Costs Consequences in Victorian Litigation: Who Pays Legal Costs?

The starting point: costs follow the event, subject to discretion

The Supreme, County and Magistrates' Courts each have a broad statutory power to award costs. The usual starting point in each jurisdiction is that costs follow the event: the unsuccessful party is ordered to pay a portion of the successful party's costs. That is a default, not an automatic entitlement. The Court retains a wide discretion, and departure from the starting point is common where success is mixed or where there has been relevant conduct on either side.

The order made will usually distinguish between:

• costs of the proceeding — the general costs of the case;
• costs of an interlocutory application — the costs of a discrete step;
• reserved costs — costs put off for later determination; and
• costs in the cause — costs that follow the ultimate outcome of the proceeding.

A successful party can be deprived of some or all of their costs, or ordered to pay the other party's costs, where they only partly succeeded, ran unnecessary arguments, prolonged the case or unreasonably refused a settlement offer.

Standard basis, indemnity basis and a client's own bill

Four related concepts are commonly confused:

• Standard basis (formerly party–party costs). This is the ordinary basis on which one party pays another party's costs. The Costs Court will allow costs of a reasonable amount, reasonably incurred. A successful party will not recover every dollar spent with their own lawyer; the shortfall varies from case to case.
• Indemnity basis. An enhanced discretionary basis under which the Costs Court allows all costs except any that are of an unreasonable amount or that were unreasonably incurred. Indemnity costs are not a guaranteed reimbursement of every dollar and are reserved for defined circumstances (see below).
• Solicitor–client costs. An older or intermediate inter partes costs formulation that is still occasionally encountered — for example in certain trustee, contractual or statutory indemnity contexts — and sits between the standard and indemnity bases. It is not simply the client's own bill, and does not itself make the opponent liable for everything charged under the retainer. Whether the formulation is available at all in a given proceeding depends on the source of the entitlement and the current rules and authorities.
• Your own legal bill. A contractual liability to your own lawyer under the costs agreement and disclosures required by the Legal Profession Uniform Law (Victoria). Payable regardless of the outcome, subject to the client's right to a bill, costs disclosure and costs review under Part 4.3 of the Uniform Law.

Costs across the Victorian courts

Costs risk scales with the forum. Choosing the right court at the outset is one of the most important costs decisions in the case.

The Magistrates' Court of Victoria handles civil claims up to $100,000. Costs are more tightly controlled and the procedure is designed for proportionate handling of smaller disputes.

The County Court of Victoria hears larger civil disputes with no upper monetary limit. Costs are governed by the County Court's civil procedure rules and can be substantially higher than in the Magistrates' Court.

The Supreme Court of Victoria deals with the most complex and high-value civil disputes, including most contested probate and family provision (Part IV) claims under the Administration and Probate Act 1958 (Vic). Costs exposure in the Supreme Court can be very substantial and turns on the size and complexity of the case rather than any fixed figure.

A plaintiff who issues in a higher court when the case could properly have been brought in a lower court may be deprived of the additional costs of using the more expensive forum.

Costs at VCAT

The Victorian Civil and Administrative Tribunal is not a simple 'no costs' jurisdiction. Section 109 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic) starts from the position that each party bears their own costs, but VCAT may order costs where it is satisfied it is fair to do so having regard to the statutory considerations, including the nature and complexity of the proceeding, the conduct of the parties, the relative strengths of the claims and any list-specific costs provisions. An adverse costs order at VCAT should not be assumed, but it should not be ruled out either.

Offers of compromise under the court rules

An offer of compromise is a formal settlement offer made under the applicable court rules — in the Supreme Court, Order 26 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic), and equivalent provisions in the County and Magistrates' Court rules. The rules prescribe form, timing, service and withdrawal.

Where the offer is validly made and the offeree fails to obtain a more favourable result than the offer, the rules set out costs consequences that displace the starting point. Those consequences differ between courts and rule versions, and can differ depending on who made the offer and when; the current rule text must be checked before any offer is drafted or accepted. The consequences are not automatically indemnity costs in every case.

Calderbank offers

A Calderbank offer is a settlement offer made 'without prejudice save as to costs', following Calderbank v Calderbank [1976] Fam 93. It is not rule-based. If the offeree fails to obtain a more favourable outcome, the Court exercises a discretion whether to order indemnity costs by reference to the reasonableness of the offer and the rejection at the time of rejection.

The label 'Calderbank' does not by itself attract indemnity costs. For an application to succeed, the offer generally must be genuine, sufficiently clear and certain, allow a reasonable time for consideration and be one that, viewed at the time, the recipient acted unreasonably in rejecting.

Overarching obligations and Court sanctions

The Civil Procedure Act 2010 (Vic) imposes overarching obligations on parties, lawyers and certain others (Chapter 2) to conduct civil proceedings honestly, cooperatively, proportionately and in a way that facilitates the just, efficient, timely and cost-effective resolution of the real issues in dispute. Section 29 empowers the Court to make orders it considers appropriate on being satisfied a person has contravened those obligations, including personal costs orders. Any such order requires a properly constituted application, procedural fairness and Court findings; it is not an automatic consequence of any breach.

