Commercial disputes can be expensive to resolve. Before you go to court, it is important to understand what is at stake. In particular, if you lose your case, you may have to reimburse the other party for some or all of their legal fees. This is called a costs order. This article will explain how costs orders work and outline what you need to be aware of when you go to court.

What is a Costs Order?

A costs order states that one party should pay some or all of the other party’s legal costs. At the end of a trial, the judge will order this.

“Legal costs” include solicitor’s professional fees, as well as any other relevant expenses a party incurs during the case. These costs can add up to a significant sum and include costs such as:

  • barristers’ fees; 
  • expert witness fees; 
  • court filing fees; and 
  • photocopying. 

Costs are ordered separately from the main outcome of the case, but will generally align with the outcome of the case. This means that the unsuccessful party will typically need to pay the successful party’s legal costs, alongside any other compensation.

If you receive a costs order, you will usually have a certain period of time to pay it. You should not ignore the order. If you do, you run the risk of the court seizing your assets or winding up your business. If the court has not quantified the amount that you have to pay, it will be assessed by either: 

  • the costs court; or
  • someone the court appoints.

If I Win in Court, Do I Get All of My Money Back?

In most circumstances, when receiving costs, about 50% to 75% of your actual legal costs will be paid by the other party. Each court has a set ‘scale of costs’ which limits on what you can reimburse.

In certain circumstances, a court can order ‘indemnity costs’ to be paid. Indemnity costs will usually be 85% to 100% of all legal costs. Indemnity costs exist to ensure the successful party receives compensation for all reasonable costs. 

For example, indemnity costs may be ordered in cases of fraud, abuse of process, or unnecessarily prolonged proceedings. Here, the cap set by the court’s scale of costs may not apply.

Ultimately, the court has the discretion to decide what type of costs orders it will make in each case. When it decides, it will take broader questions of fairness and reasonableness during the proceedings into account.

Different Types of Costs Orders

Costs orders can be awarded at any stage of the proceedings, or after the proceeding ends. They can be awarded in relation to:

  • the whole proceedings;
  • a particular question tried in the proceedings; or 
  • a particular part of the proceedings.

Below are some examples of what a court may order after a court hearing.

Costs in the Cause

The court will commonly order that the costs of a preliminary or interim hearing will be ‘costs in the cause.’ This means that the costs of the preliminary hearing will be paid by the party that ultimately loses the case.

Costs of the Day

In contrast, a court will sometimes order costs for one party during a preliminary hearing. You will need to pay these costs immediately, or within a short period after losing a hearing.

Costs Reserved

The court will often defer their decision about costs to a later stage, usually the final hearing. This means that the decision about costs at preliminary hearings will not be made until the end of the case. Often, the party who loses the case will still have to pay these costs.

No Order as to Costs

This means that each party has to pay their own legal fees. A court will usually make this order if the parties reach a settlement or abandon the case before it reaches hearing. This is unless one party acted unreasonably in bringing or defending the proceedings.

Costs Thrown Away

If a party misses a hearing or is not prepared, they may have to pay costs for the other side’s wasted time.

Costs in Any Event

Sometimes, one party will be awarded costs in an application or motion, regardless of the final result of the proceedings.

What if the Costs Order is Unfair?

Costs orders made by a court can be appealed in the same manner as other orders. Furthermore, if you think that the other party’s breakdown of legal fees is unreasonable, you can require a costs assessor to review it. The costs assessor will then issue a certificate which sets out the amount of costs which are reasonable, in light of any costs agreements and legal profession rules. 

You can register this certificate with the court, and it may reduce the overall amount of costs you have to pay. It is important to note that decisions by a costs assessor or costs court can also be subject to appeal in specific circumstances.

What if You Cannot Pay a Costs Order?

If you are unable to pay a costs order, you should try to agree on a payment plan with the other party. 

If you cannot come to an agreement, you may need to apply for an instalment order. This is a court order allowing the debt to be paid via instalments.

What if the Other Party Cannot Pay My Costs if I Win?

In circumstances where the other party may not be able to afford to pay your costs if you are successful, you are able to seek an order for ‘security for costs.’ This means that the other party must provide some form of security (usually money) to be held by the court when commencing proceedings against you.

To seek an order for security for costs, you will need to make an estimate of the amount you are likely to recover from the other party. The form of security may include the payment of money into court, charges, bank bonds or guarantees.

When making a determination for security for costs, the court will aim to achieve a balance between the competing interests of both parties, such as:

  • avoiding injustice being caused to a Plaintiff by prejudicing it in its proceedings or preventing it from prosecuting its proceedings; and
  • the adequate and fair protection of the Defendant against the risk of not recovering its costs if it is successful.

Key Takeaways

If you are considering suing someone, or have been served with a statement of claim, it is important to be aware of the possibility that you may need to cover the other side’s legal costs. The stakes are always high in a commercial law dispute, so it is important to consult a lawyer before you proceed. If you require assistance in court, contact LegalVision’s dispute resolution lawyers on 1300 544 755 or fill out the form on this page.

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