Presentation to kon gres 2015

Transcription

1 What about the costs? The impact of litigation costs on mediation Presentation to kon gres 2015 Peter Franks, Andrew Horne, Karen Radich

2 Why do costs matter in mediation? Session outline The perspective of a mediator, an employment lawyer and a litigator Employment cases The process of employment cases and some case law points Costs study of awards made by the Employment Relations Authority Number crunching and points to note Civil cases Scale costs and the range of typical costs in civil cases Costs considerations on the dynamics of mediation

3 Why do costs matter in mediation? In employment cases: It is expensive to proceed beyond mediation Median costs awards in the Authority are less than half the actual costs for both employees (40%) and employers (29%) This is a big incentive to settle In civil cases: Litigation is expensive costs affect the net value of a claim Costs increase disproportionately as a case progresses to trial Successful party normally gets only a fraction of actual costs Costs are therefore a key consideration

4 Costs in employment cases Karen Radich Barrister, Clifton Chambers

5 Mediation The process of employment cases Under the Employment Relations Act, mediation is the main form of dispute resolution Employment Relations Authority If parties don t settle in mediation, they can ask the Employment Relations Authority to investigate and determine the matter In most cases, the Authority s process involves: The parties file briefs of evidence and relevant documents An investigation meeting is held, including submissions Employment Court Either party can appeal to the Employment Court. These are usually de novo, which means the whole case is heard again. Appeals on leave to Court of Appeal and Supreme Court points of law

6 Costs incurred in employment cases Mediation is provided without cost by MBIE the parties meet any costs of their own representation. Employment Relations Authority / Employment Court filing fees hearing fees representation costs witness expenses and service fees travel costs stationery and photocopying (itemised)

7 Costs awards in the Authority the principles Statutory power: The Authority or Court may order any party to a matter to pay to any other party such costs and expenses as thinks reasonable Leading case law: A Full Bench of the Employment Court in PBO Ltd v Da Cruz: Costs are discretionary whether awarded and what amount Even so, costs will generally follow the event Costs are to be considered on a case by case basis Awards will be modest Frequently judged against a notional daily rate Costs are not to be a punishment for the unsuccessful party Without prejudice offers are taken into account

8 Costs in the Authority daily tariff The daily tariff: The Authority has a tariff-based approach to awarding costs to successful parties The current tariff is $3,500 per day (for a full day) Adjusted up or down in a principled way However: The tariff falls well short of costs that are usually incurred in even the most straightforward Authority cases

9 Reality vs the daily tariff $3,500 per day is hours of a lawyer s time Preparation involves a number of briefs of evidence, bundle of docs, agreed statement of facts, research and drafting legal submissions The preparation is very important, as the Authority is now required to indicate the outcome at the end of the investigation meeting There can also be discovery issues, delays, witness summonses, missing witnesses, information dumping, OIA/Privacy requests Investigation meetings are usually 6-7 hours/day Tariff has a built-in component for submissions being filed after the investigation meeting (Employment Court Big Kahuna) even though that can take another day of time Costs usually more for the employer One reason burden of proof usually on employer to justify its action or decision to dismiss

10 Recent case law on costs (1) Mattingly v Strata Title Management Ltd (Employment Court, 2014) Legislation intended employment disputes to be resolved in a costeffective, non-technical and practical way Nothing wrong with the tariff-based approach provided it is not applied in a rigid manner without regard to the particular characteristics of the case There are evident purposes and benefits of a daily tariff approach: Simplicity and predictability Flexibility can be injected into the costs assessment process by making upward or downward adjustments

11 Recent case law on costs (2) Booth v Big Kahuna Holdings (Employment Court, 2015) Awards in the Authority will be modest Frequently assessed against a notional daily rate Conduct that increases costs can be taken into account The Authority is designed to be investigative, non-technical, low-level, readily accessible, so: Legal costs should be modest Imposing a substantial costs burden gives rise to access to justice issues, particularly for employees In the Employment Court: starting points is two-thirds of actual and reasonable costs Sometimes refer to the High Court scale as comparison point Chief Judge is consulting on a costs scale for the Employment Court

