Costs in litigation

Litigation can be a costly and time-consuming process.One of the key considerations for parties involved in a legal dispute is the issue of legal costs. Costs in litigation refer to the expenses incurred by a party throughout the proceedings, including solicitor's fees, filing service and hearing fees, and other disbursements. At various stages within a proceeding the Court has the power to order that one party pay the legal costs of the other. Costs in litigation can be critical to the strategy in a proceeding, and this is why understanding how costs orders work is essential to managing risks and expectations when a party engages in litigation.

In all Australian jurisdictions, costs orders are governed by specific legislation and court rules unique to each state,territory, and the Commonwealth. This article will explore the types of costs orders that can be made, when courts award costs, and the steps involved in enforcing a costs order with specific reference to the New South Wales and Commonwealth (Federal) jurisdictions including case law that has shaped the principles governing costs in litigation across these jurisdictions.

Type of Costs Orders

In litigation, there are several types of costs awards a court may order, depending on the circumstances of the case and the conduct of the parties. These orders aim to either compensate one party for their legal expenses, or to penalize unreasonable or vexatious behaviour during the proceedings. In the NSW and Federal courts, the most common types of costs orders include:

1. Party/Party Costs

Party/Party costs are the most typical order for costs.They represent the legal costs one party must pay to another as a result of “losing”the case. However, these costs typically do not cover the entirety of legal expenses incurred by the successful party; instead, they cover a reasonable portion, usually determined on what is known as the "standard basis".As a rule of thumb, the standard basis usually covers approximately 50% to 70%of the costs incurred by the successful party.

2. Solicitor/Client Costs

Solicitor/Client costs refer to legal fees that a client agrees to pay their own solicitor, typically under a retainer or costs agreement. When the court orders these costs, it requires one party to reimburse almost the entirety of the legal fees incurred by the opposing party.While uncommon, these costs orders may be made in cases where contractual agreements or conduct between parties justify such an award.

3. Indemnity Costs

Indemnity costs represent a more punitive form of a costs order, where the “unsuccessful” party must pay all the reasonable legal expenses of the “successful” party, as opposed to just a portion of their reasonable legal expenses. As a rule of thumb, indemnity costs usually cover approximately 70-90% of the costs incurred by the “successful” party. Courts may award indemnity costs when a party has engaged in misconduct, bad faith, or has pursued a baseless case. Indemnity costs are often awarded as a way to discourage other litigants in the broader community from engaging in unnecessary litigation and to penalize improper conduct during a proceeding.

Costs on the Standard Basis vs. Indemnity Basis

When costs are awarded on the "standard basis,"the successful party is entitled to recover only those costs that are considered "reasonable," whereas indemnity costs cover most costs unless they are unreasonably high. Courts have discretion to decide which basis is appropriate, depending on the conduct of the case, a common indicator being whether or not an offer to compromise was made, when it was made, and upon what terms was it made. If it is found that the offer was timely, upon reasonable terms (better than what was achieved at trial), and was open for a reasonable period of time, the court may be motivated to make an indemnity costs order.

When Costs are Awarded

The general rule is that "costs follow the event,"meaning the unsuccessful party is usually ordered to pay the legal costs of the winning party. However, costs awards are not automatic and are subject to the discretion of the court, which can take into account various factors to determine whether a costs order is appropriate and, if so, on what terms.

1. General Rule: Costs Follow the Event

Under the general rule above, the party that succeeds in the litigation is typically entitled to recover its costs from the unsuccessful party. This principle is based on the idea that a successful litigant should not be left out of pocket as a result of enforcing their legal rights and entitlements. However, the courts retain broad discretion to depart from this rule based on the circumstances of the case.

2. Court Discretion and Influencing Factors

Courts have significant discretion when awarding costs and may consider the conduct of the parties, any offers of settlement made, and the complexity of the case. For instance, if a party has acted unreasonably,refused a reasonable settlement offer, or caused unnecessary delays, the court may issue an adverse costs order, including indemnity costs.

The High Court case of Oshlack v Richmond River Council (1998) sets a key precedent in this area. In that case, the High Court held that costs may not be awarded to a successful party if the litigation raised issues of public interest. The Court ruled that, in some circumstances, a successful party could be denied costs where the case involves broader issues that transcend private rights, such as environmental concerns,see [134].

3. Exceptions to the General Rule

While the general rule of "costs follow the event"is dominant, exceptions do exist. For example:

• Public Interest Litigation: Courts may abstain from awarding costs against an     unsuccessful party if the case raises issues of significant public     interest. (For example, see Oshlack above).
• Self-Represented Litigants: In Latoudis v Casey (1990), the High Court     clarified that self-represented litigants generally cannot claim costs     unless they are also qualified lawyers.
• Mixed Success: In cases where both parties achieve partial success, the court may award     each party their own costs, or no costs order may be made at all.

Courts also consider factors such as whether the parties made offers to settle under mechanisms like Calderbank offers or formal offers of compromise under Part 20 of the Uniform Civil Procedure Rules 2005 (NSW). Rejecting a reasonable settlement offer could result in an adverse costs order on an indemnity basis.

How to Enforce a Costs Order

Once a costs order has been made, the successful party must take steps to enforce the order if the unsuccessful party fails to voluntarily pay the awarded amount. The enforcement process in both NSW and Federal jurisdictions involves several procedural steps.

1. Procedure for Enforcing a Costs Order in NSW

In NSW, a costs order becomes enforceable as soon as it is issued by the court. The successful party can begin enforcement by applying for a certificate of costs, which confirms the amount payable.

If the unsuccessful party fails to pay the costs voluntarily, the successful party whom is now a creditor, can enforce the order through several mechanisms:

• Garnishee Orders:     This allows the creditor to recover the debt directly from the debtor’s wages or bank accounts;
• Writs of Execution:     A court can issue a writ authorizing the seizure and sale of the debtor’s property to satisfy the costs order;
• Examination Summons:     The debtor can be compelled to disclose financial information under oath to assess their ability to pay.

For more on enforcing a civil judgement, see our article here.

2. Federal Process of Enforcement

The process is similar in Federal jurisdiction, with the Federal Court Rules 2011 outlining the steps for enforcing a costs order. A costs assessment or taxation process maybe required, where a court registrar reviews the bill of costs to ensure that the amount claimed is reasonable. If the losing party does not comply with the order, the successful party can pursue garnishee orders, bankruptcy or winding up proceedings, or writs of execution to enforce payment.

Summary

Understanding the issue of costs in litigation is crucial for any party involved in legal proceedings, as it can significantly impact the financial outcomes of a matter. Courts in both NSW and Federal jurisdiction shave broad discretion in awarding costs, which can be influenced by the parties' conduct and broader considerations like public interest. While obtaining a costs order can provide relief to the successful party, enforcing that order requires knowledge of the legal processes available to the costs creditor.

Ultimately, a well-informed approach and professional advice to costs management is essential for mitigating risks and ensuring fair outcomes in litigation.

If you are an a active litigant or looking to commence proceedings and require advice as to legal costs, our dedicated litigation lawyers remain on hand and ready to assist. Contact us today by email, info@hfklawyers.com.au or by phone, 02 9307 8900 and we will be happy to assist.

This article is intended as general information only and is not legal advice on any subject matter. By viewing this article,the reader understands there is no solicitor-client relationship between the reader and HFK Lawyers. The article should not be used as a substitute for legal advice from a legal practitioner, and readers are urged to consult HFK Lawyers on any legal queries concerning a specific situation.