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Effective use of the Costs Rules in South Australian Civil Courts

Effective use of the costs rules

Effective use of the costs rules in the South Australian common law jurisdictions provides insurers and corporate defendants with a significant strategic weapon. As such, the proper use of the costs rules can help bring litigation to a speedier, cheaper and more cost-effective conclusion.

There is a considerable emphasis within the court system on settlement of actions at the earliest possible time – and certainly well before the action proceeds to trial. As a corollary to this, parties who fail to settle on reasonable terms are likely to place themselves at considerable risk, in a costs sense, if they proceed to a hearing after failing to accept what ultimately turns out to be an appropriate offer filed during or after the negotiation phase of the action.

Set out below is a summary of the costs rules in each of the common law civil jurisdictions in South Australia.

Supreme and District Courts

General Principles regarding Costs

The Supreme Court of South Australia and the District Court of South Australia have a wide discretion to order costs and determine by whom and to what extent costs are to be paid. This general power is conferred by section 40 of the Supreme Court Act 1935 (”SCA”) and section 42 of the District Court Act 1991 (”DCA”) respectively.

The power of the Supreme Court to order costs is subject to the Supreme Court Rules 2006 (”SCR”). The SCR and its schedules have, with some exceptions, been adopted by the District Court. Therefore, for the purpose of this discussion summarising the costs position, it is unnecessary to differentiate between the two jurisdictions. The primary Rule governing costs in the Supreme and District Courts is SCR 236(1).

The traditional starting point on costs in the Supreme Court is that they will normally be awarded to the party who succeeds at trial; that said, there are several instances in which a successful party may suffer a costs penalty as a result of its conduct in the course of the litigation. On occasions this costs penalty might be, in a very real sense, significant.

The costs awarded to a party in a Supreme or District Court action are assessed in accordance with a scale of costs incorporated as a schedule to the SCR. This is referred to as the “Supreme Court scale”. It specifies those costs which apply for individual items of work, such as the preparation of documents, attendances by a solicitor (including telephone calls), correspondence, preparation of a brief, photocopying, etc.

The costs allowed on the scale are inclusive of GST and equate, roughly, to $280 an hour for solicitor’s time. As many solicitors charge more than this, particularly those with considerable experience, an award of costs under the Supreme Court Scale will normally fall short of that charged by the solicitor acting in the matter. The amount charged by the solicitor is known as solicitor/client costs, while the amount recoverable from the unsuccessful party is known as party/party costs. Party/party costs are allowed at the rate specified in the scale.

The shortfall between party/party costs and solicitor/client costs is therefore normally the non-recoverable component of a party’s legal costs. Other legal costs incurred may be non-recoverable depending on the nature of the order for costs.

The Supreme and District Courts may also order payment of counsel fees. A guide to counsel fees is published by the Supreme Court. The suggested rates currently equate to between $182 – $280 an hour for junior counsel and $280 – $350 an hour for senior counsel (with lower rates for waiting time and reading time, etc). This is a guide only and not a scale of fees to be charged by counsel and the Court has discretion as to the amount awarded in each case.

Examples of Situations in which Cost Penalties can be Imposed

The SCR impose cost penalties on parties to litigation (or potential parties to litigation) who do not avail themselves of the opportunity to settle the dispute on what ultimately turns out to be reasonable terms before proceedings are issued or before trial.

Cost penalties are also imposed on litigants who commence their actions in the wrong jurisdiction. For example, by commencing proceedings in the District Court when the claim ultimately falls within the jurisdictional limit of the Magistrates Court. 

•        Failing to give Notice before an Action is issued

SCR 33 requires that a plaintiff must send to the defendants (and the defendant’s insurer, if known) notice of the proposed claim at least 90 days before commencing an action. The notice should be sufficiently detailed to enable the defendant to have a reasonable opportunity to consider the claim and make an offer to settle the claim before proceedings are commenced.

Where the claim is supported by expert evidence, the plaintiff is also to send to the proposed defendant (and the insurer), a copy of all relevant reports upon which the plaintiff relies.

Rule 33(7) provides that in awarding costs the Court may take into account whether parties have complied with their obligations under Rule 33, and whether their offers and responses were reasonable in the circumstances.

Rule 33(4) requires defendants to respond to the plaintiff’s notice of a proposed action within 60 days. If the defendant (or it’s insurer) fails to make any response, or any reasonable response to a Rule 33 notice, the Court may order solicitor/client costs to the plaintiff for the whole or part of the action, at their discretion.

