How does costs set off really work?

In most jurisdictions, including Victoria, costs between parties in the same matter can be set off according to Court rules. In Victoria, r63.55(1) provides that if a party entitled to costs is also liable to pay costs, after taxation the Court may:

• Set off the amount the party is entitled to against the amount payable and make an order stating what the balance is and who has to pay who
• Decline to make an order requiring the payment of costs a party is entitled to, unless and until that party has tendered the amount that he/she is liable to pay

The Court’s inherent jurisdiction to set off costs is even broader. It extends to setting off the costs of different proceedings (Wentworth v Wentworth (SC(NSW), Young J, 12 December 1994, unreported) at 3-4) and setting of costs against damages (Edwards v Hope (1884) 14 QBD 922 at 926 per Brett MR), if it is just to do so.

More Recent Authority on Inherent Jurisdiction

Slaveski v State of Victoria [2013] VSC 76 is a great case to have in your back pocket for dealing with both issues. The (somewhat intricate) facts of that case are as follows.

Mr Slaveski brought a proliferation of claims for damages against the State and 23 police officers in relation to 13 incidents. The Plaintiff’s claims in respect of 12 of the 13 incidents were dismissed. In respect of the remaining incident, the Plaintiff succeed on only 3 of the 14 causes of action he relied upon, none of which were pleaded in his original Statement of Claim. However, the police officers against whom Mr Slaveski succeeded were immune from suit under the then Police Regulation (Pensions) Act 1958 (Vic), s123(1). Therefore, liability transferred to the State.

On 10 December 2010 the primary judge (his Honour Justice Kyrou) relevantly ordered the State to pay Mr Slaveski $28,300 in damages and $1,457 in interest (Order 1), and Mr Slaveski to pay 90 per cent of the State’s costs, calculated on a party-party basis up to 27 January 2010 (Order 4). ?On 7 January 2011, the State applied for an order setting off the award of damages (Order 1) against the costs payable (Order 4). ?

Several adjournments (and a failed application for leave to appeal) later, the Honourable Justice McMillan granted the order sought by the State. Her Honour summarised the legal principles applicable to the Court’s power to set off costs against damages, or one judgment against another, at [15]-[25]:

• The power arises from the Court’s inherent jurisdiction to control its own processes
• The power exists independently of any right to set off in statute, equity or common law
• The power is not constrained by equitable principles
• The power may be exercised before costs are taxed
• The power is discretionary and should be exercised to avoid unfairness between the parties

The relevant discretionary factors may include whether ([23]-[24]):

• the party awarded damages was substantially unsuccessful in the proceeding
• a party has failed to satisfy previous costs orders in the same or related proceedings
• a party has expressed an intention not to comply with costs orders
• a party’s financial position disables them from satisfying one or more costs orders
• the costs orders made against a party exceed the damages awarded in their favour
• a party’s conduct throughout the proceeding has caused unnecessary delay and additional costs
• that party had been warned by the primary judge about the costs consequences of the manner in which they conducted the proceeding
• any actual or proposed appeal is likely to succeed
• it is likely that the costs order will not otherwise be satisfied

Takeaways

While r63.55(1) empowers the Court to set off costs against costs after taxation, the Court's inherent jurisdiction allows for broader set-off orders to be made before taxation in the interest of justice. Applying for the Court to exercise its inherent jurisdiction may be necessary when there is a risk of not recovering costs due to another party's practical inability to pay.