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Costing: Where new rules apply

Every Issue

Cite as: October 2012 86 (10) LIJ, p.73.

There are now only two bases of costs recovery – party/party and indemnity.

The Federal Court Rules 2011, which commenced operation on 1 August 2011, introduced a significantly different scale of costs, and provisions in relation to the costs of interlocutory applications, to which all practitioners should be alert.

There are now only two bases of costs recovery — party/party and indemnity. Unless the Court makes an order to the contrary, costs are awarded on a party and party basis (rule 40.1). The tests for each basis have changed, and are defined in the dictionary:

  • Party/party – only the costs that have been fairly and reasonably incurred by the party in the conduct of litigation; and
  • Indemnity – costs as a complete indemnity against the costs incurred by the party in the proceeding, provided that they do not include any amount shown by the party liable to pay them to have been incurred unreasonably in the interests of the party incurring them.

Rule 40.04 provides that if no order for costs is made on an interlocutory application, the costs of the application if an order is made in favour of any party, follow the event. If no orders are made, costs are in the cause of the successful party. Order 40.03 provides that reserved costs follow the event, unless another order is made. These rules require parties to carefully consider whether the rules apply appropriately in the circumstances or whether application should be made for specific cost orders.

It is not unusual for it to be arguable as to whether an order was made “in favour of a party”, particularly in circumstances where many orders are sought and only a limited number are made. For example, in whose favour is an order made if, on an opposed application for leave to amend a defence, leave is only granted in respect of a limited number of amendments? In such an instance, it is preferable for a costs order to be made as part of the substantive orders on the application.

It is also common that no final orders are made on an interlocutory application, with the parties resolving the issues between themselves without orders of the Court. An example is an application for further and better discovery, where the party from whom the discovery is sought agrees to the provision of same without the court making an order. Where no cost order is made on an application, rule 40.04(b) operates to give these costs to the party who is successful in the proceedings. This may not be a proper outcome, and it would be open to a party who is unsuccessful in the overall proceedings, to apply to exclude the costs of specific interlocutory applications where they were successful.

Similarly, reserved costs in a part heard application where no final order is made (and thus there is no “event”) will be costs in the cause. Therefore, if you are acting for the unsuccessful party in the proceedings at the time final cost orders are being made or agreed, it is important to consider whether your client should be paying reserved costs, or whether a specific order should be sought excluding these.

Given that costs on contested interlocutory applications can run into tens of thousands of dollars, it is good practice to take the time at the conclusion of a proceeding to review interlocutory cost entitlements.

An unsuccessful party may also rely on rule 40.06 to seek an order disallowing costs which have been improperly, unreasonably or negligently incurred. If the party considers that a course of conduct adopted by another party was unreasonable, for example the approach taken to discovery, an application may be made for such an order. Even if such an order is not made, a taxing officer has responsibility to disallow such costs (note to rule 40.06).

Another change to note is the abolition of the automatic reduction in costs if less than $100,000 is recovered. Rule 40.08 now requires a party to make specific application for such a reduction, if the applicant, in a claim for a money sum or damages, is awarded less than $100,000 or the claim could more suitably have been brought in another court or tribunal (e.g. the Federal Magistrates Court).

One important difference in the Federal Court from Victorian state courts is the provision (rule 40.13) that an interlocutory costs order cannot be taxed prior to the conclusion of the proceedings without a specific order of the court allowing them to do so. There is a considerable body of case law about the circumstances in which an order will be made, allowing the costs to be taxed forthwith.



ELIZABETH HARRIS is a costs lawyer with Harris Cost Lawyers.

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