The law of costs is typical of common law jurisdictions. In summary, the winner of litigation is entitled to seek an order that the loser pays for his or her reasonably incurred legal costs and disbursements. This is known as party-party costs.
Such costs however do not necessarily include all of a party's legal costs. In a process called a taxation of costs, the successful party must file with the court a schedule known as a bill of costs which sets out the successful party's claim. An officer of the court will then assess the reasonableness of the costs with reference to a statutory schedule of limits of entitlements of costs, together with legal precedent, if the costs cannot be agreed between the parties. The level of reduction usually means the bill is reduced from 50%-70%, depending upon the jurisdiction, and the reasonableness of the bill of costs in the first place.
A court order for costs is enforceable as a debt against the unsuccessful party.
The other type of costs, aside from party-party costs, is called solicitor-client costs. A client who is unhappy with a lawyer's invoice for services can in certain jurisdictions apply to the court for an order or invoke a statutory procedure whereby the costs are assessed for their reasonableness by an officer of the court (eg. a judge), also called a taxation of costs. There are usually statutory time limits on applying for such a procedure, which differ from jurisdiction to jurisdiction. The inevitable result is that the lawyer's invoice is decreased: the level of the reduction can determine who pays for the process of taxation. In some jurisdictions if the client does not pay the lawyer the lawyer has a cause of action for his own lawsuit if the client does not elect to arbitrate the attorney's bill.
It is important to note that not all jurisdictions have the same legislation regarding what is costs and what considered as costs. In many commonwealth jurisdictions, costs may include the payment of preset legal fees to be paid by the losing party to the winning party's attorney. This is generally not true in the United States where legal fees may be sought only if the parties agree before the litigation by contract, or if some special act or statute allows the prevailing party to seek such fees. Generally judges have no common law right in the United States to tax the losing party for such fees. Some have suggested that this rule is what makes the United States a litigious society, individuals have little to lose more than filing fees and a retainer to start a lawsuit, they are not thinking that they will also have to pay their opponent's fees if they lose later.
There are several orders for costs which can be sought from a judge upon the conclusion of a trial or an interlocutory (pre-trial) application:
- no order as to costs
- indemnity costs. This is an order intended to put a party in as near a position as it was prior to the commencement of proceedings, usually as a result of the commencement of vexatious or unmeritorious proceedings.
- costs in the cause. This means that the costs of the interlocutory application will be met by the party who ultimately loses the trial.