Costing litigation matters
In all civil litigation matters, there are essentially two types of legal costs. The first are the
costs that a lawyer can recover from their client. The second are the costs that one party in
proceedings can recover from another party in the same proceedings and are usually only a
part reimbursement of the costs that are payable to a party’s lawyer.
Costs between a lawyer and client
The taxation of costs between a lawyer and client (also referred to as lawyer/client costs) is
used to describe the costs that a lawyer is entitled to recover from his or her own client for
legal services.
Costs between a party and a party
The taxation of costs between a party and a party (also referred to as party/party costs) is
used to describe the costs that one party is able to recover from another party, should the
court so order. These costs are usually the result of an order following litigation.
Note: The description of the terms used to describe the types of costs being assessed
should not be confused with the basis for assessing the amount of costs owed.
Disclosure of costs between a lawyer and client
These notes describe the provisions applicable in Victoria under the Legal Profession
Uniform Law and the associated Acts and regulations. The Legal Profession Uniform Law is
set out in Sch 1 of the Legal Profession Uniform Law Application Act 2014 (Vic). If you are
working in another jurisdiction, you should refer to the applicable legislation.
Under s 174 of the Legal Profession Uniform Law, a law practice must make extensive
disclosure to a client. Section 174(6) provides that the disclosure under s 174 must be made
in writing but the requirement for writing does not affect the law practice’s obligations under s
174(3) (Client’s consent and understanding). The law practice must (as soon as practicable
after instructions are initially given in a matter) disclose the following in accordance with s
174(1) and s 174(2):
•
the basis on which legal costs will be calculated in the matter and an estimate of the
total legal costs
•
advise the client of any significant changes that will affects the costs payable, and
•
the client’s right to:
o
o
o
negotiate a costs agreement with the law practice
negotiate the billing method
receive a bill from the law practice, and
seek assistance of the designated local regulatory authority in the event of a
dispute about legal costs.
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Section 180 of the Legal Profession Uniform Law provides for the making of costs
agreements, which must be written or evidenced in writing. Note that in some circumstances,
a third party may agree to pay a law practice’s costs for acting on behalf of a client. For the
purposes of the Legal Profession Uniform Law, these persons are known as “third party
payers”: see s 171. Section 171 provides that a third party payer is a person that is not the
client of the legal practice but is under a legal obligation to pay a portion or all of the legal
costs of the client or has already paid those costs.
Law practices may have their own precedent agreements or may use the precedents
available from the Member pages of the Law Institute of Victoria (LIV) website at:
www.liv.asn.au. The LIV's precedent for a standard costs agreement and disclosure is a
single document drafted on the basis that it is "our offer to provide legal services to you".
Section 192 of the Legal Profession Uniform Law states that a bill must include or be
accompanied by a written statement setting out the avenues that are open to the client in the
event of a dispute in relation to legal costs and any time limits that apply to taking action.
If a law practice does not comply with the disclosure obligations of the Legal Profession
Uniform Law Pt 4.3 Div 3, the client need not pay the legal costs unless they have been
assessed: s 178.
Clients must be regularly informed about costs. It is especially difficult in litigation matters to
give an accurate estimate of the costs, because there are so many variables. Costs can
quickly blow out and must be kept under constant review.
The time spent on litigation and the work done must be carefully recorded. This is important
not just from a risk management point of view but to maximise the costs that may be
recovered. A costs assessor may not allow costs for time spent which is not evidenced in
the file. This could result in a reduction in the costs recovered by your practice or the client.
In addition, work done should always “advance” the conduct of the matter. Self-serving
letters or work which are not for the benefit of the client may be disallowed.
The Victoria Legal Services Board and Commissioner has published a helpful fact sheet:
“Legal Costs – What rights does a consumer have?” which is available on the website:
www.lsbc.vic.gov.au.
An order for costs
The following are some common terms which the court may use when making orders in
relation to costs.
Costs reserved
The costs of the hearing (or of an application during the proceedings) will be determined on a
later occasion. On final judgment, any order for costs must specifically refer to any costs
reserved on earlier occasions - otherwise they will not be “picked up”.
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Costs in the cause
The costs of an application will be payable by the party who is ordered to pay the costs at the
final hearing.
Costs to follow the event
The costs will be payable by the unsuccessful party at the “event”, that is, the interlocutory
hearing.
Costs to be the party’s in any event
The party is entitled to the costs of the application (whatever the outcome of the final
hearing) but is not entitled to payment/assessment of the costs until the “event” - usually final
judgment.
