Apportionment of Costs in Defamation Proceedings: Greenwich v Latham (No 3)

Introduction

The Federal Court of Australia's decision in Greenwich v Latham (No 3) [2025] FCA 312 explains the principles governing costs orders in defamation proceedings where a plaintiff achieves partial success. This case represents a contribution to the jurisprudence on costs apportionment in defamation matters, particularly when dealing with multiple publications and imputations. Justice O'Callaghan's reasoning offers practical guidance on when costs should follow the event despite a plaintiff's partial success, and when indemnity costs might be warranted following the rejection of a settlement offer.

Background: Costs Principles in Defamation Proceedings

The apportionment of costs in defamation proceedings has evolved considerably in recent years, with courts increasingly willing to divide costs to reflect the parties' respective successes and failures. The legal framework for costs orders in the Federal Court includes s 43 of the Federal Court of Australia Act 1976 (Cth), which vests a wide discretion in the Court with respect to costs.

As summarised by White J in Hockey v Fairfax Media Publications Pty Ltd (No 2) (2015) 237 FCR 127 (Hockey (No 2)), the relevant principles include:

1. The wide discretion must be exercised judicially (Hockey (No 2) at 134 [37]);

2. Ordinarily, costs follow the event, with a successful litigant receiving costs absent special circumstances (Hockey (No 2) at 134 [37]);

3. Courts are increasingly prepared to apportion costs where a party succeeds on only some claims (Hockey (No 2) at 143 [88]);

4. A litigant succeeding on only part of their claim may reasonably bear the expense of litigating unsuccessful portions (Hockey (No 2) at 134 [37]); and

5. Apportionment may be appropriate where issues on which the plaintiff failed were "clearly dominant or separable" (Hockey (No 2) at 142 [87]).

Facts of the Case

Greenwich v Latham (No 3) concerned the costs determination following Justice O'Callaghan's judgment in Greenwich v Latham [2024] FCA 1050 (the primary judgment). The defamation proceeding was brought by Alexander Greenwich, member for Sydney in the NSW Legislative Assembly, against Mark Latham, an independent member of the NSW Legislative Council, regarding two publications: the "primary tweet" and the "DT quotes" (at [2]-[3]).

At trial, Mr Greenwich contended that each publication conveyed two defamatory imputations and claimed damages for non-economic loss, aggravated damages, and injunctive relief (at [3]).

Regarding the primary tweet, Justice O'Callaghan found that:

• The imputation that Mr Greenwich "engages in disgusting sexual activities" was conveyed and was defamatory (at [5], [9]);

• The imputation that Mr Greenwich "is not a fit and proper person to be a member of the NSW Parliament because he engages in disgusting sexual activities" was not conveyed (at [6]).

Regarding the DT quotes, Justice O'Callaghan found that:

• Neither pleaded imputation was conveyed (at [8]).

Justice O'Callaghan awarded Mr Greenwich $100,000 in damages for non-economic loss and $40,000 in aggravated damages (at [12]). A subsequent application for injunctive relief was dismissed in Greenwich v Latham (No 2) [2025] FCA 131 (at [13]).

The Court's Reasoning on Costs

Apportionment of Costs

Mr Latham submitted that each party should pay its own costs or, alternatively, that he should only be ordered to pay one quarter of Mr Greenwich's costs on a party-party basis (at [22]-[24]). This submission was based on Mr Latham's claim that he succeeded on a "preponderance of the issues" - specifically, the second pleaded imputation regarding the primary tweet and the entirety of the claim regarding the DT quotes (at [24]).

In contrast, Mr Greenwich argued he should be awarded the whole of his costs because he was successful in his claim and there was no reason costs should not follow the event (at [25]). Mr Greenwich's counsel, Dr Collins AM KC, submitted that it was misconceived to rely on a numerical comparison of issues (at [26]).

Dr Collins advanced five key reasons why the case would have been run in exactly the same way even if Mr Greenwich had sued only in respect of the primary tweet (at [27]):

1. The affidavit evidence relied upon would have been identical, covering necessary background, context, and damages (at [27(1)]);

2. All the same witnesses would have been called (at [27(2)]);

3. The DT quotes case was not severable from the primary tweet case due to "an unbroken chain of causation" between the publications (at [27(3)]);

4. The second pleaded imputation regarding the primary tweet involved only brief legal argument with no additional evidence (at [27(4)]); and

5. All evidence about serious harm would still have been necessary (at [27(5)]).

Justice O'Callaghan found these submissions "irresistible" and accepted that Mr Greenwich should recover his costs of the proceeding (at [29]). His Honour noted that while Mr Greenwich was unsuccessful in his application for injunctive relief, this was offset by delays and expenses caused by Mr Latham's insistence that Mr Greenwich provide sworn evidence about his sources of funding for the proceeding (at [30]).

Indemnity Costs

Mr Greenwich submitted that costs should be paid on an indemnity basis, principally because Mr Latham unreasonably rejected an offer to settle contained in a concerns notice dated 19 April 2023 (at [32]). The offer included terms requiring:

• A public apology and retraction;

• Permanent disabling of comments on the apology;

• Undertakings not to publish similar imputations in future;

• Payment of Mr Greenwich's reasonable expenses; and

• Payment of $20,000 compensation (at [33]).

After reviewing the principles governing indemnity costs following rejected settlement offers from CGU Insurance Ltd v Corrections Corporation of Australia Staff Superannuation Pty Ltd [2008] FCAFC 173 and Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd [2009] FCAFC 40, Justice O'Callaghan was not persuaded that Mr Latham's rejection of the offer was unreasonable (at [44]).

His Honour reasoned that:

• The DT quotes were not defamatory, yet formed a significant part of the concerns notice (at [44]);

• The undertakings sought were "very broad and unlimited in time" (at [44]);

• The proposed terms would have imposed "onerous obligations to monitor social media that may have posed difficulties in enforcement" (at [44]).

Consequently, Justice O'Callaghan declined to award costs on an indemnity basis (at [46]).

Practical Application: A Worked Example

Consider the following hypothetical scenario:

Plaintiff X sues Defendant Y for defamation regarding three separate publications (A, B, and C). Each publication has two pleaded imputations. At trial, X succeeds on both imputations for publication A, one imputation for publication B, and fails entirely on publication C. X is awarded $150,000 in damages.

Applying the principles from Greenwich v Latham (No 3):

1. Consider whether the successful and unsuccessful claims are truly separable or whether they form part of an interconnected narrative;

2. Determine whether the same evidence would have been necessary even if only the successful claims had been pursued;

3. Assess whether the unsuccessful publications or imputations added significant complexity or length to the proceedings.

If the evidence and witnesses would have been largely the same regardless of whether publications B and C were included, a court would likely award X their full costs despite the partial success. However, if publication C required distinct evidence and significantly extended the proceedings, the court might reduce X's recoverable costs to reflect this unnecessary expenditure.

Guidance for Practitioners

When advising clients on costs in defamation proceedings with partial success, practitioners should:

1. Assess Practical Severability

• Consider whether the successful and unsuccessful claims share common evidentiary foundations

• Determine if the same witnesses would have been required even without the unsuccessful claims

• Evaluate whether preparation would have been substantially different if only successful claims were pursued

2. Evaluate the Relative Significance of Claims

• Consider whether the unsuccessful claims were peripheral or central to the overall case

• Assess the proportion of court time and evidence devoted to unsuccessful claims

• Determine whether unsuccessful claims significantly extended proceedings

3. Consider Settlement Offers

• Ensure settlement offers are reasonable and proportionate

• Make offers that acknowledge the strength and weaknesses of the case

• For defendants, consider the potential for indemnity costs when evaluating settlement offers

4. Prepare Detailed Records

• Document time spent on different aspects of the case

• Keep records that differentiate between work on distinct publications or imputations

• Be prepared to demonstrate how time and resources would have been allocated if only successful claims were pursued

Arguments and Evidence for Each Side

For Plaintiffs Seeking Full Costs

1. Evidence that the same witnesses would have been called regardless of unsuccessful claims

2. Documentation showing that preparation for successful and unsuccessful claims overlapped significantly

3. Evidence that the defendant's conduct necessitated pursuit of all claims together

4. Argument that unsuccessful claims formed part of a single narrative requiring comprehensive treatment

For Defendants Seeking Apportionment

1. Evidence that unsuccessful claims significantly extended proceedings

2. Documentation of distinct evidence pertaining solely to unsuccessful claims

3. Argument that unsuccessful claims were clearly separable and dominant parts of the case

4. Time records showing disproportionate resources devoted to unsuccessful claims

Key Takeaways for Legal Practice

1. Severability is Practical, Not Theoretical: The test for apportionment turns on practical considerations of how the case would have been run, not merely the numerical proportion of successful claims.

