Recovering Legal Costs: When Does the Other Side Pay?
When a legal dispute arises, one of the first questions many people ask is: “If I win, will the other side have to pay my legal costs?” The answer in Australia is not always straightforward.
In Litigation and Dispute Resolution, the general principle is that the successful party may be awarded a contribution towards their legal costs. However, winning a case does not automatically mean that every dollar spent on lawyers will be recovered. The outcome depends on the court's rules, the conduct of the parties, the nature of the proceedings and the circumstances of the case.
A costs order is a direction made by a court about who should pay the legal costs of a proceeding. In many Australian civil cases, the court has discretion to determine whether costs should be paid and, if so, by whom.
The commonly applied principle is often described as “costs follow the event”. In simple terms, this generally means that the successful party may be entitled to recover some of its legal costs from the unsuccessful party.
However, this is not an absolute rule. Courts retain discretion, and the final costs outcome can differ from the result of the main dispute.
For example, a party may win the overall case but still receive only a partial costs award. Alternatively, a party may be successful on some issues but unsuccessful on others, which can influence the court's approach to costs.
Does the losing party pay all legal fees?
Usually, no.
A successful party will generally not recover every dollar paid to their solicitor or barrister. The amount recoverable depends on the type of costs order made and the applicable costs assessment process.
In many cases, the successful party may recover party-party costs, which are intended to provide a contribution towards the reasonable legal expenses incurred in conducting the litigation. These costs may be less than the actual amount the successful party has paid to its lawyers.
This means that even if you win your case, you could still be left with a significant portion of your own legal bill.
For this reason, anyone considering litigation should look beyond the question of whether they have a strong case. The potential cost of pursuing or defending a dispute should also be assessed.
What are indemnity costs?
In some circumstances, a court may order indemnity costs. This is generally a more substantial costs order than ordinary party-party costs and may allow the successful party to recover a greater proportion of its legal expenses.
Indemnity costs are not awarded simply because one party has won. Courts may consider factors such as unreasonable conduct, improper behaviour during the proceedings, or whether a party has pursued or defended a claim in a manner that justifies a higher costs order.
The precise principles and circumstances vary between Australian jurisdictions and courts. Legal advice should therefore be obtained before assuming that indemnity costs will be available.
Can a settlement include legal costs?
Yes. Legal costs can form an important part of settlement negotiations.
When parties resolve a dispute before trial, they can negotiate whether one party will pay the other's legal costs, whether each side will bear its own costs, or whether a specific contribution towards costs will be included in the settlement.
The wording of a settlement agreement or deed is particularly important. A carefully drafted agreement should clearly address the treatment of legal costs and whether the settlement fully resolves any outstanding costs issues.
This is one reason why Litigation and Dispute Resolution strategies should consider settlement from an early stage. Resolving a dispute sooner may reduce legal expenditure, limit commercial disruption and provide greater certainty about the overall financial outcome.
What factors can affect a costs decision?
Australian courts may consider a range of circumstances when determining costs. Depending on the jurisdiction and the particular proceeding, relevant factors may include:
The overall outcome of the case.
Whether a party succeeded on particular issues.
Offers of compromise or settlement offers.
The conduct of the parties before and during the litigation.
Whether the proceedings were unnecessarily prolonged.
Whether a party raised unreasonable arguments or pursued unnecessary applications.
The complexity of the legal and factual issues.
Whether the parties complied with relevant procedural requirements.
This means that litigation conduct can have financial consequences beyond the result of the substantive dispute.
A party who behaves unreasonably or fails to engage appropriately with settlement opportunities may face an increased risk of an adverse costs order.
What about offers to settle?
Settlement offers can be highly relevant to costs.
In appropriate circumstances, a well-structured offer may place pressure on the other party to seriously consider resolving the dispute. If an offer is rejected and the eventual court outcome is less favourable to the rejecting party, the offer may potentially become relevant to the court's consideration of costs.
The rules governing settlement offers differ depending on the Australian court and jurisdiction. There may also be formal requirements that must be satisfied for an offer to have particular costs consequences.
For this reason, parties involved in civil litigation should obtain legal advice before making or rejecting a significant settlement offer.
How can you reduce the risk of unrecovered legal costs?
There is no guaranteed way to recover all legal expenses, but careful planning can help manage the risk.
Before commencing proceedings, consider the likely value of the claim compared with the estimated legal costs. You should also consider the financial position of the opposing party. Winning a judgment may have limited practical value if the other party cannot pay.
Alternative dispute resolution methods, including negotiation and mediation, may also provide a more cost-effective pathway to resolving a dispute. Depending on the circumstances, these approaches can reduce the time and expense associated with court proceedings.
A clear litigation strategy should also include regular reviews of costs, prospects and settlement options.
The question of who pays legal costs is more complicated than simply determining who wins or loses. In Australia, the court's discretion, applicable procedural rules and the conduct of the parties can all influence the final outcome.
Whether you are considering bringing a claim, defending proceedings or negotiating a settlement, understanding your potential exposure to legal costs is an important part of informed decision-making.
If you are involved in a commercial or civil dispute, obtaining advice early can help you understand your options and develop an appropriate Litigation and Dispute Resolution strategy.
Ready to assess your legal options?
Speak with an experienced Australian litigation and dispute resolution lawyer. Contact New South Lawyers today to discuss your circumstances, potential costs exposure and the best approach to resolving your dispute.