Costs thrown away to be the party’s in any event
The party is entitled to the costs they have incurred as a result of an action or omission by
another party (for example, an amendment to a pleading by the other party, or an
adjournment, whatever the final outcome). The party is not entitled to payment of the costs
until after the “event”, that is, the hearing (unless the court orders otherwise).
No order as to costs
The court makes no order. The effect is that each party pays their own costs.
Each party to pay their own costs
This has a similar effect to “no order as to costs”.
Costs to be taxed or agreed
The party in whose favour the costs order is made, will submit a bill to the paying party. If the
costs cannot be agreed, the costs will be assessed by the court - this process is known as
taxation of costs. Costs will be assessed on a party/party basis unless the court otherwise
orders.
Costs to be paid on a lawyer/client (or indemnity) basis
These are more generous than party/ party costs but are only usually ordered in exceptional
circumstances – when the circumstances of the case/conduct of a party justifies a departure
from the usual order or when costs are to be paid out of a fund, for example, an estate. The
term lawyer/client is still used in Victoria but in federal and other state courts, the term
“indemnity costs” is used.
Powers of the court to award costs between a party and a party
The powers of the court to award costs between a party and a party, and the orders it may
make in relation to the assessment and payment of those costs, are governed by the
legislation and rules which apply to that court. Always be prepared to argue for or against
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orders for costs when you appear in court. If you succeed in obtaining orders for costs in
your client’s favour (or successfully defend an application for costs), this may make the
difference between a satisfactory and unsatisfactory outcome for your client.
The basis for assessing costs – Victorian state jurisdiction
In Victoria, there are two bases for assessing costs. The Supreme Court (General Civil
Procedure) Rules 2015 (Vic) states:
63.30
Standard basis
On a taxation on a standard basis, all costs reasonably incurred and of
reasonable amount shall be allowed.
63.30.1 Indemnity basis
(1)
Subject to paragraph (2), on a taxation on an indemnity basis all costs
shall be allowed except in so far as they are of an unreasonable amount
or have been unreasonably incurred.
(2)
Any doubt which the Costs Court may have as to whether the costs were
unreasonably incurred or were unreasonable in amount shall be resolved
in favour of the party to whom the costs are payable.
In many respects, the wording used in rr 63.30 and 63.30.1 do not offer much assistance in
understanding what is meant by the terms. A suggested way of thinking about how each of
the sections works, is:
•
•
Standard basis: what it would take a reasonable lawyer to do a reasonable job.
Indemnity basis: what it would take a lawyer to do the job, as long as the cost incurred
was not unreasonable.
Therefore, costs assessed on an indemnity basis are more generous than costs assessed on
a standard basis. Costs assessed under an indemnity basis will include costs that would
have been received, if assessed as a reasonable lawyer doing a reasonable job (standard
basis) plus any other amount as long as it is not unreasonable.
In assessing costs, there are several primary issues that must be noted:
•
•
•
•
Costs are calculated in relation to the scale (unless ordered otherwise).
Costs are calculated from the start of the matter (not the start of the court process).
“Reasonableness” is on the basis that a lawyer has a base level of knowledge enough to
undertake the file.
On a standard basis, the party claiming an item must establish the reasonableness. On
an indemnity basis, the party disputing an item must show it was unreasonable.
The basis on which costs between a lawyer and client are to be assessed
Rule 63.60 states that the basis of taxation of costs payable to a lawyer by the lawyer's
client, unless subject to an order or any agreement between the lawyer and the client, shall
be assessed on the standard basis.
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The basis on which costs between a party and a party are to be assessed
In Victoria, costs in a proceeding which are to be taxed shall be taxed on a standard basis,
an indemnity basis, or such other basis as the court may direct: Supreme Court (General
Civil Procedure) Rules 2015 (Vic) r 63.28.
The standard basis of costs that are “reasonable in amount and reasonably incurred” is the
usual basis for assessment or taxation of costs between a party and a party. Indemnity costs
may be allowed if the circumstances of the proceedings call for it and the court so orders.
For further information, see the Supreme Court of Victoria Practice Note 1 of 2013 The New
Scale of Costs and Counsel fees.
The basis for assessing costs – federal jurisdiction
In relation to costs between a party and a party, the High Court, Federal Court and Family
Court have their own scales of costs and rules. For example, see Federal Court Rules 2011
(Cth). In particular, see r 40.01:
If an order is made that a party or person pay costs or be paid costs, without any further
description of the costs, the costs are to be costs as between party and party.
Costs as “between party and party" means only the costs that have been fairly and
reasonably incurred by the party in the conduct of the litigation.
Costs between a lawyer and client is a state matter and therefore not subject to federal
legislation.
