Pricing out climate justice in Australia – the impact of adverse costs

Introduction

In the context of an escalating global climate crisis, climate change litigation (climate litigation)¹ is on the rise in Australia and emerging as a powerful tool to seek legal redress for climate harms. Climate litigation is also serving a critical democratic function in advancing the public interest, by providing one of the few accountability mechanisms through which individuals and communities can contest the actions of governments and corporations whose decision-making are shaping climate outcomes.² Even when such climate cases prove unsuccessful (as many do), they raise public awareness about not only the impacts of climate change, but also weaknesses in existing regulatory frameworks and the need for law reform.³ For these reasons, almost all climate litigation could be described as being in the “public interest” since its effects will typically extend beyond the parties to achieve broader social justice outcomes and influence policy change.⁴ And yet, despite the important public function served by such litigation, many meritorious claims will never reach the courtroom.⁵

A significant procedural barrier to commencing any form of public interest litigation in Australia is the financial burden imposed by legal costs – notably, the risk that a claimant might have to pay an adverse costs order if their case is unsuccessful. This costs rule, known as the “indemnity rule” or “loser pays” principle,⁶ is a particularly acute concern in climate litigation, which will frequently involve novel “test” cases commenced by impecunious claimants (non-profit organisations, individuals or community groups) against well-resourced corporations, public officials and government bodies.⁷

Over the last 30 years, Australian law reform inquiries have consistently recognised that removing costs barriers to public interest litigation is critical to improving access to justice. Notwithstanding this, meaningful legislative reform has yet to materialise.⁸ As such, addressing the impact of costs has largely fallen to the courts. However, they too have been reluctant to depart from the indemnity rule, or recognise that, at the very least, the promotion of access to justice for public interest litigants might alone warrant departure from this rule.

This article considers the impact of the indemnity costs rule on public interest climate litigation and the need for reform, given the limited avenues available to seek exceptions to it.

The indemnity costs rationale

While each jurisdiction is subject to its own court rules concerning the award of costs, there is considerable uniformity between the various costs regimes in Australia. Generally speaking, Australian courts have “unfettered” statutory discretion to make any order as to costs they consider the justice of the case requires. However, judicial exercise of that discretion involves applying the general indemnity rule which requires that “costs must follow the event”. This means that an unsuccessful party will usually be required to pay the legal costs of the successful party, as well as bear their own costs of the proceeding. The underlying common law rationale for this principle is not to punish the unsuccessful litigant, but rather, to compensate the successful party for the legal costs they have had to incur by reason of the proceedings.⁹ To this end, courts usually refer to the successful litigant having a “reasonable expectation” of obtaining an order for costs in their favour.¹⁰ While the application of the principle assumes “an equality of arms” between litigants,¹¹ it operates harshly against public interest claimants, who frequently lack the financial capacity to commence litigation, let alone withstand the risk of an adverse costs order.¹²

Exceptions to the rule? Public interest cost orders

While judicial discretion permits departures from the indemnity rule, exceptions are rare.¹³ Notwithstanding the costs barrier this creates for public interest claimants, Australian courts have consistently affirmed that proceedings involving some public interest aspect, will not, of itself, warrant departure from the general rule that costs follow the event.¹⁴

Courts have suggested that “something more” is required than the mere characterisation of the litigation as being in the public interest to depart from the usual order as to costs.¹⁵ The inquiry instead focuses on identifying factors relevant to the litigation itself that may warrant departing from the indemnity rule.¹⁶ The preeminent High Court decision on the principles governing departure from the indemnity rule in public interest cases continues to be Oshlack v Richmond River Shire Council¹⁷ (Oshlack). In that case, the High Court restored trial judge, Stein J’s, decision to depart from the usual order and make no order as to costs against the unsuccessful public interest claimant (often referred to as a “public interest cost order” or PICO). In reaching its decision, the High Court noted the following “special circumstances” considered by Stein J in departing from the general rule:

(i)            The “traditional rule” that, despite the general discretion as to costs being “absolute and unfettered”, costs should follow the event of the litigation “grew up in an era of private litigation”. There is a need to distinguish applications to enforce “public law obligations” which arise under environmental laws lest the relaxation of standing by s 123 have little significance.

(ii)          The characterisation of proceedings as “public interest litigation” with the “prime motivation” being the upholding of “the public interest and the rule of law” may be a factor which contributes to a finding of “special circumstances” but is not, of itself, enough to constitute special circumstances warranting departure from the “usual rule”; something more is required.

(iii)        The [claimants’] pursuit of the litigation was motivated by his desire to ensure obedience to environmental law and to preserve the habitat of the endangered koala on and around the site; he had nothing to gain from the litigation “other than the worthy motive of seeking to uphold environmental law and the preservation of endangered fauna”.

