Penalty rules cost

Matters that are not minor civil matters cost penalty rules encourage both parties and their lawyers to make:

  • a realistic assessment of their chance of success
  • a reasonable and realistic claim and offer

They safeguard against:

  • making an extravagant claim (if you’re a claimant)
  • making an inadequate offer (if you’re a defendant)

These rules and the formula used to calculate the penalties are detailed below.

Rule 141(2): For inadequate offers

Rule 141(2) says that if a claimant obtains a final judgement for an inadequate offer (that is, an amount equal to or less than the defendant’s offer), the claimant is only entitled to ‘party‑party costs’ (where the court orders that one party pay the court costs of the other party) for up to 14 days after the date of offer being made. After that, the defendant is entitled to party‑party costs.

Example for an inadequate offer

The claimant begins a claim for $15,000.

At the conciliation conference, the defendant files an offer of $2,000.

Judgment after the trial awards the claimant $10,000; their party-party costs are assessed at $3,000.

The claimant is entitled to:

  • an order for costs on the judgment (of $10,000), as it exceeds the defendant’s offer (of $2,000)
  • a bonus up to his full lawyer-client costs, because the judgment is more than 200% of the defendant’s offer

The formula used to calculate penalties in this instance is:

C = 2 x P x (J-A)

J

  • C is the costs to which the party is entitled
  • P is the costs of the party, as agreed or assessed
  • J is the amount awarded by the judgement, exclusive of costs and interest
  • A is the amount contained in the offer or the payment into Court

So the claimant would be entitled to:

C = 2 x 3,000 x (10,000 – 2,000)

10,000

which amounts to $4,800, compared with the assessed party-party costs of $3,000.

Rules 142 and 143: For excessive offers

Rules 142 and 143 have two formulae for imposing further costs penalties on either parties if the claimant obtains final judgment of an excessive offer (that is, less than half or more than double the defendant’s offer).

The greater the difference between the offer and the amount awarded, the greater the effect on the costs entitlement.

Example for an excessive offer

The claimant begins a claim for $15,000.

At the conciliation conference:

  • the claimant files an offer of $10,000
  • the defendant files an offer for $3,000

Judgment after trial awards the claimant $4,000; their party-party costs are assessed at $3,000.

The claimant is entitled to an order for costs on the judgment (of $4,000) as it exceeds the defendant’s offer (of $3,000).

But because the judgment is less than 50% of the amount claimed ($15,000), the penalty rules apply to reduce the claimant’s costs entitlement.

The formula used to calculate penalties in this instance is:

C= 2 x P x J

A

  • C is the costs to which the party is entitled
  • P is the costs of the party, as agreed or assessed
  • J is the amount awarded by the judgement, exclusive of costs and interest
  • A is the amount contained in the offer or the payment into Court

So the claimant would be entitled to:

C = 2 x 3,000 x 4,000

10,000

which amounts to $2,400 compared with the assessed party-party costs of $3,000.