The rules regarding costs can be complex and confusing for those who are unfamiliar with the legal system. In this article, we will discuss the various types of costs orders, the circumstances in which a costs order may be made, and the factors that are considered by the Court when making a costs order in NSW.
What is a costs order?
A costs order is an order made by a Court that requires one party to legal proceedings to pay the legal costs of another party. In New South Wales Courts, legal costs are awarded in accordance with the rules set out in the Uniform Civil Procedure Rules 2005 (NSW) (UCPR). These rules establish a system of costs awards that are intended to ensure that the party who is successful in litigation is compensated for their legal expenses, while also discouraging parties from pursuing frivolous or unmeritorious claims.
The starting position when making a costs order is that the successful party in litigation should be entitled to recover their costs of the relevant Court “event” from the unsuccessful party, including all reasonable and necessary expenses incurred in relation to the legal proceedings (such as their solicitor’s professional fees, Court filing fees, counsel’s fees, expert witness fees, and other disbursements).
Types of Costs Orders
Party/party costs
The UCPR provides that costs can be awarded on a “party/party” (or “ordinary”) basis, which means that the successful party can recover the costs that they actually incurred in the litigation, subject to certain limitations. This is the usual costs order made in proceedings.
Party/party costs usually only provide a partial reimbursement of a party’s total legal costs (similar to the gap that exists between the amount charged by a doctor, and the amount received by their patient as a rebate from Medicare). A successful party’s total legal costs will usually be more than the amount they receive from the unsuccessful party, because party/party costs do not usually cover all of the time their solicitor spent on the matter.
Indemnity costs
The UCPR also provides that costs can be awarded on a “solicitor/client” (or “indemnity”) basis, which means that the successful party can recover a much greater proportion of the costs that they have incurred in the litigation. These types of costs orders are made in exceptional circumstances.
Indemnity costs orders usually include all fees, charges and disbursements actually incurred by the party, so long as they have not been unreasonably incurred. Using the Medicare example above, the “gap” between a successful party’s total legal costs and the amount they receive from the unsuccessful party will usually be smaller where an indemnity costs order is made.
Indemnity costs orders are discretionary and are typically made by a Court when it finds that the unsuccessful party has conducted the proceedings unreasonably, improperly, or in a way that caused unnecessary costs to be incurred by the successful party. Examples of conduct that may warrant an indemnity costs order include unreasonably rejecting settlement offers, pursuing frivolous or vexatious claims, abuses of Court process, or misconduct during the litigation process.
Who Decides a Cost Order
A costs order is generally decided by the Court where the legal proceedings take place. The Court has the discretion to decide whether to make a costs order and, if so, the type of costs order made. A Court will sometimes also determine the amount of costs that should be paid, however this is usually done by a costs assessor after the conclusion of the proceedings.
The Court will consider various factors when deciding whether to make a costs order, including the conduct of the parties during the proceedings, the complexity of the matter, and the outcome of the relevant Court event. While costs orders may also be agreed upon between the parties through negotiation or mediation, it is ultimately the Court that has the authority to make a final decision on costs.
When will the Order Be Made
Generally speaking, a Court will make a costs order where a Court “event” occurs, that requires the Court to make a determination. This commonly occurs:
- Where a party applies for orders to be made by the Court by filing a Notice of Motion. Some examples of this include an application for default or summary judgment, an application to strike out a statement of claim or defence, and an application to set aside a subpoena.
- Where a hearing (being a Court event) is delayed or adjourned due to the fault of a party, with the result that the Court’s (and the other party’s) time has been wasted.
- After the final determination of a matter at hearing (whether defended or undefended).
Other considerations
It’s important for parties involved in litigation in NSW to be mindful of the concept of proportionality when considering their legal costs – that the costs incurred in a legal dispute should be reasonable and proportionate to the issues at stake and the amount of money involved in the litigation. If the costs incurred by a successful party are found to be disproportionate when taking these matters into account, the successful party may find themselves unable to recover all of their costs.
Further, in some cases the Court may order that each party bear their own costs, rather than awarding costs to the successful party. This may occur, for example, where the issues in dispute are relatively minor, or where both parties have been partially successful in the litigation.
Small Claims Division of the Local Court of NSW
In the Small Claims Division of the Local Court of New South Wales, there are specific rules regarding the amount of costs that can be awarded or recovered by parties involved in litigation.
These rules are designed to provide a simplified and cost-effective process for resolving small-scale disputes, and they include caps on costs to keep legal expenses reasonable and proportionate to the amount in dispute.
Costs that might be awarded by the Court are lower than the costs that may be awarded in other divisions of the Local Court or higher Courts.