2. Evidence Overlap is Crucial: Where the same evidence would have been necessary even if only successful claims were pursued, courts are unlikely to apportion costs.

3. Careful Offer Construction: Settlement offers should be carefully constructed to make rejection unreasonable. Broad undertakings and coverage of ultimately unsuccessful claims may undermine arguments for indemnity costs.

4. Document Resource Allocation: Practitioners should document how resources are allocated between different aspects of a case to support or defend against apportionment applications.

5. Look Beyond Numbers: Courts will not merely count successful versus unsuccessful imputations but will assess their relative significance and the resources devoted to them.

Conclusion

Greenwich v Latham (No 3) represents a significant contribution to the evolving jurisprudence on costs in defamation proceedings. Justice O'Callaghan's decision reinforces that courts will take a practical approach to costs apportionment, looking beyond mere numerical success to consider how the case would actually have been conducted if only the successful claims had been pursued.

The decision also highlights the challenges plaintiffs can face in securing indemnity costs following rejected settlement offers, particularly where those offers encompass ultimately unsuccessful claims or contain broad undertakings that may be difficult to enforce.

Two Decisions, One Principle: How Pentelow and Birketu Together Reshape Law Firm Litigation Strategy

Introduction

The landscape of costs recovery in Australian litigation has undergone a significant transformation with two landmark High Court decisions: Bell Lawyers Pty Ltd v Pentelow (2019) 269 CLR 333 and Birketu Pty Ltd v Atanaskovic [2025] HCA 2. Together, these decisions establish a coherent framework based on the principle of equality before the law, while maintaining important distinctions that have practical implications for law firms engaged in litigation. This article examines how these decisions collectively reshape the ability of legal practitioners to recover costs when representing themselves or their firms, and the practical implications for litigation strategy.

Background: Bell Lawyers v Pentelow

In Bell Lawyers v Pentelow, the High Court abolished the so-called "Chorley exception" to the general rule that self-represented litigants cannot recover professional costs. This long-standing exception had permitted self-represented solicitors, uniquely among all professions, to recover costs for their own time spent in litigation.

The High Court held that the Chorley exception was an "affront to the fundamental value of equality of all persons before the law" and thus had no place in the common law of Australia. However, the Court made clear that its decision did not disturb the "well-established understanding" that where an in-house solicitor appears in proceedings to represent their employer, the employer remains entitled to recover costs.

The decision left open a critical question: could a law firm recover costs for work done by its employed solicitors (as distinct from partners) when the firm itself was a party to the proceedings?

Facts of Birketu v Atanaskovic

The Birketu case directly addressed this unresolved question. Atanaskovic Hartnell, an unincorporated legal practice, had commenced proceedings in the Supreme Court of New South Wales against former clients Birketu Pty Ltd and WIN Corporation Pty Ltd to recover legal fees. Mr. Atanaskovic, a partner of the firm, was the solicitor on the record throughout.

The firm was successful in the litigation, and Hammerschlag J ordered that Birketu pay Atanaskovic Hartnell's costs. When Atanaskovic Hartnell sought to recover costs, it claimed $305,463 for professional fees for work done by its employed solicitors, while making no claim for work done by Mr. Atanaskovic or any other partner.

Birketu objected, arguing that following Bell Lawyers, the firm could not recover costs for work done by its own employed solicitors. This question proceeded through the courts, with Brereton JA at first instance ruling that the firm could not recover such costs, the Court of Appeal (by majority) overturning that decision, and finally the High Court dismissing Birketu's appeal, thereby affirming the Court of Appeal's decision and allowing recovery of costs for employed solicitors.

Legal Reasoning in Birketu

The High Court's decision featured both majority and minority opinions.

The majority (Gageler CJ, Gordon, Edelman, Gleeson and Beech-Jones JJ) held that "an order for costs in favour of an unincorporated law firm entitles the firm to obtain recompense for legal work performed by an employed solicitor of the firm." They reasoned that the general common law principle applies to a litigant solicitor or unincorporated law firm in the same way as it applies to other litigants. Like any other litigant, the solicitor or firm cannot obtain recompense for their own legal work. But also like any other litigant, the solicitor or firm can obtain recompense for legal work done by their employees.

The majority distinguished this situation from the Chorley exception by emphasising that the expenses of salaries and overheads associated with having legal work done by employees constitute professional legal costs actually incurred by the solicitor or firm. The recompense is to the solicitor or firm for professional legal costs thereby actually incurred.

Justice Steward dissented, arguing that allowing recovery would "make a mockery of what was decided in Bell Lawyers, and would, in substance, resurrect the Chorley exception." He reasoned that when employed solicitors work under the supervision of a firm, that is the work of the firm itself. The time of employed solicitors is the firm's time, and when those solicitors work on the firm's own litigation, the firm loses the value of those hours which might otherwise have been profitably utilised for clients.

Justice Jagot also wrote separately, siding with Justice Steward's position.

Quantification of Recoverable Costs

The High Court in Birketu provided important guidance on the quantification of recoverable costs for employed solicitors. The Court addressed this in paragraphs 31-36 of the judgment, under the heading "Quantification."

The majority noted that concerns about law firms potentially profiting from litigation through employed solicitors relate not to "the availability of such recompense by way of an order for costs but to its quantification by way of assessment" (para 31). This is an important distinction—the principle of recoverability is separate from the method of quantification.

The Court explained the traditional approach in paragraph 33:

"The plurality in Bell Lawyers noted that 'the traditional approach has been to award costs on a basis comparable to the costs which would have been incurred and allowed ... had an independent solicitor been engaged' on the 'assumption', or more accurately the 'sensible and reasonable presumption', that application of the approach will not ordinarily result in an employer-litigant obtaining more than an indemnity for expenses actually incurred."

Critically, paragraph 34 establishes that this presumption is rebuttable:

"The presumption on which the traditional approach is founded has never been treated as more than a presumption of fact, it being open to an objecting party to show that application of the approach in a particular case would in fact result in the employer-litigant receiving more than an indemnity for expenses actually incurred."

The Court further noted in paragraph 35 that in assessment proceedings, while an assessor might investigate whether the principle of indemnity would be infringed, "this task is not one which should be undertaken without a good and sufficient cause." The mere fact that costs are being sought for work done by employed solicitors of a litigant law firm is not sufficient to trigger such an investigation.

The judgment also mentioned in paragraph 36 that there might be an alternative approach involving a different conception of "indemnity" which could affect quantification differently, though this was not fully developed as it wasn't necessary for resolving the case.

The Combined Impact of Both Decisions

Read together, Bell Lawyers and Birketu establish a framework for costs recovery that can be summarised as follows:

1. The general rule is that self-represented litigants cannot recover professional costs for their own time spent in litigation.

2. This rule applies equally to solicitors and law firms that represent themselves (the Chorley exception is abolished).

3. A law firm can recover costs for work done by its employed solicitors when the firm is a party to the proceedings.

4. The "in-house solicitor rule" remains intact: when a government department, corporation, or other entity is represented by its employed solicitor, that entity can recover costs.

5. In quantifying recoverable costs, courts will generally use the traditional approach of comparing the costs to those that would have been incurred had an independent solicitor been engaged, but this is subject to the presumption not resulting in the litigant obtaining more than an indemnity.

This framework has significant implications for litigation strategy for law firms that become involved in litigation themselves.

A Worked Example

Consider a hypothetical scenario from a former client's perspective:

Acme Corporation is sued by its former solicitors, Smith & Jones LLP, for unpaid fees totalling $500,000. Smith & Jones succeeds in the litigation, with Ms. Smith (a partner) acting as the solicitor on the record and the firm's employed solicitors performing most of the legal work. The court orders Acme to pay Smith & Jones' costs.

