WHO SHOULD PAY?

A Review of the Litigation Costs Rules

People cannot pursue or defend their legal rights unless they find some way to meet the legal bill. Finding fair ways of sharing or meeting that legal bill is the central theme of the Australian Law Reform Commission's current review of the allocation of legal costs. This is an essential part of making justice accessible to all Australians.

Philip Kellow explains how the Commission is tackling the issue.

The reference

What are the costs allocation rules?

At present the basic rule in Australian courts is that the loser of a case pays the winner's costs as well as their own (the costs indemnity rule). This rule aims to allow people to litigate if they have a good case - expecting that their costs will be refunded - while discouraging frivolous litigation.

The costs indemnity rule does not apply in all jurisdictions. Different costs rules apply in prosecutions, matters in small claim courts, appeals to the Administrative Appeals Tribunal and family law proceedings.

Costs allocation rules and access to justice

The concept of access to justice includes the requirement that all Australians, regardless of means, should have access to high quality legal services or effective dispute resolution mechanisms necessary to protect their rights or interests. Costs allocation rules are just one of a wide range of factors that influence access to, and the effectiveness of, legal services and courts, tribunals and other dispute resolution schemes. It is within this context that the ALRC is examining the costs allocation rules to understand their impact and to assess the contribution they do and could make to access to justice.

The ALRC's review process

• In October 1994 the ALRC released an issues paper Who should pay? A review of the litigation costs rules. The paper formed the basis of consultations and public hearings held around Australia. The ALRC has also received over one hundred written submissions on the matters raised in the paper.
• The ALRC has examined the laws and practices concerning the allocation of costs in each type of case that comes before federal, State and Territory courts and tribunals.
• The ALRC has met with representatives of courts, tribunals, the Law Council of Australia, law societies, bar associations, legal aid commissions, community legal centres and national groups representing business and consumers.
• Information has been collected on types of litigation and profiles of litigants to build a detailed picture of actual litigation practice.
• The costs rules and practices in the United States and other countries have been examined to help identify possible reforms and potential concerns. However, at this point we feel that, due to the different legal systems and conditions, the overseas experience may be of limited relevance to Australia.
• The ALRC has considered a range of economic analyses on the impact different costs rules have on the decision to file a claim, the amount spent on litigation and the decision to settle or litigate once a claim if filed. However, the various assumptions underlying these analyses and the absence of empirical data means these conclusions are of limited value.

A need for more sophisticated rules

There are a number of areas where the current costs allocation rules appear to be contributing to injustice in litigation, making negotiations or resolution of a dispute more difficult, costly or open to abuse. For example, the risk of an adverse costs order can affect the ability of a person to properly present their case or to negotiate a fair settlement, especially where they may lose their house, car or livelihood if required to pay the other party's costs.

Formulating costs allocation rules

Another issue is public interest litigation, which is often valuable in clarifying, reforming and developing the law. The ALRC considers that the costs rules should recognise the significant wider benefits of such litigation.

Costs allocation rules are also a means by which courts can control proceedings and keep costs down through disciplinary and case management costs orders.

The draft recommendations paper

Civil proceedings

• Notwithstanding any other orders about costs, a court may use disciplinary costs orders to ensure compliance with its rules and procedures, to discourage frivolous litigation, to control the costs of proceedings and to encourage settlement.
• Where litigation is in the public interest a court may make some other order about the shifting of costs or the amount of costs that may be recovered.
• Where a party is unable to present their case properly or to negotiate a fair settlement because of how much they might have to pay if they lose, a court may make some other order capping or shifting costs.

Family law proceedings

David and Simone are involved in a property dispute in the Family Court. Their matrimonial assets are controlled by David who is using them to fund his legal expenses. Simone cannot afford any legal assistance. Under the ALRC proposal, Simone may ask the court to order David to pay for her legal representation if she can satisfy the court that she is otherwise unable to present her case properly or negotiate a fair settlement.

Criminal proceedings

• the defendant is acquitted in summary proceedings; or
• the charges are withdrawn or there is no case to answer in trials.

Final Report