Costs and Security for Costs

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Legal costs should be be proportionate to the complexity proceedings. Courts have unlimited power to determine costs in a proceeding: s 98.

  • Costs may be imposed on a practitioner for causing non-compliance with the overriding purpose (s 56 (4) CPA) or for litigating without prospect of success (s 347 Legal Profession Act)
    • However, costs are not imposed on practitioners lightly: Treadwell v Hickey.
  • Costs can be used as encouragement to make a party comply with procedural laws: r 42.10 UCPR; Dr Bronte Douglass v Lawton (No 2).
  • Costs follow the event - party who loses the case usually pays 'party-party costs' (the legal costs of the other party), although court has discretion to decide differently: r 42.1 UCPR.
    • Party-Party costs usually paid on an ordinary basis (partial, not full): r 42.2 UCPR; Baulderstone Hornibrook Engineering v Gordian Runoff.
    • Can be awarded on indemnity basis (full as long as not unreasonable) if there court decides that there was some delinquency on behalf of the losing party (usually because of unreasonable refusal of settlement offer): r 42.5 UCPR; Baulderstone Hornibrook Engineering v Gordian Runoff.
  • Security for costs - court has the power to order a party to give security for costs: Kieren Leslie Welzel v Stephen Paul Francis; 2.1 & 42.21 (only certain circumstances) UCPR. Test for security of costs as follows: Fire Containment v Peter Robins.
    1. Is there reason to believe the plaintiff will be unable to meet a costs order?
      • There is no need to establish that the plaintiff will actually be unable to meet the order - only to establish that there is reason to believe to believe he wont. Not a demanding test.
      • Mere impecunosity in case of a natural person not enough: Lucas v Yorke.
    2. Should the discretion be exercised?
      • Relevant factors include promptness in bringing the application, whether the case is a bona fide or a sham, whether the request is oppressive, whether the plaintiff has backers who will pay the costs order, the public interest and other factors.

This topic is within Resolving Civil Disputes.

Contents

Required Reading

Dorne Boniface, Miiko Kumar and Michael Legg, Principles of Civil Procedure in NSW (2d ed 2012) Thomson Reuters, [3.10]-[3.140], [3.170]-[3.220 (para 1-36 only)], [3.230]-[3.330], [3.400]-[3.500].

Introduction

[1] The court has power to order legal practitioners as well as parties to pay costs if the court considers that their duties have been breached. The idea is that it would be used as a threat against non-compliance with the Civil Procedure Act 2005 (CPA), Uniform Civil Procedure Rules 2005 (UCPR), court directions and practice notes.

Proportionality of Costs

[2] Ideally, costs should be proportional to the level of complexity of the work involved. This idea is now given legislative force through s 60 of the CPA and and clearly intends to be applied in conjunction with the overriding purpose.

The idea of proportionality was discussed by Spigelman in Access to Justice and Access to Lawyers:[3]

  • The cost of dispute resolution must in some manner be proportionate to what is in dispute.
  • [in relation to Section 60]: “I accept that this is a statement of ambition, rather than a description of what occurs”.

A good practical example of how proportionality might be taken into consideration by the courts is given in Zanella v Madden:[4]

  • Facts: the defendant owned 25% of the plaintiff's property, but he's been missing for over 20 years and most likely dead.
  • Held: the cost of placing advertisements to find the defendant (who, on the balance of probabilities, if probably dead) is not proportional to the defendant's small share in the property. The court pronounces him dead.

Another example is given in Vella v Australia & New Zealand Banking Group Ltd:[5]

  • Facts: in a really expensive trial with multiple parties, there was a late application to produce documents.
  • Held: in a trial like this, which probably costs $100,000 a day, the court should not interrupt the trial to deal with late requests.
    • "To do otherwise would cause large expenses to innocent parties in the proceedings Apart from situation where something comes up by surprise, if a notice to produce is not given in the proper time before the proper person before the trial, it will be very, very difficult indeed for the court to be convinced that it should, at everyone else’s expense, deal with defaults by lawyers for not getting their cases ready in time".[6]

Duties of Litigants

[7] Section 56 (3) of the CPA provides that parties have a statutory duty to assist in the the overriding purpose by participating in the court’s processes and complying with directions and orders.

  • The court can take into account any failure of these duties by legal practitioners when determining cost orders.

This was discussed in Priest v NSW:

  • “The court must seek to give effect to that overriding purpose when it exercises any power given to it by the Act or under the rules.”
  • “Every litigant in civil proceedings in this Court is now a model litigant”
  • Order made against defendant as to costs on an indemnity basis as they refused the request of the plaintiff.