Smith & Jones submits a bill claiming $140,000 for work done by its employed solicitors, calculated at rates comparable to what would have been charged by independent solicitors. Acme, hoping to reduce this amount, considers challenging the quantification.

Following Birketu, Acme understands that while Smith & Jones can recover costs for work done by employed solicitors, the High Court emphasised that these costs should represent a true indemnity. Importantly, the Court noted (at paragraph 35) that although a costs assessor might investigate whether the principle of indemnity is being infringed, "this task is not one which should be undertaken without a good and sufficient cause." The mere fact that costs are being sought for work done by employed solicitors is not sufficient to trigger such an investigation.

To challenge the quantification of costs, Acme faces a multi-step task to establish that the assessment should be limited to a true indemnity rather than market rates:

Step 1: Understand what constitutes a "true indemnity"
A true indemnity in this context means the actual expense incurred by Smith & Jones in having employed solicitors work on the litigation. This comprises primarily:

• Salary costs: The portion of the employed solicitors' annual salaries attributable to the time spent on this matter (e.g., if a solicitor earning $60,000 annually spent 10% of their working time on the matter, the salary component would be $6,000)

• Overheads: The additional costs necessarily incurred in employing the solicitors, including office space, equipment, administrative support, professional indemnity insurance, and other practice costs that would not have been incurred but for the employment of these solicitors

• Opportunity costs: Though more controversial, potentially the value of other billable work the employed solicitors could have undertaken for paying clients during the time spent on this litigation. Arguments for including opportunity costs suggest they represent real economic loss to the firm and are consistent with the High Court's recognition in Birketu that firms incur actual costs when deploying employed solicitors on their own litigation. Arguments against contend that opportunity costs are speculative, difficult to quantify, and their inclusion might reintroduce the profit element that Bell Lawyers sought to eliminate from self-representation.

Step 2: Establish a prima facie case of "good and sufficient cause"
Acme must identify specific grounds suggesting that Smith & Jones' claimed costs substantially exceed a true indemnity. This requires more than mere assertion—Acme needs evidence suggesting a significant disparity.

Step 3: Gather available evidence
Without access to internal firm records, Acme must rely on indirect evidence such as market knowledge, prior dealings with Smith & Jones, and expert testimony about typical employment costs for comparable firms.

The critical challenge for Acme is meeting the threshold of "good and sufficient cause" with limited information, as the High Court has intentionally set a high bar to avoid routine investigations into firms' internal cost structures.

As a former client with limited insight into Smith & Jones' internal operations, Acme considers what might constitute "good and sufficient cause" and what evidence it could realistically obtain:

1. Evidence of profitability disparity: Acme could argue that allowing recovery at standard market rates would provide Smith & Jones with a significant profit rather than mere indemnity:

   • Publicly available financial information showing the firm's profit margin and ratio of revenue to salary costs

   • Evidence that the firm's business model relies on large markups between employed solicitor costs and billing rates

   • Comparison between the firm's published charge-out rates to clients (which include profit components) and the rates claimed in costs recovery

2. Alternative fee arrangements and discounting practices: Acme could demonstrate:

   • That Smith & Jones routinely offers substantial discounts from their standard rates to clients

   • Evidence the firm uses fixed fee arrangements that effectively discount hourly rates

   • Marketing materials where the firm promotes itself as cost-effective or offering competitive rates

3. Internal versus external rate disparities: Acme could seek to establish:

   • Different rates being charged to different clients for identical work by the same employed solicitors

   • Evidence from recruitment advertisements showing salary ranges that, even with overhead allocations, would result in costs substantially below claimed rates

4. Historical client relationship evidence: Acme could leverage its former relationship:

   • Prior invoices showing the firm's actual billing rates for the same employed solicitors

   • Records of fee discussions where the firm provided cost estimates at rates lower than now claimed

   • Evidence of how the firm described its fee structure during the client relationship

   • Contemporaneous records of which employed solicitors worked on Acme matters and their experience levels

5. Firm structure and staffing patterns: Acme could argue:

   • The firm's high leverage ratio (number of employed solicitors per partner) indicates a business model reliant on marking up junior solicitor time

   • That work claimed at senior solicitor rates was likely performed by junior staff under limited supervision

   • The firm has re-graded fee earners as more senior for costs recovery than how they were presented to clients

The key for Acme is establishing that quantification based on standard market rates would amount to providing Smith & Jones with a profit rather than a true indemnity for costs actually incurred. This aligns with the High Court's emphasis in Birketu that costs awards should provide indemnity for expenses actually incurred by the law firm, not a vehicle for profit from self-representation.

If Acme succeeds in establishing "good and sufficient cause," the costs assessor might then investigate whether the claimed $140,000 genuinely represents an indemnity for costs incurred by Smith & Jones. The costs assessor could potentially reduce the recoverable amount to more closely reflect the firm's actual expenditure on employed solicitors for the litigation.

However, without establishing such "good and sufficient cause," Acme would likely be required to pay costs based on the traditional approach—what would have been incurred had independent solicitors been engaged—even if this exceeds Smith & Jones' actual employment costs.

Key Takeaways

1. Partner/employee distinction matters: Law firms cannot recover costs for work done by partners representing the firm, but can recover costs for work done by their employed solicitors.

2. Quantification follows indemnity principle: The principle of indemnity governs quantification, with a rebuttable presumption that costs comparable to engaging independent solicitors is appropriate.

3. Burden on objecting party: The burden is on the objecting party to demonstrate that the assessed costs would exceed a true indemnity, and costs assessors should not investigate this issue without good cause.

4. Structure enables strategic choices: Different structural arrangements for legal representation provide strategic options for law firms involved in litigation, particularly regarding the allocation of work between partners and employed solicitors.

5. Balance of principles retained: The decisions balance the principle of equality before the law with the principle that costs orders should provide indemnity for expenses actually incurred.

Conclusion

The combined effect of Bell Lawyers and Birketu represents a nuanced approach to costs recovery for legal practitioners. While abolishing the special privilege that solicitors historically enjoyed to recover costs for their own time, the High Court has maintained the principle that litigants—including law firms—should be indemnified for actual expenses incurred, including those relating to employed solicitors.

For law firms, these decisions require thoughtful consideration of how to structure their representation when they themselves are parties to proceedings. While the costs associated with partner time remain non-recoverable, the ability to recover costs for employed solicitors provides significant strategic flexibility.

The decisions also highlight the importance of proper cost recording and allocation, as challenges to quantification may arise where the assessed amount would exceed a true indemnity. Law firms should ensure they maintain clear records that demonstrate the actual costs incurred through the deployment of employed solicitors on their own litigation matters.

The Judicial Reluctance to Engage in Hypothetical Merits Assessment for Costs Determination: An Examination of Lygina and the Ex parte Lai Qin Principles

Introduction

In litigation that concludes without a trial on the merits, the question of costs allocation frequently emerges as a contentious issue. The courts have consistently demonstrated reluctance to engage in hypothetical assessments of how a matter might have been determined had it proceeded to trial. This principle, articulated in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 ("Ex parte Lai Qin"), has been reaffirmed and applied in the recent decision of Lygina v Lawley Legal [2025] WASC 68. This article examines the tension between the presumption that successful parties should receive costs and the judicial reluctance to conduct hypothetical merits assessments when proceedings conclude without substantive adjudication.

The Lygina Decision: Facts and Context

In Lygina v Lawley Legal [2025] WASC 68, the plaintiff, Ms. Lygina, a former client of the defendant law firm, commenced proceedings in June 2022 seeking orders under s 288(2) of the Legal Profession Act 2008 (WA) to set aside costs agreements and requiring Lawley Legal to re-issue bills based on the relevant costs scale. Ms. Lygina's statement of claim alleged various failures by Lawley Legal to comply with obligations under the Legal Profession Act.

Significantly, Lawley Legal did not file a defence. Instead, on 10 November 2022, Registrar Whitbread made orders setting aside the costs agreements and requiring Lawley Legal to re-issue bills drawn on the relevant costs scale. These orders were made in terms proposed by Lawley Legal, which notably did not admit the allegations made in the statement of claim.

