Costs Orders Explained: What Happens If You Lose?

The loser-pays rule, exceptions, and protection in Hong Kong, the UK, and Australia

Before you sue anyone — or defend a claim — you need to understand the costs rules. Because in most common law jurisdictions, if you lose, you do not just walk away. You pay. Not only your own legal costs, but a substantial portion of the other side's costs as well. This is the "loser pays" rule, and it changes the calculus of every litigation decision.

This guide explains how costs orders work in Hong Kong, the United Kingdom, and Australia — what the rules are, what the exceptions are, and how you can protect yourself.

The General Rule: Costs Follow the Event

In all three jurisdictions, the starting point is the same: the unsuccessful party pays the costs of the successful party. Lawyers call this the "English rule" or say that "costs follow the event." The event is the outcome of the case.

This is fundamentally different from the "American rule," under which each party bears their own costs regardless of outcome (with limited exceptions for statutory fee-shifting). In the US, losing a lawsuit is expensive because of your own legal fees. In Hong Kong, the UK, and Australia, losing is expensive because you pay both sides' fees.

Hong Kong

In Hong Kong, the general rule is set out in Order 62 of the Rules of the High Court (Cap 4A). The court has a broad discretion as to costs, but the starting point is that costs follow the event — the losing party pays the winning party's costs. The court may modify this based on the parties' conduct, including:

• Whether a party succeeded on some issues but not others
• Whether a party unreasonably refused an offer to settle or to mediate
• Whether a party's conduct increased costs (for example, by raising unmeritorious arguments or failing to comply with directions)

Costs in Hong Kong are typically assessed on either the party and party basis (standard basis — the reasonable costs necessarily incurred) or the indemnity basis (all costs except unreasonable ones, with doubts resolved in favour of the receiving party). Indemnity costs are awarded as a sanction for unreasonable conduct.

United Kingdom

In England and Wales, the costs rules are found in CPR Part 44. Under CPR 44.2(2)(a), the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party, but the court may make a different order.

The court considers the same factors as in Hong Kong: conduct of the parties, success on individual issues, and any admissible offers to settle. The Part 36 offer regime is particularly important in English litigation — a defendant who beats the claimant's own Part 36 offer can recover enhanced costs and interest from the claimant.

Costs are assessed on either the standard basis (proportionate costs reasonably incurred; doubts resolved in favour of the paying party) or the indemnity basis (unreasonable costs excluded; doubts resolved in favour of the receiving party). The difference between the two can be substantial.

Fixed costs apply in many lower-value claims. Under the fixed costs regime (CPR Part 45), the amount of recoverable costs is predetermined based on the stage at which the case concludes. This provides certainty but may not cover all of your actual costs.

Australia

In Australia, costs rules vary by state and territory, but the general principle is the same. In NSW, the Civil Procedure Act 2005 (s 98) gives the court a broad discretion as to costs, with the general rule that costs follow the event. In Victoria, Order 63 of the Supreme Court (General Civil Procedure) Rules applies the same principle. Each state has its own equivalent provisions.

Costs are typically assessed on a standard basis or an indemnity basis, with similar distinctions to those in the UK. Calderbank offers (the Australian equivalent of Part 36 offers) can significantly affect costs outcomes — a party who unreasonably refuses a Calderbank offer and then does no better at trial may face indemnity costs from the date of the offer.

How Much Are We Talking About?

The amounts can be staggering. In complex Hong Kong commercial litigation in the Court of First Instance, costs can run into millions of Hong Kong dollars. In English High Court proceedings, costs of £100,000 to £500,000 for a multi-day trial are not unusual, and costs in major commercial disputes can exceed £1 million per side. In Australia, similar figures apply in the Supreme Courts.

Even in lower courts, the costs exposure is significant. A defended claim in the Hong Kong District Court or the English County Court can easily generate costs of HK$200,000–500,000 or £20,000–50,000 respectively.

If you lose, you will typically be ordered to pay 60–70% of the other side's costs on a standard assessment. The "costs gap" — the difference between what you pay and what the other side actually spent — is borne by the winning party. On indemnity assessment, you may pay 80–90% or more.

