If you’ve found yourself a party to legal proceedings, it’s worthwhile to take some time to understand the costs in litigation. In Australia, the general rule is that ‘costs follow the event’, meaning the loser pays the winner’s costs. To put this in perspective, your best and worst case scenarios are as follows:

Best Case: You win the case, receive an award/ judgement plus interest (if you’re the plaintiff) or avoid having to pay an award (if you’re the defendant), and the other side pays the majority of your costs.

Worst Case: If you’re the defendant, you lose the case, have to pay an award/ judgement plus interest. Or if you’re the plaintiff, you do not receive an award/ judgement and you have to pay your costs, and you have to pay the majority of the other sides’ costs.

Of course, this is an overly simplified view, but that’s the situation in a nutshell. Below, we set out what other costs you need to know about in litigation.

1. ‘Party/Party Costs’

If you are ordered to pay the other side’s costs, only rarely will they get every dollar spent back. Costs are usually paid on a ‘party/ party’ basis or ‘as assessed’ which, in rough terms, usually equates to between 60-80% of the total spent.

2. Limits on Costs

In some jurisdictions, and particularly in ‘lower’ courts like the Local Court, there are limits on what parties can recover, either in total or not at all. Some jurisdictions, such as Fair Work, are no costs jurisdictions, meaning that in most cases, no costs will be ordered at all, regardless of who ‘wins’.

3. Indemnity Costs

Indemnity costs or costs ordered to be paid ‘on an indemnity basis’ are better than party/party costs and usually, mean almost all of the costs paid will be recovered. Such an award is usually made where a party has previously made an offer of compromise or similar, or when the case as a whole ought never to have been bought, for whatever reason.

4. Security for Costs

In some instances, the Defendant may have a legitimate concern that the Plaintiff will not be financially equipped to pay their costs, should the Defendant succeed. In such cases, where the Plaintiff is a corporation, the Defendant may apply to the court for an order that the Plaintiff provide a sum of money as security before the proceedings conclude. This sum of money operates as surety that the Plaintiff will pay the Defendant’s costs if they are successful.

5. Role of Offers

The placing of offers, including Calderbank offers and formal offers of compromise can have an impact on the award of costs ultimately made. Here, Party A offers $10 to settle a matter; Party B rejects this offer but is ultimately only awarded $7. The Court may order that Party B’s costs from the time of the offer don’t need to be paid, or even that Party B must pay Party A’s costs from the time of offer.

Here, the purpose is to ‘force’ parties to consider genuine offers of settlement made, so as not to drag the matter unnecessarily through the court system. You should be guided by your lawyer as to the appropriate time to make offers, and how they ought to be expressed to attract such benefits.

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The financial cost of legal proceedings can be enormous and the applicable rules are undoubtedly complex. It is advisable to seek legal advice early on, to avoid or minimise the risk for such cost and to understand properly how these terms and rules will apply to you.

Questions? Let our disputes and litigation team know on 1300 544 755.

Emma Jervis

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