After securing these substantive orders, Ms. Lygina sought costs on an indemnity basis, arguing that the defendant's non-compliance with cost disclosure obligations was severe, that Lawley Legal had maintained an untenable defence, and that its conduct fell below professional standards.

Justice Palmer was therefore confronted with a costs application following proceedings that concluded without trial by virtue of the defendant effectively capitulating to the primary relief sought, while expressly not admitting the factual allegations that would ordinarily justify such relief.

The Ex parte Lai Qin Principles and Their Application in Lygina

In Ex parte Lai Qin, McHugh J articulated the fundamental challenge in determining costs where proceedings have been resolved without trial:

"When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order."

McHugh J distinguished between two categories of cases:

1. Cases where "one party, after litigating for some time, effectively surrenders to the other"; and

2. Cases where "some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs."

Justice Palmer in Lygina determined that the case fell into the first category, finding that "Lawley Legal's decision to agree to the substantive orders sought by Ms. Lygina involved a capitulation by Lawley Legal that establishes that Ms. Lygina was the successful party in these proceedings."

However, Justice Palmer declined to order indemnity costs, stating:

"Determination of whether Lawley Legal engaged in 'severe' non-compliance with its obligations, could not defend the proceedings because of that non-compliance, or engaged in unprofessional conduct as claimed by Ms. Lygina, would require the determination of the principal disputed matters of fact in these proceedings. I am not satisfied that it would be possible to properly determine these matters on the basis of the evidence presently available to the court."

Justice Palmer relied upon Basten JA's observation in Nichols v NFS Agribusiness Pty Ltd [2018] NSWCA 84 that an order for costs should only be made "where that judgement is manifest by reference to known circumstances, not in dispute between the parties. If the question cannot be answered without reviewing large swathes of evidence and resolving, on a tentative basis, disputed questions of fact, the task should not be embarked upon."

The Tension: Success Without Trial vs. Avoiding Hypothetical Adjudication

The Lygina decision exemplifies the tension courts face: on one hand, recognising that a party who secures the relief sought should ordinarily receive costs; on the other hand, refusing to engage in what would amount to a "trial on the papers" solely for costs purposes.

Justice Palmer resolved this tension by:

1. Determining that Ms. Lygina was the successful party based on Lawley Legal's capitulation to the primary relief sought;

2. Ordering costs on a party/party basis, reflecting her success; but

3. Rejecting indemnity costs, which would have required judicial determination of disputed factual matters central to the substantive case.

This approach honours both the principle that successful parties should receive costs and the principle that courts should not conduct hypothetical merit assessments of untried cases.

A Worked Example: Application of the Principles

Consider a hypothetical scenario involving Smith v Jones Professional Services:

Smith is employed by Jones Professional Services as an accountant. Their employment agreement contains a restraint of trade clause. When Smith subsequently leaves Jones and begins servicing former clients, Jones commences proceedings alleging breach of the restraint clause and seeking an injunction and damages.

After discovery reveals potentially problematic drafting in the restraint clause, Jones agrees to consent orders discontinuing the proceedings, with the orders expressly stating that Jones does not admit any of Smith's defences or counterclaims.

Smith then seeks indemnity costs, arguing that:

1. Jones knew the restraint was unenforceable when proceedings commenced;

2. Jones engaged in intimidatory conduct; and

3. Jones deliberately pursued unmeritorious litigation for an improper purpose.

Applying the Lygina principles, the court would likely:

1. Identify that Jones' agreement to discontinue constituted a capitulation, making Smith the successful party;

2. Award Smith costs on a party/party basis reflecting this success; but

3. Decline to award indemnity costs, as determining whether Jones knew the restraint was unenforceable or had improper purposes would require the very trial the consent orders avoided.

Key Takeaways

1. Capitulation vs. Settlement Distinction: Courts distinguish between a party's capitulation (which will normally result in costs following the event) and settlement due to supervening circumstances (which may result in no order as to costs).

2. Evidence Required for Indemnity Costs: Mere allegations of unreasonable conduct, improper purpose, or untenable defence will not suffice for indemnity costs if these allegations remain untested and disputed. Courts will not conduct a "hypothetical trial" solely for costs purposes.

3. Strategic Implications for Consent Orders: Parties agreeing to consent orders should carefully consider the costs implications. A non-admission clause will not shield a party from ordinary costs if the court characterises the consent as effective capitulation.

4. Threshold for Determining "Special Circumstances": Courts require clear, undisputed evidence of "special or unusual features" to award indemnity costs in matters resolved without trial. This evidence must be "manifest by reference to known circumstances, not in dispute."

5. Documentation of Conduct: Parties seeking indemnity costs should document the opposing party's conduct contemporaneously and seek to have unreasonable conduct acknowledged in correspondence or court proceedings, rather than relying solely on contested allegations.

Conclusion

The Lygina decision reinforces the courts' adherence to the Ex parte Lai Qin principles, demonstrating judicial reluctance to engage in hypothetical merits assessments solely for costs determination. While courts will identify "successful parties" based on practical outcomes (including capitulation through consent orders), they will not delve into contested factual matrices to determine whether conduct warrants special costs orders unless those facts are manifest and undisputed.

This approach balances efficiency with fairness: successful parties receive their costs without courts having to conduct "paper trials" of factual disputes that the parties themselves chose not to litigate to conclusion. Practitioners should therefore be mindful that while non-admission clauses in consent orders may protect against substantive liability findings, they will not shield a capitulating party from normal costs consequences.

Costs where there are Jointly Represented Parties

General Principles

The general principle that costs follow the event must be applied with careful consideration when litigation involves multiple parties who are jointly represented. This situation frequently arises where co-defendants share legal representation throughout proceedings, but the plaintiff succeeds against some defendants and fails against others. The court's discretion regarding costs remains unfettered, but established principles guide the exercise of that discretion.

As emphasized in Chittleborough v Troy Group Pty Ltd [No 2] [2025] WASCA 4 at [74], although many guiding rules of principle and practice exist with respect to the award of costs, the discretion remains unfettered and each case must be decided on its own facts.

The "Rule of Thumb" Principle

Origin and Rationale

Where co-defendants are jointly represented, a "rule of thumb" principle has developed to address the allocation of costs when one defendant succeeds but another fails. This principle originated in Ellingsen v Det Skandinaviske Compani [1919] 2 KB 567 and was further developed in Korner v H Korner & Co Ltd [1951] Ch 10.

The principle can be summarized as follows:

1. When defendants share legal representation, they share the costs of their defence proportionately.

2. A successful defendant can only recover their fair share of the joint defence costs from the plaintiff plus any costs specifically related to their individual defence.

3. Similarly, a partially successful plaintiff can only recover from each unsuccessful defendant their proportion of the shared costs, plus any costs specifically related to the case against that particular defendant.

A more modern explanation of the rule is provided in Currabubula Holdings Pty Ltd v State Bank of New South Wales Ltd [2000] NSWSC 232 at [93]-[105].

Application of the Principle

The objective of the rule is to achieve substantial justice in the awarding of costs between a partially successful plaintiff and various successful and unsuccessful defendants. It prevents either side from being unfairly enriched or burdened when success is mixed and representation is shared.

Example 1: Where a plaintiff sues three defendants who are jointly represented and succeeds against two but fails against the third, the court might order the plaintiff to pay one-third of the successful defendant’s costs, reflecting the proportion of the shared defence costs attributable to the successful defendant.Departing from the Rule of Thumb

The rule of thumb is not an inflexible rule but rather a starting point for consideration. Courts may depart from the principle when circumstances warrant.

Factors That May Justify Departure

In determining whether to depart from the rule of thumb, courts may consider:

1. The overall success on substantive issues litigated, not merely the formal outcome between specific parties.

2. The extent to which the defendants presented a unified or common defence.

3. Whether certain factual issues dominated the trial and which party succeeded on those issues.

4. The relationship between co-defendants and whether their interests were aligned.

5. The conduct of parties throughout the litigation, including settlement offers.

6. Whether applying the rule would lead to a just outcome in the particular circumstances.

Ng v Sevastos: A Case Study in Departing from the Rule

A Western Australian authority on this issue is Ng v Sevastos by His Guardian Ad Litem Vanessa Vershaw [2024] WADC 75 (S). The case provides valuable guidance on when courts might depart from the rule of thumb.

