Legal Costs in the Federal Court: taxation, lump sum costs and independent referees

woman holding sword statue during daytimeRule 21.10 of the Federal Circuit Court Rules 2001 (Cth) sets out the basic position as to how costs are to be dealt with:

“Unless the Court otherwise orders, a party entitled to costs in a proceeding (other than a proceeding to which the Bankruptcy Act applies) is entitled to:

  • costs in accordance with Parts 1 and 2 of Schedule 1; and
  • disbursements properly incurred.”

 Parts 1 and 2 of Schedule 1 is a scale of costs which requires a specific bill to be prepared by expert costs consultants.

The Court has a general discretion to depart from the application of the scale of costs. S 43(3)(d) of the Federal Court of Australia Act 1976 (Cth) notes as follows:

(3)  Without limiting the discretion of the Court or a Judge in relation to costs, the Court or Judge may do any of the following:

a. make an award of costs at any stage in a proceeding, whether before, during or after any hearing or trial;

  • make different awards of costs in relation to different parts of the proceeding;
  • order the parties to bear costs in specified proportions;
  • award a party costs in a specified sum;
  • award costs in favour of or against a party whether or not the party is successful in the proceeding;
  • order a party’s lawyer to bear costs personally;
  • order that costs awarded against a party are to be assessed on an indemnity basis or otherwise;
  • do any of the following in proceedings in relation to discovery:
    • order the party requesting discovery to pay in advance for some or all of the estimated costs of discovery;
    • order the party requesting discovery to give security for the payment of the cost of discovery;
    • make an order specifying the maximum cost that may be recovered for giving discovery or taking inspection.

Further, rule 40.02 of the Federal Court Rules 2011 (Cth) provides:

“A party or a person who is entitled to costs may apply to the Court for an order that costs: 

  • awarded in their favour be paid other than as between party and party; or
  • be awarded in a lump sum, instead of, or in addition to, any taxed costs; or
  • be determined otherwise than by taxation.”

This section also notes that costs may be award on an indemnity basis, or determined by reference to a costs assessment scheme within any state or territory, although in our experience, this latter provision is rarely ordered.

In Re Wilcox; Ex parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR151 at 152, it was noted that this discretion is absolute and unfettered subject to the requirement that it be exercised judicially.

In  other words, a Judge can make whatever order they deem appropriate in regard to costs, and can decide to adopt any procedure they consider suitable in determining the costs payable. In our experience, the 3 most common procedures adopted by the Court are as follows:

  • An order that a bill be lodged for taxation.
  • An order a lump sum costs order.
  • An order that a special costs referee be appointed to determine the costs, following submission from the parties.

Each of these are addressed below:

Order for taxation of costs

 This requires a fully itemised bill of costs to be prepared pursuant to the scale, as set out in Schedule 3 of the Federal Court rules, and having regard to the rules and costs practice direction.

Even if such an order is made, it is very rare for the matter to proceed to a full taxation, assuming the bill is prepared correctly and in accordance with the scale and the rules.

This is because, once a bill is lodged for taxation, an estimate will be provided by the Registrar. Either party may file an objection to this estimate within 21 days. However, the party filing the objection must pay $2,000 into court as security for costs of any taxation of the bill, and change the result by at least 15%, otherwise they will bear the costs of the taxation, which could be considerable and result in a pyrrhic victory. This acts as a significant prohibitor for any party to proceed to the full taxation of costs.

Lump sum costs

 In the leading case of Beach Petroleum NL v Johnson (No 2) [1995] FCA 350, Von Doussa J considered the Court’s discretion to award lump sum costs instead of ordering a taxation. The primary reason for the making of an order is to avoid expense, delay and aggravation which has flowed from the litigation and would be compounded by the taxation process.

It is useful to note that a lump sum order can even be made where an order for taxation was made previously. Other factors influencing the making of a lump sum order include the following:

  • If the particular circumstances of the case warrants it.
  • The lack of financial capacity of an unsuccessful party, meaning recovery of costs is unlikely.
  • Where the unsuccessful party’s assets are outside the jurisdiction.
  • Where one party has litigated without basis and such conduct would continue into the taxation process.
  • The size of the successful party’s victory.

Evidence from an independent legal costs consultant may well be ordered by a judge, although she is by no means bound by this. The parties would also be required to submit evidence of charges made to their clients.

Appointment of an independent costs referee

 This is becoming increasingly common, and one of the most high profile examples of this was in Prygodicz v Commonwealth of Australia  (No 2) [2021] FCA 634 (more commonly known as the ‘Robodebt class action’).

In this case, the Judge approved the recommended of the independent costs referee in the sum of $8.4 million. However, the judge did not agree with the independent referee in regard to the additional $4.22million in estimated legal costs of settlement administration. This is a good example of judges not merely devolving power to the referee, but continuing to take an active role in the determination of legal costs.

Our approach is often to prepare a mix of a bill for taxation, drawing a cross-section of items in accordance with the Federal Court scale, and the lump sum costs summary set out in the rules. However, it is vital to note that there is no single approach, and practitioners should ensure they stay flexible as to how this is dealt with.

In the past 12 months, our team have been instructed in regard to costs in a range of Federal Court matters involving Amazon, the Australian Broadcasting Corporation, and the ATO to name a few. If you require legal costs advice, or wish to instruct our firm as a costs referee, get in touch with us today:

Sydney: 02 8089 3167

Melbourne: 03 9070 9851

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