11 Oct 2021

Kiwis in need of legal aid stung by interest that outstrips mortgage rates

8:40 am on 11 October 2021

Some of New Zealand's poorest citizens now owe a share of $177 million in legal debt - and the government's charging them 5 percent interest. In this story from the Is This Justice series, Farah Hancock meets a man who ended up with a government caveat over his home.

No caption

Lawyer Frances Joychild QC says the government rarely writes off legal aid debt: "The person has to be dog poor, just about living in emergency accommodation with nothing, to get it written off" Photo: RNZ/Vinay Ranchhod

Out of pocket, out of work, and with a caveat hanging over the family home, Brandon* felt his options were limited.

"We were sort of trapped," he says.

A legal dispute over unpaid wages dragged on for years, and while it dragged on, Brandon's debt for legal services grew bigger and bigger.

Walking away from the case would have hit him in the pocket. Not only would he never see the wages owed to him, he would have been saddled with thousands of dollars of legal debt.

What may come as a surprise to some is that the biggest portion of Brandon's debt was for legal aid. New Zealand's legal aid service is supposed to ensure people with "insufficient means" can access justice, but in approximately 65 percent of civil cases it's a loan, not free legal representation.

Critics of the system say saddling people with debt is deterring people from seeking justice.

Read more from Is This Justice?


Brandon says he's a "Joe Average" who got ripped off by an employer. He first tried to get his money back by hiring an advocate, who helped him through an Employment Relations Authority process. He paid for the advocate with $10,000, mostly borrowed from family members.

He was successful and the Employment Relations Authority said Brandon's former employer owed him a significant amount of unpaid wages and compensation.

"That's pretty much where the fun started," Brandon says with a weary laugh.

The employer didn't pay up and the Employment Relations Authority doesn't have the power to enforce payment. To get the money owed to him and repay the money he had borrowed from his family, Brandon had to go to court, and he needed a lawyer.

The average hourly rate for a lawyer was $292.70 and that was out of Brandon's reach, so he applied for legal aid.

To be eligible for legal aid, applicants must prove they can't afford a lawyer. This includes declaring all forms of income, savings and assets.

"They pretty much need to know the value of everything and once that's all done they put a caveat [legal aid call this a charge] over your property," Brandon says. "You sort of feel like a criminal before you start."

Legal aid repayments can be made regularly, can be taken out of settlement money, or taken when somebody sells an asset, like their house or car. The Legal Aid Commissioner can order the state sector, third parties or banks to make deductions in order to recoup its money.

Unlike student loans, which are interest free unless a recipient moves overseas, legal aid debt has interest applied to it six months after a case is finalised. At 5 percent per annum, the interest rate is higher than the current three-year fixed home loan interest rates from New Zealand's biggest four banks.

"If we'd known what was going to happen, in hindsight, we would never have carried on," says Brandon.

The case dragged on for more than half a decade, and as the years rolled on he and his wife discussed whether the ongoing stress and cost of the case was worth it.

"Even if we stopped and we were $10,000 through the track, we still would have had to find the $10,000 to pay them back. Otherwise the caveat sat over our property. There was a point of no return."

He knew his bill had grown over the years, but when it was tallied up, he was shocked.

"Twenty-three thousand absolutely blew us away," he says.

New Zealand's legal aid debt bill

People can apply to have their legal aid debt written off but lawyer Frances Joychild QC says in her experience this is rare.

"The person has to be dog poor, just about living in emergency accommodation with nothing, to get it written off."

She's represented numerous people through the legal aid system and says in her experience most people have to repay part of their debt.

"It's so punitive and harsh now legal aid is a loan," she says. "They're pretty brutal. As soon as the case is over they start taking money from you on a weekly basis. I've seen people who end up having to pay legal aid for the next three years of their life, as well as other debts."

New Zealand's legal aid debt currently sits at $177 million, with 70,605 debts owing - down from a high of 106,471 debts owing in the 2020/2021 financial year. Each year roughly $30 million to $35m in new debt is added to the total.

No caption

Photo: RNZ/Vinay Ranchhod

The Ministry of Justice's 2019/2020 annual report listed $46.6m of legal aid debt expected to be paid off, as an asset in its annual report. More than $16.9m of this was 'secured', meaning the ministry had a charge placed over a house, car, or other item of value.

Across New Zealand, a total of 1251 houses, buildings or land had legal aid charges sitting over them in the 2020/2021 financial year. No charges were over vehicles or boat.

