3 rule 11 (dealing with the question of Venue!) is a restriction which limits the recovery of legal professional costs on such applications to an amount up to the amount allowable for the entry of a default judgment.

Witness Expenses
While there is some variation in the procedure followed by different courts in the Small Claims Division, the general thrust of that procedure is to accept evidence by way of written statement and not to require witnesses to attend Court. For that reason true witness expenses are a rarity in the Small Claims Division. A successful party, however, is permitted to claim lost wages, traveling expenses, meals and accommodation expenses for attending court as if that party was a witness. Such claims are no longer limited to prescribed scales and must now merely be "reasonable" in the circumstances. For that reason it is not unknown for witness expenses to outweigh the value of an entire action. This is particularly true of cases where parties may be required to travel long distances and incur large expenses. Because solicitor's fees are not fully recoverable but witness expenses are, the court will entertain a claim for witness expenses of a defendant who travelled from interstate to attend both a pre-trial review and the final hearing rather than hire a solicitor to represent him.

Other Costs
Part 31A rule 12 makes it clear that filing fees, service fees and fixed legal professional costs allowable on the issue of a statement of claim, obtaining either a default judgment or an order for judgment and for enforcing a judgment remain recoverable as in the General Division at the fixed prescribed rates.

The costs for the proper and necessary use of an interpreter in the Court or to translate a necessary document appears to be allowable under the heading of "disbursements properly incurred" in Part 31A rule 12(8). Such a claim has been refused where the Court took the view that the interpreter was used not as a passive translator of an existing document but to help create the document and give it an improved structure and focus.

Parties may not claim any other costs.

Comment
In practice the costs limitations in the Small Claims Division have created some distortions. The vast majority of plaintiffs in the Local Court are large corporations attending to the collection of corporate debts. These corporations tend to use "in house" or affiliated lawyers who practice predominantly in that particular field. They charge bulk rates to their large clients who are usually banks and insurance companies. As a result, more than half of all actions commenced in the Small Claims Division of the Local Court are run by lawyers. Defendants, therefore, are more likely to find themselves appearing in the Small Claims Division pitted against a highly experienced lawyer. They will often feel disadvantaged and intimidated by the fact. If the defendant attempts to hire a lawyer to run their defence they are most likely to be told that it will not be cost effective for them to do so due to the costs limitations. They are often told that it would be cheaper to lose. The Court plays an interventionist role in the Small Claims Division and can address this imbalance through the care with which they conduct proceedings at the Pre-trial Review. Are the courts taking that care?

 

Last updated: 16th August, 1999
Copyright, 16/8/99: LAWconnect