A common principle in civil litigation is that costs “follow the event,” meaning that the winner is entitled to have part of his legal costs paid by the loser. This is the situation in most Australian courts dealing with civil proceedings, and also in comparable courts in other “common law” countries.
However, there are exceptions to this situation. In a recent decision by the New South Wales Court of Appeals, involving a claim for less than $ 40,000 (before interest is taken into account) – filed on appeal from a decision by the District Court of New South Wales – The New South Wales Court of Appeal made a series of findings that may have significant implications for some plaintiffs who choose to present their proceedings in the New South Wales District Court in the first instance. The NSW Court of Appeal noted that while the plaintiff in this particular case was successful in obtaining an order for costs against the defendant, the most common result of filing a civil lawsuit for less than $ 40,000 in the NSW District Court is that the costs will not be awarded due to the operation of UCPR r.42.35.
‘UCPR’ means the ‘Uniform Rules of Civil Procedure’ which apply to civil proceedings in the District Court of New South Wales and (with minor variations) in other courts conducting civil litigation in Australia. Rule 42.35 exists to encourage potential litigants to file ‘small’ claims in Local Court, not District Court, because it is generally more profitable to take a non-complex case in Local Court. If the claim does not meet the $ 40,000 threshold, you may still be eligible for an award of costs in the District Court of New South Wales in some circumstances. For example, UCPR r.42.35 will not apply if the interest on the claim exceeds $ 40,000, or if the plaintiff can show that starting or continuing in NSW District Court “was justified”. In practice, “was justified” is a high threshold to meet, and complexity alone is often not enough. Another issue addressed by the New South Wales Court of Appeal was the making of an offer in compromise under UCPR r.20.26, and also relying separately on the Calderbank principles.
‘Calderbank’ refers to a famous 1975 English case, where it was decided that if one party to a litigation makes an offer to another party, that it is not accepted, and if the first party gets a better result at the hearing than the offer made, the recipient of the offer who rejected the offer may have to bear a greater part of the costs of the procedure. The underlying principle is that rejecting a reasonable offer will almost inevitably lead to both parties incurring more costs than if the offer were accepted. UCPR r.20.26 operates on similar terms. Therefore, the exchange of offers between the parties is an important mechanism to reach an agreement and reduce the overall costs of the parties. When the offeror, whose offer satisfies the relevant requirements, subsequently obtains a better result at the hearing than the amount of the offer, the costs can be awarded in the form of compensation against the other party as long as the limitation in UCPR r.42.35 does not apply. to the offeror.
The ‘indemnity basis’ reflects the true costs incurred by the party, whereas normally the costs awarded are only for a portion of the actual costs.
The lessons of this NSW Court of Appeal case are, firstly, that the choice of forum (Local Court of NSW or District Court of NSW) is an important decision you may have cost implications, second, that the judgment amount includes any interest awarded, and third, that consideration should always be given to making an offer in compromise, as that also has potential cost implications. Compromise offers are often dual offers, proposing a deal on similar terms but based on both UCPR r.20.26 and Calderbank. Care is required to ensure that the proposed arrangement meets the requirements for each basis.