Costs Capping NSW Civil Litigation: How Courts Limit Disproportionate Legal Costs

Costs capping NSW civil litigation is an increasingly important issue for clients and practitioners concerned about disproportionate legal costs. Legal costs are often one of the key conditions clients consider when engaging a solicitor and deciding whether to commence proceedings. A common and legitimate question arises: why litigate a $30,000 debt if it costs $30,000 to run? In response to these concerns, courts in New South Wales may limit the costs one party can recover from another. This article explains what costs capping is and how costs capping differs from gross sum costs orders.

What Is Costs Capping?

In NSW, practitioners commonly describe costs capping in the legislation as a “maximum costs order.” Put simply, it is an order that limits the amount of legal costs one party may recover from another, regardless of the costs actually incurred.

Practitioners should distinguish costs capping from costs fixing or the making of gross sum costs orders.

• Costs capping limits recoverable costs but usually leaves assessment intact.
• Gross Sum Costs Orders are orders after the total costs of a proceedings have been quantified and seeks to remove the need for assessment — while still operating as a cap.

Howvee5r as Meek J observed in the recent decision of Lord v Craig [2026] NSWSC 17, in practice, a costs cap may make assessment unnecessary if it is obvious that assessed costs would exceed the capped amount.

The Statutory Power in NSW

The Court’s power to cap costs in NSW comes primarily from rule 42.4 of the Uniform Civil Procedure Rules 2005 (NSW).

Under that rule, the Court may:

• Specify the maximum costs one party may recover from another;
• Do so on application or of its own motion;
• Give directions to facilitate the just, quick and cheap resolution of proceedings; and
• Vary a cap later, but only for special reasons and in the interests of justice.

Importantly, the court cannot include certain costs in a cap, such as costs arising from non-compliance with court orders, amendments, extensions of time, or conduct that causes unnecessary expense.

Proportionality: The Central Theme

The dominant concept underpinning costs capping is proportionality.

In the recent decision of Lord v Craig [2026] NSWSC 17, Meek J discusses the various jurisprudence of costs capping in NSW, in the context of an interlocutory hearing in family provision dispute. The case encapsulates the general concern of the judiciary: the proceedings concern an application for family provision. However, the defendants Estate is worth only $135,674. At the time of hearing (not the final hearing mind you), te legal costs already consisted of 46% of the net Estate.

As Meek J discusses, proportionality does not mean that costs must always bear a strict mathematical relationship to the amount in dispute. Rather, the Court considers whether the costs are reasonable having regard to factors such as:

• the importance and complexity of the issues;
• the value of what is at stake;
• the nature of the proceedings; and
• the likely benefit of the litigation compared to its cost.

The more modest the dispute or the simpler the issues, the greater the concern about disproportionate costs. Conversely, in complex or high-stakes litigation, higher costs may be proportionate and justified.

He states:

“Nonetheless in NSW, conceptually and in respect of quantum, it is clear that the exercise of the power:

1. is of a discretionary kind, both as to the making of the order and the amount of any sum fixed with the two stages being difficult to separate;
2. involves consideration of the future litigation from the perspective of each of the parties to the litigation or affected parties which needs to be addressed separately, and the likely consequences balanced;
3. will depend upon the total mix of factors relevant to the discretion and the weight given to such factors;
4. involves not merely an evaluative judgment, but one which will encompass a range of possibilities, rather than a binary choice;
5. has no set range and indeed costs may be capped at “nil”, subject to any statutory exceptions; and
6. is (if UCPR r 42.4 is used) expressly subject to some limits – specifically amounts referable to certain conduct of parties is excluded including amounts that a party has been ordered to pay another party by reason of failures to comply with the rules, amendments, indulgences leading to extensions of time or otherwise caused a party to incur unnecessary costs inconsistent with the just, quick and cheap mandate.” (103]

A Broad Discretion, Exercised Judicially

Costs capping in NSW is a discretionary power, both as to:

1. whether the court should impose a cap at all; and
2. the amount at which the court should cap the costs.

There is no fixed formula. The Court must weigh all relevant factors and strike a balance between competing interests. That exercise is evaluative, not binary, and may legitimately produce a range of acceptable outcomes.

Costs Capping in Family Provision Proceedings

Costs capping has particular significance in family provision cases because legal costs are paid out of the estate and directly reduce what beneficiaries ultimately receive. Family provision legislation exists to address inadequate testamentary provision — not to redistribute estates wholesale. Excessive legal costs can frustrate that purpose by:

• eroding the estate before claims are resolved;
• disadvantaging beneficiaries who played no role in generating costs; and
• leaving even successful applicants worse off if costs exceed the provision ordered.

The Court is therefore especially attentive to costs proportionality in this jurisdiction.

The Court’s Expectations in Family Provision Matters

Practice Note SC EQ 07 – Probate and Family Provision List places parties on notice that the Court expects parties to use estate and court resources proportionately, to provide early and verified disclosure of estimated legal costs, and to give information at an early stage so parties can assess their cases realistically. The Court may also make costs capping orders, particularly where the net estate is under $1 million.

Key Takeaways

• Costs capping in NSW is a powerful case-management tool, grounded in proportionality and access to justice.
• The Court has a broad discretion, exercised by reference to the circumstances of each case.
• The Court encourages parties to consider costs at an early stage, particularly where disproportionate expenditure threatens the value of what is in dispute.
• In family provision proceedings, costs capping plays a crucial role in protecting estates and beneficiaries from being consumed by litigation.

Jake McKinley notes that this article is written for the purpose of providing generalised information and not to provide specialised legal advice. If you require qualified legal advice on anything mentioned in this article, our experienced team of solicitors at Jake McKinley are here to help. Please get in touch with us on 02 9232 8033 today to make an enquiry. 

Article written by Jackson McKinley, Senior Associate

Costs are a central concern in any dispute. Our commercial litigation lawyers provide upfront cost estimates before proceedings begin.