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If you are involved in a dispute with another person or company worth $20,000 or less, then the term Small Claims Division may come up when you think about potential court action. You may want to prepare for another party to file a lawsuit, or you may want to take a dispute to litigation but wonder how to navigate the court system in New South Wales (NSW). Most certainly, you will be trying to understand the costs of going to court and the possible outcomes. This article will discuss the purpose of the Small Claims Division of the NSW Local Court and how to begin or respond to proceedings commenced in the division.

What is Classified as a ‘Small Claim’?

Civil court cases (that relate to money or property owing) with a value in dispute of up to $20,000 are ‘small claims’. Therefore, you can deal with them in the Small Claims Division of the NSW Local Court.

The table below shows a simple breakdown of the appropriate NSW state courts for dealing with monetary disputes:

Court (Division)

Value of Civil Dispute

NSW Local Court (Small Claims Division)

Up to $20,000

NSW Local Court (General Division)

$20,00 to $100,000

NSW District Court

$100,000 to $750,000

NSW Supreme Court

More than $750,000


Commencing Proceedings

To commence court proceedings in the Small Claims Division, you will need to know the amount in dispute for any liquidated claim and put it on the statement of claim. This is a document that will specify the basis for your claim (allegations of wrongdoing by the defendant). Additionally, it will also outline the outcome sought by the plaintiff (typically compensation for financial loss or recovery of any assets/equipment).

Contrary to a liquidated claim, an unliquidated claim is where wrongdoing by the defendant is alleged, but the financial loss is not specified on the statement of claim. If you do not know this amount beforehand, then you can use your judgement to estimate whether the total amount will likely be below or above the $20,000 limit. 

During Proceedings

During the course of proceedings in the Small Claims Division, the court may revise or re-calculate the amount in dispute to be above the $20,000. Subsequently, the court may refer the case to the General Division of the Local Court, which can hear civil disputes up to $100,000.

Tip: if you are claiming the value of any equipment or assets, the appropriate value to claim may be their original value, current market value or future value, depending on your circumstances. Therefore, having a clear understanding of this before the court case will help everything run more smoothly.

Features of the Small Claims Division

The Small Claims Division is designed to allow parties (plaintiffs and defendants) to run court cases themselves, without having lawyers doing it for them. Consequently, to achieve this, it has a slightly different structure and set up to the other courts.

Fewer Formalities

Cases in the Small Claims Division are more often than not run by the parties themselves and not by their lawyers. Therefore, the rules and procedures of these cases are less strict than in other courts that more heavily involve lawyers.

The notable features of the Small Claims Division cases are that they:

  1. always begin with a pre-trial review between the judge and the parties, with the aim of trying to find a compromise solution to resolve the dispute without the need for further court hearings;
  2. have fewer formalities when it comes to corresponding with and appearing in the court directly;
  3. do not follow formal rules of evidence (which can be quite complex and restrictive);
  4. avoid technicalities getting in the way of the correct outcome (depending on the circumstances);
  5. do not automatically require third-party witnesses to provide evidence in court (unless the court requests so);
  6. do not automatically allow witnesses to be cross-examined (questioned by the opposing side) except in limited circumstances; and
  7. are typically done without lawyers present.

A Court Case Without Lawyers?

By not having lawyers participating in the court process, parties can save a lot of money that they otherwise would have spent on legal fees. In turn, this allows for the court to deal with claims with relatively smaller amounts of money in dispute, without the parties spending more on legal fees than the dispute involved.

Parties involved in a matter in the Small Claims Division can still engage lawyers to provide advice outside of the court environment. However, lawyers will typically take a more backseat role in these kinds of matters. In certain circumstances, lawyers may be able to be more hands-on in the case. However, permission or special justification may be necessary, particularly if the other party does not have legal representation.

Can I Claim Interest, Court Expenses or Legal Fees?

The Small Claims Division allows the winning party to claim some of these additional costs, but with several conditions and factors that vary these amounts. 

Interest

Any amount of interest claimed may be:

  1. determined by a contract or agreement between the parties (such as a commercial agreement or loan document); or
  2. calculated using interest rates set by the court (which you can view here).

