“Legal costs” or “costs” are phrases generally used in a legal sense to refer to the professional fees and disbursements charged by a law firm for the provision of legal services. Legal costs and the ability to recover them or be liable to pay another party’s legal costs are an important consideration when contemplating litigation.
As the topic of costs is far from simple, this article will consider generally the potential costs entitlements or liabilities of parties to civil litigation in the Magistrates Court of Western Australia, which has jurisdiction to hear claims for amounts up to $75,000.
Significance of costs
Litigation generally requires significant amounts of time, effort and precision in running a case through the Court and this is generally reflected in the legal costs incurred by a party. As such, alternative methods of dispute resolution, such as mediation, are often recommended to be attempted prior to pursuing any litigation.
Simple matters may have small costs implications, however matters which are complex and drawn-out may have greater costs implications. Actual legal costs incurred in some complex matters can often outweigh any potential judgment amount recovered including costs awarded. The potential for such a situation should be considered before proceeding to bring or defend a claim.
Ability to recover costs by way of costs order
Without any basis upon which legal costs can be awarded to a party, legal costs would ultimately deter parties from pursuing to enforce or defend their legal rights by way of litigation. The legal costs involved with litigation is recognised by legislators and the courts and these costs form the justification for the making of costs orders during and after legal proceedings, whereby some of the burden in relation to legal costs are allocated to particular parties to a proceeding.
Essentially where a party sues another party , depending on the outcome , that party may be entitled to be paid or may be liable to pay legal costs. The Court may also make various costs orders at different stages of the proceedings, not just at the end of a trial.
Generally the position for civil matters in the Magistrates Court for claims up to $10,000 is that each party bear their own legal costs. This ensures parties try and avoid incurring legal costs in such matters and providing an incentive for parties to settle the dispute and avoid litigation where there is the potential for legal costs to be totally disproportionate to the amount of the claim.
There are exceptions to this rule including where an unsuccessful party has no real grounds to bring or contest the proceedings. More specifically, the Court may order costs for a claim under $10,000 where the unsuccessful party’s claim or defence was wholly without merit or there are otherwise exceptional circumstances. The Court may and usually does also order costs in relation to “allowable costs” being court fees and service fees paid and judgment enforcement costs.
For claims over $10,000, the successful party is generally entitled to the whole of its costs, unless there is good reason as to why it should not be so entitled. This essentially invests the Court with discretion to refuse the award of costs to a successful party in certain circumstances, however ordinarily costs are awarded to the successful party.
Where a person is the unsuccessful party and is ordered to pay costs, they will still be required to pay their own legal fees, in addition to those of the successful party.
Costs determinations (“costs scale”)
If costs are awarded to a party by way of a costs order made by the Court, then the actual amount of costs payable is ordinarily determined by the Court. The Court will generally either set the exact amount of costs payable at the time the costs order is made or order that the costs are to be subsequently “assessed ” (being a separate Court hearing). However, costs orders usually allow the parties to try and agree the costs payable between themselves before the requirement to have them ‘’assessed’’ arises.
Where the parties do not agree on an amount of costs, the amount of costs to be paid is to be determined in accordance with the applicable costs determination (also known as the costs scale). The applicable costs determination for the Magistrates Court is currently the Legal Profession (Magistrates Court) (Civil) Determination 2014 (WA).
As costs are assessed by reference to the determination, it essentially operates as a statutory cap that limits the amount of costs which may be awarded. The Court may order an amount for costs greater than that provided for and allowed under a costs determination, where the amount allowed for under the determination is inadequate due to the unusual difficulty, complexity or importance in the matter. However, this is unlikely to be the case in Magistrates Court matters.
The existence of the costs determination recognises that ultimately there is a limit which must necessarily be placed on a party if they are liable to pay another party’s legal costs. Unfortunately for successful parties, the existence of the determination also usually prevents the full recovery of the actual legal fees incurred by a successful party.
Under a costs agreement with a client, a law firm will ordinarily charge costs which are above the amounts provided for under the costs determination. The difference between what an unsuccessful party is liable to pay under a costs determination and what costs a successful party has actually incurred with its law firm ordinarily results in a gap. The potential extent of this gap is another consideration to take into account when commencing or continuing with legal proceedings.
Please feel free to get in touch with us if you have any questions in relation to legal costs and how costs orders may impact on your decision to litigate a dispute.
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