The cost of litigation: Avoiding personal costs orders
General Practice
Litigation
Practice Management

BY CATHERINE HING AND NATALIE SULLIVAN – AUG 05, 2022 8:25 AM AEST

Snapshot

  • A solicitor for an unsuccessful party to litigation can be ordered to pay costs if they conduct litigation unreasonably, incompetently, with serious neglect, or if they institute or maintain proceedings without reasonable prospects of success.
  • To minimise the risk of personal liability for costs in unsuccessful litigation, lawyers should carefully scrutinise all evidence to ensure its relevance and inherent plausibility.

As claims against solicitors for personal costs orders have increased, it is important for practitioners to keep in mind the basis upon which these claims can be made, as well as the limited circumstances in which those orders will be made. Personal costs orders are primarily compensatory, but also form part of the Supreme Court’s inherent power to supervise the conduct of solicitors.

The courts have made it clear that the power to order costs be paid by a solicitor should be exercised judicially and only in exceptional cases (FMP Constructions Pty Ltd v Council of the City of Blue Mountains [2005] NSWCA 340). Fair notice must be given to the practitioner against whom the order is being sought, and the decision must be determined by the delivery of a judgment which sets out the reasons for the outcome (Lemoto v Able Technical Pty Ltd & 2 Ors [2005] NSWCA 153 (‘Lemoto’)).

The statutory provisions

Along with the Supreme Court’s inherent jurisdiction to order costs, clause 5(1) of schedule 2 of the Legal Profession Uniform Law Application Act 2014 (NSW) (‘LPULff’) provides that a law practice can be ordered to:

  • repay the whole or part of any costs that their client has been ordered to pay another party; or
  • to indemnify any other party for their costs paid, in whole or part, if it appears that they have provided legal services to a party without reasonable prospects of success.

If the trial court finds that the facts established by the evidence do not form a basis for a reasonable belief that the claim had reasonable prospects of success, clause 6(1) of the LPULA creates a rebuttable presumption that legal services were provided without reasonable prospects of success. If a judge makes such a finding, the onus shifts to the solicitor to prove their conduct should not attract the order.

So called ‘wasted costs’ orders can also be made under section 99(1) of the Civil Procedure Act 2005 (NSW) (‘CPA’) if costs have been incurred:

  • by the serious neglect, incompetence or misconduct of the solicitor; or
  • improperly, or without reasonable cause, in circumstances for which a legal practitioner is responsible.

Under Rule 40.07 of the Federal Court Rules 2011, costs can be ordered if a solicitor incurs costs improperly or without reasonable cause, or if the solicitor has incurred costs that were unnecessary, wasteful or due to delay. The statutory provisions for personal costs orders are not intended to expose a solicitor to a costs order if a ‘court, having heard all the evidence and argument, comes to a conclusion showing that his or her client’s case was not as strong as may have appeared at the outset to be’ (Degiorgio v Dunn (No 2) [2005] NSWSC 3 at [27]) (‘Degiorgio’), meaning that simply losing a case is not a sufficient basis for costs to be awarded against a solicitor.

Reasonable prospects of success

A case without ‘reasonable prospects’ is one ‘so lacking in merit or substance as to be not fairly arguable’ (Degiorgio at [28]), although that expression itself is open to interpretation. The courts have been clear that an adverse finding is not enough to form the basis of a personal costs order. The question becomes whether the solicitor or barrister held a reasonable belief that the provable facts and a reasonably arguable view of the law meant the prospects of recovering damages, or defeating a claim, or obtaining a reduction in damages claimed were ‘fairly arguable’. These are matters about which ‘reasonable minds might differ’ (McColl JA in Lemoto at [132]).

In Degiorgio, the Court identified that reasonable prospects exist where:

  • a reasonable belief is held by the solicitor that the case is based on propositions that are logically and objectively arguable;
  • the reasonable belief is based on the material available to the practitioner at the relevant time;
  • the available material constitutes a proper basis for alleging each relevant fact;
  • the case is made on a reasonably arguable (and not narrow) view of the law; and
  • there are reasonable prospects of recovering damages, even if only nominal (at [17]).

Conduct giving rise to personal costs orders

There are no defined classes of conduct that will result in a personal costs order. However, offending conduct that has attracted a costs order includes:

How to mitigate the risk of a personal costs order

In deciding whether to make a personal costs order, a court will assess the solicitor’s conduct of the litigation. To mitigate this risk, it is important that solicitors assess whether:
  • the factual matrix of the case has changed as new evidence emerges throughout the litigation;
  • written instructions have been received from the named plaintiff(s) to file proceedings on their behalf;
  • the client’s version of events and instructions is supported by available, objective evidence;
  • the client’s evidence will withstand cross-examination;
  • the client’s evidence is inherently plausible;
  • the evidence is relevant and whether it will assist the court’s determination of the issues in dispute;
  • there is a proper basis for pleading allegations and whether the evidence contains the necessary material facts and circumstances to plead a cause of action;
  • a case has reasonable prospects of success (including not blindly relying on See Flower & Hart v White Industries Pty Ltd (1999) FCA 773.
If it becomes apparent the proceedings cannot succeed, solicitors should advise their clients of that likelihood. If a client insists on continuing the litigation after being advised the proceeding cannot succeed, solicitors should consider ceasing to act for them.

If an order is sought against you for personal costs, Lawcover can assist practitioners to consider settling or defending that order.

This article originally appeared on lsj.com.au

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