In this podcast, OMB Solicitors, Family Lawyer, Gary Mallett answers the commonly asked question, as to whether costs can be recovered in family law matters.
What is the General Rule About Costs in Family Law Matters
S.117 of the Family Law Act 1975 provides that each party to proceedings under this Act shall bear his or her own costs, subject to a few exceptions. In other words, the general rule in Family Law is that each party will have to pay for the costs of their own legal representation and should not expect to be able to recover any part of those costs from the other party.
Subsection 2 then goes on provide that if the court believes there are circumstances that justify doing so, the Court may make such order as to costs as the Court considers just.
What Matters do the Court Consider in deciding if it is “just” to depart from the general rule?
The Family Law Act provides that in considering what order if any should be made with respect to costs, departing from the general rule, the Court shall have regard to:
- The Financial Circumstances of each of the parties to the proceedings;
- Whether any party to the proceedings receives assistance by way of legal aid and if so, the terms of the grant of that assistance;
- The conduct of the parties to the proceedings in relation to pleadings discovery and inspection and directions to answer questions, admissions of fact, production of documents and similar matters;
- Whether the proceedings were necessitated by the failure of the party to the proceedings to comply with previous orders of the Court;
- Whether any party to the proceeding has been wholly unsuccessful in the proceedings;
- Where either party to the proceeding has made an offer in writing to the other party to the proceedings to settle the proceedings and the terms of any such offer; and
- Such other matters as the Court considers relevant.
So, if I make an Offer to Settle and I beat that Offer at the Hearing, will I receive a Costs Order?
The purpose of the Court enquiring as to whether any offers to settle have been made in considering cost orders, is to ensure that offers to settle are considered seriously by both parties, to minimize the cost of litigation and reduce the workload of the over loaded Family Law Courts.
The Court also tries to eliminate any injustice that may occur if a financially stronger party is placed in a position where they can drag out the proceedings, mounting up costs and wearing out the other party.
The Court will consider the actual terms of the offer and possible outcomes of a settlement resulting from acceptance of that offer. A comparison will then be made to determine if acceptance of the offer would have resulted in a greater share of the assets to a party than what was ordered by the Court to that party at final hearing. If the comparison shows that the party would have been better off accepting the offer, then the court may make a costs order against the party who declined the offer.
As an example, in one case I was recently involved in, the Husband made an offer to the Wife before legal proceedings were even commenced that she have 65% of the property pool. The Wife rejected that offer. The matter went to trial and the Wife was awarded 62% of the property pool. The Husband had beaten his offer at the trial. Acceptance of the offer by the Wife would have given the Wife a greater share of the matrimonial pool then she was given at a final hearing, some two and a half years later.
The Wife would also have saved herself the significant legal costs, time, and the trauma of years of Court litigation, where all both parties’ dirty laundry is aired, and the property pool gets eaten away by legal costs, experts’ costs, barristers’ fees, mediator’s costs and other expenses.
The Husband applied to the Court for a costs order to recover his legal party and party costs on the applicable Court scale from the Wife, from the time the offer was made until the time of the final hearing.
As the Husband found out, the granting of a costs order to him because he had beaten his offer was not a guaranteed certainty. The Judge also looked at all the other matters required to be considered in deciding a costs order, to satisfy the Judge that it was just for her to use her discretion and part from the general rule.
The Judge noted the offer that was made and agreed that the husband had beaten it. However, the Judge went on to consider the parties conduct during the case. She noted that the Husband failed to comply on numerous occasions with his obligations to disclose documents, which resulted in lengthy delays and a waste of the Courts time and resources. The Judge further took serious note of the fact that the Husband had even breached The Judge’s own Court Orders for the Husband to disclose documents. Judges do not take lightly to their Court Orders not being complied with.
The Judge considered that the Husband’s conduct outweighed the effect of the Husband beating the initial offer that he had made.
The cost order was refused, and each party was ordered to pay their own costs.
If I am awarded a Costs Order, Can I recover all my Legal Costs?
If a standard costs order on what’s known as a party and party basis is made in your favour, you will not recover all your legal costs. You will only recover the costs for certain items of legal work on a scale prescribed by either the Family Court Rules or the Federal Circuit Court Rules.
Depending on how much your Lawyer has charged you, and what hourly rate you have been paying, often parties end up recovering less than 50% of their total legal fees on a party and party costs assessment.
However, if the Court goes one step further and considers that the justice of the case warrants an order that that the costs to be paid to the winning party by the losing party should paid on an “indemnity basis”, then all reasonably incurred costs by the winning party will be paid by losing party.
In determining whether the justice of the case demands indemnity costs, the court will consider the following:
- if a party, properly advised, should have known that they had no chance of success in their proceedings, then indemnity costs might be appropriate.
- If a party has knowingly made false allegations of fraud or irrelevant allegations of fraud during the proceedings, then an indemnity costs order should be considered. So be very careful when making allegations that the other party has been fraudulent (e.g. defrauded the government, forged a signature etc.) If these allegations are irrelevant to the case or are found to be untrue or have no substance, then you may find yourself looking down the barrel of an indemnity costs order.
- And finally if a party has conducted themselves in such a way that they wasted the time of the court and the other parties, or made allegations which should never have been made, or prolonged a case by groundless contentions or imprudently refused to offer to compromise or, consistently failed to comply with the Orders of the Court, indemnity costs order might be appropriate.
So, If the general rule is that each party pay their own costs, why do Solicitor’s letters always threaten to seek costs on an indemnity basis?
Occasionally it may be appropriate for lawyers to threaten to apply the Court for cost orders against the other party on the indemnity basis if their client’s demands are not met or orders are not complied with, but only where the justice of the case suggests that such a costs order might be made.
However, on most occasions when lawyers threaten the other party with cost orders, those threats are in reality ’empty threats’ and are generally made as a strategy to unsettle and intimidate the other party.
If in the context of family law proceedings, if you receive a letter from another Lawyer making certain requests or demands and then threatening to seek a costs order against you, you should immediately obtain our legal advice. Often, the costs threat will be a bluff, however, it might not be, and we can advise you when it should be taken seriously, and how to respond.