Costs in Litigation
In general terms litigation is the resolution of a dispute by a court, tribunal or the like. It can be a lengthy and expensive process where even the 'winner' does not recover their total costs due to rules developed over many years - rules which are unduly complicated and difficult for lawyers and even judges to easily explain.
We consider that litigation is best avoided if at all possible, but we understand there will be occasions when a client may have no alternative in order to resolve a dispute.
On the occasions our clients have no choice but to engage in a litigated dispute, we conduct litigation in a way as to best minimize the time and costs involved.
Legal costs are determined by laws and rules that cannot be changed by any solicitor. The following is a summary of the general costs principles that apply in New South Wales.
1. Solicitor / Client Costs
Solicitor/client costs are the costs that you pay to your solicitor for the work that they perform for your matter. The basis of these costs is the Costs Agreement between you and your solicitor. You are obligated to pay costs arising out of the work your solicitor does for you under the Costs Agreement. These costs are payable regardless of whether you win or lose, or whether the other party pays or is ordered to pay some of your costs. The costs agreement you have with your solicitor is a legally enforceable contract.
2. Party / Party Costs
Party/Party costs are the costs that one side pays to the other side in legal proceedings. They are the result of the court ordering that one party pay costs to the other party. Party/party costs are not automatically awarded by the court - even if you are successful in the proceedings. A party needs to specifically request that the court make an order of party/party costs in their favour. Whilst generally “costs follow the cause” in a litigated matter (ie the party who loses pays the successful party’s costs), the court almost always has a discretion as to what costs order is appropriate in the circumstances.
Party/party costs can be ordered on the following bases:
a. Ordinary Basis
The court generally orders that costs be paid on an ordinary basis. The effect of this is that not all your costs of the proceedings will be paid for by the other party. When costs are ordered on an ordinary basis, the amount paid as party/party costs will usually be less than what you pay to your solicitor for solicitor/client costs. As a general “rule of thumb” only , a successful party will recover somewhere between 60-80% of his/her/its party/party costs on an ordinary basis, there are certain situations (see below) where a party may or will not recover party/party costs in this range.
b. Indemnity Basis
The court can order that party/party costs be paid on an indemnity basis in special circumstances. Such special circumstances include where a party’s conduct of the litigation has been very unreasonable such as delaying the proceedings or arguing matters not in contention. Costs on an indemnity basis may also be awarded where one party has made an offer of compromise (that is an offer to settle litigation before a court hearing), which was rejected by the other party. A party may recover the majority (ie somewhere in the vicinity of 85-90% of his/her/its costs) of the solicitor/client costs.
c. Where recovery of solicitor/client costs are either prevented entirely, or are significantly less than noted above
As noted above, there are certain circumstances where a party may recover significantly less than what is paid out for his/her/its solicitor client costs (or in some situations, nothing at all).
(i) Where the court or tribunal has no power to award costs
In some jurisdictions (eg the Administrative Appeals Tribunal), there is no power to award costs. In this situation, each party has to bear his/her/its own costs of running the litigation. A party who wins cannot have the other party ordered to pay its costs, and an unsuccessful party cannot be ordered to pay the successful party’s costs.
(ii) “Pro Bono” matters
In certain limited situations, a solicitor will undertake to do work on a “pro bono” basis (ie legal services only will be provided for free). However, even in this situation, expenses and disbursements need to be paid, either by the Law Society Pro Bono Scheme, or by the client.
In a litigated matter, a successful party who has a solicitor acting can generally recover legal expenses and costs from the unsuccessful party. However, the the successful party is not prevented from pursuing costs against a losing “pro bono” party merely because that party has a lawyer providing legal services on a pro bono basis. Subject to other circumstances described in this fact sheet, the successful party is usually entitled to have their costs paid by the unsuccessful party regardless of any favourable arrangement the unsuccessful party has with their lawyers on a “pro bono” basis.
(iii) Conditional Costs Agreements
These are usually described as “no win no fee” arrangements. Where a party has such an arrangement with their lawyers, then the client is not liable to pay the lawyer if the litigation is not successful. HOWEVER, this does not prevent the other (successful) party from claiming costs. Again, the favourable terms of any such arrangement do not prevent the other (successful) party from seeking costs, assuming there is an entitlement to costs and an order for costs is made.
(iv) Costs limited by Scale, or otherwise restricted by law
There are certain jurisdictions where party/party costs (including some disbursements) are limited according to a scale set by the court (for example in debt recovery matters and for the enforcement of certain judgments, as per Schedule 2 of the Legal Profession Regulation 2005, as well as in the Small Claims Division in the Local Court). In this situation, the right of recovery of party/party costs will be limited to that scale regardless of the amount of solicitor/client costs paid (or for which a client may be liable).
In some situations, the right to recover party/party costs against an unsuccessful party is extremely limited – for example, Practice Note 2 of 2007 of the Local Court places limits on the maximum amount of party/party costs in certain situations). Again, in this situation, the right of recovery of party/party costs will be limited, regardless of the amount of solicitor/client costs paid (or for which a client may be liable).
3. Losing Litigation
As discussed briefly above, if a party is unsuccessful in litigation, you may be required to pay costs to the other party in the litigation. As discussed above, this may be on an ordinary or an indemnity basis. Importantly, you must also pay your solicitor the relevant solicitor/client costs, despite any obligation to pay costs to the other side. Losing litigation can create significant financial obligations in the payment of costs.
Summary
Due to its uncertain nature, litigation is often a very costly exercise and it is difficult to anticipate how much work will be required to properly conduct the proceedings. In conducting litigation on your behalf, your solicitor will commit a substantial amount of time to the process.
As you will appreciate from the above, it is rare for a client to be fully reimbursed for the costs that they have paid in the preparation and conduct of litigation. You need to fully understand the costs implications of litigation when you are successful and your obligations when you are not successful.
This is general information only regarding costs in litigation - IT IS NOT A SUBSTITUTE FOR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. Please contact us to obtain legal advice regarding litigation and associated costs.