Costs orders and litigation – beware unpredictable outcomes and always take settlement offers seriously
I was recently involved in a case where someone was offered half a million dollars as settlement, declined that offer, lost his case in the Supreme Court and had a costs order made against him. He subsequently decided to make an application to the Court of Appeal, but he also lost the appeal and had another costs order made against him.
The costs of the two proceedings together are likely to equate to at least $250,000. This person has gone from potentially gaining half a million dollars to losing a quarter of a million.
Beware the risk of adverse costs orders
The solicitors who ran this case ran it on a “no win no fee” basis. This means that if the client does not win the case, the solicitors do not charge them any professional fees. This is a generous arrangement provided by the firm – the firm essentially takes all the risk that it will be paid for its time and effort in acting on the claim – and in many cases means that a client is able to pursue a claim in circumstances where they may not have otherwise had the funds to pay for it.
However, if the client does not succeed in the litigation, they can still be ordered to pay the legal costs incurred by the parties that did succeed.
Outcome of litigation inherently unpredictable
Anytime someone engages in litigation, they need to consider carefully any settlement offers they receive and accept the fact that no matter how prepared you are or how strong a case you may feel you have, there is always the risk that you might not win.
And if you do not win, you can be subject to a hefty costs order.
How can I still lose when my legal advisers are telling me I have a strong case?
This is a good question, and there are many reasons.
For example, you may have a strong case, but you might be called to the stand to give evidence. If this happens, you might not be a good witness. Your solicitor is limited in how much guidance he or she can give you with respect to what to say in the witness box, as there is a fine ethical line between witness preparation and “witness coaching”.
Also, being in the witness box can be scary, nerve wracking and emotionally draining. These feelings can all impact negatively on how you answer questions and how you present yourself in the witness box. If you exude negative emotions or rub the judge up the wrong way, you could be inadvertently harming your own case.
All parties to litigation typically believe they have a strong case
Going to a final hearing is a gamble. You are placing the decision-making power into the hands of a third party, and hoping that on the basis of the evidence, they will make a decision in your favour.
While your evidence and claim may be strong, do not forget that the other party would not have taken the matter this far if they did not also believe they have a strong case.
Subconscious bias can cloud objectivity
Humans can declare objectivity in their decision making and can even appear to be objective. However, we cannot control the subjective influence our subconscious mind can have on a decision.
Sometimes we cannot consciously recognise our own biases regarding particular characteristics and/or behaviours. How can we ensure objectivity with respect to such biases if we do not even know that they exist?
The same applies to judges – they are human too. While we are lucky in this country to have such a professional and independent judiciary, a judge comes to every trial with their own history, story and experiences that can influence their decision making.
Different types of costs orders
If you have a case which is going to trial, you should become familiar with the different types of costs orders so that you know what kind of costs orders you may be facing.
Scaled costs are costs which are regulated by law and capped at a certain amount. Scaled costs are common in certain debt recovery matters where default judgment is given in favour of the plaintiff because the defendant never responded or filed a defence to the claim.
Solicitor/client costs are the costs that you pay to your lawyer. Unless you are in a no win no fee arrangement, these costs are payable to your lawyer regardless of the outcome of your case. Normally you would pay these costs on a weekly or monthly basis, depending on the cost agreement you’ve entered into with your solicitor.
Party/party costs are the costs which the winning party in the case can recover from the unsuccessful party, if an ordinary costs order has been made. The purpose of these orders is to compensate the winning party for their solicitor/client costs.
Indemnity costs are the costs payable to a successful party where the successful party has been subjected to unnecessary costs as a direct result of the conduct of the other party. The awarding of an indemnity costs order is made by the court upon an application from the aggrieved party.
An example of a circumstance where an indemnity costs order may be made is when a party has appealed the decision of a judge after being unsuccessful in their case, and subsequently loses that case too (as in the example given earlier).
Possible financial consequences of a costs order
If you receive a costs order against you, the costs order is automatically considered to be a court judgment. Bankruptcy notices can be served on the basis of the judgment.
If you are ordered to pay another party’s costs (which could be well in excess of $100,000 depending on the type and duration of the court proceedings) and you are not able to come up with that money or negotiate an alternative deal with the successful party, you could be made bankrupt and any assets in which you have an interest (which might include your family home) may vest in an appointed bankruptcy trustee, who could then liquidate those assets to satisfy the creditor debt.
Don’t go to court for the wrong reasons
Going to court and going to a final hearing is a serious matter with serious financial consequences. Do not let matters of principle, a misdirected search for justice or greed be the motivation for going to court.
Listen to your solicitors carefully, take settlement offers seriously and always be commercial and practical in your decision making. Settling litigation is a commercial decision just like any other. Do not let your heart rule your head, or you could end up in a far worse position than you were in when you embarked on the litigation.