(iv)        In the present case, “a significant number of members of the public” shared the stance of the appellant as to the development to take place on the site, the preservation of the natural features and flora of the site, and the impact on endangered fauna, especially the koala. In that sense there was a “public interest” in the outcome of the litigation.

(v)          The basis of the challenge was arguable and had raised and resolved “significant issues” as to the interpretation and future administration of statutory provisions relating to the protection of endangered fauna and relating to the ambit and future administration of the subject development consent; these issues had “implications” for the Council, the developer and the public.¹⁸

The first instance decision of Stein J also contained extensive references to Australian and international commentary on the barrier that the threat of adverse costs orders creates to public interest litigation, notably in connection with environmental protection.¹⁹ Surprisingly, however, his reasons for departing from the indemnity rule (as noted above) failed to include any explicit consideration of access to justice concerns being a relevant factor in his decision to make no order as to costs.²⁰ This approach allowed the High Court to construe the appeal in Oshlack quite narrowly. Relevantly, the majority decision went no further than simply recognising the breadth of the costs discretion and that the public interest may constitute a relevant factor when exercising its discretion to depart from the indemnity rule. The majority gave no consideration to access to justice being a relevant factor in the exercise of the discretion to award costs. As such, the judgment has been criticised as having done little to alleviate the procedural barrier that the indemnity rule poses to public interest litigants.²¹ The impact of Oshlack was considered in the Productivity Commission’s 2014 Access to Justice Report, which noted that:

… there is a great deal of uncertainty surrounding the Oshlack principle — its use has been limited, and the power of judges to apply it is widely discretionary … Thus the possibility of pleading for a no costs order under Oshlack provides little assurance for public interest parties deciding whether to bring forth a case at the onset of litigation.²²

While environmental (or climate-related) litigation has justified ousting the general rule on certain occasions,²³ following Oshlack, Australian courts have still confined departing from the usual costs order to the “very rare” and “most unusual” of cases.²⁴

The approach taken in the NSW Land Environment Court (NSWLEC) is one of the few statutory exceptions to the indemnity costs rule. Under r 4.2 of the Land and Environment Court Rules 2007 (NSW) (Land and Environment Court Rules), the court can depart from the indemnity rule and award no order as to costs “if it is satisfied that the proceedings have been brought in the public interest”. In 2012, the NSW Law Reform Commission recommended that the Uniform Civil Procedure Rules 2005 (NSW) adopt an equivalent provision, noting relevantly, that the:

… case law that has developed around the rule provides a strong framework for the exercise of discretion in relation to costs orders in public interest proceedings that can readily be adapted to other jurisdictions.²⁵

That recommendation has not been adopted, and the reality, still, is that that public interest costs orders remain uncommon outside the NSWLEC. The adverse costs risk faced by public interest litigants is further compounded by the fact that costs determinations occur at the very end of proceedings.²⁶ As such, given its limited use by courts, the availability of public interest costs orders offers little to no certainty regarding costs exposure.

Protective costs orders – costs capping

Protective costs orders (PCOs), also known as maximum costs orders, have emerged as the primary legislative mechanism to overcome the uncertainty posed by costs orders in public interest matters. These orders specify a maximum limit or “cap” on the amount of costs that one may party recover from another in advance of the conclusion of the proceeding. Thus, where a claimant is otherwise inhibited from bringing proceedings due to the possibility of paying the high legal costs of their counter party, a PCO can, in theory, alleviate this barrier by protecting or limiting the claimants exposure to high adverse legal costs.

As such, PCOs have the capacity to improve access to justice for climate litigants, as they can be sought at the commencement of proceedings (well before substantial costs are incurred), and can provide a climate litigant greater certainty about its adverse costs exposure in the event of an unsuccessful outcome. PCOs were first introduced by the Federal Court in 1992 in recognition of its capacity to improve access to justice in this way.²⁷ Several other Australian jurisdictions, including New South Wales, Victoria and Queensland, have followed suit introducing similar measures.²⁸ However, the availability and criteria applied varies across jurisdictions.²⁹

In 2008, the Federal Court of Australia granted the first PCO in a public interest proceeding in Corcoran v Virgin Blue³⁰ (Corcoran). In that case, the court set out several factors to be considered in the exercise of the court’s costs discretion to order a PCO, including the timing of the application; the complexity of the legal and factual issues; whether the applicant’s claims appeared to have merit, or were frivolous or vexatious; the undesirability of proceedings being discontinued if a costs limiting order was not made; and the public interest dimensions of the case.³¹ Since then, favourable costs capping orders have been granted in favour of public interest litigants in other jurisdictions, including the NSW Court of Appeal³² and the NSW Land Environment Court,³³ which largely endorsed the Federal Court’s approach in Corcoran. What has been noticeably absent in many of these decisions is any consideration of access to justice being a relevant factor in the exercise of the court’s discretion.