Facts of the case: The plaintiff, Mr. Ng, had advanced money for the development of a West Perth property. He sued both Peter Sevastos and Steven Sevastos (Peter's nephew) to recover $160,000. The defendants were jointly represented throughout the proceedings. Mr. Ng succeeded entirely against Peter for the full amount claimed but failed in his claim against Steven. Peter was declared bankrupt shortly after judgment was entered against him. The defendants had filed a joint defence, made joint settlement offers, and Steven was the primary witness for both defendants.

Although the formal outcome was that Mr. Ng failed against Steven (suggesting costs should follow the event), the court made no order as to costs between Mr. Ng and Steven, departing from the rule of thumb that would have typically awarded Steven a proportion of the defendants' shared costs.

Curwood DCJ explained this departure at [33]-[38]:

"I consider this is an appropriate case to depart from the 'rule of thumb' principle I have outlined which, if applied, would permit Steven to recover from Mr Ng half of the joint costs incurred by the defendants. For the reasons which follow, that would not be a just result and the circumstances of this case do not meet the general conditions for application of the 'rule of thumb' principle.

First, Mr Ng enjoyed a significant measure of success on the issues litigated in the proceedings... Although I did not find that Steven was a party to the agreement as Mr Ng alleged, that conclusion was not reached by accepting Steven's evidence. This was the only issue where Mr Ng did not succeed. The time spent at trial on determining the identity of the contracting parties was minimal.

Secondly, Peter and Steven had closely aligned interests, shared legal representation, and approached the matter collectively. They jointly advanced a defence which raised many factual issues which consumed most of the trial time."

The court concluded that ordering Mr. Ng to pay any of the costs of the jointly represented defendants would not lead to a just outcome, particularly since none of the factual issues litigated at trial were agreed by the defendants.

Practical Considerations

Identifying the "Truly Successful" Party

As emphasized in Frigger v Professional Services of Australia Pty Ltd [2011] WASCA 103 (S) at [12], in determining who is the successful party, the question to be answered is who was successful in the "underlying, real contest" between the parties.

This requires looking beyond the formal success or failure of claims to consider which party succeeded on the major contentious issues that occupied the court's time and resources.

Apportioning Costs - A Matter of Impression

The exercise of the court's discretion to make a costs order to reflect the limited success of a party should be approached broadly and as a matter of impression, rather than as an exercise in mathematical precision. See Amaca Pty Ltd (Formerly James Hardie & Co Pty Ltd) v Moss [2007] WASCA 162 (S) at [6].

Example 2: Where three defendants are jointly represented but have individual issues specific to their defences, the court might not simply award one-third of the costs to a successful defendant. Instead, the court might consider what proportion of the trial was devoted to common issues versus individual issues and adjust the costs award accordingly.

Relevance of Settlement Offers

Settlement offers, including Calderbank offers, remain relevant considerations in the exercise of costs discretion in cases with jointly represented parties.

In Ng v Sevastos, the court considered various Calderbank offers made by both sides but concluded that they did not assist in determining the final costs order. The court noted that the defendants' offers were joint offers but for amounts less than the judgment against Peter, while the plaintiff's offers required joint payment obligations from both defendants - an outcome not achieved at trial.

Fairness and Justice as Guiding Principles

The fundamental principle guiding costs decisions is fairness and justice between parties based on each case's specific circumstances. As noted in Strzelecki Holdings Pty Ltd v Jorgensen [2019] WASCA 96; (2019) 54 WAR 388 at [49], generally, the court operates from the starting position that the successful party should recover their costs.

However, in cases with jointly represented parties, determining "success" requires nuanced consideration beyond formal outcomes. As demonstrated in Ng v Sevastos, the court may depart from both the general rule that costs follow the event and the rule of thumb for jointly represented defendants when fairness and justice require a different approach.

Conclusion

The determination of costs where there are jointly represented parties requires careful consideration of multiple factors beyond formal success or failure. While the rule of thumb provides a useful starting point, courts retain an unfettered discretion to make costs orders that achieve substantial justice between the parties based on the particular circumstances of each case.

Where defendants present a unified defence, share representation, and have aligned interests, courts may be more inclined to depart from the rule of thumb if applying it would not achieve a just outcome based on the substantive issues litigated and determined.

When Costs Agreements Become Void: Consequences at Assessment Under the Uniform Law

Introduction

The Legal Profession Uniform Law has significantly changed how costs agreements are treated when disclosure obligations aren't met. Three recent Victorian Supreme Court decisions – Johnston v Dimos Lawyers [2019] VSC 462, Bennett (a pseudonym) v Farrar Gesini Dunn Pty Ltd [2019] VSC 744, and Shi v Mills Oakley [2020] VSC 498 – provide valuable insights into the consequences of non-compliance. Each case involved disputes over legal costs where the law firm had failed to provide adequate costs disclosure. In Johnston, a client disputed the costs of Family Law proceedings totalling approximately $253,000. In Bennett, an applicant challenged costs of approximately $490,000 for Family Law matters. In Shi, a Chinese national disputed costs of around $267,000 for commercial litigation.

The Harsh Reality of Non-Compliance

Under the Legal Profession Uniform Law, the consequences of non-compliance with disclosure obligations are significantly more severe than under previous legislation. Section 178(1)(a) explicitly states that if a law practice contravenes disclosure obligations, "the costs agreement concerned (if any) is void."

As Associate Justice Wood stated in Johnston v Dimos Lawyers: "Any failure to comply with any of the provisions in relation to disclosure in Part 4.3 of the Act renders the costs agreement void. Non-compliance therefore equals void. There is no discretion to be exercised around 'substantial' compliance."

This represents a marked departure from the previous Legal Profession Act 2004 (Vic), where disclosure failures might merely result in a discount of costs at the conclusion of taxation rather than invalidating the agreement entirely.

What Makes a Costs Agreement Void?

Section 174 of the Uniform Law mandates that a law practice must:

• Provide an initial estimate of total legal costs (including disbursements) when instructions are first given

• Update this estimate when there is a significant change to anything previously disclosed

• Provide these disclosures in writing

Common failures that have rendered costs agreements void include:

• Not providing any written estimate of total costs

• Excluding disbursements from cost estimates

• Not updating estimates when matters change significantly

• Using confusing or inconsistent methods to calculate estimates

• Providing estimates that are unreasonably low compared to actual costs

• Not disclosing increases in hourly rates

Consequences at Assessment: Not Always Catastrophic

Interestingly, while non-compliance renders a costs agreement void, this doesn't necessarily mean the law practice must fall back to court scales or minimum rates. As the three cases demonstrate, courts still have considerable discretion in determining the appropriate basis for assessment.

In Johnston v Dimos Lawyers, despite finding the costs agreement void, Associate Justice Wood determined that the costs should still be assessed using the hourly rates specified in that agreement. This approach was described as fair since the client had been given "a surprisingly accurate oral estimate of total legal costs" from the outset.

Similarly, in Bennett v Farrar Gesini Dunn, the Court found that "although both the First Costs Agreement and the Deferred Costs Agreement are void, as a general principle the respondent's costs are to be assessed on the basis of the hourly rates specified in them and counsel fees are to be assessed on the basis that they were rendered."

However, in Shi v Mills Oakley, Judicial Registrar Gourlay took a more nuanced approach. The Court held that for work undertaken in 2016 and 2017, costs should be assessed based on the rates in the void costs agreement. But for work after March 2018 (when County Court proceedings were issued), costs should be assessed using the County Court scale of costs. This reflected the Court's view that a new retainer had effectively commenced, requiring fresh disclosure.

Factors Courts Consider When Determining Assessment Basis

When deciding how to assess costs where a costs agreement is void, courts typically consider:

1. Whether the client was adequately informed about costs, even if technical disclosure requirements weren't met

2. Whether the rates in the void agreement were reasonable for the work performed

3. Whether the client had complained about costs during the retainer

4. The nature and complexity of the legal matter

5. Whether significant changes in circumstances justified fresh disclosure

6. The experience and specialisation of the legal practitioners

As noted in Johnston: "Irrespective of whether there is, or is not, a valid Costs Agreement the Court still has an obligation to determine what is fair, reasonable and proportionate" under section 172(1) of the Uniform Law.

