What Are “Costs In The Cause” And What Do They Mean For Commercial Contracts?

Commercial contracts are the backbone of business in Australia. Whether you’re signing a supply agreement, partnering on a project, franchising, or delivering services, your contract sets the rules and helps prevent disputes.

But if a disagreement does happen, you’ll quickly hear legal terms like “costs in the cause.” Understanding what this means (and how it plays out in real life) helps you make better decisions about risk, negotiation and, if needed, litigation.

Below, we break down “costs in the cause” in plain English, explain where it appears in commercial contracts and court orders, and share practical steps to manage your exposure to adverse costs in Australia.

What Does “Costs In The Cause” Mean?

“Costs” generally refers to the legal expenses parties incur during a dispute-think lawyers’ fees, court filing fees, expert reports and other disbursements.

When a court (or your contract) says “costs in the cause,” it means the question of who will pay those legal costs is tied to the final outcome of the dispute. In simple terms, the party who ultimately succeeds on the main issue usually gets a costs order in their favour, and the losing party usually pays those costs (often on a “standard” or “party/party” basis).

How Is This Different From Other Costs Orders?

• Costs reserved: The court delays deciding who pays costs for a particular step until later-often until the end of the matter.
• Costs in any event: One party must pay the other’s costs for a particular step regardless of who wins overall (this can apply to procedural skirmishes).
• No order as to costs: Each party bears their own costs for a step or the matter generally.
• Indemnity costs (less common): A higher level of costs, typically awarded where there has been misconduct, unreasonableness or some other special feature-not merely because a breach was “clear‑cut.”

Is “Costs In The Cause” Always The Default?

No. While Australian courts often operate on a “costs follow the event” approach, it’s not universal and it’s always subject to judicial discretion and the specific rules of the forum.

For example, many tribunals in Australia adopt “no-costs” or limited-costs regimes unless specific circumstances apply. Equally, even in courts, judges may depart from the usual approach where fairness requires it (e.g. mixed success, test cases or conduct issues). That’s why it’s important to consider where your dispute would be heard and what the governing rules say.

How Do Costs Orders Work In Practice?

Let’s say you’re a service provider and you raise an unpaid invoice dispute. You send a letter of demand, negotiations stall, and you file a claim. Early case management hearings might attract interim costs directions like “costs in the cause,” meaning the court will decide who pays the costs for those steps at the end-usually in favour of the party who wins overall.

If you ultimately succeed on your claim for breach of contract, you can typically seek an order that the other party pay a portion of your legal costs assessed on a standard basis. If you lose, the reverse can apply: you might pay some of the other side’s costs as well as your own.

How Much Of My Costs Will I Recover If I Win?

Even if you get a costs order, it usually won’t cover every dollar you’ve spent. On the “standard” basis, you recover costs that are reasonably incurred and proportionate to the matters in dispute. This leads to a gap between what you pay your own lawyers (your “solicitor/client” costs) and what the other side must reimburse.

Where Your Dispute Is Heard Matters

Courts and tribunals have different rules about costs. Some tribunals default to each side paying their own costs unless there are compelling reasons to order otherwise. Courts generally have broader discretion to award costs to the successful party, but can still depart from that position for fairness.

Interim Steps And Mixed Outcomes

Not every step is a win‑lose moment. For procedural applications, courts may order “costs reserved” or “costs in the cause” to avoid arguing about costs at each minor stage. If both parties have partial success at trial, the court might make no order as to costs or adjust costs proportionately.

Where Will You See “Costs In The Cause” In Commercial Contracts?

You’ll typically encounter the concept in these contexts:

• Dispute resolution clauses: Contracts often outline a staged approach (negotiation → mediation → arbitration/court), and may specify that each party pays its own costs up to a point, with “costs in the cause” if the matter goes to litigation.
• Interim court orders: For case management conferences or interlocutory applications, judges frequently say “costs in the cause,” deferring the decision until final judgment.
• Settlement documents: If you resolve the dispute, the Deed of Release usually includes a costs clause (e.g. each party bears their own costs, or one party contributes to the other’s costs as part of the deal).

In short, “costs in the cause” is practical shorthand for: “We’ll work out who pays for this once we know who the overall winner is.”

