In Black v ASB Bank [2012] NZCA 384, the Court of Appeal has upheld the decision to award indemnity costs of over $90,000 against the appellant.

The costs award had been made on the basis of clauses in security documents which provided for the debtors to pay all costs, including legal costs on a solicitor and client basis, sustained by the bank in enforcing its rights under the documents.

The award was challenged on the ground that, at the first case management conference, the Court had fixed the costs category as category 2 (which provides for prescribed amounts only to be paid as costs). The appellant contended that this category therefore applied for the remainder of the proceeding, unless, for special reasons, the Court changed it under a precise provision of the High Court Rules.

The Court of Appeal rejected that argument. It noted that the High Court Rules expressly provide that indemnity costs may be awarded, notwithstanding an earlier categorisation of the proceeding. However, the actual costs awarded must be "reasonably incurred". In determining whether this is the case the Court must make a robust judgment in relation to the following matters:

  • What tasks attract a costs indemnity on a proper reading of the contract
  • Whether the tasks undertaken were those contemplated in the contract
  • Whether the steps taken were reasonably necessary in pursuance of the tasks
  • Whether the rates charged were reasonable having regard to the principles normally applicable to solicitor/client costs
  • Whether any other principles of general contract law would in whole or in part deny the prima facie right to judgment.

The Court held that a party ordered to pay indemnity costs which is not content with the Court's decision on reasonableness has three avenues of possible recourse. It may ask the Judge to make the order subject to taxation (i.e. detailed assessment by the Court), agree with the other party to be bound by the decision of a qualified practitioner as to the reasonableness of the costs or, potentially, make a complaint to the New Zealand Law Society under section 132 of the Lawyers and Conveyancers Act 2006. The Court noted that the availability of this last remedy in this context remains to be authoritatively decided.

Turning to the case at hand, the Court held that the bank's costs had been reasonably incurred (noting that the fee had been "written down" by 31%). Therefore, it upheld the High Court's costs award.

The decision will provide reassurance to contracting parties that "costs" clauses will not lightly be overridden by the Courts.