Practical Implications for Practitioners

These cases highlight the critical importance of rigorous compliance with disclosure obligations. Law practices should:

1. Provide comprehensive written cost estimates at the commencement of all matters

2. Include all foreseeable disbursements in total cost estimates

3. Regularly review and update estimates when circumstances change

4. Document all communications about costs

5. Consider issuing new costs agreements when the nature of a matter changes significantly

6. Disclose rate increases promptly and in writing

As stated in Shi v Mills Oakley, there is "a prevalent misconception in the profession" about what constitutes adequate disclosure: "Demands for progress payments or the delivery of regular invoices for work already completed do not satisfy the Act."

Conclusion

While non-compliance with disclosure obligations automatically renders costs agreements void under the Uniform Law, courts retain discretion to assess costs on a fair and reasonable basis. The rates in void agreements may still be applied if appropriate, but practitioners should not rely on judicial discretion to save them from disclosure failures. The strict approach taken by courts underscores the importance of meticulous compliance with all disclosure obligations from the outset of any retainer and throughout the client relationship.

As Justice Wood aptly stated in Johnston v Dimos, "Non-compliance therefore equals void." The best practice is to ensure compliance from the start, rather than hoping for a favourable assessment after the fact.

Scope and Costs Estimates in Legal Retainers: Lessons from Shi v Mills Oakley

Introduction: A Cautionary Tale

The Supreme Court of Victoria's decision in Shi v Mills Oakley [2020] VSC 498 serves as a stark reminder of the critical importance of proper costs disclosure and agreement in legal practice. The case involved a Chinese national with limited English proficiency who retained Mills Oakley initially to assist with the sale of shares in his company. What began as a commercial transaction evolved into complex litigation when the purchaser, Mr Wu, issued proceedings against Mr Shi in the County Court. When the matter concluded, the total legal costs exceeded $267,000—far beyond initial estimates—and the law firm's costs agreement was deemed void for non-compliance with disclosure obligations under the Legal Profession Uniform Law.

The Importance of Proper Scope Definition

One of the fundamental issues in Shi v Mills Oakley was the failure to properly redefine the scope of work when the matter evolved significantly. The initial costs agreement provided an estimate of $50,000 (plus disbursements and GST) for what was essentially pre-litigation commercial work. However, when Mr Wu issued proceedings in February 2018, the nature of the retainer fundamentally changed.

Judicial Registrar Gourlay stated in paragraph 45 of the judgment: "It may be reasonable to consider that, when the County Court proceeding was issued, a new retainer began that warranted a new costs agreement and costs disclosure being given considering that the change in the applicant's instructions was so substantial and Mr Wu commencing proceedings was unexpected after 12 months."

When Does a New Retainer Come into Being?

The Shi case provides valuable guidance on when a new retainer may be considered to have come into existence, requiring fresh costs disclosure. The court identified several key factors:

1. Substantial change in scope: When the nature of the legal services changes significantly from what was originally contemplated (in Shi, from commercial dispute to litigation defence)

2. Passage of time: The court noted the 10-month gap in work before the County Court proceedings as significant

3. New explicit instructions: Receipt of instructions to undertake work substantially different from the original retainer (defending formal proceedings versus negotiating a commercial dispute)

4. Unexpected developments: Events that weren't reasonably foreseeable at the time of the original retainer

Judicial Registrar Gourlay concluded at paragraph 46 that "on the receipt of instructions to defend the Writ a new matter and a new retainer began. Therefore, any earlier costs estimate, including the one given on 11 November 2016, that did not consider the possibility of defending proceedings against Mr Shi has failed to comply with the disclosure requirements of s 174(1)(a) and (b)."

Legal Requirements for Costs Disclosure Under the Uniform Law

The case turned on the interpretation of sections 174 and 178 of the Legal Profession Uniform Law. Section 174(1) requires a law practice to:

• Provide the client with information disclosing the basis on which legal costs will be calculated and an estimate of total legal costs; and

• Provide updated information promptly when there is any significant change to anything previously disclosed.

Importantly, "legal costs" is defined in section 6 to include disbursements—a point that Mills Oakley failed to address adequately in their estimate. The court noted that each estimate specifically excluded disbursements, contrary to the definition of "legal costs" under the Act.

Updating Costs Estimates When Circumstances Change

The most significant lesson from Shi v Mills Oakley relates to the obligation to provide updated costs disclosures when circumstances change materially. Despite the matter evolving from a commercial dispute into full-blown litigation spanning multiple days of trial, the law firm's updates were found to be inconsistent and inadequate.

The court noted at paragraph 44 that: "It is clear that an estimate of total legal costs was never provided to the applicant. Each of the costs disclosures given were limited in some way or other by making reference to earlier conversations or by only disclosing future legal costs that excluded some disbursements."

The court was particularly critical of the practice of referring to earlier verbal estimates from 16 months prior, and of providing estimates that excluded foreseeable disbursements such as interpreters, subpoena costs, and transcript fees.

Consequences of Non-Compliance: The Void Agreement

The consequences of failing to comply with disclosure obligations are severe and non-discretionary. Section 178(1) plainly states that if a law practice contravenes the disclosure obligations, "the costs agreement concerned (if any) is void."

The court rejected the law firm's arguments that the approach to disclosure requirements should be "moderated by the fact that nobody knows the future." Citing Johnston v Dimos Lawyers [2019] VSC 462, Judicial Registrar Gourlay emphasized at paragraph 43 that: "Any failure to comply with any of the provisions in relation to disclosure in Part 4.3 of the Act renders the costs agreement void. Non-compliance therefore equals void. There is no discretion to be exercised around 'substantial' compliance."

The practical effect in Shi was that costs for work undertaken in 2016 and 2017 were to be taxed at the rates in the costs agreement, but costs for work after March 2018 (when the matter significantly changed) would be taxed on the County Court scale.

Distinguishing Johnston v Dimos Lawyers

The court distinguished Shi from Johnston v Dimos Lawyers [2019] VSC 462, where a costs agreement was also held void but costs were assessed by reference to the rates in the void agreement. In Johnston, the client had been given "a surprisingly accurate estimate of total legal costs" from the outset, and the non-compliance was considered "technical" in nature (a verbal rather than written estimate).

By contrast, in Shi, the estimates were neither accurate nor comprehensive, with no evidence that the law firm took steps to ensure the client (who had limited English proficiency) understood the costs implications as required by section 174(3).

Best Practices for Practitioners

To avoid finding yourself in a similar situation, consider these best practices:

1. Provide comprehensive initial estimates: Ensure estimates include all foreseeable costs, including disbursements, and are based on clearly disclosed charge rates.

2. Document all costs discussions: Unlike in Johnston v Dimos Lawyers where the law firm had detailed file notes of verbal cost estimates, Mills Oakley failed to produce documentation supporting their claimed discussions.

3. Recognise when a new retainer exists: When a matter fundamentally changes in scope, involves a significant time gap, requires substantially different work, or encounters unexpected developments, issue a new costs agreement rather than simply updating the old one.

4. Provide regular, written updates: Section 174(6) mandates that disclosures be in writing. Verbal estimates, while valuable, do not satisfy the statutory requirements.

5. Include all elements of "legal costs": Remember that "legal costs" include disbursements—excluding them from an estimate contravenes the Act.

6. Document client understanding: Section 174(3) requires that the law practice "take all reasonable steps to satisfy itself that the client has understood and given consent to the proposed course of action for the conduct of the matter and the proposed costs."

Conclusion

The Shi v Mills Oakley decision emphasises that costs disclosure is not merely an administrative burden but a cornerstone of the solicitor-client relationship. The court's analysis provides valuable guidance on when a new retainer comes into existence, requiring fresh costs disclosure—particularly when litigation commences unexpectedly after a period of relative inactivity.