•        Action brought in the wrong jurisdiction

Under SCR 263(2) the Supreme Court will make no order for costs in favour of a plaintiff who recovers less than $150,000 (for personal injury arising out of the use of a motor vehicle), less than $25,000 (for actions in defamation), or less than $75,000 (in any other case). The intent of this is quite simply to discourage people from bringing actions in the Supreme Court which could otherwise be dealt with by the District Court.

Similarly, under District Court Rule 263(2), the District Court will not order costs in favour of a plaintiff who recovers less than $30,000 (for personal injury arising out of the use of a motor vehicle), less than $7,500 (for actions in defanation), or less than $15,000 (in any other action).

 

Once again the intent of this is to penalise litigants who commence proceedings in the District Court which should more properly have been commenced in the Magistrates Court.

•        Consequences to plaintiff of accepting an offer of settlement

SCR 187 governs offers of settlement made by defendants in District and Supreme Court actions. It applies equally to offers by third and subsequent parties.

These offers are often referred to as “Rules of Court” offers and we will refer to them as such below.

SCR 187(1) provides that the defendant may lodge a Rules of Court offer (or amend such offer) at any time up to 21 days before trial. The Rules of Court offer may be accepted by a plaintiff up to 7 days before trial [SCR 188]. 

When a plaintiff decides to accept a Rules of Court offer filed by a defendant, SCR 187 allows the plaintiff costs incurred up to 14 days after service of the Rules of Court offer, plus costs of filing a notice of acceptance and signing judgment. The costs of legal advice, preparation for trial, counsel fees, etc incurred after 14 days from receipt of the defendant’s filed offer will not be recoverable in the event that the plaintiff is ultimately awarded damages of less than the amount contained in the Rules of Court offer filed by the defendant.

 Where a plaintiff accepts a Rules of Court offer later than 14 days after it was served upon him, then the Court may, if it is just to do so, order the plaintiff to pay the defendant’s costs incurred from 14 days from service of the offer [Rule 188]. As will be readily understood, this might be a significant penalty given that this could include the costs of intensive preparation for trial and perhaps all or part of a potentially lengthy (and hence costly) trial.

•        Consequences to plaintiff of not bettering a “Rules of Court” offer

SCR 188(6) provides various consequences for a plaintiff who does not better a Rules of Court offer made by a defendant.

Where a plaintiff has not accepted a Rules of Court offer and the sum recovered at trial is less than that offered by the defendant in a formal Rules of Court offer, the Court must order that the plaintiff recover against the defendant its costs incurred only up to 14 days after service of the offer (unless it thinks proper to order otherwise). This will, in effect, disentitle the plaintiff to its costs of trial. It does not stop there! The plaintiff must also pay costs incurred by the defendant from 14 days after the service of the offer. Obviously this will include the defendant’s costs of trial and is therefore, in itself, a significant penalty. 

•        Consequences to defendant of not accepting a “Rules of Court” offer

SCR 187 also allows plaintiffs to file Rules of Court offers. These may affect the manner in which costs are awarded in the action.

SCR 187 provides that a plaintiff may lodge and serve a Rules of Court offer at any time up to 21 days prior to trial. The offer may be to accept a certain amount in satisfaction of the action or to accept a percentage of liability. Any such offer may also be amended at any time up to 21 days before trial.

A defendant may accept the plaintiff’s offer up to 7 days before trial.

When the defendant has not accepted the plaintiff’s Rules of Court offer and the plaintiff recovers equal to or greater than the amount contained in the defendant’s formal offer, the Court must order the defendant to pay the whole of the plaintiff’s costs of action as taxed on a solicitor/client basis on the Supreme Court scale (unless it thinks proper to order otherwise).

Magistrates Court (Civil Division)

Section 37(1) of the Magistrates Court Act 1991 provides that costs in any civil proceedings will be at the discretion of the Court and may be ordered against any person whether a party to the proceedings or not.

The power to award costs is regulated by the Magistrates Court (Civil) Rules 1992 (MCR) and in particular MCR 52-54 and 106-110.

Costs in Minor Civil Actions (claims less than $6,000)

MCA section 38 does not allow legal representation in Minor Civil Actions unless another party to the action is a legal practitioner; or the parties to the action agree; or the Court is of the opinion that a party would be unfairly disadvantaged if not represented by a lawyer. Consequently, legal costs are not generally awarded in Minor Civil Actions unless all parties were legally represented or in special circumstances at the Court’s discretion.