Pros, Cons And Commercial Impact For Small Businesses

Potential Upsides

• Discourages weak claims: The risk of paying the other side’s costs can deter flimsy or vexatious proceedings.
• Incentivises settlement: As legal spend climbs, adverse costs risk sharpens both parties’ focus on reasonable settlement options.
• Sense of fairness: If you’re in the right, you can often recover a portion of your legal outlay.

Potential Downsides

• Financial exposure if you lose: You’ll pay your own costs and may be ordered to pay a portion of the other party’s costs.
• Not a full refund: Even if you win, standard-basis costs rarely cover everything you’ve spent.
• Uncertainty: Cost orders are discretionary and vary between forums, which can make budgeting difficult.

Practical Business Impact

For many SMEs, the prospect of a costs order drives strategy. You’ll balance the size of the claim, the strength of your case, the other side’s capacity to pay, and your appetite for risk. These realities can strongly influence whether you litigate, negotiate, or pursue mediation.

Managing Costs Risk In Your Contracts And Disputes

Good contract design and dispute strategy go a long way. Here are practical ways to manage exposure:

1) Build Cost Awareness Into Your Contracts

Review your templates and any bespoke agreements to ensure your dispute resolution clauses clearly set out stages, venue and cost allocation. A well-structured Customer Contract or services agreement can direct parties to negotiate and mediate before starting court proceedings, and specify how costs are handled at each step.

2) Use Proportionate Dispute Steps

Encourage early resolution: exchange position papers, engage in executive-level meetings, then mediation. Reserving court proceedings as a last resort often reduces overall spend and the risk of adverse cost orders.

3) Consider Forum And Rules Carefully

Ask where a dispute would likely be heard (court or tribunal) and what the default costs position is there. If your contract allows choosing a forum, be sure you understand the cost consequences in that venue.

4) Calibrate Your Risk Clauses

Clauses that cap or clarify financial exposure help manage risk and leverage in settlement. For example, tightly drafted limitation of liability provisions and indemnities can reduce uncertainty and protect your downside, separate from how litigation costs are later awarded.

5) Document Issues Early And Keep Evidence In Order

Clear records, prompt issue notices and sensible conduct all matter. Courts consider conduct when exercising discretion on costs, particularly where one party has behaved unreasonably.

6) Use Settlement Tools That Lock In Costs

When settling, be explicit about who pays which legal costs. This is typically handled in a Deed of Release. You can agree that each party bears their own, the other party contributes a fixed amount, or that costs are included within a lump-sum settlement.

7) Sense-Check Before You Sue (Or Defend)

Do a commercial assessment: your chances of success, likely cost to get there, expected recovery, and the other side’s solvency. Factor in the possibility of paying (or receiving) costs at the end.

8) Keep Contracts Current

If you’ve changed how you do business, your contracts should reflect it. You can amend a contract to include clearer dispute steps, a preferred forum and an agreed approach to legal costs before any dispute arises.

Alternatives To “Costs In The Cause” You Can Agree In Advance

You’re not stuck with a single approach-your contract can set a different rule.

• Each party bears their own costs: Also called “costs lie where they fall.” This removes the sting of adverse costs orders but may encourage aggressive litigation if parties think there’s no penalty for losing.
• Mediation cost sharing: You can specify a 50/50 split of mediator and venue fees, with each party paying its own legal fees for the mediation phase.
• Arbitration cost rules: Arbitration agreements can adopt institutional rules that deal with fees and cost allocation, which can differ from court approaches.
• Agreed cost-shifting triggers: For example, if one party unreasonably refuses a sensible settlement offer and the other later obtains a better outcome at trial, the clause could allow the court/tribunal to take that conduct into account (noting the court always retains discretion).
• Indemnity costs (with care): Parties sometimes try to contract for indemnity costs in certain circumstances (e.g. proven fraud). Courts still guard their discretion on costs, but a clear agreement can be a persuasive factor.

There’s no one-size-fits-all approach. The right setting depends on your bargaining power, industry norms, and risk appetite.

FAQs: Practical Questions We’re Often Asked

What’s The Difference Between Standard And Indemnity Costs?

Standard basis (often called party/party) covers costs reasonably and proportionately incurred. Indemnity costs are higher and closer to what you’ve actually paid, but they’re awarded in limited situations-typically where there has been misconduct, an abuse of process or other special circumstances. Courts won’t award indemnity costs just because a case seems strong or a breach looks obvious.

