Who pays the legal costs if you win your case?

"The cost of success is far cheaper than the price of failure"? (Tsem Tulku)

Many business owners believe that if they win their commercial legal case, the other side will pay their legal costs.?That is rarely the case.

It is true that there is a general principle in law that “costs should follow the event”.?This means the losing party should pay the winning party’s legal costs. ??However, this rule is subject to so many exceptions and practical constraints that in 9 out of 10 cases, each party pays their own legal costs.

No costs order in VCAT

The most glaring exception is litigation in the Victorian Civil and Administrative Tribunal (VCAT).??The VCAT Act requires that each party pay their own costs unless there has been some exceptionally bad conduct by one party.

So if you have a case in VCAT, you should expect that you will pay your own costs, no matter what the outcome.

Most cases settle before costs are considered

While the County Court, Supreme Court and Federal Court are all empowered to force the losing party to pay costs, they rarely make any costs order at all.?This is because costs are usually not considered until after the final hearing.

The statistics clearly show that over 95% of all cases in those Courts settle by agreement before the end of the final hearing. So costs are never considered at all.

Costs are negotiated, not ordered

This means costs are usually sorted out by agreement between the parties during the settlement negotiations.?While it is possible to negotiate for the other party to pay your costs, it is rare in commercial cases.?

Generally, the right to legal costs is compromised as part of the overall settlement negotiations.?

Costs are always discretionary

If the Court do consider costs, they are not required to order that the loser pay.

The Court always has the discretion to decide what they think is fair in the circumstances.?Sometimes no costs order is made at all.?It is even possible for the winner to have to pay costs.

So, costs are always uncertain.

The Court will look at the conduct of each party, any reasonable offers that were made, and consider if the conduct of the loser justifies a costs order.?

It costs to seek costs

Often costs are considered at a separate hearing, after the main hearing on liability is finished.?The parties might need to prepare submissions or evidence for that hearing.

So you should expect to spend money pursuing a costs order.

You will recover less than your actual costs

If costs are ordered by the Court, the amount ordered is almost always much less the real costs incurred.?The Court impose a “scale of costs” – a bit like how the Medicare system works.?

The scale allows certain amounts for fixed portions of work.?The amount allowed is usually less than what is charged by a lawyer to do that work.

Worse still, the scale assumes the litigation is conducted in a standard, step by step process.?In my experience, most cases that do not settle are complex, hard fought and involve much more work than the scale allows.?

Costs recovery is also dependant on the capacity of the other party to pay.?If the other party goes into liquidation, any costs order will be an unsecured debt and may never be paid.

Make an offer to improve your chances

The best advice for business owners wanting to maximise their costs recovery is to make a reasonable settlement offer early.?You should offer the greatest compromise you can, as early as you can.

A strong early offer will put pressure on the other side and will put you in a better position to recover more costs if it gets that far.?

If the offer is not accepted, and you get a better outcome at the hearing, the Court are more likely to order costs in your favour.??They are also more likely to order costs on a “higher scale”, which will mean you recover more money for the work.

Investing in legal costs

Investing money in legal costs should be assessed like any other investment.?Does the upside justify the cost and the risk???If you are relying on costs recovery to make the investment worthwhile, you should rethink your strategy.??