However, a recent Federal Court decision, Doctors for the Environment (Australia) Incorporated v National Offshore Petroleum Safety and Environmental Management Authority,³⁴ has signalled a shift. That proceeding concerned a challenge brought by Doctors for the Environment Australia (a not-for-profit organisation) against Australia’s offshore energy regulator, the National Offshore Petroleum Safety and Environmental Management Authority’s, acceptance of an environmental plan for Woodside Energy’s Scarborough offshore gas project, in which the applicant also sought a maximum costs order to limit its exposure to adverse costs. Given the circumstances of this case – which included challenging the approval on the basis of long-term adverse environmental and public health consequences of Woodside’s project and emissions production – the court held that it was:

… an appropriate case for the exercise of the discretion to make a maximum costs order pursuant to r 40.51 of the [Federal Court] Rules to facilitate access to justice in a case which raises important questions about the lawful exercise of statutory power.³⁵

Despite the availability of PCOs, commentators have pointed out that costs capping orders in public interest litigation, like public interest costs orders, are rarely sought and granted.³⁶ This view, specifically in the climate context, is supported by preliminary findings from a research project being conducted by the author at the Institute of Climate Risk and Response at UNSW Sydney. The project, which has surveyed costs outcomes in over 200 climate cases, examines how New South Wales and Federal Court jurisdictions are responding to the financial risks and procedural barriers associated with climate litigation. The data analysed confirms that PCOs are rarely used despite the significant financial risks confronting climate litigants. These findings raise questions as to why such provisions are failing to facilitate the “protective” role they were intended to achieve.

While a few explanations have been advanced, chief among them is that Australian courts remain skewed towards the indemnity principle, which privileges private interests over public ones.³⁷ This may be attributed, in part, to the rule having been developed within a private law context, where it is generally considered a just outcome for the successful party to be compensated for costs they have had to incur to vindicate, or uphold, their legal rights in court.³⁸ Unfortunately, the reasons advanced for awarding adverse costs in a private law context do not apply fairly to public interest cases for a number of reasons.³⁹ Pertinently, the current approach fails to recognise the broader access to justice implications in public interest cases, notably the “chilling effect” that “adverse costs orders awarded have on not only the claimant, but prospective litigants”.⁴⁰ Even where, courts are inclined to depart from the usual rule to limit exposure to adverse costs – for example, by ordering a PCO – “the amount set is often prohibitively high, meaning plaintiffs may still be unable to take their case forward without financial backing”.⁴¹

Pathways forward – promoting access to justice

The reluctance of Australian courts to depart from the indemnity rule in public interest litigation stands in contrast to more progressive approaches adopted in other common law jurisdictions that have reformed precedent to promote access to justice. In England, the Court of Appeal in R (Corner House Research) v Secretary of State for Trade and Industry⁴² recognised (just over 20 years ago) that the indemnity rule required refashioning in public interest litigation since it had been developed within a private law context. Importantly, in departing from the general rule, the court observed that access to justice would be “unjustly impeded if there is slavish adherence to the normal private law costs regime”.⁴³ The United Kingdom has since reformed its civil procedure rule to make explicit costs accommodations in environmental law matters that fall within the scope of the Aarhus Convention⁴⁴ (Convention), limiting recoverable costs in judicial review proceedings falling within the scope of the Convention. Under those provisions, individual claimant liability to adverse costs is subject to specific statutory caps.⁴⁵

To address costs barriers for applicants in anti-discrimination proceedings commenced under the Australian Human Rights Commission Act (1986) (Cth), in 2024 the Australian Government introduced an “Equal Access” costs model, which prevents the court from ordering an unsuccessful claimant to pay a respondent’s costs in such proceedings, except in very limited circumstances. Rule 4.2 of the Land and Environment Court Rules (discussed above) is another salient example that could be adopted more broadly. These examples of procedural law reform offer a glimpse of what is possible to improve access to justice domestically. However, in the absence of political will to introduce costs reform, primary responsibility will continue to fall upon our courts to promote access to justice and ensure a “level playing field” for public interest litigants.

As the severity and impacts of climate change increases, Australian common law must evolve – as other jurisdiction have – to recognise the fundamental public importance of facilitating access to justice for public interest litigants seeking to protect the environment, as well as improve accountability and redress for climate harm. There is no principled reason why access to justice should not, alone, constitute sufficient justification for departing from the indemnity rule in public interest cases.

Given the broad and “unfettered” nature of their statutory costs powers, Australian courts have the capacity to meaningfully facilitate access to our justice system. A useful starting point would be to recognise that the presumptive application of the indemnity principle is ill-suited to matters of public interest. More specifically, having regard to the structural and financial barriers to accessing climate justice in Australia, adverse costs should not apply as the default position in unsuccessful cases.

As this article demonstrates, there are practical and principled ways in which the costs power can be transformed to promote climate justice. Certainly, if courts find the will to act, they could certainly pave the way forward.