Costs literally sky high

It may have become apparent from my first half dozen blogs, that I am a fan of puns in my headlines.

But in my defence, in this case, it truly is appropriate.

Linda Gates, a former Air NZ Accounts Clerk, has been ordered to pay $65,000 towards the airline's legal costs (of $88,878 actual) following her unsuccessful appeal in the Employment Court in 2009.

In the scheme of costs awards in the Employment Relations Authority and Employment Court, $65,000 truly is "sky high".

I've raised the issue of costs before, as one of the issues being considered as part of the Government's review of the personal grievance procedures.

Costs awards in the Employment Relations Authority are generally based on a notional daily rate. The rate used is approximately $3,500 for a "standard case". The daily rate is applied to the number of days the Authority Investigation Meeting takes, and takes no account of preparation time.

A common complaint from employers is that often they can be wholly successful in a determination of the Authority, but only be awarded what amounts to a nominal contribution to their costs, leaving them with what, from a commercial perspective, amounts to a pyrrhic victory.

Under the Employment Relations Act, the Employment Court has discretion to award costs "as the Court thinks reasonable". The primary principle is that costs follow the event. Beyond this, costs should be a reasonable contribution to the costs actually and reasonably incurred. In practice, most costs awards are best described as a contribution to, as opposed to actual costs.

In this case, Judge Couch indicated he would have awarded Air NZ two thirds of its actual costs. However, once it was revealed that Ms Gates had turned down a Calderbank offer of $30,000, he increased the costs award to three quarters of the actual costs.

A 'Calderbank' offer is a special kind of without prejudice offer to settle a dispute. A 'normal' without prejudice offer cannot ever be produced in court. A Calderbank offer cannot be produced, except when the court is making its decision on costs.

The relevance of the offer at the costs stage is that, if a party has declined an offer to settle the dispute which is more favourable to them than the court's decision, they 'should' have accepted the earlier offer and ought to pay a greater contribution towards the other party's costs.

Judge Couch gave weight to that offer, together with Ms Gates' "denial" of her responsibility for costs (she said it was Air NZ's responsibility to pay its own costs), the inefficient way she conducted her case and her ability to raise the money to pay the costs ordered.

In terms of the impact and importance of this decision, employers and those involved in defending cases are likely to be delighted by this decision. In appropriate cases, where an employer is successful in defending a claim by an employee, it is possible for the employer to recover a significant amount of reasonably incurred costs.

Employees and others pursuing claims would be well advised to bear this in mind when weighing up the very literal, and potentially high, cost of proceeding with a claim that ultimately is found to be without merit.

Can you afford to take a case if the costs could be this high?

Is that a good or a bad thing?