12 The impact of offers to settle Colloquially known as Calderbank offers In the Authority, without prejudice save as to costs offers can be taken into account in determining whether to increase or decrease daily tariff In the Employment Court, a steely approach is adopted in assessing costs awards where such an offer has been made (endorsed by the Court of Appeal) Why? Because where an offer is unreasonably rejected, costs are then wasted going to trial In Mattingly v Strata Title Management, award of costs made to employee was increased because she won her case and was awarded more in remedies that she had offered to settle for beforehand Conditions of offer should be remedies the employment institutions can actually grant though not terms such as replace dismissal with resignation

13 Indemnity costs Often a threat in mediation that there will be indemnity costs Unlikely to actually occur in employment cases Booth v Big Kahuna Holdings (Employment Court, 2015) Indemnity costs may be justified in relative rare cases where a party s conduct is particularly egregious Bradbury v Westpac Banking Corp (Court of Appeal, 2009) Indemnity costs are exceptional and require exceptionally bad behaviour Types of cases where indemnity or increased costs awarded: serious and unfounded allegations of fraud levelled at opposing counsel, where Judge or opposing party has warned party of consequences of continuing with frivolous or unfounded proceedings

14 The study of Authority costs awards Peter Franks MBIE mediator

15 Purpose: The study of Authority costs awards to find out more about the actual gap between the cost of litigation in the Authority and costs awards made Process: 531 costs decisions of the Authority were analysed decisions from the four years between 2011 and 2014 Exclusions: Analysis excludes costs decisions which did not report the actual level of costs of the successful party or where the only award was the filing fee

16 Analysis of Authority s approach to costs % of cases Costs awards 56% Daily tariff 15% Increased daily tariff 14% Calderbank offer increased tariff 6% Nothing awarded 5% Full costs awarded. Usually where costs were modest and close to the daily tariff 5% Reduced daily tariff (e.g. where unsuccessful party unable to pay).

17 Costs awards compared with actual costs The study compared the Authority s costs awards with the actual costs of the successful party Because of the wide range of numbers, it looked at medians (the midpoint of the range) Employees were successful in just over half the costs awards analysed (so the other half of cases were successful employers seeking costs) Taking a case to the Authority can be expensive: 28 per cent of employers actual costs were over $20, per cent of employees actual costs were over $20,000

18 Median costs awards Employees costs: The median costs awards made to employees was $3, Median actual costs for employees was $8, Employees were therefore awarded 40 per cent of their actual costs Employers costs: The median costs awards made to employers was $3,000 Median actual costs for employers was $11,500 Employers were therefore awarded 29 per cent of their actual costs

19 Where employees win but are out of pocket In some cases employees win at the Authority but end up out of pocket because their actual costs swallow up the amount they are awarded for wages and/or compensation and for costs. Money award Costs award Actual costs Net outcome $7, $2, $12, $3, $15, $6, $26, $5, $12, $7, $26, $6, $8, $3, $19, $6, $9, $15, $33, $9, $18, $7, $34, $9, $3, $5, $20, $11, $2, $3, $27, $21, $3, $ $26, $22, $10, $11, $47, $25,244.00

20 What these figures mean in practice The actual costs of taking a case to the Authority are higher than the daily tariff From a mediation point of view: this provides a strong incentive to settle in mediation From an access to justice point view: the costs of taking a case vs the likely financial outcome are prohibitive for many claimants This is particularly the case where the outcome is challenged in the Employment Court at which point costs escalate significantly Observations of an employment mediator

