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. In the Supreme Court the power derives from s 24 of the Supreme Court Act 1986 (Vic), exercised in accordance with Order 63 (r 63.02). The Court retains a wide discretion, may deal with costs at any stage (r 63.03) and may make orders for a particular question or part of a proceeding (r 63.04). Section 65C of the Civil Procedure Act 2010 (Vic) also allows orders such as costs by stage, proportions or a fixed sum, and capping recoverable costs in advance. Departure from the starting point is common where success is mixed or where there has been relevant conduct on either side. Costs orders compensate the successful party; they do not punish the unsuccessful one (Oshlack v Richmond River Council (1998) 193 CLR 72).

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 usual basis (r 63.31). Under r 63.30, all costs reasonably incurred and of reasonable amount are allowed, and costs are taxed by reference to the scale in Appendix A unless the Court otherwise orders (r 63.34). 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, with any doubt resolved in favour of the receiving party (r 63.30.1). 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; r 63.28(c) permits the Court to direct a basis other than the standard or indemnity basis. 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 its $100,000 jurisdictional limit (higher only with the parties' written consent) (Magistrates' Court Act 1989 (Vic) ss 3 and 100). 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; its civil jurisdiction has no general upper monetary limit, subject to matters excluded by statute (County Court Act 1958 (Vic) s 37). 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 factors in s 109(3): whether a party conducted the proceeding in a way that unnecessarily disadvantaged another party, whether a party unreasonably prolonged it, the relative strengths of the claims, the nature and complexity of the proceeding and any other relevant matter. Some enabling enactments contain their own costs provisions. An adverse costs order at VCAT should not be assumed, but it should not be ruled out either.

Offers of compromise under Order 26

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 2025 (Vic), with corresponding provisions in the County and Magistrates' Court rules. Under Order 26:

• the offer must be in writing, state that it is served in accordance with the Order, and state whether it is inclusive of costs or with costs in addition (r 26.02);
• it may be served at any time before verdict or judgment, more than one offer may be made, and it must be open for at least 14 days after service (r 26.03(1)–(4));
• it cannot be withdrawn while open for acceptance unless the Court otherwise orders (r 26.03(5)), and it is treated as without prejudice unless it says otherwise, so it is not disclosed to the Court until liability and relief are decided (rr 26.04–26.05); and
• a sum payable under an accepted offer is, unless the offer provides otherwise, payable within 28 days of acceptance (r 26.03.1), with remedies if an accepted offer is not honoured (rr 26.07–26.07.1).

If an offer is not accepted, r 26.08 sets out costs consequences that apply unless the Court otherwise orders, and they are not symmetrical. The rule speaks of the 'ordinarily applicable basis', which for costs incurred on or after 1 April 2013 is the standard basis (r 26.01):

• Plaintiff's offer: if the plaintiff obtains judgment no less favourable than its offer, it is entitled to standard costs until 11.00 am on the second business day after service and indemnity costs afterwards (indemnity costs throughout for death or bodily injury claims) (r 26.08(2)).
• Defendant's offer, plaintiff succeeds for no more: the plaintiff recovers its costs to that point on the standard basis and the defendant recovers its costs thereafter on the standard basis — not the indemnity basis (r 26.08(3)).
• Defendant's offer, claim dismissed: if the plaintiff unreasonably failed to accept, the defendant is entitled to standard costs to that point and indemnity costs afterwards (r 26.08(4)).

Post-offer interest is disregarded in the comparison (r 26.08(5)), the offeror must show it was at all material times willing and able to carry out the offer (r 26.08(7)), and in a debt or damages claim where only liability was disputed a plaintiff's offer must be a genuine compromise (r 26.08(8)). Rule 26.08.1 separately allows the Court to take into account a written pre-litigation offer that was open for a reasonable time and not bettered, and to order costs on a basis other than the standard basis. Separate rules apply to offers between contributor parties (r 26.10) and on appeal (r 26.12). The County and Magistrates' Court rules must be checked separately.

Calderbank offers

A Calderbank offer is a settlement offer made 'without prejudice save as to costs', following Calderbank v Calderbank [1976] Fam 93. It sits outside Order 26. If the offeree fails to obtain a more favourable outcome, the Court has a discretion to order indemnity costs if the rejection was unreasonable, judged at the time of rejection.

In Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435; [2005] VSCA 298, the Court of Appeal identified matters ordinarily relevant: the stage of the proceeding when the offer was received, the time allowed to consider it, the extent of the compromise offered, the offeree's prospects of success as assessed at that date, the clarity of the offer's terms, and whether it warned that indemnity costs would be sought if it were rejected. The label 'Calderbank' does not by itself attract indemnity costs, and failing to beat an offer does not of itself make its rejection unreasonable. For a fuller treatment, see our guide to Calderbank offers and costs strategy.

