Understanding Legal Costs and Disbursements in Debt Recovery Litigation

Debt recovery litigation is a critical area of law that helps creditors reclaim owed money. However, one aspect that often surprises clients is the complexity surrounding legal costs and disbursements, particularly regarding their recoverability. This article aims to clarify why not all legal costs and disbursements are recoverable in debt recovery actions, with a detailed focus on the costs associated with engaging process servers.

Legal Costs in Debt Recovery Litigation

When initiating debt recovery proceedings, clients typically incur various legal costs, including solicitor’s professional fees, court fees, and disbursements. Legal costs refer to the fees charged by solicitors for their services, which can include advice, drafting documents, and representation in court. Disbursements, on the other hand, are out-of-pocket expenses incurred while conducting the case, such as court filing fees, searches, investigations, engaging counsel, expert reports, and fees for process servers.

While clients may wish to recover all these costs if they are successful in their claim, the reality is that not all legal costs and disbursements are recoverable. The following factors contribute to this limitation:

1. Scale of Costs: The Local Court of New South Wales operates under a scale of costs that determines what can be claimed. This scale limits the amount recoverable to what the court considers reasonable and necessary for the conduct of the case. Consequently, any costs that exceed this scale may not be recoverable. The small claims division puts a cap on costs that can be recovered.

2. Discretion of the Court: The court has discretion in awarding costs. Factors such as the success of the case, behaviour of the parties during proceedings, the complexity of the case, and whether one party acted unreasonably can influence the court’s decision. This means that even if you incur significant legal costs, the court may determine that only a portion is recoverable.

3. Unrecoverable Costs: Certain costs may be deemed unrecoverable, such as those that are excessive or not directly related to the litigation. For instance, if a client engages in extensive communication that is not directly necessary for the case, those costs may not be recoverable. Costs for dealing with administration or for interlocutory motions or hearings are often not recoverable. An example of this would be if a defendant could not be located for service and a notice of motion for substituted service orders is required, unfortunately, these costs are not recoverable.

4. Jurisdiction: Each jurisdiction has their own set of rules that apply to the recovery of costs. For example, bankruptcy and insolvency matters heard in the Federal Court or Supreme Court have scale rates for recovery of filing fees and solicitors’ professional costs. All jurisdictions tend to review and update their costs schedules on 1 July each year to coincide with the start of a new financial year.

5. Costs Assessment: Even if a plaintiff has made a costs claim or has been awarded a costs order against a defendant the defendant may be entitled to have the costs assessed. This is a procedure whereby an external assessor will assess the merits of all the costs claimed and then may reduce the bill of costs accordingly.

5. Process Servers: One of the largest discrepancies in costs that are statutorily recoverable, and actual costs are the costs for engaging process servers. Engaging a process server is often necessary to ensure that documents are served in accordance with legislation which is relevant to each jurisdiction.

Process servers are licensed professionals tasked with delivering court documents to defendants, and their fees can vary based on the number of attendances required, ability to locate a defendant, investigations to locate defendants, complexity of the service and geographical location.

However, it is important to note that the costs associated with engaging a process server are not fully recoverable for several reasons.

1. Scale of Costs: Most jurisdictions provide scale rates for process service which are well below the actual cost. During and since COVID and subsequent to cost of living affecting the costs of petrol process server’s costs have increased dramatically in the last few years.
2. Reasonableness of Charges: Just like other legal costs, the fees charged by process servers must be reasonable and necessary. If the court deems the charges to be excessive or not justifiable, they may decide that these costs are not recoverable.
3. Court Discretion: The court retains the authority to assess the appropriateness of the costs claimed for process serving. If a process server is engaged for an unnecessary or overly complicated service, the court may refuse to award those costs.
4. Breakdown of Fees: In some instances, process servers may charge additional fees for investigations, skip tracing, surveillance, travel or other services. If these charges are not directly related to the act of serving the documents, they may not be recoverable.

Conclusion

In summary, while debt recovery litigation is a vital process for reclaiming owed money, clients should have realistic expectations regarding the recoverability of legal costs and disbursements. The scale of costs, the discretion of the court, and the nature of specific expenses such as process server fees all play crucial roles in determining what can be recovered. Understanding these factors can help clients navigate the financial aspects of their claim more effectively. If you have any questions or need further clarification on this topic, please do not hesitate to contact Paul Thorndike on 0429 008 247 or at paulthorndike@nswcreditlaw.com.au

Disclaimer: When researching and drafting this article we may use an AI advanced language model amongst other sources. It is intended for general informational purposes and should not be used as a substitute for professional advice. While every effort has been made to ensure the accuracy and reliability of the information provided, we cannot guarantee its completeness, timeliness, or appropriateness for any particular purpose. Usage of this information is at the reader’s own risk. We are not liable for any errors, omissions, or results that may be obtained from the use of this information. Always consult with a qualified professional before making any decisions based on the content of this article. For legal advice please contact Paul Thorndike on 0429 008 247 or at paulthorndike@nswcreditlaw.com.au