One of the first questions people ask before commencing legal proceedings is, “If I win, will the other side have to pay my legal costs?”

The short answer is yes, but it depends.

 

Many people are surprised to learn that even if they are successful, they may still be responsible for some of their legal costs. Understanding how costs work can help you make informed decisions before commencing or defending proceedings.

 

The General Rule: Costs Follow the Event

 

In Victoria, the general rule is that the unsuccessful party pays a portion of the successful party’s legal costs. This is commonly referred to as “costs follow the event.”

 

The rationale is straightforward: if a person has been required to commence proceedings to enforce their legal rights and is ultimately successful, it is generally considered fair that the unsuccessful party contributes toward the legal costs incurred.

 

However, this is not an automatic entitlement.

 

Courts and tribunals have a broad discretion when determining whether costs should be awarded and, if so, in what amount.

 

Does Winning Mean the Other Side Pays My Entire Legal Bill?

 

Usually not.

 

Even where the Court orders the unsuccessful party to pay your costs (costs order), the amount recovered is often less than the total legal fees you have paid your solicitor.

 

This is because there is a distinction between:

 

• Solicitor-client costs – the actual fees you have agreed to pay your lawyer; and
• Party-party costs – the amount the Court considers reasonable for the unsuccessful party to contribute. As a rule of thumb, 50-70% of costs incurred by the successful party are likely accounted for.

 

As a general guide, party–party costs often represent only a portion of the legal costs actually incurred, meaning there is frequently a shortfall between what you recover and what you have paid.

 

The extent of any shortfall depends on a range of factors, including the complexity of the matter, the work required, the steps taken by the parties, and whether the parties are able to agree on the amount payable.

 

 

Can I Recover More Than Ordinary Costs?

 

In some circumstances, yes.

 

If the Court considers that a party has conducted the litigation improperly or unreasonably. For example, by pursuing hopeless arguments, unnecessarily increasing costs, or failing to comply with Court orders, it may award indemnity costs.

 

Indemnity costs allow a greater proportion of legal costs to be recovered than an ordinary costs order. However, indemnity costs are reserved for exceptional circumstances and are not awarded simply because a party loses.

 

When Might the Court Order Each Party to Pay Their Own Costs?

 

Although costs often follow the event, there are circumstances where the Court may decide that each party should bear their own legal costs. This may occur where, for example:

 

• each party has been successful on different issues;
• the successful party behaved unreasonably during the litigation;
• reasonable settlement offers were rejected;
• the proceedings could have been resolved without litigation; or
• legislation provides for a different costs regime.

 

Every case turns on its own facts, and the Court will consider what is fair in the particular circumstances.

 

What Happens If the Parties Settle?

 

Many disputes resolve before reaching a final hearing.

 

When parties settle, they can negotiate who will pay legal costs as part of the settlement terms. Common outcomes include:

 

• one party paying a contribution toward the other party’s legal costs;
• each party paying their own legal costs; or
• costs being included as part of an agreed settlement sum.

Costs are often an important part of settlement negotiations and can significantly affect the overall outcome of a dispute.

 

Why Legal Costs Shouldn’t Be the Only Consideration

 

While costs are important, they should not be the sole factor when deciding whether to commence legal proceedings.

 

It is also important to consider:

 

• the strength of your legal position;
• the likely value of your claim (or exposure to a claim);
• the costs involved in pursuing or defending the matter;
• the time litigation may take; and
• whether there are alternatives to litigation, such as negotiation or mediation

 

Obtaining legal advice early can help you assess the risks and commercial realities before significant costs are incurred.

 

How We Can Help

Every dispute is different, and there is no “one size fits all” answer when it comes to legal costs.

 

At Ferraro & Singh Lawyers, we provide practical and strategic advice to help clients understand the risks, likely costs, and potential outcomes before litigation begins. We also explore opportunities to resolve disputes efficiently wherever possible, while remaining prepared to protect our clients’ interests through the courts when necessary.

 

If you are considering commencing legal proceedings, or you have been served with court documents, contact our team to discuss your options and obtain advice tailored to your circumstances.

 

Disclaimer: The above information is general in nature only and should not be considered legal advice. Every situation is unique, and you should obtain legal advice specific to your circumstances.