Costs in litigation can be as complicated as the substantive dispute. There are various types of costs orders that the Court may make and the legal principles behind each costs order. These are each well worth a detailed discussion in their own right.
The general rule as to costs
The prima facie position stated in Rule 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”) is that “costs follow the event…” (the general rule).
Typically, this means that the winning party is awarded “ordinary” costs in their favour on the rationale that the other party’s actions caused them to incur costs bringing or incurring their claim.
Warbuton No 3 – Guidance on costs
This article discusses legal principles in seeking a departure from the general rule of costs by reference to the recent New South Wales Supreme Court case of Warbuton No 3. Though the substantive dispute in Warbuton No 1 related to liability for building defects in a residential home, Warbuton No 3 was dedicated to the question of costs, and considered “proportionality”, i.e., apportioning costs by segregating parties’ success by issues in a proceeding.
Reasons for departure from the general rule
Fairness – a justification for departure
In Warburton No 3, the Court noted that the general rule is qualified by the words, “unless it appears to the court that some other order should be made as to the whole or any part of the costs.”
Axiomatic to the general rule and this qualification is the idea that costs should be paid in a way that is fair, whereby the Court must consider what it determines to be each party’s responsibility for the incurrence of costs.
Therefore, in Warbuton No 3, where the Plaintiff – although successful on the main claim – had caused the incurrence of unnecessary costs, considerations of “fairness” meant that the Court departed from the general rule and ultimately declined to make any costs order.
Each party was left to bear its own costs because the Plaintiffs, despite being successful on the main issue:
- had led much inadmissible evidence, not relied on at the hearing; and
- spent significant time on small value issues and claims on which they later failed.
Proportionality – reinterpreting the “event” for the purposes of the general rule
The Defendants, in turn, used the Plaintiffs’ conduct to make a submission on “proportionality”, submitting that “in some cases, it may be appropriate to apportion costs of proceedings where a party has succeeded on only some issues”.
The Defendants submitted that in Breakfast Investments Pty Ltd v Giannopoulos & Anor (No 7)  NSWSC 495 at - and to Chen v Chan  VSCA 233 at , the Court had stated that a pragmatic approach to costs requires regard to parties’ success (or lack thereof) of the on the relevant issues, such that successful party is awarded part, but not all of its costs.
The Court noted that:
- The “proportionality” approach was not novel.
- Though a Court does not generally try to segregate issues on which a party succeeded or failed, it has the power not to award costs on issue(s) which a party has cleared lost where this issue is “clearly dominant or separable”. 
- This did not depart from the general rule of costs following the event as:
“The “event” for the purposes of UCPR r 42.1 encompasses both the overall outcome of the litigation and the parties’ success on distinct issues and extends to any disputed question of fact or law….”
- The Court’s discretion as to costs is broad – invoking the proportionality principle to adopt a “issue-by-issue” approach is warranted when the amount recovered is wholly disproportionate to costs incurred.
- Departures from the general rule that costs are awarded in the successful parties’ favour on an ordinary basis are rare. The Court will be hesitant to award costs in a party’s favour when its conduct has, in some way, contributed to the unnecessary incurring of costs, even where this is the successful party.
- The proportionality of the judgment sum against legal costs is one factor to bear in mind when arguing costs. This can fall under the umbrella of the general rule as the Court can segregate costs by taking each issue as a separate event, and award costs to the successful party, accordingly.
If you would like to discuss this article with us further, please contact our Construction Partner, Brett Vincent or Graduate Lawyer, Angie Kim on (02) 9261 5900.
 UPCR Rule 42.2 provides for “ordinary costs”, “unless the court orders otherwise…” An ordinary costs order means that the unsuccessful party is ordered to pay a portion of the successful party’s legal costs, usually 60-75%. Commonwealth of Australia v Gretton  NSWCA 117 at  Hodgson JA (Mason P agreeing); cited, with apparent approval, by the Court of Appeal in Heath v Greenacre Business Park Pty Ltd  NSWCA 34 at .
 Warburton v County Construction (NSW) Pty Ltd  NSWSC 1563 (Warbuton No 3).
 Warburton v County Construction (NSW) Pty Ltd  NSWSC 941 (Warbuton No 1).
 Warbuton No 3 at .
 Ibid at -, citing Commonwealth of Australia v Gretton  NSWCA 117 at , Hodgson JA (Mason P agreeing); Heath v Greenacre Business Park Pty Ltd  NSWCA 34 at .
 No costs order was made except in favour of the Second Defendant (as the Plaintiffs had abandoned their claim against the Second Defendant) whose matter was discrete, where the costs order was not resisted by the Plaintiffs.
 Warbuton No 3 at , citing Bostik Australia Pty Ltd v Liddiard (No 2)  NSWCA 304 at ; Corbett Court Pty Ltd v Quasar Constructions (NSW) Pty Ltd  NSWSC 1423 at –.
 McBride v Christies Australia Pty Ltd (No 2)  NSWSC 754 at ; Mercantile v Citigroup  NSWSC 287 (McDougall J) (‘Shield Mercantile’) at -.
 Re Colorado Products Pty Ltd (in prov liq)  NSWSC 1509 at –.
 Shield Mercantile at - (McDougall J).