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When competing costs orders exist in the same proceeding, set-off is the default. You pay the balance — not the gross. That principle is well established. What GKX18 (Costs) [2026] FCAFC 28 confirms is that attempts to displace that default on speculative or “public interest” grounds will fail. For commercial litigants and their lawyers, the message is straightforward: costs set-off is a feature of the system, not a bug, and you need to budget for it.
What Is Costs Set-Off?
Costs set-off applies where parties to litigation each hold costs orders against the other. Rather than requiring Party A to pay Party B $50,000 in costs and Party B to pay Party A $30,000 in costs — two separate payments — the court nets them off. Party A pays Party B $20,000. Simple arithmetic, significant practical effect.
The rationale is efficiency and proportionality. It would be wasteful and commercially absurd to require parties to make cross-payments on competing costs orders when the net position can be calculated and satisfied in a single transaction.
Costs set-off applies to both party-party costs orders and, in appropriate circumstances, to solicitor-client costs. It operates by default under the Federal Court Rules — parties do not need to apply for it. The question is whether the court will exercise its discretion to displace it.
GKX18: What the Full Federal Court Decided
In GKX18 (Costs) [2026] FCAFC 28, the Full Federal Court confirmed that costs set-off applies and declined to displace it. The party seeking to avoid set-off argued, in effect, that “public interest” considerations justified ring-fencing the costs awards — treating them as independent rather than subject to netting off.
The Court rejected that argument. The public interest grounds advanced were characterised as too speculative to override the default rule. Set-off applied.
The decision reinforces several important principles:
- Costs set-off is the default position. A party seeking to displace it must advance cogent, concrete reasons — not speculative ones.
- Public interest is not a free pass. The mere invocation of public interest considerations does not automatically ring-fence a costs award. The Court will scrutinise whether the public interest argument is genuinely substantiated or merely advanced to avoid an unfavourable net costs outcome.
- Tactical use of set-off arguments has limits. Courts are alert to parties who try to manipulate costs outcomes through creative framing of set-off displacement arguments.
Tactical Implications for Commercial Litigants
For commercial litigants — and particularly for their lawyers advising on costs strategy — GKX18 has several concrete implications.
Budget for Set-Off from the Start
In any complex litigation where partial success is a realistic outcome — or where costs orders might go both ways at different stages — build set-off into your costs modelling from day one. A costs order in your favour is not a guaranteed net recovery if your client also carries costs liability elsewhere in the same proceeding.
Negotiate Costs Orders with Set-Off in Mind
When negotiating costs orders at interlocutory stages or on settlement, consider how those orders will interact with others in the proceeding. A “costs in the cause” order or a party-party costs order may look different when set-off enters the calculation. Get specific, and think about the net position — not the gross.
Don’t Assume Set-Off Can Be Avoided
After GKX18, the bar for displacing costs set-off is high. A general “public interest” argument — without concrete, substantiated grounds — will not do it. If your litigation strategy depends on ring-fencing a costs award, get specific advice on whether there are genuine grounds to displace set-off, and do not assume the court will accommodate a speculative argument.
Costs Strategy Is Part of Litigation Strategy
This is the broader point that GKX18 reinforces. Costs are not an afterthought. In complex commercial litigation — particularly where matters run across multiple hearings, involve interlocutory applications, or involve parties who may each achieve partial success — costs can determine the practical outcome even when the substantive arguments succeed.
At Boss Lawyers, costs strategy is part of our litigation planning from the outset. Understanding your exposure, structuring offers to settle that protect your costs position, and navigating costs orders across the life of a proceeding are as important as the substantive arguments. We regularly act in complex commercial litigation where the costs tail wags the substantive dog — and we advise accordingly.
For more on how we approach complex commercial litigation, visit our commercial litigation services page.
The costs set-off principles apply across all litigation types including shareholder disputes, insolvency proceedings, debt recovery, construction disputes, and director disputes. Boss Lawyers advises on litigation costs strategy. Call 1300 267 711.
This is general information only and is not legal advice. You should obtain professional advice specific to your circumstances.
Article by Mark Harley | Principal Solicitor | Boss Lawyers | 17+ years experience in commercial litigation and insolvency law.