Costs

[8] Section 98 of the CPA provides the court with unlimited power to determine costs in a proceeding. There are also special laws regarding lawyers and costs:

  • The CPA specifically states that costs may be ordered against a practitioner personally (as opposed to a party): s 56 (4) of the CPA imposes a statutory duty on a practitioner not to conduct himself so as to cause their client to breach their duty to assist the court.
  • s 347 of the Legal Profession Act requires a practitioner to certify that “there are reasonable grounds for believing on the basis of provable facts and a reasonably arguable view of the law” that the claim or defence has “reasonable prospects of success” - ie, that they have reasonable grounds to think they will succeed (otherwise they are wasting everyone's time and resources).
  • Pursuant to s 348 (1), orders may be made against the party for costs, on a party-party or indemnity basis.

If a practitioner is said to be guilty of serious neglect, incompetence or misconduct, it may result in disallowing in whole or part of the costs, party-party costs or indemnity costs under s 99 of the CPA.

This was discussed in Treadwell v Hickey:[9]

  • Facts: Treadwell claimed that his solicitor, Hickey, pursued a claim that did not have reasonable prospects of success. Treadwell sued Hickey for professional negligence in contract and in tort. Treadwell lost and was ordered to pay Hickey’s costs. Hickey sought a costs order against Treadwell’s solicitor, Fitzpatrick, pursuant to s 348 (1) (b) of the LPA or s 98 of the CPA.
  • Held: it wasn’t a claim that didn’t have reasonable prospects, but was merely unsuccessful. The court noted McColl’s principles in Lemoto:[10] costs order would not be lightly imposed on a lawyer. For them to be imposed, the prospects of success of the case must be “so lacking in merit or substance as to be not fairly arguable”.

The Purpose of Costs

[11] Costs are only meant to be compensate the successful party for the solicitor costs and expenses; they're not meant to be a punishment to the other party, who compensate for opportunity costs (like lost time) or travel expenses.

  • However, costs can be used as encouragement to make a party comply with procedural laws.
  • The most common example is UCPR r 42.10, which allows the court to order a non-compliant party to pay for other parties' costs occasioned by the non-compliance.
  • Costs are also used as a mechanism to encourage settlement.

This was discussed in Dr Bronte Douglass v Lawton (No 2):[12]

  • Facts: in a hearing which was taking a long time, the appellant wanted to amend their pleadings or adjourn the matter. The trial judge, in pretty explicit language, said that appellants will get a very 'nasty' costs order if they want to continue with the application. The appellants said that the language indicated that the costs order was 'punitive', which is not permitted.
  • Held: whilst the choice of language was bad, the order is not really punitive and not prohibited. It was used as an encouragement to comply with procedure, because the amendment would lead to a lot of delay because of extra witnesses and the time taken to discuss the application already.

Parties and Costs

[13] There are two types of broad costs categories:

  • Solicitor and client costs all the costs which a party owes its solicitor (including disbursements etc).
  • Party and party costs are the costs that the 'losing' party has to pay the other party because a costs order (ie, the costs he pays the other party to indemnify that party for its solicitor and client costs)..
    • An ordinary costs order usually only partly indemnifies the recipient against the costs that the recipient owes their solicitor. This is called a costs order on an ordinary basis, and that's the general standard according to UCPR r 42.2.
    • However, the court can also award a cost order on an indemnity basis, which allows for all costs incurred except those that appear to have been unreasonably incurred or those that appear to be an unreasonable amount (UCPR r 42.5). Such costs are usually only ordered if the losing party is guilty of some deliquescent.

Parties who are unhappy with the party to party costs (ie, they consider the opposing solicitor's fees too high etc) can apply for a cost assessment under the Legal Profession Act 2004.

Costs Follow the Event

[14] The idea that 'costs follow the event' means that the successful party in the dispute is usually also awarded the costs (ie, the costs follow the result of the trial). This is enshrined in UCPR r 42.1.

This was discussed in Baulderstone Hornibrook Engineering v Gordian Runoff:[15]

  • Costs in the event are the usual order.
  • Will a court allow multiple sets of costs orders? Not normally. The court will do so when multiple parties represent themselves separately.
  • A court will order indemnity costs when it is established by evidence that there is relevant delinquency, abuse of process, ulterior purpose or unreasonableness by the unsuccessful party.
    • This includes prolonging litigation by knowingly not focusing on the real issues.
  • Merely losing, bringing forth a difficult case or zealously pursuing the case is not enough to warrant indemnity costs.

Other Costs Orders

[16] However, the court can also award costs differently (usually needs a reason to do so):

  • No order as to costs – each party bear their own costs.
  • 'Costs in any event' – each party bears costs of a particular step regardless of the final outcome.
  • Costs in the cause – when deciding costs of an interlocutory application, costs ordered is deferred until the ultimate result of the dispute is solved and then the successful party is awarded costs.
  • Costs of the day - party pays for a particular day.
  • Costs thrown away – wasted costs as may occur due to an amendment removing a claim.

