Exceptional circumstances may produce exceptional costs outcomes in DRS disputes

Originally Published by Andrew Gorman on Thursday, June 11, 2020 3:17:40 PM

Is a claimant who seeks statutory benefits under the Motor Accident Injuries Act 2017 entitled to costs in excess of those fixed by the Regulations? The Supreme Court of NSW provided the eagerly‑awaited answer in AAI Limited v Moon.

Author: Andrew Gorman
Judgment date: 11 June 2020
Citation: AAI Ltd trading as GIO v Moon [2020] NSWSC 714
Jurisdiction: Supreme Court of New South Wales¹

Principles

A claimant for statutory benefits is entitled to recover and to be paid legal costs exceeding those prescribed by the Regulations where exceptional circumstances are certified by DRS.
DRS cannot make an order for legal costs under s 8.10(1) unless those costs are reasonable and necessary and were incurred by the claimant in connection with the claim.

Background

Mr Moon suffered injury in a motorbike accident. His claim for statutory benefits was denied by GIO after 26 weeks on the grounds that the accident was caused wholly by Mr Moon's fault. The Dispute Resolution Service (DRS) upheld that decision. The Assessor found that Mr Moon was entitled to costs "outside the regulated amount prescribed by the Motor Accident Injuries Regulation" due to the existence of exceptional circumstances within the meaning of s8.10(4)(b) of the Motor Accident Injuries Act 2017 (the Act).

GIO challenged that costs decision on the ground that the DRS Assessor did not have the power to permit payment of legal costs in those circumstances.

GIO did not take issue with the existence of exceptional circumstances. In issue was the proper construction of relevant provisions of the Act, particularly s 8.10(3).

Section 8.10 provides as follows:

(1) A claimant for statutory benefits is (subject to this section) entitled to recover from the insurer against whom the claim is made the reasonable and necessary legal costs, and other costs and expenses, incurred by the claimant in connection with the claim. Other costs and expenses include the cost of medical and other tests and reports.

(2) The regulations may make provision for or with respect to fixing the maximum costs and expenses recoverable by a claimant under this section (including any matters for which no costs and expenses are recoverable from the insurer).

(3) A claimant for statutory benefits is only entitled to recover from the insurer against whom the claim is made reasonable and necessary legal costs incurred by the claimant if payment of those costs is permitted by the regulations or the Dispute Resolution Service.

(4) The Dispute Resolution Service can permit payment of legal costs incurred by a claimant but only if satisfied that—

(a) the claimant is under a legal disability, or

(b) exceptional circumstances exist that justify payment of legal costs incurred by the claimant.

(5) An insurer is not entitled to recover from a claimant for statutory benefits any legal costs, or other costs and expenses, of the insurer in relation to the claim.

GIO argued that s 8.10(3) is directed to the entitlement to recover costs, not the amount of costs recoverable, and that there are no regulations by which payment of those costs is permitted for the purposes of subs (3). In effect, GIO contended that the regulations made under s 8.10(2) specified maximum amounts for legal costs but did not give permission for the payment of legal costs for the purposes of s 8.10. In those circumstances, it was argued that there were no payments that fell within the description of payments "permitted by the regulations" in s 8.10(3).

Decision

The court found, at [91] that the "regulations" referred to in subs (3) are the regulations made under subs (2) and do "permit" the payment of legal costs to the extent that the costs in question do not exceed the maximum fixed by the regulations.

There is a second category of costs recoverable by a claimant under s 8.10(1) and (3), and this includes those that are "permitted by…(DRS)". However, GIO argued that the DRS's power to permit payment of this category of costs should be construed as being limited to payments of costs that did not exceed the maximum fixed by the regulations.

The court disagreed, finding, at [95] that such an interpretation would treat the provisions as superfluous or insignificant. The text of s8.10(3) includes no limit on the DRS's power to permit payment of costs. The court observed at [97], that the constraints on the power arising from subs (4) were designed to deal with "particular, unusual situations where the maximum costs fixed by the regulations may not be adequate". It was envisaged that some cases may be exceptional "because they involve an unusual degree of factual or legal complexity or for some other reason, and this requires the incurring of more substantial legal costs by a claimant". The court explained that it would be consistent with the objects and other provisions of the Act to permit the payment of such costs "where that was reasonably required to prevent injustice, hardship or some other relevant adverse consequence" [99].

The court held that whether costs are "reasonable and necessary" is a matter that depends on the particular circumstances of each case. Costs will be "incurred" within the meaning of subs (1) where the claimant has "an actual liability to pay legal costs for services provided by a lawyer and the lawyer who provided the services has a corresponding entitlement to payment" [111].

The court concluded that there was no error on the part of the DRS Assessor and the summons was dismissed.

Why this case is important

This decision brings long awaited judicial pronouncement to the proper construction of the Act and Regulations, particularly s8.10(3). A lack of clarity and ambiguity in parts had given rise to considerable uncertainty, as evidenced by the fact that a 45-page judgment was necessary to dispose of the issues.

The judgment legitimises the allowance of legal costs in respect of DRS disputes in excess of those prescribed by the Regulations where exceptional circumstances exist. It is important for insurers and practitioners to note that exceptional circumstances may require "particular or unusual situations" and not just claims involving a degree of complexity. If costs above those prescribed by the regulations are sought, they must be reasonable and necessary, and it must be shown that they were incurred in circumstances giving rise to a liability to pay.

¹ Wright J