Practitioners should view proper disclosure as an opportunity to build trust and clarity with clients. When scope changes significantly, a new retainer is likely formed, requiring a new costs agreement with comprehensive, written estimates that include all elements of legal costs as defined by the Act.

Failure to recognise when a new retainer has formed and to provide appropriate disclosure not only risks rendering your costs agreement void but may also damage the client relationship and potentially constitute unsatisfactory professional conduct.

In an environment where clients are increasingly cost-conscious, the lessons from Shi v Mills Oakley [2020] VSC 498 serve as a valuable reminder that clarity in costs is not just good practice—it's the law.

The "Interests of Justice" Exception in Defamation Costs Awards

Introduction: McIntosh v Peterson

The recent Western Australian Supreme Court decision in McIntosh v Peterson [No 3] [2024] WASC 446 provides valuable insights into how courts apply the "interests of justice" exception when awarding costs in defamation matters. In this case, veterinary clinic owners Andrew and Kay McIntosh, along with their business For Paws and Feathers Pty Ltd, sued animal rights activist Natasha Peterson, Jack Higgs, and V-Gan Booty Pty Ltd over a defamatory Facebook post. While the McIntoshes succeeded against Peterson and Higgs (receiving damages totalling $280,000), the claim against V-Gan Booty was dismissed, as were claims for injurious falsehood and civil conspiracy. When it came to costs, Chief Justice Quinlan had to navigate the complex interplay between statutory provisions, litigation conduct, and competing interests to determine the appropriate costs order.

The Statutory Costs Regime in Defamation Law

Defamation law in Australia provides a specific costs regime that differs from the usual "costs follow the event" principle. Section 40 of the Defamation Act 2005 (WA) creates a presumption in favour of indemnity costs in certain circumstances but subjects this to the overriding "interests of justice" exception.

Under s 40(2)(a), if defamation proceedings are successfully brought and the court is satisfied that the defendant "unreasonably failed to make a settlement offer or agree to a settlement offer proposed by the plaintiff," the court must order costs to be assessed on an indemnity basis - "unless the interests of justice require otherwise."

This "interests of justice" exception gives courts significant discretion to consider broader factors when determining costs, even where the statutory trigger for indemnity costs has been activated.

When Do the "Interests of Justice" Override the Presumption?

In McIntosh v Peterson [No 3], Chief Justice Quinlan found that the defendants had unreasonably failed to make a reasonable settlement offer. The defendants' offers of just $2,000 were found to be unreasonable in the circumstances, given that the plaintiffs had already suffered adverse effects and incurred costs. This triggered the presumption in favour of indemnity costs under s 40(2)(a).

However, His Honour went on to find that "the interests of justice require otherwise" for several important reasons:

1. The way parties conducted their cases: Section 40(1)(a) expressly allows the court to consider "the way in which the parties to the proceedings conducted their cases." In this case, the plaintiffs' counsel conducted cross-examination of Ms. Peterson in a particularly problematic manner by making unfounded allegations about her tax affairs. The cross-examination suggested she had declared only $70,000 in receipts from OnlyFans when her actual receipt was $385,000, implying tax fraud. In reality, Ms. Peterson had properly declared all income across her personal and company tax returns. This unfair attack on Ms. Peterson's character was reported in the media, causing reputational harm beyond the proceedings themselves.

2. Mixed success: The plaintiffs were wholly unsuccessful against V-Gan Booty Pty Ltd and failed in two entire causes of action (injurious falsehood and civil conspiracy).

3. Focus of the litigation: The plaintiffs' case had significant focus on Ms. Peterson's financial affairs and V-Gan Booty Pty Ltd's OnlyFans business, which the court found "permeated the plaintiffs' case" but was ultimately unnecessary to establish their defamation claims.

Understanding "Conducting a Case" in Context

The concept of how a party "conducts their case" is particularly important in defamation proceedings, where litigation tactics can significantly affect both the course of the proceedings and reputational impacts beyond the courtroom.

In McIntosh, the plaintiffs' conduct of their case extended beyond merely presenting their claims. Their litigation approach included:

1. Pursuing multiple defendants and causes of action, including against a company not incorporated at the time of the original Facebook post

2. Making an "elaborate case" suggesting Ms. Peterson's animal rights activism was "a ploy for making money"

3. Conducting cross-examination in a way that made serious allegations about tax impropriety that were unfounded and misleading

4. Focusing significantly on Ms. Peterson's financial affairs, which Chief Justice Quinlan found unnecessary for vindicating the plaintiffs' reputations

Quinlan CJ stated that "a party that conducts proceedings in that way should expect that it has costs consequences." This demonstrates that how parties choose to litigate defamation claims—particularly their focus, tactics, and treatment of opposing parties—can directly impact costs outcomes despite the statutory presumption.

Practical Implications for Litigants

The McIntosh decision offers several practical lessons for litigants:

1. Early resolution is crucial: The court described the settlement offers as revealing "the anatomy of a lost opportunity at resolution and... the metastatic effect that legal costs have on the prospect that proceedings can sensibly be resolved." Chief Justice Quinlan observed that much of the harm suffered by the plaintiffs could have been avoided if the matter had been resolved early.

2. Make reasonable settlement offers: Defendants should make genuine attempts to resolve matters with reasonable offers. The sum of $2,000 was deemed "simply unreasonable" even at an early stage.

3. Consider proportionality: In McIntosh, the court noted that some claims (particularly the clinic's claim) were relatively minor in monetary terms and even fell within the monetary jurisdiction of the Magistrates Court jurisdiction.

4. Focus on reputation restoration: Defamation proceedings should focus primarily on vindicating reputation rather than attacking the defendant's character beyond what is necessary for the claim.

5. The "interests of justice" exception has meaningful application: Even when the statutory preconditions for indemnity costs are met, courts retain a genuine discretion to make different orders where the interests of justice require.

Distinguishing Indemnity Costs from Special Costs Orders

It's important to note that the judgment in McIntosh also addressed a separate costs issue: whether to make a "special costs order" under s 141(3) of the Legal Profession Uniform Law Application Act 2022 (WA) to remove limits imposed by the relevant costs determinations. This is distinct from the question of indemnity costs under the Defamation Act.

While the court declined to award indemnity costs under s 40(2) of the Defamation Act, it did make a limited special costs order allowing:

• Removal of time limits for preparation of the case

• An increased hourly rate for counsel (to match senior counsel rates)

This highlights that courts have multiple tools for addressing costs and will apply them proportionately based on the specific circumstances of each case.

Conclusion

The "interests of justice" exception in s 40(2) of the Defamation Act provides courts with important flexibility to ensure costs orders reflect the overall conduct of proceedings and achieve fairness between parties. As demonstrated in McIntosh v Peterson [No 3] [2024] WASC 446, even where a party has technically triggered the presumption in favour of indemnity costs, the court will look holistically at all relevant circumstances.

For defamation practitioners, this case serves as an important reminder that how you conduct litigation—from the framing of claims to cross-examination tactics—can significantly impact costs outcomes. The interests of justice require not just consideration of who won, but how they won, and whether their conduct throughout the proceedings merits the significant benefit of indemnity costs.

Extensions of Time for Costs Assessments: When Will Courts Grant Relief?

Introduction

The recent Western Australian State Administrative Tribunal (SAT) decision in Kaya and WA Summit Lawyers [2025] WASAT 22 offers valuable insights into when clients may obtain an extension of time to have legal costs assessed. In this case, Ms Kaya engaged WA Summit Lawyers for a family law dispute but later became dissatisfied with both the representation received and the costs charged. She sought to have a particular bill (Invoice 107) assessed, but her application came approximately 7.5 months after the statutory 12-month time limit had expired. The Tribunal had to determine whether it was "just and fair" to allow the assessment to proceed despite being out of time.

The Legislative Framework

Under the Legal Profession Uniform Law (WA), s 198(3) requires that applications for assessment of legal costs must be made within 12 months after the bill was given to the client. However, s 198(4) provides that late applications may proceed if the designated tribunal "determines, after having regard to the delay and the reasons for the delay, that it is just and fair for the application for assessment to be dealt with after the 12-month period."

This provision balances the legitimate expectations of legal practitioners to have their bills finalized within a reasonable timeframe against the right of clients to challenge potentially excessive costs.