Security for Costs

[17] The court has power to order a plaintiff to give security for the defendant’s cost of defending the plaintiff’s claim and can order a stay of proceedings until the security is given (per UCPR rr 2.1 and 42.21, s 67 of CPA). If there is non-compliance with the order the court may order the proceedings be dismissed: UCPR r 42.21.

  • The idea behind this is to ensure that plaintiffs don't harass defendants by bringing claims against them when they themselves can't pay in case they lose.
  • While security for costs is absolutely discretionary, and the discretion is unfettered, it should still be exercised judicially and not arbitrarily.

Security for costs were discussed in Tripple Take v Clark Rubber:[18]

  • An application for security for costs should be made promptly to save time and keep with the overriding purpose.
  • Its unfair to lull a plaintiff into a situation where it invests a large sum of money in preparation for a hearing and then to frustrate that expenditure by a last minute application.

Security costs are usually awarded against companies that don't have a lot of money as a guarantee. On the other hand, the mere impecuniosity of a natural person is not a sufficient reason for a security for costs order.

  • Brennan J in Lucas v Yorke:[19] “the impecuniosity of the plaintiff is a factor to be weighed in the exercise of the discretion and is neither a sufficient condition for the ordering of security nor a sufficient consideration for the Court to decline the order for security.”

Security for costs were also discussed in Idoport v National Australia Bank Ltd:[20]

  • “balance between ensuring that adequate and fair protection is provided to the defendant, and avoiding injustice to an impecunious plaintiff by unnecessarily shutting it out”.
  • “the court should not permit a situation to arise where a party’s success is pyrrhic” (where the expense is so large that it negates the success).
  • Guidelines for the exercise of discretion:
    • Prompt applications.
    • Strength and bona fides of applicant’s case.
    • Whether the applicant’s impecuniosity was caused by the respondents conduct subject of the claim.
    • Whether the respondent’s application for security is oppressive in an attempt to stultify.
    • Whether there are any persons standing behind the company who will benefit from litigation and are willing to provide security.
    • Whether persons in the point above offered personal undertakings to be liable for costs and if so, the form of that undertaking.
  • The defendant seeking the security has the burden of proof.

A security for costs order under the UCPR was discussed in Fire Containment v Peter Robins:

  • The test for whether to award security for costs is as follows:
    1. Is there reason to believe the plaintiff will be unable to meet a costs order?
      • There is no need to establish that the plaintiff will actually be unable to meet the order - only to establish that there is reason to believe to believe he wont. Not a demanding test.
    2. Should the discretion be exercised?
      • Relevant factors include promptness in bringing the application, whether the case is a bona fide or a sham, whether the request is oppressive, whether the plaintiff has backers who will pay the costs order, the public interest and other factors.

Security for Costs Under Inherent Jurisdiction

The legislation given above (UCPR r 42.21 etc) actually don't allow the court to order security for costs in any case, only in certain circumstances. However, the court can still order security for costs (without restriction to particular circumstances) under its inherent jurisdiction to prevent abuse of justice etc.

This was established in Kieren Leslie Welzel v Stephen Paul Francis, which also discussed the relevant factors exercising the court's discretion:[21]

  • Facts: application for security of costs. The plaintiff allegedly took steps to dispose of assets presumably so if a costs order is made against it, he won't be able to pay it. The plaintiff tried to resist the application by alleging delay, that his impecunosity was caused by the application, and that he had a bona fide case.
  • Held: the plaintiff indeed disposed of certain assets (to avoid a costs order) and this disposition was critical in determining whether to issue an order for security. The defences offered by plaintiff were not enough not stop the order from being made, but they are relevant in ascertaining the quantum of the security.

End

This is the end of this topic. Click here to go back to the main subject page for Resolving Civil Disputes.

References

BKL refers to Dorne Boniface, Miiko Kumar and Michael Legg, Principles of Civil Procedure in NSW (2d ed 2012) Thomson Reuters.

FDR refers to Michael Legg (ed), The Future of Dispute Resolution (2013) LexisNexis.

  1. BKL, p. 125.
  2. BKL, p. 125-6.
  3. In BKL, ppl 126-8.
  4. [2007] NSWSC 559.
  5. [2008] NSWSC 209.
  6. [2008] NSWSC 209 [at 2].
  7. BKL, p. 130-2.
  8. BKL, p. 141-2.
  9. [2010] NSWSC 1119.
  10. Lemoto v Able Technical [2005] NSWCA 153.
  11. BKL, 165.
  12. [2007] NSWCA 90.
  13. BKL, p. 167-8.
  14. BKL, p. 169-70.
  15. [2006] NSWSC 583.
  16. BKL, p. 172.
  17. BKL, p. 177-9.
  18. [2005] NSWSC 1169.
  19. (1983) 50 ALR 228.
  20. [2001] NSWSC 744.
  21. [2011] NSWSC 477.
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