Practical Law

Despite widespread concern about the expense of civil litigation, Australia has been slow to adopt proposed reforms to its costs regimes. Fixed, event-based costs, though the subject of long-standing advocacy, play an insignificant role in litigation.

Australia’s costs regime follows a similar approach to England. As a standard rule, costs follow the event: that is, the successful party is entitled to recover costs from the unsuccessful party. Costs awards are calculated by undertaking a cost assessment (also known as taxation) against “costs scales”, which provides a maximum charge for particular activities. These factors significantly reduce the successful party’s recovery of their solicitor’s actual costs. Awards are generally made on a standard basis, though indemnity costs may be ordered in some circumstances.

Fixed costs are an alternative to protracted costs assessments. As used in Australia, fixed costs may describe either lump sum fixed costs or event-based fixed costs.

Courts may fix costs in a lump sum without conducting a costs assessment (lump sum fixed costs) in response to an application or as an exercise of discretion. Though an unfettered discretionary power, the court will only deviate from the standard rule where it is confident costs can be fixed accurately. A costs estimate from a costs assessor is provided where practicable. Lump sum fixed costs are awarded to avoid the expense and delay of taxation.

Alternatively, event-based fixed costs are determined by reference to certain events or stages in a proceeding, with a value prescribed by statute or rules of court. In Australia, the Federal Circuit Court and the South Australian Magistrates Court apply event-based schemes. Fixed costs of this nature are similar to those proposed by Jackson LJ in the 2016 IPA Annual Lecture.

In the Federal Circuit Court, Rule 21.10 of the Federal Circuit Court Rules 2001 provides that costs are to be awarded in fixed sums for certain events, unless the court orders otherwise. Costs are calculated by reference to different stages of proceedings, with attendances at hearings charged at daily hearing fee rates. Distinction is made between family law matters and other federal laws, with the allowable amount for each stage set as a fixed sum (see Table 1 below). The simplicity of this system increases certainty for both parties.

In South Australia, the Magistrates Court applies a costs schedule for civil proceedings, which is calculated by:

• A percentage of the amount claimed.
• The stage of proceedings.
• The type of dispute.

The maximum amount parties may claim for each stage of a proceeding is a percentage of the total claim, as set out in Table 2. The Magistrates Court is the lowest court in the state hierarchy, with jurisdiction to hear claims up to $100,000. Lawyers are precluded from appearing for minor civil claims of less than $25,000. The amount of costs to be awarded is calculated by multiplying the total shared costs of the proceedings using the following formula: (2 x the judgment sum – amount claimed) / amount claimed.

Where the result is positive, costs will be awarded to the plaintiff. Where the result is negative, costs will be awarded to the defendant. Andrew Cannon AM, the Deputy Chief Magistrate of South Australia, notes that plaintiffs may reduce their potential cost liability by reducing the amount claimed, and defendants may do so by admitting any part of the plaintiff’s claim.

A number of law reform proposals have suggested a greater role for event-based fixed costs. The Productivity Commission’s 2014 Report, Access to Justice Arrangements, emphasised certainty as a key factor in a more equitable civil justice system. The Commission recommended that lower-tier courts should utilise fixed, event-based scales. Quantum would be calculated by reference to the type of dispute, the stage of proceedings and, where relevant, the amount in dispute. These amounts would be pegged to the Consumer Price Index (a measure of consumer price inflation), and reviewed on a three-yearly basis.

Despite broad acknowledgement of the risk of excessive costs in civil proceedings, fixed costs retain only a small role. Law reform proposals, such as those mooted by the Productivity Commission, lack political momentum and appear unlikely to displace the existing preference for traditional costs assessments (the standard approach, as set out above, is to tax costs after the event; the Federal Circuit Court and the South Australian Magistrates Court are the exceptions).

Table 1: Fixed costs schedule (Federal Circuit Court)

Table 2: Fixed costs schedule (South Australia)