Basis for costs (NSW)

by Michelle Castle of DG Thompson and Maurice Polkinghorne

The term ``legal costs'' encompasses two very different concepts:

  • Costs that a client agrees to pay a solicitor for legal services rendered by the solicitor. These are commonly referred to as solicitor/client costs;
  • Costs that arise as a result of a court ordering one party to pay another party's costs. These are commonly referred to as party/party costs.

The juridical basis of solicitor/client costs is contract. They are the subject of agreement. Party/party costs are quite a different creature, arising out of a court order and therefore not subject to agreement at all.

Solicitor/client costs

In New South Wales, payment for legal services rendered by a practitioner is subject to the Legal Profession Act 1987. On 1 July 1994, a new regime for costs commenced operation under the Act. In summary, it introduced the following:

Disclosure

Since 1 July 1994, practitioners are required to disclose in writing certain information to their clients or their instructing practitioners: Legal Profession Act 1987, ss 175--181. For clients, this information includes: the amount of the costs, or an estimate and the basis of calculating the costs; billing arrangements; information on the client's rights for a review of costs and to receive a bill of costs: s 175(1). Similar information, but not that pertaining to the right to review or a bill, is required to be disclosed to an instructing practitioner: s 176. Disclosure is to be made if practicable, and as soon as practicable: ss 178 and 180. Regulations may be made regarding information to be disclosed and defining when it is, or is not, practicable to disclose: s 181. Disclosure by practitioners is now the key element in determining and recovering costs from clients and instructing practitioners. If a practitioner does not disclose, the client need not pay unless the costs have been assessed at the practitioner's expense: s 182(1) and (3). The practitioner may not maintain proceedings against a client or an instructing practitioner to recover costs unless the costs have been assessed at the practitioner's expense: s 182(2) and (3). The practitioner is not entitled to withdraw or receive from trust money, money for the practitioner's costs or disbursements, unless the costs have been assessed: cl 32, Legal Profession Regulation 1994. The failure to disclose is capable of becoming a disciplinary matter.

Costs agreements

Whilst disclosure is mandatory, the Act provides that entering into costs agreements is optional. However, by entering into a costs agreement, some level of protection is provided to the practitioner.

What is a practitioner entitled to charge?

In most matters, a practitioner is entitled to charge the client a ``fair and reasonable'' amount: s 208A. There are many factors that determine reasonableness. However, in some matters, a solicitor is not free to set his own charges but must charge in accordance with a scale of costs. Such matters include workers' compensation, costs of obtaining default judgments, some aspects of probate and other matters.

Party/party costs

Party/party costs are the costs that a court orders one party to litigation to pay to the other party. Party/party costs are a creature of statute and most courts are given wide powers to determine by whom costs are payable. There are several well established rules that guide the recovery and awarding of party/party costs:

Party/party costs are an indemnity only

It has long been established that party/party costs are intended only as an indemnity for the successful party's solicitor/client costs. Recent High Court authority has strongly restated this position: Latoudis v Casey (1990) 170 CLR 534; Cachia v Hanes (1994) 179 CLR 403. Party/party costs must never be allowed to exceed solicitor/client costs - to do so would be contrary to public policy.

``Costs follow the event''

Unless special circumstances exist, successful litigants should receive an order for their costs. Regarding a successful plaintiff, in Brenner v First Artists Management Pty Ltd [1993] 2 VR 221, Byrne J said:> The cases show that a successful plaintiff is entitled to costs unless there are clearly severable issues on which the defendant has succeeded or that, for some reason, the conduct of the plaintiff has been reprehensible: Tramountana Armadora SA v Atlantic Shipping Co SA [1978] 2 All ER 870. That the amount claimed was very much greater than the sum recovered would not generally be sufficient to displace the usual order: Brenner v First Artists' Management Pty Ltd. Regarding a successful defendant, in ASC v Bell (unreported, 2 February 1996, Fed Ct, Nicholson J) the court said that te ordinary rule as to costs is that a successful defendant will be granted costs: ``unless there is evidence that the defendant has-

  1. brought about the litigation; or
  2. has done something connected with the institution or conduct of the suit calculated to occasion unnecessary litigation or expense; or
  3. has done some wrongful act in the course of the transaction of which the plaintiff complains'': Ritter v Godfrey [1902] 2 KB 47.

However, see Drummond v American Home Assurance Company (unreported, Sup Ct of NSW, Young J, 2 August 1995), where the complexity of the litigation was caused by the obscure wording of an insurance policy and resulted in the normal rule not being followed. See also O'Hare v Head (unreported, Sup Ct NSW, Master McLaughlin, 19 May 1995), where: `` the protracted litigation ... [was] ... brought about to a very large extent by the high handed conduct and bullying of the defendant ''. With the exception of some costs which were reserved, each party bore its own costs.

The court's unfettered discretion to make costs orders other than what has sometimes been called ``the normal order'', was demonstrated in Igaki Australia Pty Ltd v Coastmine Pty Ltd (unreported, Full Ct, FCA, Spender, Whitlam and Beazley JJ, 26 March 1996). This was an appeal from the decision of a single judge dismissing the appellant's claim for damages for misrepresentation and negligence in his purchase of a shareholding in a Gold Coast restaurant. In the course of the original trial, the judge found that money was being drawn from the business and not declared for income tax purposes.

The trial judge also found that the appellant had entered the agreement because of an inducement that this ``black money'' was available to him. This matter was not pleaded in the original trial. For various reasons, the court dismissed the claim and eventually the appeal. The respondent would normally expect to be entitled to his costs at the trial. He cross appealed the trial judge's order that there be no order for costs. However, the court declared (at 32) that `` ought not be involved in any way in condoning conduct which is clearly in contravention of the income tax laws. To award costs to the [cross appellant] in this case would have that effect''. The court dismissed the cross appeal on costs.

This article is an extract from the Lawbook Company's looseleaf service, Costs Guide New South Wales, an informative and practical service which provides all essential legislation, rules and scales (historical and current) in the NSW, Federal and ACT jurisdictions.  Michelle Castle D G Thompson - Legal Cost Assessors Maurice Polkinghorne Secretary - Legal Profession Advisory Council August 2001



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