21 Civil cases how costs affect mediation Andrew Horne Partner, Minter Ellison Rudd Watts

22 Costs and mediation in civil cases Why mediate? Everyone loses in litigation - because of costs Expense of litigation is a key driver to mediate Costs are uncertain and can blow out Legal costs are only part of the story - hidden business costs too Winner s recovery of costs is limited What this all means: Costs make it easier to settle civil cases if you get in early

23 Typical total costs in High Court civil cases Contract claim, $1m, 4 witnesses, 3 day trial Tort claim, $5m, 6 witnesses, 2 experts, 2 weeks FMA civil claim, $20-$50m, complex Very high value class action type claim, multi-party $400k $1m $5m $10m+

24 Scale costs in High Court civil cases How the scale works Reasonable time allocations for specified work Categories of complexity (1 to 3) and applicable daily rates Work (e.g.) A (days) B C Claim Discovery Briefs Complexity category Daily rate 1 $1,480 2 $2,230 3 $3,300

25 Costs in civil mediations Worked examples Simple contract claim, 4 witnesses, 3 day trial Actual costs approx $200k per party Scale costs (2B) approx 23 days x $2,230 = $51k Disbursements say $10k Total recovery: $61k Complex tort claim, 6 witnesses, 2 experts, 2 week trial Actual costs approx $500k per party Scale costs (3B) approx 33 days x $3,300 = $109k Actual experts costs and disbursements say $50k Total recovery: $159k Scale entitlement is normally only a fraction of actual costs

26 Costs in civil mediations Practical consequences Best and worst outcomes: Contract claim for $1m, costs $400k per party, costs recovery $61k Plaintiff best outcome: $1m + $400k + $61k costs = $661k Plaintiff worst outcome: $0 + $400k - $61k costs = $(461k) Defendant best outcome: $0 - $400k + $61k costs = $(339k) Defendant worst outcome: $-1m - $400k - $61k costs = $(1.461m) Plaintiff and defendant between them will inevitably lose $800k in legal costs nearly the value of the claim Capturing that value will help to settle provided it has not already been spent on lawyers

27 Costs in civil mediations Practical consequences Without costs considerations: Contract claim for $1m Assume merits are 50/50 Plaintiff upside 50% chance to win $1m = value $500k Plaintiff downside 50% risk of losing = value $0 = net overall value of the claim = $500k Defendant upside: 50% chance of successful defence = value $0 Defendant downside: 50% chance of losing $(1m) = $(500k) = net overall value (i.e. risk) of the claim = $(500k) So it makes sense: for the plaintiff to accept any amount over $500k for the defendant to pay any amount up to $500k - but there is no cross-over they must agree on the merits

28 Costs in civil mediations Practical consequences Add in costs considerations: Contract claim for $1m, costs $400k per party, costs recovery $61k Assume merits are 50/50 Plaintiff upside 50% chance to win $661k = value $330k Plaintiff downside 50% risk of losing $(461k) = value $(230k) = net overall value of the claim = $100k Defendant upside: 50% chance of losing $(339k) = value $(169k) Defendant downside: 50% chance of losing $(1.461m) = $(730k) = net overall value (i.e. risk) of the claim = $(449k) Now it makes sense: for the plaintiff - to settle for $100k or more For the defendant to pay up to $449k - there is a $349k cross-over in which settlement makes sense

29 Returning to the opening question: Why do costs matter in mediation? In civil cases: Costs are often a significant proportion of the value of a claim Only a fraction of costs is recoverable by the winner Costs considerations can therefore make it easier to settle by widening the band in which settlement makes sense for both parties irrespective of the merits

30 Returning to the opening question: Why do costs matter in mediation? In employment cases: Costs incurred before and during mediation are not recoverable so parties can come to mediation having already incurred substantial costs It is expensive to proceed beyond mediation The substance of many cases can be in a grey area of fairness and reasonableness Median costs awards in the Authority are less than half the actual costs for both employees (40%) and employers (29%) Employees can be left out of pocket Another visible effect 50% of parties in the Employment Court are self-represented (anecdotally)

31 Questions