KEY POINTS:
The Court of Appeal has set a "worrying" precedent by effectively handing "a subsidy to the Serious Fraud Office" in minimising costs awarded to four acquitted defendants in the Digi-tech investment case, says prominent lawyer Stephen Franks.
The court reduced the costs awarded to John Anthony Reid, Peter William Russel, John Donald Currie and Peter Michael Connolly after they were acquitted on fraud and money-laundering charges resulting from the Digi-tech investment schemes.
The charges were brought by the SFO but, in late 2004, Judge John Fogarty found that, while he never doubted the $18 million Digi-Tech and New Zealand Investment schemes were tax-avoidance structures, he was not persuaded of a conspiracy to defraud investors.
After acquitting the four, he awarded costs which were never settled but were estimated to be between $500,000 and $1 million.
Last week, the Court of Appeal ruled that Reid and Russel should receive no costs and Currie and Connolly should receive $50,000 each.
Two of the three judges who heard the appeal said Reid and Russel had "brought the charges on their own heads". They were involved in "risk-taking activities, which materially affected the judgment of the Crown in bringing the case against them".
They said an award of costs in their favour "could, inappropriately, lead to greater caution being exercised in the investigation and prosecution of alleged serious and complex fraud, something that we do not regard as in the public interest".
The judges said the significant amount likely to be awarded in addition to the expenditure incurred by the SFO in preparing and presenting its case was "likely to have a considerable economic impact on the office. "There is at least a risk that the Serious Fraud Office's prosecutorial discretion would be inhibited."
However, Franks, of Chapman Tripp, said the judges' reasoning was "really worrying".
"They seem to think that a Government budget is like a bucket - if it runs out that's it.
"In fact, you need ministers and Parliament to know the true cost imposed by the servants of their agencies.
"If the Serious Fraud Office is taking unmeritorious cases and causing large unjustified costs to individuals, then the judges should make their decision about compensation on that basis. Then Parliament can decide what it does to try and avoid that happening in the future."
Franks said the judges were "usurping the role of Government and Parliament. They've gone and legislated a subsidy for the Serious Fraud Office."
Furthermore, he believed it was unfair for the court to externalise the cost of the SFO's mistakes on to defendants whose guilt was never established.
"You should have your cost regime designed to make sure it deters people from taking a punt on unmeritorious cases and encourages people to continue with meritorious cases.
"You don't want people deciding in advance 'even if I win I'll be bankrupted by the costs'. You actually want the incentives to be for people who feel they are innocent that, if they establish their case, they won't be left grotesquely out of pocket."
Currie's lawyer, John Haigh, QC, said his client's legal fees and disbursements had amounted to hundreds of thousands of dollars.
"His cost award in the High Court was nowhere near what he had incurred and now that's been reduced to a mere pittance and he is extremely concerned and bitter about what he perceives as an unfair result."
Haigh noted that Judge Ellen France, one of the three judges who heard the Court of Appeal case, had upheld Judge Fogarty's original findings on costs.
His client was considering taking the matter to the Supreme Court, as were other of the defendants. Haigh said there was "no question" that the other judges' decision had set a worrying precedent in allowing concerns about the SFO's budget constraints to influence decisions on costs.
