188.8.131.52 General approach to costs
In all courts in Australia, including the Federal Court of Australia, costs are at the discretion of the court. That is, the court may make an order that one party pay the other party’s legal costs for the proceedings. Legal costs will include the costs of legal representation, including any disbursements such as barristers’ fees and expert costs.
Where a costs order is made, the usual rule is that “costs follow the event,” meaning that the unsuccessful party will pay the legal costs of the successful party. The total costs ordered against the unsuccessful party are typically payable on a “party and party” basis.123 Party/party costs are costs that have been fairly and reasonably incurred by the party in the conduct of the litigation. But, as the order is at the court’s discretion, on application by a party, the court may order that costs be paid on a different basis, including on an indemnity basis.124 Indemnity costs allow for the recovery of all of a party’s costs except those that have been unreasonably incurred. Under any costs order, a party does not have to pay any costs that have been improperly, unreasonably or negligently incurred.125
In most cases, it is not possible for a successful party, even on an indemnity basis, to recover all of their costs. For example, a party awarded costs on a party and party basis may only be entitled to recover approximately 60 percent of these costs once their costs are assessed on a fair and reasonable basis. One reason for this gap between actual costs and what is assessed to be fair and reasonable (on a party and party basis) is that the actual cost of counsel and experts and other legal costs is higher than is allowed for under the court scale.
If a party is only partially successful – or for other reasons – a judge may make no order as to costs, order the unsuccessful party to pay less than 100 percent of the successful party’s costs on a party and party basis, or make an order that the successful party pay the unsuccessful party’s costs in full or in part. This may occur where one party has not complied with the overarching purpose set out in Sections 37M and 37N of the Federal Court Act 1976 (Cth) – facilitating the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible – or has otherwise acted in a way that has wasted costs. It has also become commonplace in patent cases for courts to adopt an issues-based approach to the award of costs – for example, by only requiring an unsuccessful patentee in a revocation action to pay a portion of the successful revoker’s costs on the basis that the revoker was successful on some but not other grounds.
Particular reference should be made to Part 40 of the Federal Court Rules 2011 (Cth) concerning costs and the Costs Practice Note (GPN-COSTS)126 in respect of costs in the Federal Court. If the matter is listed in a state court, the equivalent practice notes, rules and legislation applicable in that jurisdiction should be consulted.
The above applies both to first-instance hearings and on appeal. In either case, costs are ordinarily sought by the applicant in the originating application commencing proceedings. Parties are usually heard on the question of costs by the court by way of either or both oral and written submissions at the end of the trial, once reasons for judgment are delivered or when orders are made in relation to the substantive issues in the proceedings.
184.108.40.206 Interlocutory proceedings and other issues
Parties may apply for costs orders in interlocutory applications. Where a party has been wholly successful in an interlocutory application, they may obtain an order that the other party pay their costs of the application, to be determined similarly to the above.
Where there have been wasted costs, the affected party may seek an order for “costs thrown away.” An order of this kind means that, whatever the outcome of the proceedings, a party will be entitled to recovery of those costs. For example, where an applicant has amended its pleadings, resulting in the removal of a cause of action that the respondent has already spent time and money responding to, the respondent may apply for an order for costs thrown away.
220.127.116.11 Security for costs
Where a respondent has reason to believe that an applicant may not be able to cover an adverse cost order if its claim is unsuccessful, it may apply for security for costs orders.129 Upon an interlocutory application seeking security for costs being filed in an existing proceeding, a court will consider the applicant’s ability to meet an adverse costs order. This includes whether there is reason to believe that the applicant will be unable to pay the respondent’s costs if ordered to do so, whether the applicant ordinarily resides outside Australia, is suing for someone else’s benefit, is impecunious or any other relevant matter. These matters should be dealt with by affidavit evidence.
A party may seek further orders that proceedings be stayed until any security ordered has been paid into court. Once paid, the security is held by the court until the conclusion of the proceedings. If security is not paid as ordered, a respondent may apply for the proceedings to be dismissed.130
18.104.22.168 Offers of compromise and Calderbank offers
The costs a party is liable to pay may also be affected by the existence of a valid offer of compromise made under the Federal Court Rules131 or of a Calderbank offer.132 In both cases, form requirements must be met for the offers to be accepted by the court as within these categories. If accepted, and depending on the offer made and the outcome of the case, one or the other party may be entitled to have their costs paid on an indemnity basis from the date of the offer or as otherwise provided for by the Federal Court Rules.
Such offers are frequently made throughout proceedings to protect a party’s costs position with the aim of efficiently settling proceedings to avoid incurring unnecessary costs. The court should not be informed of any settlement offers before the substantive issues in the proceedings have been determined.
22.214.171.124 Assessment of costs
Where a court makes an order for payment of a party’s costs, and failing agreement by the parties as to the quantum to be paid, the costs must be taxed in accordance with the Federal Court Rules (e.g., on a party and party basis or an indemnity basis). As part of this process, a costs assessor will be engaged to assess the costs payable to the party in whose benefit the order was made.133 This is known as the taxation process. A costs assessor is an independent specialist knowledgeable about the costs rules and industry costs.
Once the costs assessor has assessed the costs, a report is provided to the court, and, if there is no dispute, orders will be made that the liable party pay the assessed amount. If the parties are unable to agree on the assessment of costs, there may be a hearing to determine the costs payable. However, courts seek to avoid hearings on costs, which are lengthy and expensive. Party cooperation in respect of costs is therefore expected in order to avoid a contested costs hearing.
Compromises such as an agreed lump sum payment for costs are another way to streamline the costs process, orders for which the court may make upon application by the parties.134