Reducing the risk of paying interlocutory Court costs before trial

In any litigation, next to the merits of the case, the likely costs associated with the matter are of paramount consideration.

The issue of costs can be brought sharply into focus in the context of a liquidation where there may be very limited funds available to the liquidator to bring or maintain claims.

As with all parties, liquidators bringing claims on behalf of companies or on their own behalf, must consider not only their own costs, but the potential costs payable to the other party in the event of any adverse cost orders being made¹ .

Most of the time, those costs are payable after trial. However, an adverse costs order associated with an interlocutory dispute can be ordered to be taxed and paid before the end of the trial.

The general rule in the Federal Court of Australia is that the costs of interlocutory applications should be dealt with at the conclusion of substantive proceedings. This is reflected in Rule 40.13 of the Federal Court Rules 2011 (Cth) (Rules):

40.13 Taxation of costs awarded on an interlocutory application

If an order for costs is made on an interlocutory application, the party in whose favour the order is made must not tax those costs until the proceeding in which the order is made is finished.

Note: The Court may order that costs of an interlocutory application be taxed immediately.

There are at least two reasons for this being the usual approach:

• to avoid a multiplicity of assessments of costs; and
• to provide successful parties in the substantive proceedings the opportunity to set off their liability for costs against any award of costs.

However, there is an exception to this approach, in circumstances where the ‘interests of justice’ require it. Being armed with knowledge of when those circumstances have been said to exist is the first step to avoiding them.

The authorities in this area suggest that the interests of justice may require intervention where there has been:

1. Unreasonableness in the conduct of the unsuccessful party²
2. A likelihood of a long delay between the interlocutory proceeding and the conclusion of the main action³; and/or
3. The absence of any considerable security having been provided for the costs of the other party⁴ .

Lavan comment

It is clear enough that a departure from the general rule in the Federal Court as to the timing of interlocutory costs being payable is only justified in an exceptional situation.

However, practitioners should bear in mind the Court’s unfettered discretion as to costs when planning their litigation strategy. That is particularly so when there may be a lack of funds in the administration.

It is open for the Court to require payment of the other party’s costs along the way to trial. If it does, the court can make such payment of costs a condition of containing the action.

Precision in drafting pleadings and other court documents and timeliness in dealing with interlocutory disputes (if they are required at all) will also greatly assist in avoiding the consequence of having to meet interlocutory costs orders early on.

Avoiding interlocutory skirmishes in general is also recommended, to avoid using up valuable funds in a liquidation scenario.