Cost Law Commentary

Costs Penalties where low recovery - traps in offers of compromise

The April 2013 amendments to the Victorian Supreme Court Rules, reintroduced a costs penalty for plaintiffs who bring proceedings in that Court which should have been conducted in a lower court.  The original rule referred to the penalty applying where a plaintiff recovered less than half the jurisdiction of the County Court.  This ceased to have practical effect in 2007, when the County Court monetary jurisdiction became unlimited.

Money Claim in the Wrong Court (R 63.24)

There has been a restoration of the regime of costs penalties for bringing an action in the Supreme Court which should had been brought in the County Court.  If a plaintiff in Supreme Court proceedings recovers:

  1. less than $100,000 in proceedings for debt or damages; or
  2. relief in other than for the recovery of debt or damages to a value less than $100,000; or
  3. less than $50,000 in proceedings for libel or slander

its costs will only be allowed in accordance with the County Court scale.

In addition it will have to pay to the defendant the increase in the defendant’s costs incurred by reason of the proceedings have been conducted in the Supreme rather than County Court.  However, the costs payable to the defendant cannot exceed the costs payable by the defendant to the plaintiff.

It is important to note that recovery can be by way of judgment or otherwise, which includes acceptance of an offer of compromise or other settlement.  I have been involved in matters where the rule was triggered by acceptance of an offer of compromise, with the plaintiff’s practitioner not being away of the consequences.  In those matters, the costs payable to the defendant have extinguished or come close to extinguishing the plaintiff’s claim for costs, giving rise of a possible negligence claim, where the plaintiff’s solicitor had not warned his client of the cost consequences of acceptance of the offer.

The Rule specifically gives discretion to the Court to “otherwise order”.  Special circumstances must be demonstrated and the expectation at the commencement of proceedings of what might be recovered is not relevant[1].  Complexity of either law or fact is usually a justification for the exercise of the discretion in favour of the plaintiff[2].

"Although I would not adopt, in terms, some of the language in these judgments, with their emphasis on 'exceptional' and 'special' cases to justify the exercise of a discretion favourable to the plaintiff, there being no reflection of that language in the terms of our rule, the decisions rightly point to the need to uphold the policy of the rules, which is to deflect smaller cases, demonstrated as such by the judgment returned, to a lower court.  The rules do not prohibit commencing in the higher court.  They simply attach a penalty to a small verdict.  In that way, ex post, they apply a sanction which is designed a priori to direct the attention of the plaintiff and those advising him to this issue and to stimulate him in commencing in the right place."[3]

Any set off is not taken into account in calculating whether the plaintiff has judgment in excess of $100,000.

The provision does not apply to proceedings which have been transferred into the Supreme Court.  It was held, in relation to a previous iteration of the rule that it does not apply to proceedings which could not have been brought or the relief ordered in a lower court[4].

[1] O’Doherty v McMahon [1971] VR 625 at 628.

[2] Minehan v Clarke 91870) 9 SCR (NSW) 227 and John Fairfax & Sons Ltd v Palmer (1987) 8 NSWLR 297

[3] John Fairfax & Sons Ltd v Palmer per Kirby J at p 305

[4] Lloyd v Bell (1899) 6 ALR (CN) 5; Kirwan v Mason [1986] QWN 10