In those rare cases where costs are awarded to a party to a Minor Civil Action, they are assessed in accordance with the scale of costs for Minor Civil Actions included in the Third Schedule to the MCR. The scale provides modest rates for specific legal services, with the rates varying with the amount of judgment sum.

Costs in other Magistrates Court Civil Actions

MCR 106 provides that the successful party in an action is entitled to costs against the unsuccessful party in accordance with the relevant scale in the Third Schedule to the MCR. The Schedule provides a scale of costs for “routine actions” and another scale for “complex actions”. Complex actions are those certified to be complex pursuant to MCR 106(7).

Where the Court believes that the action involves unusual difficulty or intricacy it may, at its discretion, award a successful party costs on a percentage of the Supreme Court scale as specified by the magistrate [MCR 106(1)(c)]. The Court also has discretion to order costs on a solicitor and client basis [MCR 106(4)].

If on hearing an action (other than a Minor Civil Action), the successful party recovers $3,000 or less, the plaintiff will only be entitled to costs as if it were a Minor Civil Action [MCR 106(3)].

Examples of situations in which cost penalties can be imposed

In line with the Supreme Court and the District Court, costs penalties can also be imposed in a number of other situations.

•        Notice before action

MCR 20A provides that a plaintiff is not entitled to the costs of filing a claim unless notice in writing of the intending claim was given to the proposed defendant at least 21 days before the filing of the claim. In personal injuries action this notice must be given at least 90 days before filing of the claim and must be given to the defendant’s insurer if the identity of that insurer is known to the plaintiff.

•   Costs penalties – “Rules of Court” offers

MCR 52 contains detailed provisions regarding costs penalties for excessive claims. This Rule applies where a plaintiff obtains a final judgment (other than by consent) for a sum of money less than 50% of the amount that it claimed at the earlier of either –

•        the expiration of 21 days from the date of issue of trial notice; or

•        the date of the Conciliation Conference (”the operative date”)

MCR 53 contains provisions which penalise defendants for inadequate offers. This Rule applies where a plaintiff obtains a final judgment (other than by consent) for a sum of money which is two or more times the defendant’s offer at the operative date.

MCR 52 and 53 include formulas for use in calculation of the amount of costs to which a party will be entitled where the costs penalty provisions apply. The effect of the cost penalty provisions and the application of the relevant formulas is summarised below.

“Costs” means party/party costs as agreed or taxed, excluding disbursements, witness fees and interest on the relevant scale.

“Offer” means defendant’s offer as at the operative date.

•        The effect of the cost penalty provisions and the application of the relevant formulas

•        If a defendant makes no offer, the formula gives the plaintiff twice his taxed costs. However, these costs will not exceed the amount actually charged to the plaintiff by his solicitor [Rule 53]. 

•        If a successful plaintiff recovers less than 50% of the defendant’s offer, the formula reduces the plaintiff’s award of costs on a sliding scale, with nil costs the worst outcome for the plaintiff [Rule 52].

•        If a successful plaintiff recovers two or more times the defendant’s offer, the formula gives the plaintiff additional costs on a sliding scale up to double its costs (but not exceeding the amount actually charged to the plaintiff by his solicitor).

•        If a successful plaintiff recovers 50% or more of the defendant’s offer but less than 200% of that offer, the plaintiff will be awarded costs in the usual way on the appropriate scale [Rules 52 and 53].

The cost penalty provisions underlie the need for defendants to make “Rules of Court” offers within the time limits provided by the Rules or run the risk of significant cost penalties.

Similarly, a plaintiff who proceeds to trial on an “ambit claim” or who simply claims the jurisdictional limit runs the risk of incurring cost penalties. Plaintiffs must therefore give careful consideration to “rules of court” offers by defendants and to the amount of their claims, before the conclusion of the conciliation conference.

Conclusion

The Rules relating to costs are complex and must be considered carefully in all actions. The Rules (and cost considerations generally) have the capacity to influence the parties’ attitudes towards litigation, particularly their decisions to settle or proceed to trial. The economic consequences of a failure to adequately assess the costs of litigation may be severe.

The above discussion on costs in South Australian Civil Courts is provided for your information only. It is not intended to cover exhaustively the various provisions and case law governing orders for costs in legal proceedings in South Australia, nor is it intended to be a substitute for the advice of a qualified legal practitioner experienced in civil litigation.

 Revised October 2008

  • Extracts and commentary principally derived from His Honour RM Lunn QC, Civil Procedure South Australia, Volumes 1 and 11, Butterworths, Adelaide, 1992 as updated