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Costs of litigation in Australia are generally borne partially by the unsuccessful party. That party is typically ordered to pay the successful party’s legal costs, being expenses deemed necessary and reasonable for the conduct of the case of amounts representing approximately 50% to 70% of the actual legal fees incurred. Indemnity costs can be awarded in more exceptional circumstances, which increases the range to 85% to 95%.
This approach encourages parties to litigate efficiently and discourages the pursuit of marginal claims without impeding access to justice.
Indemnity costs are most often awarded where a party has acted unreasonably in its conduct of the litigation, most commonly in refusing a reasonable offer of settlement. In this sense, costs orders are used to provide a degree of fairness (in that the loser bears the costs) as well as regulating the conduct of participants before the courts. They can be ordered in relation to the entirety of the litigation, or an aspect of it. As with costs orders generally, the possibility of an indemnity costs order serves as a brake on high-risk litigation tactics that may otherwise absorb the resources of the parties and the courts.
When conducting litigation in Australia, it is important to bear the following in mind:
- Anticipate the shortfall: even when successful, parties rarely recover all legal costs. This should be factored into any cost-benefit analysis of pursuing litigation.
- Consider whether offers are for cost purposes or substantive purposes: making a well-timed and carefully considered offer of compromise can provide significant costs protection and may increase the incentive on the opposing party to resolve some or all issues in dispute.
- Beware of conduct risks: conduct that the court views as unreasonable or wasteful may expose a party to indemnity costs, even if they succeed on some issues, such as refusing to consent to procedural orders.
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