Key Factors in Determining Extensions

The Tribunal in Kaya referenced several significant cases that have established principles for determining when extensions should be granted. Drawing from Monopak Pty Ltd v Maxim Litigation Consultants [2007] WASC 112, the following factors are particularly relevant:

1. Reasons for Delay

The tribunal will examine why the client failed to bring the application within the statutory timeframe. In Kaya, the applicant's limited English proficiency, financial constraints, family responsibilities, and initial attempts to resolve the matter through the Legal Practice Board were considered adequate explanations for the delay.

2. Potential Injustice to the Client

Courts consider whether refusing an extension might result in injustice to the client. This involves evaluating whether there appears to be merit in the client's concerns about the bills.

3. Evidence of Potentially Excessive Bills

If there is preliminary evidence suggesting the bill might be excessive or contain charges for work not performed, this weighs in favor of granting an extension. In Kaya, the applicant asserted that the bill included costs for work that could not have been done on days for which costs were claimed.

4. Prejudice to the Practitioner

As noted in Frigger v Murfett Legal Pty Ltd [2012] WASC 447, law practices have legitimate expectations that bills will be finalized within the statutory period. They may arrange their business accordingly, and delays can prejudice them through fading memories or staff changes. However, in Kaya, the Tribunal noted that the firm had not provided evidence of any specific prejudice beyond delayed payment.

5. Practitioner's Reasons for Opposition

As officers of the court, legal practitioners should be acting honestly, ethically, and with proper motives when opposing an extension—not merely to prevent assessment. In Lin v WJ Legal (Aust) Pty Ltd [2023] VCS 52, the court noted that an unjustified reluctance to provide an itemized bill or serious delay in providing one might favor allowing an out-of-time application.

6. Statutory Purpose

The provisions exist to protect clients against excessive charges while preventing frivolous objections or tactical delays in payment. As Master Sanderson stated in Watson v Hewett & Lovitt Pty Ltd [2022] WASC 184, "the discretion, while unfettered, must pay particular regard to the length of the delay and the reasons for the delay."

Special Considerations for Self-Represented Litigants

The Kaya decision underscores that tribunals may give some latitude to self-represented litigants, particularly those with language barriers. The Tribunal acknowledged that navigating the legal system would likely be difficult for someone in Ms Kaya's position. Similarly, in Lin v WJ Legal (Aust) Pty Ltd, the court considered the applicant's incomplete knowledge of English as a constraint in enforcing his rights.

The Balancing Exercise

Ultimately, the question requires exercising a broad discretion to ensure that the interests of justice are properly administered. As Justice Dixon noted in Lin v WJ Legal (Aust) Pty Ltd [2023] VCS 52, the test "requires a consideration of the right of one party to seek an assessment against the legitimate expectation of the other party that any request for an assessment will be made within the statutory period."

Conclusion

For practitioners, the Kaya decision highlights the importance of maintaining detailed records of work performed and being prepared to justify charges if challenged, even outside the standard timeframe. For clients, while the 12-month limitation period should be respected, there remains scope for extensions where justified by the circumstances.

The case reinforces that the "just and fair" test is applied on a case-by-case basis, with tribunals weighing multiple factors to balance the competing interests at stake. While time limitations serve important purposes in finalizing legal obligations, they will not be rigidly enforced where doing so would produce an unjust outcome.

Delay in applying for security for costs

In Shoreside Pty Ltd v Wroxton Developments Pty Ltd [2023] WADC 112, a provider of construction services sued a property developer for unpaid invoices under a consultancy agreement. Applications for security for costs were made by the defendants just weeks before the trial, despite the case having commenced over 3 years earlier.

Judge Gething of the District Court of Western Australia considered the principles concerning delay in applying for security and the exercise of discretion under Corporations Act 2001 (Cth) s 1335.

His Honour observed that an unexplained delay is a factor against the grant of security for costs, citing the rationale given by Moffitt P in Buckley v Bennell Design & Construction Pty Ltd (1974) 1 ACLR 301 that a company is entitled to know its position early on before substantial sums are spent on litigation. However, Jackson J has noted the discretionary nature of security powers, finding there can be no strict 'entitlement' to early notice (Lanai Unit Holdings Pty Ltd v Mallesons Stephen Jacques [2016] QSC 2). The position appears best reconciled, as French J put it in Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497, by the further the plaintiff has proceeded before a security application, the harder it will be to justify the order as not unfair or oppressive.

Critically, Judge Gething reasoned that fairness dictates security be sought early so a company can make choices about providing security or allowing proceedings to be stayed before too many resources are expended. The unexplained failure of the defendants to apply earlier weighed heavily against exercise of the discretion. Additionally, any order would likely require vacating the looming trial dates, causing prejudice and wasted costs, factors also weighing against security in Attorney-General of Botswana v Aussie Diamond Products Pty Ltd [2009] WASC 299 per Kenneth Martin J. The balance in s 1335 is to avoid injustice to both parties, and vacating dates at this very late stage could not be justified.

Ultimately security was still ordered, but structured to avoid delaying trial. Rather than the full $150,000 sought or payment into court, Judge Gething ordered the plaintiff company's directors to personally undertake to pay up to $50,000 towards any costs ordered against the plaintiff. This middle ground approach avoided fully staying the claim which would prejudice preparations, but still provided some protection to the defendants. The undertaking was mutually exclusive, so together the directors remained liable for $50,000 maximum. This balanced the defendant's interests while preventing trial disruption. The orders demonstrate that even where delay weighs against security, the court retains a discretion to craft solutions mitigating potential injustice to defendants, provided the remedy does not itself cause disproportionate prejudice. Here, a compromised security undertaking maintained the trial dates without imposing an unrealistic financial burden on the individuals behind the plaintiff company.

This case demonstrates that unexplained delay in seeking security until close to trial will be an influential factor against ordering security for costs, given the potential for wasted expenditure and disruption to litigation at an advanced stage. While s 1335 confers a discretionary power, fairness generally mandates bringing security applications promptly so corporate parties can understand their position early on. Delayed applications without adequate explanation risk denial for being oppressive or causing unnecessary prejudice. The underlying policy is to balance protecting defendants from impecunious companies, with avoiding injustice by hampering companies from pursuing their cases.

Extensions of time for special costs orders

A special costs order allows a court to award legal costs above the amount that would normally be ordered under the standard costs determination.

This can occur where the court considers the standard costs award to be 'inadequate' due to the unusual difficulty, complexity or importance of the matter (see s 141(3) Legal Profession Uniform Law Application Act 2022).

Parties normally have 30 days from the date of judgment to apply for special costs (see Rules of Supreme Court O 66 r 51(3)). An extension of time is needed after this.

In Priest v Central Norseman Gold Corporation Pty Ltd [No 2] [2023] WASCA 385, the respondent mining company was successful in defending an appeal relating to the interpretation of mining safety laws. The mining company brought a special costs application over 15 months out of time. The other side, while not 'opposing' an extension per se, took no stance on the application.

The Court refused to grant the extension of time to apply for special costs.

A key reason was the lack of cogent explanation for the 15 month delay by the transnational law firm representing the mining company. The Court expressed understanding for personal issues facing the law firm's counsel, but held the firm should not have waited passively for over 12 months after those issues arose.

The Court outlined several key principles relating to extensions of time for special costs applications:

1. The consent of the parties does not determine the Court's discretion to grant an extension. The Court must still be independently satisfied the extension should be granted (see [13]).

2. Mere assertions without admissible evidence will not generally justify delay (see [14]-[19]).

3. Possible prejudice to the other side is only one relevant factor. The limit also promotes finality and prompt issue resolution (see Bartlett v Roffey [2023] WASC 3 at [46(d)(e)]).

4. The merits of the special costs application itself are relevant to whether an extension should be granted (see [23]).

Applying these principles, the Court refused to grant the extension due to lack of cogent evidence explaining the 15 month delay and lack of merit in the special costs application itself.

The takeaway is that parties should act promptly in seeking special costs and ensure they have solid justification for any delay.

Consent between parties will not make an extension automatic.

When considering an extension request, Courts will look at all factors including strength of evidence explaining delay and prospects of the special costs application itself.