Assessment of costs between a party and a party generally
The amount of costs payable between a party and a party can be determined in a number of
ways:
•
•
•
by the court or tribunal making the order
by agreement (for example, after a court or tribunal has made an order for payment of
costs “as agreed or taxed” and the parties in fact reach agreement on the amount of
costs payable), or
if agreement is not reached, by a taxing officer of the court who assesses the amount of
costs.
In the High Court, Federal Court and the Family Court, costs are also taxed by court officers
rather than assessed by costs assessors if the parties are unable to agree the amount.
Costs Court
The Costs Court has the power to hear and determine the assessment, settling, taxation or
review of costs in proceedings in the Supreme Court, County Court, Magistrates’ Court,
VCAT and arbitration under the Commercial Arbitration Act 2011 (Vic).
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Referrals for costs assessments must be made to the Costs Court in accordance with s 16 of
the Legal Profession Uniform Law Application Act 2014 (Vic) and s 284 of the Legal
Profession Uniform Law.
Reviewing costs
In Victoria, there is a procedure under the court rules for referring a bill of costs for
assessment by the Costs Court. If the Costs Court is called in to decide on the amount of
party/party costs payable, it must consider the skill, labour, expense and responsibility
involved as well as the appropriate scales of costs. The same scales apply to costs between
a party and a party as to costs between a lawyer and a client. Note the provisions of
Supreme Court of Victoria Practice Note 1 of 2013 The New Scale of Costs and Counsel
fees .
Having determined the amount payable, the Cost Court issues a certificate to each party.
The certificate sets out the determination. Once the certificate is filed in a court with the
jurisdiction to order payment of that amount of money, it is deemed to be a judgment of that
court and can be enforced as such.
Financing of the litigation and costs management
Litigation may require expenditure on fees for experts, counsel’s fees or other
disbursements. How these are paid by the client will depend on the type of litigation and the
policy of the law practice. It is common for clients to be required to pay money on account of
costs and disbursements or to pay for any disbursements as they are incurred. In
commercial practices, regular progressive bills for the time and expenditure on a matter are
more usual.
You may be asked to deal with a matter in which the client does not have the funds to pay
fees. In these circumstances, note the following:
•
Legal aid is only available in a very limited range of cases and Victoria Legal Aid sets
the fees which it will pay to private lawyers.
•
The client may be able to be assisted by a pro bono scheme.
•
The use of conditional fee arrangements. Many law practices (and barristers) agree
to take cases on the basis that their fees are conditional on the successful outcome of
the matter. A conditional costs agreement must be drafted very carefully (see the
Members pages of the LIV website at www.liv.asn.au for a precedent conditional
costs agreement under s 181 of the Legal Profession Uniform Law). The definition of
“successful outcome” can be problematic. The extent to which these arrangements
are permissible, and the particular requirements which must be complied with,
depends on the regulation of the legal profession in each jurisdiction.
Law practices are prohibited under s 183 of the Legal Profession Uniform Law from
entering into a “contingency fee” arrangement under which the amount payable to the
practice under the agreement, or any part of that amount, is calculated by reference
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to the amount of any award or settlement or the value of any property that may be
recovered in any proceedings to which the agreement relates.
Litigation funding
Litigation funding (or third party funding) is a contractual arrangement between a funder
(usually a corporate entity) and one or more potential litigants, where the funder agrees to
pay the costs and disbursements of litigation. The funder usually bears the risk and costs in
line with the agreement: Legal Profession Uniform Law s 171. Sometimes, the agreement
may extend to meeting any order for the security of costs.
If the case is successful, the funder is reimbursed for the costs paid and also receives a
percentage of any amounts awarded by the court or in a settlement of the proceedings. This
percentage is usually between one and two thirds of the award after the costs have been
repaid (see Ross McInnes and Alexandra Kennedy-Breit, “Regulation of litigation funding —
a death knell for funders or a bump in the road?”, InHouse Counsel, November/December
2011 p 176).
In addition to underwriting the costs of the litigation, the funder may also provide “project
management” of the dispute.
Litigation funding is usually confined to commercial litigation for large claims or to class (or
representative) actions where it is financially prohibitive for individual claimants to bring an
action. As a result, it is argued by some that the availability of litigation funding allows greater
access to justice and ensures that only legitimate claims are brought to trial thereby
increasing court efficiency (see Standing Committee of Attorneys-General, Litigation funding
in Australia, Discussion Paper, May 2006, at 2.1 p 7). There has also been some concern
however, that the process of litigation may become commercialised with the rise in the use of
litigation funding (see Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd (2006) 229 ALR 58
at per Callinan and Heydon JJ at [266]).
Note that disclosure obligations also apply to third party payers: Legal Profession Uniform
Law s 176.
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