The Local Court of New South Wales adjudicates commercial disputes up to the value of $100,000. However, the financial stakes are usually higher than the amount at issue. This is because the court usually orders that the losing party pays a portion of the winning party’s legal costs. This article will provide a summary of how cost orders work in the Local Court.

Typical Cost Orders in the Local Court

The Local Court has two divisions: 

  • the Small Claims Division, which hears disputes up to the value of $20,000; and 
  • the General Division, which hears disputes up to the value of $100,000. 

The general position is that the Small Claims Division has no power to award costs. However, the court may make an award for costs in limited circumstances. Even when they are awarded, caps are imposed on the amount of costs that may be awarded.

Unlike the Small Claims Division, costs are not capped in the General Division. As a rule of thumb, if you are successful in the General Division of the Local Court, you can expect to have approximately 50-80% of your legal fees covered by a costs order. In the Small Claims Division, you will probably only get 10-20% of your costs covered.

However, the exact amount a losing party will have to pay will change on a case by case basis.

Key Variables For Costs Orders

The general rule is that “costs follow the event”. This means that the successful party will receive a costs order to cover their lawyer’s costs. It should also cover any disbursements that they have incurred as a result of the claim.

Ultimately, however, the court has the discretion to issue cost orders. It will consider what is just and fair in the circumstances. The court will also seek to ensure that costs to parties remain proportionate to the amount of the overall dispute. 

If you are successful in court, the amount you can expect to recover will depend on the following variables.

If the Matter Is Undefended

When you make a claim for a lump sum of debt, or a claim for the possession of goods, and your claim is not defended, there is a predefined limit to the costs that you are able to claim. At the time of writing, the maximum costs for obtaining a judgment in undefended proceedings in the Local Court ranges between $364 – $1,574, depending on:

  • which Division of the court your claim is in; and
  • whether your claim is liquidated (for a defined sum) or unliquidated (for a sum decided by a judge, calculated on the basis of legal rules).

There are also limited sums that you can claim back. This is if you need to take further steps to enforce the judgement. In addition, you can also claim back your court filing fees. 

While these limits may seem low, these prices are proportionate to what a lawyer should be charging to assist you. The prices are regularly updated to reflect the Consumer Price Index.

If the Matter Is Defended

If your claim is defended, you will be able to claim back the amount the Court Schedule prescribes. In addition, the court has the discretion to award you a further 25% if they see that you tried to genuinely settle the matter before trial, and the other side rejected a reasonable settlement offer. In total, the maximum recoverable amount in the Small Claims Division will usually still be capped quite low.

However, if your claim is defended in the General Division, the costs are not capped at a specific figure. Rather, the court will look at:

  • your overall legal costs; and 
  • how those costs were incurred.

Then, they will decide whether they are proportionate to the matter. If they think that your costs are unreasonably high, they have the discretion to fix an amount.

Generally speaking, the caps imposed in the General Division are higher than the Small Claims Division. A successful party can usually expect to be awarded 50-70% of their costs. This depends on how those costs were incurred, and the type of costs order.

How Your Costs Were Incurred

During a court case, your lawyer will bill you for different types of work, which can be broadly split into two categories:

  • solicitor-client costs: costs that your lawyer incurs while working directly with you; and
  • party-party costs: costs that your lawyer incurs whilst corresponding with the other party (or parties) to a dispute, and incur engaging with the court system throughout the case. Usually, this will be the majority of your legal costs.

In most cases in the General Division of the Local Court, a costs order will be awarded to the successful party on an ‘ordinary basis’. This means that the losing party has to pay for your party/party costs only. Here, the costs you incurred speaking to your lawyer about the matter and seeking advice will not be covered by the other party. 

The Type of Costs Order

In some instances, the court will:

  • decide that ordinary costs are not enough; and
  • award costs on an “indemnity basis”.

Indemnity costs cover both solicitor-client and party-party costs, which means they usually cover the vast majority of your legal fees. 

The court will only order indemnity costs in circumstances where one party acts unreasonably, which causes the other party to incur unnecessary costs. 

For example, the losing party:

  • brought a frivolous or vexatious case which had no chance of success;
  • deliberately delayed the proceedings;
  • engaged in fraud, misconduct or abused the process; or
  • refused a reasonable compromise offer earlier on in the court proceedings, which ended up being equal or higher than the value of the judgement.

Whether the Costs Are Subject to Assessment by an Independent Assessor

In some instances, the court will not make a decision on the exact figure for costs awarded. Instead, they will order that costs are to be finalised “as agreed or assessed.” This means that the parties to the dispute can negotiate an agreed amount to be paid in respect of a costs order. If the parties cannot reach an agreement, they can undergo a formal costs assessment process, which is overseen by an independent costs assessor who the court appoints.

The costs assessor will consider the costs that have been incurred by the party. Then, having regard to submissions made by both parties, it will come to a decision what is a reasonable amount for that party’s costs. One of the parties may be ordered to pay the costs of the costs assessment process, usually the party who is required to pay the costs. 

However, the costs assessor will consider a number of matters in determining who should pay the costs of the costs assessment process. This includes the reasonableness of any previous negotiations in relation to the costs order. 

Proportionality

It is no secret that legal fees can be expensive. In litigation, they add up quickly. In a contested matter in Local Court, your legal fees will likely add up to at least $50,000 or more, depending on the number and complexity of facts and legal issues in contention. Sometimes, it is significantly higher. In fact, in the Local Court, it is not uncommon for the legal fees to outweigh the actual amount in dispute.

While the court will always endeavour to ensure that any costs awarded are not disproportionate, the reality is that an award for 50-80% of costs will usually add a significant amount on top of the judgment sum. Accordingly, cost considerations will be an important part of your calculation and risk assessment of whether to make a claim in the first place, or whether to defend, rather than settle, if you are sued. 

Key Takeaways

The court’s ability to award legal costs is simple in principle: the losing party will need to pay a portion of the winning party’s costs. However, it is not an automatic process, and in practice, it is not so simple. The court has broad discretion in its decision making, and the ultimate costs award can vary significantly depending on:

  • which Division of the Local Court the matter was heard in; 
  • whether the matter is defended or undefended; 
  • how the costs were incurred in the first place; 
  • what type of costs order is issued; and
  • whether the final figure is fixed by the court, negotiated by the parties or assessed by an independent costs assessor.

In the Local Court, costs can often be proportionately high compared to the overall sum in dispute. It is therefore very important to consider the cost implications before you proceed to sue someone and explore any possible alternatives dispute resolution processes. If you have any questions regarding costs or require any assistance with a commercial case in the Local Court, please contact LegalVision’s litigation lawyers on 1300 544 755 or fill out the form on this page.

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