Costs Capping: Limits on Recoverable Legal Costs

What a Costs Cap Does and Does Not Limit

A costs cap controls recoverable party costs within the order’s scope. Your client’s liability under its retainer remains a separate question.

Use these distinctions when explaining the proposal to your client.

Incorrect assumption: a $90,000 recoverable-cost cap means the client’s lawyers must complete the case for $90,000. Correct approach: compare the proposed recovery ceiling with the retainer and explain who funds any shortfall.

A deposit or guarantee raises the separate question of security for costs. Keep that application distinct from the proposed maximum.

Check the Court’s Power and the Scope of the Cap

Identify the court and legal power before selecting a maximum. In the Federal Court, rule 40.51 permits a party to apply for a maximum on recoverable party-and-party costs for the proceeding.

Start your file note with the proceeding number, applicant for the cap, current stage and orders already made. Identify any special costs regime affecting the claim. This procedure concerns Federal Court proceedings. A state proceeding requires its own enabling power and procedural analysis.

The Federal Court’s Costs Practice Note, paragraphs 3.10 and 3.11, addresses tailored caps. Relevant considerations include timing, complexity, damages and remedies, proportionality, public interest, the substance of the case and the effects on every party.

There is no automatic entitlement in that guidance. Explain why this case supports the proposed ceiling. A modest damages claim can still require expensive evidence. A non-monetary remedy also needs an explanation beyond a comparison with the claim’s dollar value.

Build the Work and Cost Evidence

Prepare a staged estimate that connects each amount to necessary work. Keep expenditure already incurred separate from future work, then identify what period the proposed order would cover.

A useful working schedule has the following fields.

Show tax treatment and avoid counting the same work in two stages. Mark uncertain scope explicitly, with the assumption behind the allowance. Explain which work could be reduced through narrower issues or agreed facts.

Produce two totals for client discussions. One estimates cash required under retainers and supplier terms. The other supports the proposed recoverable allowance. A provider’s quote contributes to the first calculation without establishing what the court will allow in the second.

Frame or Resist the Proposed Limit

Prepare the proposal around the issues that must be decided and the work needed to decide them fairly. Show what each party could reasonably do within the proposed amount.

Use this sequence to make the application or response concrete.

1. Identify the power relied on and the orders sought. Set out the proposed maximum and the parties whose recoverable costs it addresses.
2. Prepare supporting evidence explaining the staged estimate, material assumptions and practical consequences. Separate factual evidence from submissions about the appropriate order.
3. Give the other parties notice of the proposal. Obtain directions for the application, evidence and response timetable, then file and serve the material required for that hearing.
4. Provide a proposed order that identifies the covered period and cost categories. Address existing costs orders, disbursements and the treatment of exceptions.

When resisting a cap, locate the shortfall. For example, identify an unavoidable expert question or a disputed disclosure category missing from the estimate. Explain its likely cost and propose a narrower issue or a different ceiling where appropriate.

Check the draft against the enabling power. A proposed staged or category-specific arrangement needs a legal basis for those terms. Agreement between parties does not settle that question.

Check Exceptions and the Actual Order

Read the maximum together with the rule and the entered order. Rule 40.51(2) excludes amounts ordered because a party fails to comply with an order or the Rules, seeks leave to amend pleadings or particulars, or seeks an extension of time. It also excludes costs caused to another party by conduct that fails to facilitate the required just, quick and inexpensive resolution.

These exclusions concern amounts ordered for the specified reasons. An overspent budget alone does not establish an exception.

Consider this fictional budget, with every amount stated on the same tax basis.

Assume the order caps covered recovery at $90,000. The planned expenditure exceeds that ceiling by $30,000. Now assume a separate $8,000 costs order falls within a rule 40.51(2) exclusion and is payable by the same opponent.

If the covered costs allowed reach $90,000, recovery plus that separate order is $98,000. If only $75,000 is allowed within the cap, the combined figure is $83,000. The cap supplies a ceiling, not an automatic award or a guaranteed final bill.

Manage Changed Work and Verify the Final Position

Record a change in the work as soon as it affects the budget or the cap’s assumptions. Compare the original estimate with the added issue, directions or evidence and explain the resulting difference.

Seek directions about the available route to change the order. Identify the variation power and grounds before applying. Sending an updated budget to the other side does not alter the court’s maximum.

At the costs stage, put the operative cap beside later orders and the amount assessed or agreed. Separate excluded amounts and confirm which party owes each sum. The wider process of recovering legal costs follows the entitlement and amount established by those orders.

Before advising the client of its final exposure, reconcile actual expenditure, covered recovery and separately ordered amounts. Show the client’s remaining unrecovered costs as a distinct figure.