This article is meant as an overview relating to the recovery of legal costs in debt collection matters. Please consult your attorney to discuss specific aspects of costs recovery.
Generally, the award of costs in a matter by the Court, follows the result. This also applies to a debt recovery matter in terms of which a Creditor obtains judgment against a Consumer for payment of a sum of money. The judgment would ordinarily include judgment for payment of costs recoverable from the Consumer.
The extent of legal costs recoverable by a Creditor from a Consumer in respect of legal proceedings, will however depend on whether there was a written agreement between the parties regulating the liability for payment of legal costs.
In the event that that there is no written agreement between the parties, the Court will allow the Creditor to recover the costs of the action, on what is termed “the party and party” scale.
Therefore the Court will allow the creditor to recover all the legal costs incurred as was strictly necessary for the purposes of the Creditor obtaining the judgment against the Consumer.
These costs are determined by the Rules of Court and are set in terms of specified items and a corresponding fee tariff allowed for each such item, which may be recovered from the Consumer in terms of the judgement.
In terms of the party and party scale, the Court will however limit the necessity of having incurred costs strictly to only those costs claimable in terms of the tariff as was absolutely necessary for the purposes of obtaining the judgment against the Consumer. Any costs that are not absolutely necessary, will not be recoverable on the party and party scale.
It is in this respect that the major discrepancy in terms of a Creditor’s ability to recover legal costs from a Consumer arises.
In an instance where the parties have agreed that the Creditor will be able to recover legal costs form the Consumer on a scale as between “attorney and client”, the Creditor will be able to, not only recover the costs that were absolutely necessary for the purposes of obtaining judgment, but will also be able to recover most other costs incurred in obtaining the judgment, albeit at the tariff fixed in terms of the Rules of Court.
The nett effect of obtaining a judgment awarding costs in favour of the Creditor on an attorney and client scale, is therefore that the Creditor will be able to recover substantially more costs from the Consumer than recoverable under the party and party scale.
An agreement to pay costs on an attorney and client scale cannot normally be inferred and it is in this respect that Creditors should embody their entitlement to recover costs on an attorney and client scale in a written agreement to enable their attorney to recover as much costs as is legally recoverable from a Consumer in terms of the legal proceedings.
The ability to successfully recover legal costs from a Consumer further depends entirely on the ability of a Consumer to settle the judgment debt and costs. In the event that the Consumer is “a man of straw”, the ability of the Creditor to recover costs will be limited to the same extent as his/her ability to recover the judgment debt.
In light of the above, the importance to Creditors to review their credit agreements and/or standard terms and conditions for the purposes of ensuring that their rights to recover legal costs from a Consumer on an attorney and client scale are secured, cannot therefore be overstated.
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