Bruce Lehrmann went back for his hat and lost his shirt: Costs in Australian litigation
Michael Legg and Felicity Bell
19.6.2024
At the end of 2023 the Australian public were captivated by the defamation case of Bruce Lehrmann v Network Ten Pty Limited (Lehrmann v Network Ten). Mr Lehrmann alleged that he had been defamed by the reporting of an interview with former parliamentary staffer Brittany Higgins, who alleged that she had been raped at Parliament House in the early hours of 23 March 2019. Mr Lehrmann was not named but it was alleged that the reporting indicated that he was the perpetrator. Judgment was handed down in April 2024. Justice Lee of the Federal Court found, on the balance of probabilities, Mr Lehrmann raped Ms Higgins at Parliament House in 2019 and Mr Lehrmann’s claim failed (Lehrmann v Network Ten Pty Limited (Trial Judgment) [2024] FCA 369 (Lehrmann (Trial Judgment))).
Attention then switched to the question of costs. While the media has focused on the sheer level of costs — reporting that some of the many counsel involved in the proceedings charge upward of $8000 per day — the Lehrmann case illustrates the dual costs risks of litigating civil matters in Australia. These are that you may have to pay both your own lawyers, and the legal costs of your opponent/s if you are unsuccessful.
In Mr Lehrmann’s case, he has apparently avoided the first set of costs by having a conditional fee arrangement with his lawyers (more on that below). However, in going ‘back for his hat’, as Justice Lee metaphorically described the bringing of the defamation suit after the criminal trial of Mr Lehrmann for the alleged rape of Ms Higgins was abandoned (Lehrmann (Trial Judgment) at [1091]), Mr Lehrmann appears to have now ‘lost his shirt’ by being liable for the bulk of Network Ten’s costs on an indemnity basis. If Network Ten pushes to recover these costs, it may lead to Mr Lehrmann’s bankruptcy.
The Lehrmann case provides an opportunity to explain how legal costs work in Australian litigation. Legal costs, their incurrence and award, have a significant impact on access to justice for everyday Australians, regardless of whether they are seeking compensation for personal injury, contravention of consumer protection laws or challenging a decision or law of government.
Some basic rules of costs in litigation – ‘Loser pays’
In nearly all Australian courts, the starting point of legal costs or the usual order is that the unsuccessful litigant is required to pay the costs of the successful party. This is often referred to as ‘the loser pays’. It means that generally, the outcome of the substantive proceedings guides which side is liable for costs. For example, if one party is successful in their claim against another, that other party will likely be liable for the first party’s costs. The reason for this approach is that a successful party should be compensated for expenses it has incurred because it has been obliged to litigate by the unsuccessful party.
The loser pays approach does not apply in all Australian jurisdictions or types of case. In family law proceedings, the starting point is that each side will bear their own costs. In public interest litigation, the court may in some circumstances also relieve a litigant from the ordinary costs rules. This is in recognition that persons may otherwise be deterred from litigating important public interest issues, such as environmental issues, by the risk of incurring prohibitive costs.
The loser pays approach is not an inflexible rule. Courts have a wide discretion when it comes to awarding (or not awarding) costs, and on what basis. The discretion must be exercised judicially, by reference only to considerations relevant to its exercise and upon facts connected with or leading up to the litigation. Loser pays may be explained on the basis that the most important consideration when courts exercise their costs discretion is the result of the litigation.
The starting points can be affected by various factors, which include how successful one side was (did they succeed in all the claims they made, or just one?) and their behaviour in bringing or defending the litigation and the manner of its conduct. Offers of compromise (also referred to as Calderbank offers or letters, after the English case of Calderbank v Calderbank [1975] 3 All ER 333) may also be relevant. If a party rejected an offer from the other side that was on par with, or more generous than, the remedy eventually obtained from the court, the party who made the offer may receive some costs protection.
Types of cost award
Even where a party does succeed in obtaining a costs order against the other side, this is unlikely to be equal to the legal costs they have actually expended. This is because typically, where a party is successful in litigation, they will be awarded their costs on a ‘party/party’ basis. These costs are sometimes termed ‘ordinary costs’ since they represent the usual basis of award. They are costs necessarily or properly incurred by the party in bringing or defending a claim, but are not necessarily equivalent to what a party actually paid their lawyers.
As occurred in Lehrmann v Network Ten in relation to some of Network Ten’s costs, courts may also award costs on an ‘indemnity’ basis. As the name suggests, a costs award on this basis is the most generous for the party receiving his or her costs. It is presumed that all costs incurred by the party will be reimbursed, unless they were incurred unreasonably. The objective of an indemnity costs award is said to be to compensate a party more fully for costs incurred and is not a punitive measure or form of punishment. An award of indemnity costs can be based on various different factors but generally involves misconduct on the part of the party against whom costs are awarded. Indemnity costs might be awarded where a party brought or maintained a cause of action that had no real prospect of success; was for an ulterior motive; was brought with wilful disregard for known facts or clearly established law; or was conducted in an inefficient manner.
Legal costs
Lawyers are entitled to charge fees which are fair and reasonable. Legal fees may be charged in a number of ways, including through an hourly rate, fixed fee, retainer or conditional fee.
Time-based billing involves charging the client by reference to the time taken to complete the work required, multiplied by each lawyer’s hourly rate.