No caption

Photo: RNZ/Vinay Ranchhod While it was crucial that judicial independence remained, Defence Lawyers Association co-founder Elizabeth Hall said there was currently no way of knowing if a judge was doing a good job. "Judges guard their independence fiercely, as they should, but there's very little 360 feedb

If repayments aren't made, debts can be passed onto a debt collection agency. The number and value of debts in the hands of debt collectors peaked in the 2014/15 financial year with more than 1300 debts worth a combined total of $3.9m.

Since April 2018 no debts have been assigned to debt collection agencies. The ministry says this is due to a change in operational policy.

No caption

Photo: RNZ/Vinay Ranchhod

Joychild has found the fear of having a charge put over a house, or of servicing a debt they can't afford, puts some people off accessing legal aid, even if they are eligible.

Her experiences mirror what University of Otago's Bridgette Toy-Cronin heard when researching reasons people self-represent in court.

A family lawyer told her that "people worry about getting caveats on their houses". They see deciding whether or not to apply for legal aid as a calculation between "los[ing] your house to get your kids back, or … keep[ing] your house and not get[ting] your kids back".

Toy-Cronin says some people she's interviewed during her research chose to represent themselves because "they couldn't afford the risk of being in that sort of debt".

Of course, it's not just the debt, it's the interest too. Why charge people deemed as having "insufficient means" interest?

Interest was introduced in 2013, and it added millions to the legal aid debt bill each year.

No caption

Photo: RNZ/Vinay Ranchhod

In a Q&A document, the government said it was introducing interest, in part, to make applicants "consider carefully" whether to pursue a case and to ensure the government could recoup what it loaned: "The imposition of interest on legal aid debt will discourage the practice of legally aided persons sitting on large capital assets, and not repaying their debt until that asset is sold. "

This interest rate is the same as the government's capital charge rate, which is a rate set to reflect the cost to the government of not being able to use the money. Since its introduction to legal aid debt, it's been set at 8 percent, 6 percent and is currently 5 percent.

Joychild says it's outrageous people are being charged interest at such a high rate.

"It's a society that's lost its heart."

No caption

Photo: RNZ/Vinay Ranchhod

Community Law chief executive Sue Moroney says the uncertainty about paying back legal aid is a disincentive.

The high interest rate on legal aid loans adds "insult to injury" she says. "Charging interest on it for people who are in really difficult situations, often through no fault of their own, is just wrong in our view."

The organisation raised the topic with the previous Minister of Justice Andrew Little, who said he would seek advice on removing the interest charge.

"It still hasn't materialised," Moroney says.

Current Minister of Justice Kris Faafoi says this was raised in a 2018 review of the legal aid system and is still being looked at by officials but significant additional funding is needed.

"In recent times, the Government has had to prioritise spending towards New Zealand's response to Covid-19."

He says funding would be subject to future budget processes.

Moroney thinks changes could go beyond interest rates.

"The very least the government should do, in our view, is remove the ability for interest to be put against those loans. But in the longer term, actually addressing the fact that people get saddled with it at all."

Labopur MP, Sue Moroney.

Sue Moroney Photo: RNZ / Alexander Robertson

Not only does a legal aid loan hit you in the pocket, it may affect you in the future. If you have outstanding legal aid debt, you may not be able to receive further legal aid.

For cases where no settlement is likely, the maximum a person has to pay back is capped and dependent on income. The highest amount is $10,000, but that must be paid by a single person earning more than $26,029 a year - that's more than $15,000 below full-time minimum wage.

Debts can be cancelled if repaying the loan is likely to cause serious hardship to the debtor, if cancelling it is "just and equitable" or if the costs of recovering the debt will exceed the value of the debt.

In the most recent financial year almost 12,000 debts were written off.

The number of cancelled debts has previously been highlighted as a sign of an overly harsh system.

In 2015 the New Zealand Herald reported Jacinda Ardern, then justice spokesperson for Labour, commented on more than 10,000 debts being cancelled: "The ministry is accepting that there are people who are receiving legal aid, and are being told that they need to pay, who are then later in a financial situation where they are unable to. It looks like, not only could we remove a significant amount of stress, improve access to justice, we could also remove a whole lot of unnecessary administration."

Moroney thinks the government should review the legal aid loan system.

"It does seem like the wrong thing for the government to be doing, particularly where people lack access to justice."


Brandon's legal battle with his former employer is finally over and his legal aid bill has been paid from the money he received as a settlement - but it's taken a hefty chunk out of it.

He still has a charge over his home and wonders if he will have to pay the legal fees for it to be removed.

His advice to people considering using legal aid is to be careful.

"People want to be really serious about the amount they were actually getting if they win the case, because if it drags on for years, the cost doubles."

*Not his real name.

Get the RNZ app

for ad-free news and current affairs