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. Those obligations include using reasonable endeavours to ensure costs are reasonable and proportionate to the complexity or importance of the issues and the amount in dispute (s 24). A court may take a contravention into account in exercising its costs discretion (s 28). If satisfied on the balance of probabilities that a person has contravened an overarching obligation, it may make any order it considers appropriate in the interests of justice, including that the person pay costs arising from the contravention (s 29). An order may be sought by a party or a person with a sufficient interest, or made on the Court's own motion, and an application must be made before the proceeding is finalised (s 30). These orders are discretionary and not an automatic consequence of any breach.

Personal, wasted and non-party costs orders

In addition to costs orders against parties, the Court may in defined circumstances order costs against lawyers personally. Under r 63.23, where a solicitor (or barrister) has caused costs to be incurred improperly or without reasonable cause, or wasted by a failure to act with reasonable competence and expedition, the Court may disallow costs or order the lawyer to pay them, but only after giving the lawyer a reasonable opportunity to be heard. Lawyers are also subject to the Civil Procedure Act sanctions described above. Costs may exceptionally be ordered against a non-party — for example, a person who controls and stands to benefit from litigation brought by an impecunious party — under the Court's general costs power (Knight v FP Special Assets Ltd (1992) 174 CLR 178). These orders 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 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;
• Rule 62.02 of the Supreme Court (General Civil Procedure) Rules 2025 (Vic), whose grounds include that the plaintiff is ordinarily resident out of Victoria; is a corporation, or sues for another person's benefit, and there is reason to believe it has insufficient assets in Victoria to pay the defendant's costs; has another proceeding pending for the same claim; has not stated, or not correctly stated, its address (unless innocently); or changed address to avoid the consequences of the proceeding; or that security may be required under any Act; and
• the Court's inherent jurisdiction, which the Supreme Court has exercised to order security where none of the r 62.02 grounds was made out — for example against a natural-person plaintiff supported by a commercial litigation funder (Troiano v Voci (Security for costs) [2019] VSC 859). It is exercised cautiously, and an individual plaintiff's lack of means is not by itself a sufficient reason.

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. The Court directs the manner and timing of security (r 62.03), commonly stays the proceeding until it is given (r 62.02(1)), may dismiss the claim if it is not given (r 62.04) and may vary or set aside the order (r 62.05). The County and Magistrates' Courts have their own rules.

Self-represented parties

A self-represented party who succeeds ordinarily cannot recover remuneration for their own time as legal costs, although reasonable out-of-pocket disbursements may be recoverable (Cachia v Hanes (1994) 179 CLR 403). The High Court has held that the former 'Chorley exception', which allowed a self-represented solicitor to recover professional costs for their own time, is not part of Australian law (Bell Lawyers Pty Ltd v Pentelow [2019] HCA 29), so lawyers who act for themselves are ordinarily in the same position. Separately, Part 3A of Order 63 (rr 63.34.1–63.34.3) allows costs to be ordered in favour of a party represented on a pro bono basis.

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 taxed (assessed) by the Costs Court, established within the Trial Division of the Supreme Court of Victoria (Supreme Court Act 1986 (Vic) s 17C), 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 in litigious matters) the requirement in s 182 that the law practice reasonably believes a successful outcome is reasonably likely and the cap of 25 per cent of the legal costs, excluding disbursements; an uplift is not automatically enforceable merely because a conditional costs agreement has been signed. Percentage-of-recovery contingency fees are prohibited by s 183 of the Uniform Law, apart from the distinct and separately regulated regime for group costs orders in group proceedings in the Supreme Court of Victoria under s 33ZDA of the Supreme Court Act 1986 (Vic).

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.

Primary Sources

• Supreme Court (General Civil Procedure) Rules 2025 (Vic) — Order 26 (offers of compromise), Order 62 (security for costs) and Order 63 (costs)
• Civil Procedure Act 2010 (Vic) — ss 24, 28–30 and 65C
• Supreme Court Act 1986 (Vic) — ss 17C, 24 and 33ZDA
• Magistrates' Court Act 1989 (Vic) — ss 3 and 100; County Court Act 1958 (Vic) — s 37
• Victorian Civil and Administrative Tribunal Act 1998 (Vic) — s 109
• Corporations Act 2001 (Cth) — s 1335
• Legal Profession Uniform Law Application Act 2014 (Vic) — including the Legal Profession Uniform Law (Victoria), ss 182–183 and Part 4.3
• Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435; [2005] VSCA 298
• Knight v FP Special Assets Ltd (1992) 174 CLR 178; [1992] HCA 28
• Cachia v Hanes (1994) 179 CLR 403; [1994] HCA 14
• Bell Lawyers Pty Ltd v Pentelow [2019] HCA 29
• Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11
• Troiano v Voci (Security for costs) [2019] VSC 859

Frequently Asked Questions