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In recent years, the Federal Court of Australia has had several high-profile cases, such as the Lehrmann v Network Ten Pty Limited defamation case, in which the issue of legal costs has received much public attention. Dealing with legal costs can be a complex exercise so UNSW Canberra’s Dr Natalie Cujes explains how the Federal Court approaches the question of costs in proceedings. 

What are legal costs?

The term ‘legal costs’ refers to the monies one party is ordered to pay to another party as compensation for legal expenses and amounts incurred in relation to the conduct of a case. A costs order is usually made by a Judge after the final hearing, but there can be costs orders made at different stages of a proceeding (e.g. where parties have made ad hoc applications on procedural issues).

Party and party costs versus indemnity costs

There are two main types of legal costs in the Federal Court that a party may be awarded – those on a party and party basis and indemnity costs.

Party and party costs are the norm and a departure from this basis occurs in exceptional circumstances.

Under the Federal Court Rules 2011, party and party costs are defined as “only the costs that have been fairly and reasonably incurred by the party in the conduct of the litigation”. They are assessed primarily by reference to the relevant schedule in the Court’s Rules (see below).

Indemnity costs may be awarded where the Court is satisfied there exists some exceptional feature of the case or the conduct of a party that warrants a departure from the usual practice that costs are awarded on (merely) a party and party basis. This may arise, for instance, where the Court finds that the applicant should have known that their case was doomed to fail but persisted to prosecute the action or a party unreasonably rejected a settlement offer made by the other side.

Indemnity costs are awarded less frequently than party and party costs but are generally preferred by a party seeking to recover all their legal expenses. 

A simple way to think of the distinction between the two types of costs is that party and party costs under the Court schedule are akin to what a patient receives back from Medicare when they pay a medical bill – there is a gap between what they have paid and what is covered under the relevant scale. Under an indemnity costs order, a party can be more completely indemnified for the amounts paid to conduct the litigation, provided the other party liable to pay them does not show that the amounts claimed were “incurred unreasonably in the interests of the party incurring them” (Federal Court Rules, Schedule 1).

Are costs always awarded?

The Court decides whether to award costs to any party. 

Although the successful party in a case is not automatically entitled to a costs order in their favour, usually costs will “follow the event” and so the order is made.

The Federal Court of Australia Act 1976 (Cth) (and other statutes), the Federal Court Rules 2011 (Part 40) and case law deal with the subject of costs in the Court. Under section 43 of the Act, the Court has a general discretion when it comes to awarding costs; this discretion is wide, but it must be exercised judicially, according to the circumstances of the case and in the interests of justice.

A costs decision can be appealed where the Judge has made an error of law.

Specific types of proceedings, such as class actions and Fair Work matters, have distinct legislative rules on costs apply to them.

Parties and lawyers can be ordered to pay costs 

Ordinarily, it is the unsuccessful party who faces an adverse costs order, but there are potential costs consequences for any party, or their lawyer, who fails to conduct litigation appropriately. 

In numerous cases, the Court has observed that the incurring of costs by a party must be done in accordance with the Court’s overarching purpose of case management. The Court, parties and their legal representatives all have a duty (see sections 37M and 37N of the Federal Court of Australia Act) to facilitate the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible. A breach of this duty can result in a party not being granted costs or in a party (or their lawyer personally) obtaining an adverse costs order. 

Cases brought in the Federal Court are also governed by the Civil Dispute Resolution Act 2011 (Cth). Under that Act the parties must take ‘genuine steps’ to seek to resolve the dispute before litigating in the Court, with potential costs implications under the Act for a party or their lawyer if they do not take such measures.

A lawyer also may be ordered to pay costs (among other things) where the Court finds they have engaged in misconduct, including where their conduct resulted in incurring unnecessary or wasteful costs or caused undue delays in the case (see rule 40.07 of the Court’s Rules).

Who decides how much to pay?

In most types of matters, the Court usually prefers that the parties seek to agree on the amount of any costs payable. If the parties are unable to reach agreement, then there are other scenarios that may arise:

A. Registrar: A party entitled to costs may prepare a long form bill of costs in accordance with Schedule 3 of the Federal Court Rules. It itemises the work performed, and the costs and disbursements incurred, on behalf of the party in the conduct of the proceeding. This process may take various paths under the Rules, but essentially involves a Registrar of the Court (serving as a ‘taxing officer’) assessing the bill of costs to determine what amounts are allowed or disallowed under the above schedule and other legal principles. Costs that have been “improperly, unreasonably or negligently incurred” should be disallowed.

The Registrar ultimately issues a certificate of taxation for the determined amount to be paid. 

In most migration, bankruptcy and corporation winding-up matters, the successful applicant/plaintiff may file a short form bill of costs for a Registrar to assess by reference to the recoverable amount set by Schedule 3.

B. Referee: As arose in the Lehrmann v Network Ten Pty Limited matter, a Judge may consider referring the quantification of costs (under section 54A of the Federal Court of Australia Act) to a referee for inquiry and to provide a report for the Court to deal with as it sees fit.

C. Judge: Occasionally, the Judge will order after the final hearing that the successful party’s costs be paid on a lump sum basis. This is appropriate when the determination of the amount of costs through the above taxation or referee processes would be too onerous, protracted or expensive. In such circumstances, the Judge may order costs in a specific amount be paid or refer the matter to a Registrar to determine the amount. 

A lump sum order differs to a maximum costs order that may be made (under r 40.51) during a ‘less complex’ case and which sets a limit, in the interests of access to justice, on the amount recoverable on a party and party costs basis.

Finally, an applicant litigating in the Court also needs to be aware of other costs contingencies. A Judge may decide that the successful applicant’s recoverable costs are reduced because the damages/money sum awarded in the case is less than $100,000 or the proceeding could more suitably have been brought in another court or tribunal (rule 40.08). In some proceedings, a Judge might order the applicant pay ‘upfront’ an appropriate amount as security for costs because of the risk established by the respondent that the applicant will not be able to pay the respondent’s costs should the applicant’s case fail at final hearing (see section 56 of the Federal Court of Australia Act).

The above information does not constitute legal advice and is intended for general information purposes only.

Dr Natalie Cujes SFHEA is an academic at UNSW Canberra, a legal practitioner, the author of Litigation in the Federal Court: Promoting the Overarching Purpose (LexisNexis, 2016), a co-author of several LexisNexis Annotated Federal Court Act and Rules publications (including on costs), a former Registrar of the Federal Court of Australia, and an appointed member of the Federal Court Liaison Committee of the Law Council of Australia. If you would like to speak to Natalie further on this topic to assist your reporting, please contact UNSW Canberra Media at or ph. 0404 489 376.