The amount of interest will accrue from when the debt first became due and when the statement of claim is filed. This is referred to as ‘pre-judgment interest’ because it is before the judge has made a decision. 

Tip: Prejudgment interest does not contribute to the $20,000 limit on the Small Claims Division. Meaning, for example, a dispute worth $18,000 with $3,000 in pre-judgment interest will still be below the $20,000 limit.

Interest cannot be sought for claims for less than $1,000.

Court Expenses

There are certain administrative expenses of commencing a case in the Small Claims Division. For example, some typical expenses which a plaintiff will incur are:

  1. the filing fee, paid when submitting the statement of claim to the Local Court; 
  2. any services fees for sending the statement of claim to the defendant(s); and
  3. other related litigation costs, such as: 
  • issuing subpoenas to obtain information or documents from third parties; 
  • fees for conducting searches of company and property registers; and 
  • reports from professional experts.

Requirements for how legal documents are ‘served’ will depend on whether the recipient is a company or an individual. However, the claimable amount is capped per address of the defendant(s). Similarly, the filing fee is more expensive for a plaintiff that is a company, as opposed to just an individual. Other claimable fees (such as expert reports) can be capped per document.

Tip: Like interest, the limit on the claim amount for the Small Claims Division does not include these expenses, but can still add to the total amount you seek to be recover.

Legal Costs

The Small Claims Division deals with legal costs (lawyer’s fees) quite differently than in other courts. The court can decide if the parties should simply pay their own costs of the court proceedings, even if one party ‘wins’ the case and the other ‘loses’.

The amounts of legal costs that you could claim also differ depending on:

  • the claim amount; 
  • how far the proceedings progress; and
  • whether a reasonable compromise solution was offered but not accepted.

Factor

Impact on Tiers of Legal Costs Recoverable

Claim Amount

The base caps for legal costs are split into three tiers relative to the claim amount:

  • tier 1: claims of less than $1,000.
  • tier 2: claims between $1,000 and $5,000; and
  • tier 3: claims between $5,000 and $20,000.

The claim amount is the amount in dispute (not including interest or other expenses), which is listed in the statement of claim. However, the plaintiff typically seeks to have the relevant tier of legal costs included as a separate recoverable expense.

Stage of Proceedings

Pre-judgement

The maximum legal costs awardable for each tier increase further once the court proceedings are underway but are not completed.


For example, each tier increases in circumstances where the:

  • proceedings commence but are discontinued or stopped before an actual trial occurs;
  • court proceedings are deferred or delayed due to one party’s failure to follow instructions; or
  • court deals with additional interim requests (known as motions).

In any of the above circumstances, each tier may be approximately 1.5 times the base amount.


Post-judgment

If the case goes ahead to trial and the judge makes a decision, then the tiers will increase in further value, to approximately two point five times the base amounts.

Rejected Reasonable Offer

In certain circumstances, the court can increase the tiers of legal costs to be over three times the base amounts if:

  1. during the proceedings, one party makes an offer to settle the case and resolve the issue;
  2. the other party rejects the offer; and
  3. it was ‘unreasonable’ to reject the offer.

A court will be likely to deem a rejection of an offer ‘unreasonable’ if the offer was:

  • genuine or well-intentioned;
  • commercially just or fair; 
  • a realistic estimate of the debt in dispute; or
  • a suitable compromise which could have saved the parties and the court time and expense by ending the case early (and resulting in a better outcome for all).

Tip: The amounts for each tier of legal costs for the Small Claims Division are found on the court’s website.

Steps Involved in Small Claims Division Proceedings

The steps in commencing and running proceedings in the Small Claims Division are similar to what parties will do in other courts.

Stage

Steps Required by the Plaintiff

Steps Required by the Defendant

Pre-filing

  • Correspond with the to-be-defendant with any letters of demand. Try to negotiate a settlement agreement.
  • Prepare the statement of claim (with or without assistance from lawyers).
  • Conduct searches to appropriately identify the contact details of all defendants (and if required, their assets/property).
  • Seek professional or legal advice (optional).
  • Correspond with the to-be-plaintiff. Try to negotiate a settlement agreement (if possible).
  • Seek professional or legal advice (optional).

