What Costs Can I Recover in Debt Recovery Proceedings?

Even if you are successful in getting a judgment against your debtor, not all your legal costs will be recoverable. Knowing how much you may recover (or not) is beneficial as it may affect your decision to go to court at all. This article sets out what court costs you can recover if you are successful in debt recovery proceedings, and explains the process for the assessment of costs.

Undefended Proceedings

Undefended proceedings are proceedings where judgment is entered by default. In all New South Wales courts, the legal costs recoverable in undefended proceedings are prescribed and capped. However, the capped costs are higher in the District and Supreme Courts than in the Local Court, as the value of the debt claim in these courts are much larger.

*Figures correct as at April 2018

Defended Proceedings

Local Court General Division

In the General Division of the Local Court, parties make arguments in relation to costs at the end of a trial. The court has the option of either:

• fixing the amount of costs payable; or
• making an order that costs be ‘as agreed or assessed’ (discussed further below).

The successful party should present a summary of costs sought, including evidence of any time spent on the matter. The court will then consider whether this time spent was reasonable in the circumstances. Generally, a successful creditor could expect to receive a costs order of approximately 60%-75% of their incurred costs.

However, in debt recovery proceedings where the court awards an amount that is less than $20,000, the creditor’s costs are capped at 25% of the awarded amount. Therefore, if a creditor wishes to seek a higher costs order, they must make an application to the court providing evidence as to why a higher costs order is appropriate.

Small Claims Division (Claims Under $10,000)

The Small Claims Division of the Local Court is more limited in the costs orders it can award. Here, the maximum amount a creditor can recover is the amount allowable for a default judgment (set out in the table above).

Assessment of Costs

At the end of a contested hearing, the court may make an order for the assessment of costs.

The party who has had costs awarded in their favour can make an application for assessment by:

• completing the approved form;
• attaching itemised tax invoices with copies of any disbursement invoices they are claiming; and
• lodging the application with the Manager, Costs Assessments at the Supreme Court.  

The party against whom the costs order is made has an opportunity to ‘object’ to the costs application. Any objections must be in writing and sent directly to the costs assessor, with a copy also sent to the costs applicant. Objections can be general and relate to the entire claim, or can be specific to each time entry claimed. Common objections include the:

• work is administrative in nature;
• hourly rate claimed is unreasonable;
• item of work was not reasonable to undertake; or
• time taken to complete the work is unreasonable.

The costs assessor will then consider all the available information before determining the amount of the costs order. Upon payment of the assessor’s costs, the parties will receive certificates of determination. They can register these certificates as a judgment and enforce them if necessary.

Bankruptcy and Winding Up Proceedings

A creditor who commences either bankruptcy proceedings (against a debtor who is an individual) or winding up proceedings (against a company debtor) can seek to recover certain costs incurred in those proceedings.  

The court will generally make a costs order in favour of the creditor applicant at the time the bankruptcy (sequestration) or winding up order is made. The applicant creditor must provide the court with a schedule of costs. All reasonable disbursements, such as court filing fees, service fees and counsel’s fees (if the matter is complex) are recoverable.  

As a general guide, a successful applicant will receive a prescribed amount for legal costs of:

• $2,426* for a sequestration order; or
• $3,776* for a winding up order.

         *Amounts current as at April 2018.  

However, note that, in practical terms, the court will simply add the amount of any favourable costs order to the total debt owed by the debtor.  

Key Takeaways

Although you can recover legal costs if you are successful in debt recovery proceedings, you will only be able to recover part of these costs. Therefore, a creditor should always keep this in mind before commencing debt recovery proceedings. If you need advice on costs recovery, contact LegalVision’s debt recovery lawyers on 1300 544 755 or fill out the form on this page.