In a fixed fee arrangement, the lawyer agrees to represent the client in exchange for a specified fee, regardless of the time needed to perform the service. Fixed fees have been prevalent in property law (conveyancing), estate law (drafting wills) and simple litigation matters such as debt recovery.
It is illegal for the amount payable to a law practice to be ‘calculated by reference to the amount of any award or settlement or the value of any property that may be recovered in any proceedings to which the agreement relates’: commonly called a contingency fee (see Legal Profession Uniform Law (NSW/Vic/WA) s 183). In other words, a lawyer cannot ask a client to agree to pay the lawyer a percentage of their eventual settlement. An exception to this is class actions in the State of Victoria where a court may order a group costs order that is similar to a contingency fee in that legal costs are calculated as a percentage of the award or settlement, and shared among the members of the class: Supreme Court Act 1986 (Vic) s 33ZDA.
However conditional billing, also called ‘no win no fee’ agreements, are permitted. Conditional billing involves the lawyer’s fee only becoming payable to the lawyer if a successful outcome is achieved. Conditional billing may also be combined with an uplift fee agreement where the lawyer takes his or her usual fee plus an agreed amount or percentage of this usual fee (to a maximum of 25%) — the uplift — if the action succeeds (see Legal Profession Uniform Law (NSW/Vic/WA) s 182).
It emerged during the costs hearing in Lehrmann v Network Ten that Mr Lehrmann had a conditional fee arrangement with his own lawyers. As his defamation case was unsuccessful he was not required to pay his own legal costs. But to the extent that this implies that an unsuccessful defendant incurs no costs in relation to his or her own legal team, it is misleading. Usually, for instance, a conditional fee arrangement would not exclude disbursements such as counsel’s fees, expert’s fees or court fees.
How Mr Lehrmann ‘lost his shirt’
As is now well known, Mr Lehrmann was unsuccessful in his defamation suit against Network Ten (although he has filed an appeal). At a general level it follows that pursuant to the loser pays approach it was to be expected that he would be required to pay Network Ten’s costs. Justice Lee was at pains to point out ‘there are no real winners in this litigation’ and to highlight that some of Network Ten’s conduct was ‘unreasonable’ (Lehrmann v Network Ten Pty Limited (Costs) [2024] FCA 486 (Lehrmann (Costs)) at [1], [5], [37]). Nonetheless, Mr Lehrmann was held to be liable for Network Ten’s costs. The only exception was that Mr Lehrmann was not required to pay costs that Network Ten had incurred in relation to affidavits that were found to be unhelpful to the proceedings (Lehrmann (Costs) at [44]-[46]).
However, Mr Lehrmann was not just liable for costs, he was liable on an indemnity basis. This is unusual. Justice Lee found that Mr Lehrmann had brought the action against Network Ten on a ‘fanciful and knowingly false premise’ that was at the heart of the litigation — that he had not had sexual intercourse with Ms Higgins (Lehrmann (Costs) at [54]). In Justice Lee’s view, this amounted to misconduct as Mr Lehrmann advanced a case ‘he knew was false’ and which caused cost and delay in the running of the case (Lehrmann (Costs) at [56]). His Honour also noted that Lehrmann’s rejection of a ‘Calderbank offer’ would also, separately, have justified a partial award of indemnity costs against him from the date of the letter onward. The difference between an award of costs on the party/party or ordinary measure and an award of indemnity costs is not clear cut, but in very general terms it is a difference between recovering 60-70% of a person’s costs and recovering 90-100% of a person’s costs.
However, Justice Lee did not award Network Ten all of its costs on an indemnity basis. His Honour considered that one particular argument run by Network Ten (referred to as the statutory qualified privilege defence) was insufficiently strong. This defence to the charge of defamation required the conduct of Network Ten in publishing the impugned material to be (among other things) ‘reasonable in the circumstances’, which Justice Lee did not accept. His Honour found, rather, that Network Ten unquestioningly accepted Ms Higgins’ allegations without appropriately testing them (Lehrmann (Trial Judgment) at section K.4). Accordingly, the judge ordered that those costs incurred in relation to that particular defence be limited to party/party costs (Lehrmann (Costs) at [57]).
Given the scale of the costs involved, however, that is not likely to give much comfort to Mr Lehrmann.
The Australian loser pays system dissuades unmeritorious litigation and compensates those who have been obliged to litigate by the unsuccessful party. However, this approach to costs may also deter litigation by the risk averse or those who cannot accurately determine their likely prospects of success — most often individuals with something to lose but who, equally, are not wealthy. However as Mr Lehrmann’s case illustrates, not everyone with a weak case is deterred, thus using court resources as well as imposing costs on their opponent. Indemnity costs are the court system’s response to this. If Network Ten seeks to enforce the costs orders in its favour, and Mr Lehrmann cannot pay, he may be forced to declare bankruptcy. The loser pays system is what will cost Mr Lehrmann his shirt.
Michael Legg is a Professor in the UNSW Faculty of Law and Justice, and the Director of the Centre for the Future of the Legal Profession.
Felicity Bell is a Senior Lecturer in the UNSW Faculty of Law and Justice, and the Deputy Director of the Centre for the Future of the Legal Profession.
Suggested citation: Michael Legg and Felicity Bell, ‘Bruce Lehrmann went back for his hat and lost his shirt: Costs in Australian litigation’ (19 June 2024) <https://www.auspublaw.org/blog/2024/6/bruce-lehrmann-went-back-for-his-hat-and-lost-his-shirt-costs-in-australian-litigation>