Filing and Service

  • File the statement of claim with the court. 
  • Pay the filing fee.
  • Provide a copy of the filed statement of claim to each defendant.
  • Prepare a defence that responds to the allegations in the statement of claim (with or without assistance from lawyers).
  • File the defence.
  • Provide a copy of the filed defence to the plaintiff according to the address details on the statement of claim

Pre-Trial

  • Attend a pre-trial review where the plaintiff and the defendant meet and try to find a compromise suitable to all parties.
  • If an agreement to settle the proceedings is reached, follow the agreed steps.
  • If no agreement is reached, prepare for a hearing.

Hearing

  • Prepare arguments and evidence to support the allegations in the statement of claim and disprove the defence (where contentious).
  • Call witnesses in support (optional).
  • Prepare arguments and evidence to support the allegations in the defence and disprove the statement of claim (where contentious).
  • Call witnesses in support (optional).

Decision

  • The judge will make a decision regarding the outcome of the proceedings.

Enforcement

  • Take appropriate measures to enforce the conditions of the judgment against the opposing party. There are several enforcement methods that may be available.

Appeals and Review

The decisions made by the judges and other personnel in the Local Court are binding and enforceable, regardless of the merits of any counter-arguments. After all, court cases are risky. However, there are some mechanisms to ask for certain decisions to be re-evaluated in limited circumstances.

Review

Certain procedural decisions made by the court’s administrative staff at the filing and pre-trial review stages may be eligible for review by a judge if you are unhappy with the outcomes.

However, a review application must be submitted within 28 days of the procedural decision.

Tip: Losing a review application will likely resort in you having to pay the legal costs of the opposing party.

Appeal

A judgment given in the Small Claims Division can be appealed to the District Court only if the:

  • party requesting in the appeal was not afforded the opportunity to fairly argue their case according to normal procedure; or
  • judge made decisions that they did not have the authority to do so.

You cannot appeal a judgment simply because you were unsuccessful and disagree with the ultimate decision.

You must submit an appeal to the District Court within 28 days of the judgment. After that, the opposing party will have an opportunity to respond to your appeal and argue against your new allegations. The District Court judge may then decide to re-make the decision or refer it back to the Local Court to be re-done.

Tip: Losing an appeal will likely resort in you having to pay the legal costs of the opposing party.

Key Takeaways

The Small Claims Division of the NSW Local Court allows people and companies with debts in dispute of $20,000 or less an opportunity to have the disagreement resolved by a judge. Dealing with proceedings in the Small Claims Division can be a little bit easier than other courts because of the division:

  • is more informal than other courts and accessible;
  • allows self-representing parties without lawyers present to handle cases; and
  • incentivises parties to resolve the dispute without further court proceedings.

When preparing for proceedings, you should keep in mind that there are limits on what costs the court can recover or award to either party (whether successful or not), including: 

  • interest on the debt; 
  • court-related expenses; and 
  • lawyer’s fees. 

These amounts further vary based on: 

  • the debt being claimed; 
  • how far the proceedings progress; and 
  • if settlement negotiations are unreasonably rejected.

Although lawyers do not typically play an active role in the Small Claims Division, they can still assist you with preparing for the court proceedings and advising you on your strategy. If you require assistance with proceedings in the Small Claims Division, contact LegalVision’s Dispute Resolution lawyers on 1300 544 755 or fill out the form on this page.

Frequently Asked Questions

When is the Small Claims Division used?

The Small Claims Division may be a relevant court action if you are involved in a dispute with another person or company worth $20,000 or less. You may be the one taking the dispute to court, or you may be preparing for another party to file a lawsuit against you. 

What are the benefits of the Small Claims Division?

Cases in the Small Claims Division are often run by parties themselves, without the aid of lawyers. This means that you can save a lot of money on legal fees, which allows for claims with smaller amounts of money in dispute to still be dealt with by the court. The rules and procedures are also less strict compared to other courts. 

What is the monetary limit of disputes in the Small Claims Division?

The Small Claims Division of the NSW Local Court allows people and companies with money in dispute of up to $20,000. Interest cannot be sought for claims for less than $1,000.

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