Costs Orders | Guide to the NSW Local Court Process

Summary

• In NSW Local Court, costs awarded to a successful party are governed by a regulated scale, meaning recoverable amounts are often less than actual legal fees incurred.
• Businesses should be aware that cost orders are discretionary, and the court considers conduct, complexity, and proportionality when deciding who pays.
• Understanding the costs framework helps businesses make informed decisions about whether to litigate or settle a dispute.
• This article is a plain-English guide to NSW Local Court costs for business owners operating in New South Wales, prepared by LegalVision’s business lawyers.
• LegalVision, a commercial law firm, specialises in advising clients on dispute resolution and litigation costs in the NSW Local Court.

Tips for Businesses

Before commencing proceedings in NSW Local Court, assess whether potential cost recoveries justify the expense. Keep records of all legal costs incurred. If you receive a cost order against you, act promptly. Consider negotiating settlements early, as litigation costs can quickly exceed any amounts recovered through a successful judgment.

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On this page

• How Do Costs Orders Work? 
• What is Included in My Legal Costs?
• What is a Costs Assessment?
• What Will My LegalVision Team Be Doing?  
• Key Takeaways
• Frequently Asked Questions 

Costs orders require one party in a legal dispute to pay the other party’s legal costs. Courts generally award the successful party only part of their costs, meaning you may not recover everything you spend on legal fees. Even a clear win does not guarantee full cost recovery, as courts sometimes cap the recoverable amount. This article outlines how costs work in the NSW Local Court.

How Do Costs Orders Work? 

The final step in the court process is for costs orders to be made. This occurs when the hearing concerning the main issues of the dispute has concluded, and the court has come to its decision.

The general rule is that costs follow the event. This means that if you are the successful party, you will likely obtain a court order requiring the unsuccessful party to pay your costs. The purpose of costs orders is not to punish the unsuccessful party but rather, to compensate the successful party for the need to commence or defend the legal proceedings and, thus, their expenses incurred for litigation.  

Can I Still Obtain a Costs Order if My Matter is Less Than $20,000?

If the value of your claim is less than $20,000, your matter will be heard in the Small Claims Division of the Local Court, which is a “no costs jurisdiction”. This means that you are unable to recover any legal costs incurred. If your dispute is similarly valued, you should consider this fact before commencing or responding to proceedings. 

It is often more commercial to instruct your solicitors to negotiate directly with the other party. Generally, parties are to bear their own costs, as the Small Claims Division is intended to be inexpensive and less formal.

If your matter is in the New South Wales Civil and Administrative Tribunal (NCAT), NCAT may award costs if it is satisfied that special circumstances warrant it. However, costs are generally awarded only if a party is legally represented. You cannot claim costs for:

• time away from work; 
• travel; or 
• other disbursements. 

The courts have discretion with regard to the awarding of costs. Some factors that the court might consider when determining whether to make a costs order include:

• the facts of the case; 
• how the court proceedings were conducted; and 
• relevant legislation. 

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What is Included in My Legal Costs?

Legal costs generally refer to the amount a person has been charged for legal services. They can include:

• professional fees charged by your solicitors;
• counsel fees charged by a barrister to represent you in court or for specific advice;
• disbursements, which are expenses paid on the client’s behalf, such as:
  • court and filing fees; 
  • expert witness reports; and
  • printing and serving fees. 

The court can award costs on different bases, as outlined below. 

Ordinary Basis 

This is also known as “party/party costs” and is the usual process for awarding costs. Here, if your case is successful, you should expect to recover around 60-70% of your legal costs.

Indemnity Basis

Awarded costs on an indemnity basis are less common. This is because you can generally expect to recover a higher percentage of your costs if an order for indemnity costs is made in your favour, compared to costs awarded on an ordinary basis. An indemnity order will be granted by the court’s discretion and will only be awarded in certain circumstances, such as if one of the parties has:

• incurred unnecessarily high legal costs or costs in general as a result of the other party’s conduct;
• lied or committed fraud during the course of the proceedings; or
• made baseless or false allegations or has wasted the court’s time and resources.

In such circumstances and many others, the party seeking the indemnity costs must show the court that there are sufficient or unusual circumstances for the court to grant them. A common reason is that the other party did not accept a reasonable offer earlier in the proceedings. 

When a court awards costs on an indemnity basis, you may expect to recover around 90-100% of your legal costs.

If an agreement can be reached between the parties on the amount of costs payable, consent orders can be filed with the court so that the judge does not have to make the determination.

What is a Costs Assessment?

If you cannot negotiate an agreement as to the amount of costs to be paid, you may need to make an application for assessment of costs. An assessment of costs involves: 

1. providing the application to the other party and allowing them 21 days to provide objections, or otherwise resolve the matter;
2. filing the application with the Supreme Court, which will appoint an independent costs assessor to determine the application;
3. both parties then providing the cost assessor with any additional information; and 
4. the costs assessor then making a determination as to the costs that must be paid.

Once the costs assessor has made this determination, the party liable for the costs must pay them. If they fail to do so, you can register the cost determination with the Court as a judgment, and, if necessary, take steps to enforce that judgment.  

What Will My LegalVision Team Be Doing?  

Your LegalVision Team will advise you on strategic decisions relevant to your dispute, including any settlement offers made by either party throughout the proceedings. It is important to consider cost orders and litigate your claim in a way that minimises your exposure to adverse cost orders or puts you in a position to claim indemnity costs. If you are at the stage of proceedings where submissions as to costs need to be made, your solicitors may seek your instructions on what costs you would like to offer or accept.

Key Takeaways

Costs orders require one party to pay the other’s legal costs in court proceedings. Generally, the winning party recovers 60-70% of costs, but full recovery is rare. Claims under $20,000 in the Small Claims Division do not allow cost recovery. Courts may award indemnity costs (up to 100%) in cases of misconduct or unreasonable refusal to settle. If costs cannot be agreed upon, a costs assessment determines the amount payable. 

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