A hotly contested aspect of any litigation is the issue of who pays the legal costs. By the time a dispute reaches a final hearing, each party has likely incurred legal fees, sometimes significant, which they hope to recover from the other party. The general rule in litigation is that “costs follow the event”, which means that an unsuccessful party will usually be ordered to pay the successful party’s legal costs – in addition to paying their own legal costs. There are some exceptions to that rule, but those will not be covered in this article.
So, what happens after you are successful at a final hearing and obtain a costs order in your favour? Can you just expect that the unsuccessful party will pay up? Unfortunately, this is often not the case. This is because costs orders are rarely expressed as quantified amounts. It is common for a costs order to be expressed as follows: “[Party A] to pay [Party B’s] costs as agreed or assessed”.
What exactly does this mean?
This means that the parties must either:
- Come to an agreement as to the amount of legal costs that Party A will pay to Party B, or,
- Party B must have its legal costs assessed.
Each is considered in turn:
Costs by Agreement
After a costs order is made, it is open to the parties to negotiate an amount that Party A will pay to Party B. Often Party B will write to Party A outlining the legal costs that it has incurred throughout the proceedings and demanding payment within a reasonable amount of time. Party B may include some documents such as the tax invoices or a bill of costs to substantiate the amount of legal costs it has incurred.
If the parties are able to agree on an amount for costs, then payment can be facilitated to finalise the party’s obligations under the costs order.
Costs by Assessment
In circumstances where the parties cannot agree on an amount for costs, it is open to Party B to make an application to the Costs Assessment Section of the Supreme Court of NSW. The costs assessment process quantifies the amount of legal costs payable under a Court order. The assessment is conducted by an independent third-party costs assessor appointed by the Manager Costs Assessment.
The steps in the costs assessment process can be summarised as follows:
- Party B is required to serve a draft application for costs assessment on Party A. The draft application sets out the details of the relevant costs order and outlines the amount of legal costs claimed by Party B. The draft application should include, amongst other things, a “bill of costs”, which is an itemised schedule outlining the legal costs incurred and claimed by Party B. The form required for the draft application can be located on the Supreme Court of NSW website.
- Upon receipt of a draft application for the costs assessment, Party A has 21 days to serve any objections on Party B. Objections generally set out the grounds on which Party A disputes/objects to certain claims within the draft application for costs assessment.
- Upon the expiration of the 21-day period, Party B is free to file the draft application for costs assessment, together with any objections served by Party A within the 21-day period, with the Manager Costs Assessment. Party B is required to pay a filing fee of either 1% of the amount claimed or $100 (whichever is greater).
- Once an application is filed, the Manager Costs Assessment will allocate the application to a costs assessor. The costs assessor will typically notify the parties that they have been appointed and may ask the parties to provide additional materials (such as costs disclosures, tax invoices, or any offers to resolve the costs order made by either party).
- Once the costs assessor is satisfied that it has the materials necessary to make a determination, the costs assessor will carry out the costs assessment. Typically, the costs assessor will not speak to the parties or allow oral submissions.
- Once the costs assessor has completed their assessment, they will issue “certificates of determination” which set out the total amount payable under the relevant costs order and also the party liable to pay the costs of the costs assessment. The Costs Assessment Manager will only release the “certificates of determination” to the parties once the costs assessor’s fees have been paid. These fees are usually paid by Party B (the party applying for the costs assessment) in first instance.
- If the costs assessor has determined that an amount is payable by Party A to Party B under the costs order, then Party B is entitled to register the “certificates of determination” as a judgment in the relevant Court of jurisdiction. That judgment can then be enforced as a regular judgment of the Court.
In summary, it is not always a straightforward process to get paid after obtaining a costs order. We can assist you in negotiating costs amounts and also in applying for costs assessment. It is important that an application for costs assessment is properly prepared so as to give yourself the best opportunity to maximise the amount you are able to recover. Please do not hesitate to reach out to a member of Coleman Greig’s Litigation and Dispute Resolution team, would be more than happy to assist you.
Please note that this article does not discuss the distinction between party/party costs and solicitor/client costs, nor does it discuss the difference between costs on the ordinary basis, as opposed to costs on an indemnity basis.