Can “Costs In The Cause” Apply To Interlocutory Steps Only?

Yes. Courts frequently mark interim steps (like adjournments or applications) as “costs in the cause,” deferring the decision to the end so they don’t need to determine costs at every procedural turn.

Do Tribunals Award “Costs In The Cause”?

Some do in limited situations, but many have “no-costs” or restricted-costs regimes unless special conditions are met. Always check the applicable procedural rules for the forum in question.

Does Good Conduct Help With Costs?

It can. Being reasonable-exchanging information, engaging with mediation, making sensible settlement offers-can influence the court’s discretion in your favour. Unreasonable behaviour can do the opposite.

Can We Avoid Disputes Altogether With Better Contracts?

No contract can prevent every dispute, but clear scoping, milestones, change control and payment terms reduce friction. Strong IP, confidentiality and risk provisions also help. For sensitive pre‑contract discussions, use a Non-Disclosure Agreement. If you have co‑founders, a Shareholders Agreement can pre‑empt internal disputes about decision‑making and exits.

What If We Need To Change Our Dispute Clause After Signing?

You can vary an existing contract with a written variation signed by the parties. This is useful if you want to clarify forum, steps or costs allocation going forward, provided the other party agrees. A short amendment deed or letter can achieve this.

Smart Contract Design: Clauses That Reduce The Need To Litigate

While “costs in the cause” focuses on who pays after a dispute, it’s often smarter to reduce the chance of disputes escalating in the first place. Consider adding or refining:

• Scope and deliverables: Detail exactly what’s in and out of scope, including dependencies, assumptions and acceptance criteria.
• Change control: Set a clear process and pricing for variations so both sides know what happens when things shift.
• Milestones and payment triggers: Link payments to deliverables, making performance and cash flow predictable.
• Notice and cure periods: Give the other party a fair chance to fix issues before terminating or escalating.
• Liability settings: Use reasonable caps, exclusions and proportionate indemnities to manage your downside (tie these back to project value and insurance cover).
• Staged dispute resolution: Require negotiation and mediation before litigation, and set expectations for costs at each stage.

These mechanisms work hand‑in‑hand with your “costs” settings to de‑risk your deals and keep relationships intact.

Essential Legal Documents That Help Prevent (And Resolve) Disputes

Having the right documents in place reduces uncertainty and cost. The following are common for Australian businesses:

• Customer Contract: Sets out services, scope, timelines, pricing, variations, IP, warranties, liability and dispute steps. A clear Customer Contract is your first line of defence.
• Website/App Terms: If you supply online, terms govern user behaviour, disclaimers and limits. Your website terms can also cross‑reference your dispute clause.
• Privacy Policy: If you collect personal information, a compliant Privacy Policy explains what you collect and why-reducing confusion and regulatory risk.
• Non-Disclosure Agreement: Protects confidential information during pitches, negotiations and collaborations. An NDA can prevent misuse before any detailed contract is signed.
• Shareholders Agreement: If you have co‑founders, a Shareholders Agreement tackles decision‑making, vesting, exits and dispute processes-vital for long‑term stability.
• Deed of Release (for settlements): If a dispute arises, a structured Deed of Release wraps up claims, sets payment terms and confirms who pays what costs.

Even with excellent paperwork, some disputes still occur-but well-drafted documents give you clarity, options and leverage if that happens.

Key Takeaways

• “Costs in the cause” ties the question of who pays legal costs to the final outcome-winners typically recover a portion of their costs, subject to court discretion.
• It’s not a universal default across Australia: courts and tribunals apply different rules, and judges retain discretion to depart from the usual approach where fairness requires.
• Indemnity costs are exceptional and generally require misconduct or unreasonableness-strong cases alone don’t justify them.
• Draft contracts that encourage negotiation and mediation before litigation, and be explicit about how costs are handled at each stage.
• Use clear scope, change control, milestones and sensible liability settings to reduce disputes and improve settlement leverage.
• Core documents-like a Customer Contract, Privacy Policy, NDA, Shareholders Agreement and a Deed of Release for settlements-lower risk and cost.
• Before you sue (or defend), do a commercial assessment of prospects, venue, costs exposure and the other party’s capacity to pay.

If you’d like a consultation on commercial contracts-including drafting dispute clauses, costs settings or resolving a dispute-you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.