Bill Disputes, Mistakes and Official Sources
Adverse costs and security for costs: the risk of paying the other side if you lose
How adverse costs orders work in Australian courts, what security for costs is and when it is ordered, and the options to manage the risk, including funders and insurance.
If you lose a civil case in an Australian court, you will usually be ordered to pay the other side's legal costs as assessed on the ordinary basis, on top of your own lawyer's bill. That adverse costs risk is often the largest number in a litigation budget, and it applies even under a no win no fee agreement unless the firm or a funder agrees to cover it. A defendant can also ask the court to order the plaintiff to provide security for costs, money or a guarantee paid into court up front, particularly where the plaintiff is a company that may not be able to pay, or lives overseas. Knowing both numbers before you start is part of deciding whether to sue at all.
This guide is part of how to dispute a legal bill. Figures are illustrative.
Adverse costs: what you would pay
| Scenario | What the loser pays |
|---|---|
| Ordinary costs order | The winner's reasonably necessary costs, as assessed or agreed |
| Indemnity costs order | Nearly all the winner's costs, except unreasonable ones |
| Partial success | A proportion, or costs split by issue |
| Discontinuing a claim | Usually the other side's costs to the date of discontinuance |
| Unaccepted offer | Costs consequences under offer rules; see offers of compromise |
Worked example (illustrative)
You sue a former business partner for $150,000. Your lawyer estimates the defendant's costs to the end of a five-day trial at $90,000.
- Ordinary-basis order at about 65%: $90,000 x 0.65 = $58,500
- Indemnity order at about 90%: $90,000 x 0.90 = $81,000
- Plus your own costs, estimated at $95,000
Worst realistic case on the ordinary basis: $95,000 + $58,500 = $153,500, more than the claim itself. With indemnity costs: $95,000 + $81,000 = $176,000.
Under costs disclosure rules, a full disclosure in litigation must include an estimate of the costs you could be ordered to pay if you lose. If yours does not, ask.
Security for costs
Security for costs is an order that a plaintiff pay money into court, or provide a bank guarantee, so that the defendant can be paid its costs if it wins. Courts consider factors including:
- Whether the plaintiff is a company that may be unable to pay costs (the Corporations Act 2001 gives courts power to order security against companies in this situation)
- Whether the plaintiff lives overseas or has no assets in Australia
- Whether the plaintiff is a nominal plaintiff suing for someone else
- The strength of the claim and whether the defendant's conduct caused the plaintiff's financial difficulty
- Whether an order would stifle a genuine claim
- Whether the application was made promptly
The amount is usually tied to a stage of the proceedings, such as costs up to the end of mediation, with further applications later. If security is not provided, the claim is usually stayed.
Illustrative: a small company sues a supplier for $400,000. The supplier asks for security of $120,000 for costs up to the end of discovery. The court orders $80,000 by bank guarantee. The company now has to fund its own lawyers and find $80,000 of security before the case moves forward.
Individual plaintiffs who live in Australia are ordered to provide security less often, but it can happen in some circumstances.
Ways to manage adverse costs risk
| Option | How it helps | Limits |
|---|---|---|
| Settle early | Caps both sides' costs | You accept less certainty for less money |
| Offers of compromise | Can shift costs to the other side if they do worse | Only works if your offer is realistic |
| Litigation funding | Funder pays costs and often covers adverse costs and security | Takes a share of the recovery; mostly larger claims and class actions |
| Lawyer indemnity under a no win no fee agreement | Some firms agree to cover adverse costs | Read the agreement; many do not |
| After-the-event insurance | Insurance against adverse costs | Limited availability; premiums can be significant |
| Victorian group costs orders | Lawyers in Supreme Court of Victoria class actions bear adverse costs and security under the order | Only in that court's class actions |
| Tribunals | Costs rarely awarded | Only for matters within tribunal jurisdiction |
Defendants: the other side of the coin
If you are being sued, adverse costs work in reverse: if you win, you recover part of your costs from the plaintiff, if they can pay. If the plaintiff is a company with no assets, consider applying for security for costs early. If you lose, you pay damages, your own costs and the plaintiff's ordinary costs. A defendant's offer of compromise can protect you if the plaintiff later recovers less.
Questions to ask your lawyer
- What is your estimate of the other side's costs at each stage?
- What share would I likely pay on the ordinary basis if I lose?
- Is there any risk of indemnity costs?
- Is the other side likely to ask for security for costs? How much?
- Will you, a funder or insurance cover adverse costs?
- At what point should we make an offer of compromise?
Test the numbers with the costs recovery gap calculator and the method in how to estimate legal costs.
Frequently asked questions
Can I lose my house over adverse costs?
A costs order is an enforceable debt. If it is not paid, the other side can use enforcement processes, and in serious cases bankruptcy proceedings. That is why the adverse costs estimate matters before you start.
Does legal aid protect me from adverse costs?
Rules vary between jurisdictions and matter types. Ask the legal aid commission before the case begins.
Are adverse costs payable in family law cases?
Family law starts from each party paying their own costs, but courts can order costs in some circumstances, such as where a party has acted unreasonably or failed to comply with orders.
Sources
- Federal Court of Australia — costs and security for costs practice in federal courts
- Supreme Court of NSW — civil procedure and costs in NSW
- Supreme Court of Victoria — class actions and group costs orders
- Office of the Legal Services Commissioner (NSW) — costs disclosure, including adverse costs estimates
