Understanding the Legal Costs of Litigation

understanding the legal costs of litigation

Historically, legal costs involved in a litigation matter are the main concern of clients and solicitors alike, whether it is an estate dispute, family law matter, commercial litigation, trust dispute, or even medical negligence.

What follows is an overview of the factors involved in determining the issue of costs in a litigation matter.

Payment of Costs

Both parties in the proceedings will incur costs including professional fees of the solicitors, counsel fees, court fees, copying and other disbursements.

Generally once the matter is heard the unsuccessful party will be ordered to pay the costs of the other party. Such costs orders are not always promising.

Firstly the costs may be assessed and accordingly the amount awarded to the successful party will not cover all the costs and disbursements of that party.

It could also be the case that the unsuccessful party who is ordered to pay the costs is not financially capable to do so.

There are also ways to ascertain the costs of the successful party is secured such as filing an application for security of costs preferably as early as possible in the course of the proceedings.

Whilst there may be orders for costs for the successful party, the actual recovery of costs in litigation matters can be unpredictable.

Accordingly it is important for both the client and solicitor to prepare a succinct cost analysis of the proceedings to ascertain the value of the dispute for the client, the other side’s position and the possibility of negotiating a settlement.

Standard Costs vs Indemnity Costs

Indemnity costs are all costs incurred by the successful party to litigation including all the fees and disbursements so far as the costs are not unreasonably incurred or are for an unreasonable amount.

Indemnity costs are not very common. Courts usually make an order of indemnity costs to penalise the unsuccessful party usually when they have pursued the proceedings in court with little or no prospect of success or in circumstances where the litigation was not adversarial such as seeking judicial advice for charitable trust distributions. Generally however the Courts make a standard costs order whereby the unsuccessful party is liable to pay for up to approximately 75% of the costs of the successful party.

In any event, the overriding principle is that the Court has the discretion to make the costs order based on the merits of the case.

Accordingly it is important for a party to litigation to comprehend the concept of the costs orders even in circumstances of a successful litigation where the successful party will still be out of pocket by a minimum of 25% and sometimes even up to 50% of the party’s total costs.

Costs and Offers of Settlement
  1. Calderbank Offers

This is an offer pursuant to an authority provided in common law to determine the issue of costs. The offer takes its name from the precedent case Calderbank v Calderbank [1975] 3 All ER and is usually referred to in legal correspondence as “Calderbank Offer”.

The principle of a Calderbank Offer is that if the successful party in a judgment had previously made a compromising offer to the other party prior to the determination of the case in Court and the offer was not accepted by the other party, then the successful party will be entitled to an order of costs more favourable to the successful party tha it would have otherwise been.

Under the principles of a Calderbank Offer, a successful Plaintiff may even seek a costs order on an indemnity basis.

  1. Legislation

In NSW determination of costs in cases where a party has made an offer of settlement to the other party is ruled by the Uniform Civil Procedures Rules 2004 (the Rules).

In NSW if the offer of settlement is accepted but there has been no provision for costs in the offer, the costs will be awarded to the party in whose favour the judgment was proposed in the offer on the ordinary basis. For example if the offer proposes a judgment in favour of plaintiff then the plaintiff is entitled to an order against the defendant for the plaintiff’s costs on the ordinary basis and vice versa. (Rule 42.13A)

If the Plaintiff makes an offer to the defendant that is not accepted by the defendant, and subsequently a judgment is made on the Plaintiff’s claim that is not less favourable than the terms of the offer, usually the court will order costs in favour of the Plaintiff (Rule 42.14).

Similarly if the judgment is made that is no more favourable to the Plaintiff than the terms of the offer, then the plaintiff is entitled to an order against the defendant for the plaintiff’s costs on an ordinary basis only up to the time the defendant becomes entitled to an order of costs against the plaintiff on an indemnity basis (Rule 42.15)

In circumstances that an offer is made by the defendant that is not accepted by the plaintiff and subsequently the defendant obtains a judgment no less favourable to the defendant than the terms of the offer, then the defendant is entitled to an order against the plaintiff for the defendant’s costs on an ordinary basis only up to the time the defendant becomes entitled to an order of costs against the plaintiff on an indemnity basis (Rule 14.15A).

It is important to note that irrespective of the Rules above, the Court has the discretionary power to make costs orders otherwise.

Accordingly careful considerations should be given to offers of settlement in circumstances that the Rules allow a significant advantage for a party who has made an offer of Settlement under the Rules which was not accepted but subsequently achieved a better outcome by way of a judgment.

Both the common law principle of a Calderbank Offer and the Legislation are designed to encourage parties to make offers of settlement in an attempt to resolve their disputes prior to the determination by the court, thereby achieving resolution in the matter expeditiously and more cost-effectively.


Litigation is expensive and the issue of costs is complicated.

In litigation matters, the means should always justify the end. Accordingly if the legal costs outweigh what you want to achieve at the end of the litigation matter, irrespective of a favourable judgment, you will not be a successful party.

Our Services

Litigation Lawyers Sydney at Pavuk Legal, advice will be given to the client and the issue of costs are fleshed out at the outset and throughout the litigation matter.

If you have a litigation matter contact one of the solicitors at Pavuk Legal and ask for a comprehensive outline of your legal fees.

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