Exceptions and Protections

The Court's Discretion

The loser-pays rule is a starting point, not an absolute. The court has discretion to make a different order. Common reasons for departing from the general rule include:

• Partial success: If you win on some issues but lose on others, the court may apportion costs, or make no order as to costs on particular issues
• Unreasonable conduct: If the winning party behaved unreasonably — for example, by refusing to mediate, failing to comply with court directions, or raising unmeritorious arguments — the court may reduce their costs recovery
• Settlement offers: A generous settlement offer that is rejected can shift the costs consequences dramatically

Qualified One-Way Costs Shifting (QOCS)

In England and Wales, personal injury claims benefit from qualified one-way costs shifting under CPR 44.13–44.17. This means that an unsuccessful claimant in a personal injury case is generally not ordered to pay the defendant's costs, unless the claim was struck out as disclosing no reasonable grounds or was found to be fundamentally dishonest. QOCS provides significant protection for personal injury claimants, effectively removing the costs risk of pursuing a claim.

Security for Costs

If you are a claimant and the defendant believes you may not be able to pay their costs if you lose, the defendant can apply for an order for security for costs. This requires you to deposit a sum of money with the court (or provide a bank guarantee) as security for the defendant's potential costs recovery.

In Hong Kong, Order 23 of the RHC governs security for costs. In England, CPR 25.13 applies. In Australia, each state has equivalent provisions. Common grounds include that the claimant is ordinarily resident outside the jurisdiction, that the claimant is a company with insufficient assets, or that the claimant's address is not correctly stated.

If you are a defendant, you generally cannot be required to provide security for costs — the rationale being that you did not choose to be in court.

Costs Capping

In England and Wales, the court can make a costs capping order under CPR 3.19, limiting the amount of future costs that a party may recover. This is relatively rare in private litigation but more common in public interest or judicial review cases.

Costs Budgeting

In England, for most multi-track cases, the court requires the parties to prepare costs budgets under CPR 3.12–3.18. These budgets set out the estimated costs for each phase of the litigation and are approved (or revised) by the court. At assessment, the court will not allow costs that exceed the approved budget without good reason. Costs budgeting introduces a degree of certainty and control that did not exist before it was introduced.

Costs Protection for Litigants in Person

If you represent yourself, you may still recover costs if you win — but the amounts are more limited. In England, under CPR 46.5, a litigant in person can recover for time reasonably spent at a rate of £19 per hour (as of the current rules), or two-thirds of the amount that would have been allowed if the litigant were legally represented (whichever is lower). You can also recover disbursements (court fees, travel costs, expert fees) and costs of obtaining legal advice even if you conducted the hearing yourself.

In Hong Kong, similar provisions exist under Order 62 Rule 28A of the RHC, allowing litigants in person to recover costs for work done and disbursements incurred.

In Australia, a litigant in person may recover out-of-pocket expenses but generally cannot recover compensation for time spent, except in limited circumstances where the litigant has a professional legal qualification or has suffered quantifiable financial loss.

Before You Litigate: The Costs Question

Before commencing or defending any claim, ask yourself:

1. What is my worst-case costs exposure? If I lose, how much will I owe in costs — my own and the other side's?
2. Can I afford to lose? Litigation is inherently uncertain. Even strong cases can fail. Can you absorb the costs of failure?
3. Is there a settlement offer on the table? If the other side has made a reasonable offer, the costs of rejecting it and losing at trial may far exceed the cost of accepting it now.
4. Is costs budgeting or capping available? In some jurisdictions and some types of cases, you can seek an order limiting your costs exposure.
5. Is this the right forum? Lower courts, tribunals, and mediation all involve lower costs. If the dispute can be resolved in a cheaper forum, consider it.

The costs rules exist to discourage unmeritorious litigation and to compensate successful parties. They are a powerful tool — but they cut both ways.

This article is published by CommonBench for informational purposes only and does not constitute legal advice. If you are considering litigation and need to understand the costs risks, research the relevant rules, or prepare costs submissions, try CommonBench — AI-powered legal research tools for people who need to understand the financial reality of going to court.