Taking a case to court is usually expensive. Along with paying your own lawyer, if you are involved in court proceedings, you will also likely need to pay a number of other costs. If you lose at the hearing, you might be ordered to pay the other side’s legal costs as well as your own. It is important to understand what going to court will really cost so you can decide whether it is worth pursuing your matter or whether an out-of-court settlement would be a better option. This article will explain common litigation costs, costs orders from the court, and how to recover owed costs.
What Are the Pre-Litigation Steps?
Usually, litigation should be a last resort if your dispute resolution lacks progress. Consequently, it is important to consider the costs of alternative dispute resolution (ADR), which is a commonly recommended precursor to court proceedings. It involves the intervention of a neutral third party, who helps individuals or parties involved in a dispute to find mutually acceptable solutions. If parties engage in mediation or other forms of ADR to resolve the dispute outside of court, there may be costs associated with hiring a mediator or arbitrator, as well as lawyer fees, venue hire and administrative fees.
What Do Your Legal Costs Cover?
Your legal costs include a range of fees and costs involved in going to court, including fees to:
- your solicitor;
- expert witnesses;
- your barrister (also called counsel);
- the court, such as filing fees and hearing fees; and
- other areas, such as transcript fees or document management software.
Generally, you will engage your lawyers or chosen law firm to act on your behalf. Your lawyer will then incur the other costs involved in your legal matter, also called disbursements, on your behalf and will charge you for these costs. For example, your lawyer will engage the barrister or an expert to act for you and will be responsible for their costs. Your lawyer will then add those costs to the invoices they send to you.
When the court hearing ends, the judge will make orders regarding costs. Usually, the unsuccessful party will be ordered to pay the other party’s costs, but this is not always the case. The judge may find both parties should share the costs in some way, depending on the outcome. Importantly, even if you are successful and obtain a court order for costs, this order will not cover all expenses you incurred in court. You should also remember that if you lose a court hearing, you will most likely have to pay part of the other party’s costs, as well as your own legal costs.
Continue reading this article below the formHow Do Lawyers Charge?
The most common way that lawyers and law firms charge, especially for work that involves court proceedings, is by time-based billing. That is, you will pay your lawyer for all of the time they spend on your matter, based on their hourly rate. Depending on the firm’s size and the work involved in your case, you may be working with just one lawyer or a team of lawyers. This includes:
- senior lawyers;
- junior lawyers;
- administrative staff; and
- paralegals.
Lawyers will often ask you to pay money upfront into the firm’s trust account. This will cover the cost of the legal proceedings. They will often then ask you to pay top-ups to that amount as the court proceedings continue. Most law firms will bill you each month, and they should provide you with a detailed breakdown of every cost charged in the bill.
Lawyers must follow strict rules about the information they provide when they start acting for you. They must disclose their rates and terms of payment, as well as provide an estimate of what they believe the court proceeding or legal work will cost. Furthermore, they must notify you of any changes in this estimate and provide you with a revised estimate for the cost of the proceedings.
What Types of Costs Orders Are There?
It is a common mistaken belief that the other side will pay all of your legal costs if you succeed in court. Instead, a court will never order the other side to pay 100% of your costs. In some courts, there is a limit or cap on the costs that a court can order to pay. For example, some lower courts do not allow orders for ‘small claims’ matters involving amounts less than $20,000. Other courts or tribunals may run under a ‘no cost’ rule, meaning they will not make costs orders regardless of who wins.
When determining costs, courts will consider actions either party took before the court proceedings began. For instance, this may include if a party made reasonable settlement offers. Additionally, you should note that costs orders only cover those that arise after you or the other party first file the court application and begin court proceedings. Any legal costs incurred before this date are not included in a court’s cost order. This means that you may not be able to recover costs for:
- initial legal correspondence; or
- meetings with the other party in a dispute.
There are two main types of cost orders, which we explain in more detail below.
1. Party/Party Costs
Party/party costs are the most common type of cost ordered by a court at the end of a court hearing. Usually, the unsuccessful party will be ordered to pay the other party’s costs ‘as agreed or assessed’. This means the parties can either:
- reach an agreement on the amount to be paid; or
- use an independent assessment process to work out what each party’s ‘reasonable’ costs should be.
Recovering party/party costs can help offset the expenses associated with pursuing or defending legal proceedings and provide you with some relief if your case is successful. Typically, this works out to be about 60-80% of your actual legal costs.
2. Indemnity Costs
A court may award costs on an ‘indemnity’ basis, which can include almost all of a party’s legal costs. These costs are typically higher than party/party costs and are intended to fully compensate the successful party for all reasonable legal expenses incurred in the proceedings. The court will only award costs on an indemnity basis if there is a reason to do so.
For example, if you win, you may argue that you should receive indemnity costs because the other party:
- had no chance of winning and should never have brought the case;
- displayed unreasonable behaviour; or
- refused to accept a reasonable settlement offer before the proceedings started.
What is Cost Assessment?
If a party does not agree that the other party’s legal costs are reasonable, they can apply to have an independent assessor check those costs.
For example, if the court orders the other side to pay your costs, the other side may request an assessment to confirm the total is reasonable. The cost assessor will consider a range of factors, such as whether the:
- work was carried out in a reasonable manner; and
- lawyer met all disclosure and other professional requirements.
Costs assessors charge parties to undertake a cost assessment.
This guide provides key information on how to manage a business dispute as quickly and cost-effectively as possible.
Key Takeaways
Litigation costs are complex and varied, and there are no guarantees that you will recoup them if you are successful. There is always the risk that you may need to pay the other side’s costs as well as your own. It is essential to understand the types of legal costs you will incur in going to court and how courts make orders about what costs a party should pay after a hearing. From this, you can make the right decisions at every stage of your commercial dispute.
If you would like assistance regarding ADR or have any further questions, contact our experienced litigation lawyers as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
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