Personal, wasted and non-party costs orders

In addition to costs orders against parties, the Court has the power in defined circumstances to make costs orders against lawyers personally (for example wasted costs) and against non-parties. These orders depend on the applicable statutory or rule-based jurisdiction, appropriate procedure, procedural fairness and Court findings against the person concerned. They are exceptional and cannot be assumed.

Security for costs

A defendant may apply for security for costs — usually paid into Court or by bank guarantee — as protection against the risk that a costs order will not be met. The Court's power is discretionary and derives principally from:

• Section 1335 of the Corporations Act 2001 (Cth), where there is reason to believe that a plaintiff corporation will be unable to pay a successful defendant's costs; and
• the applicable court rules — for example, the Supreme Court (General Civil Procedure) Rules 2015 (Vic) — which include grounds relating to plaintiffs ordinarily resident outside the jurisdiction and related considerations.

The Court weighs a range of factors, including the strength of the case, the source of any impecuniosity, whether the requested security would stifle a genuinely meritorious claim, delay in seeking security and the adequacy of alternatives. An order is not made simply because the plaintiff is a company or is based overseas. Failure to provide ordered security can lead to a stay or dismissal.

Self-represented parties

A self-represented party who succeeds ordinarily cannot recover remuneration for their own time as legal costs, subject to recognised exceptions and to the recovery of reasonable disbursements. The current authorities should be checked in any particular case.

Multiple parties, mixed success and interlocutory outcomes

Real disputes rarely produce a clean 'winner' and 'loser'. Where there are multiple issues, multiple parties or interlocutory outcomes, the Court may apportion costs, make no order, reserve costs or make issue-based orders reflecting the real result. Where proceedings are discontinued or settled, costs are usually a matter of agreement or, failing agreement, application to the Court.

Estate litigation and family provision claims

Costs in Victorian estate litigation are governed by the general costs principles but with practices specific to the Court's probate and testator's family maintenance jurisdiction. The older idea that costs in family provision claims 'always came out of the estate' does not reflect the current position: unsuccessful claimants can and do face personal costs orders, and executors who defend unreasonably or refuse to engage constructively with mediation can be denied indemnity from the estate. Costs of construction summonses are often paid out of the estate because they benefit the administration.

The specific costs framework in contested Will cases is addressed in our companion guide on costs of contested will proceedings in Victoria, and the role of negotiated resolution is covered in our guide to mediation in estate litigation. Background on the underlying claims is in our guide to family provision claims in Victoria.

Commercial disputes: costs as a commercial factor

For a business, commercial litigation is a commercial calculation. Costs should be weighed alongside the merits, the recoverability of any judgment, the distraction of management time and the likely impact on ongoing relationships. Many commercial disputes can be addressed at the pre-litigation stage with a properly drafted letter of demand or through structured negotiation, and the appropriate forum may be VCAT (see our guide to going to VCAT) or one of the alternatives to court proceedings.

Settlement terms and costs

Any settlement should expressly deal with costs. The common formulations behave very differently:

• 'Inclusive of costs' — the settlement sum extinguishes any separate costs claim.
• 'Plus costs, as agreed or assessed' — costs are preserved and, failing agreement, referred to the Costs Court.
• Silence — a common source of satellite disputes.

Where the settlement is recorded in Court orders, the costs outcome should be reflected on the face of the orders.

Costs assessment and legal costs disclosure

When the parties do not agree the amount payable under a costs order, costs are assessed by the Costs Court, a specialist division of the Supreme Court of Victoria, on the basis stated in the order. A separate framework governs the relationship between a client and their own lawyer: the Legal Profession Uniform Law (Victoria) and Legal Profession Uniform Law Application Act 2014 (Vic) require costs disclosure and estimates and set out costs review rights subject to strict time limits. Conditional costs agreements and any uplift fee are regulated and must comply with the statutory requirements and caps under the Uniform Law, including disclosure, form and (for uplifts) the prescribed maximum; an uplift is not automatically enforceable merely because a conditional costs agreement has been signed. Percentage-of-recovery contingency fees are generally prohibited in Victoria, apart from the distinct and separately regulated regime for group costs orders in the Supreme Court of Victoria.

Enforcement and appeal

A costs order is enforced as a judgment of the Court in accordance with the applicable enforcement rules. An appeal does not automatically stay a costs order; a stay must generally be sought. Costs of an appeal are dealt with separately and, like all costs, are within the Court's discretion; success at trial does not predetermine the appellate costs outcome.

Why early legal advice matters

The single most effective costs-control measure is early legal advice. The earlier the merits, forum, offers, disclosure and case-management strategy are considered, the more levers a party has to manage costs exposure. Parke Lawyers acts for individuals, business owners, executors and beneficiaries across the full range of Victorian civil disputes through our litigation and dispute resolution practice, working closely with our commercial and business law and estate litigation and TFM claims teams so that costs strategy is built into every matter from the outset.

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