No business wants the cashflow interruption or the diversion of attention that having to chase a debt brings.
Almost inevitably, though, businesses at some point will be faced with the prospect of having to spend resources to recover a debt. There is a range of options for debt collection, and much will depend on past communications with the debtor and whether or not the debt is disputed.
If the decision is made to commence a debt recovery proceeding, maximising the costs recovery should be a focus at an early stage. Far too often, parties to a litigation turn their minds properly to costs only after they have spent significant sums on legal fees. By that time, it can be too late to resolve a matter, and the only alternative is a contested, and expensive, trial.
Whilst the courts have always encouraged parties to resolve matters without the use of court resources, the Uniform Civil Rules, introduced in May 2020, brings this into much sharper focus.
Rule 61 of the Uniform Civil Rules makes it very clear that the courts have placed an increased emphasis on attempts to resolve matters before the filing of a claim.
The principle, now codified by the Uniform Civil Rules, is that the time and costs incurred in a litigation should be proportionate to the amount in dispute. So how do the Uniform Civil Rules achieve this?
Before an action is commenced, Rule 61 requires a written settlement offer to be made. The written offer must provide a breakdown of the calculation of the claim and, importantly, it needs to include an estimate of the costs of the proceeding. This is new.
Ensuring that the parties have turned their minds to the potential total costs, at an early stage, improves the chances of resolving claims without utilising the court’s resources or spending large amounts on legal fees that may ultimately not be recovered.
A settlement offer, at almost any time in a proceeding, is also the mechanism for maximising the costs recovery. This is because costs are usually recoverable only in line with the relevant court’s costs “scale”. The amounts that can be recovered are usually substantially less than the costs that a party has actually incurred. Not allowing parties, even successful ones, to recover all of their costs, has been a traditional way in which the courts have encouraged parties to resolve matters before expending money on legal fees.
The Uniform Civil Rules reinforce the pathway to improving the costs recovery.
Rule 132 provides that when an offer is made, that is not accepted and judgment that is no less favourable than the offer is obtained, indemnity costs may be awarded from the date of the offer. In those circumstances, the costs recovery will be significantly more than the amount recovered on the court scale and much more like the amount that has actually been spent.
A party will need to have clear advice about the prospects of success at trial when setting the offer amount if they are to maximise the effectiveness of the offer. A prudent party, with the encouragement of the Uniform Civil Rules, will make that assessment early.
