Australia: Court Ordered Mediation - Mediation Costs As "Costs Of The Proceedings"

Key points

• Mediation considered a "step in the proceedings".

• Costs incurred in mediation to be included as "costs of the proceedings".

• Clear written expression of an intention to deal with mediation costs separately can displace finding that mediation costs ordinarily fall within the scope of costs of the proceedings.

Background

In Newcastle City Council v Paul Wieland [2009] NSWCA 113, the New South Wales Court of Appeal recently considered whether the phrase "costs of the proceedings" includes the costs associated with mediation.

The Newcastle City Council (the Council) was a plaintiff in a damages claim against two defendants in the New South Wales District Court. During the course of the trial, the parties agreed to mediate their dispute and sought a court order for mediation.

Although the dispute did not settle at the mediation, it was settled shortly afterwards. Sidis DCJ then made consent orders relating to the costs of the proceedings. In effect, the two defendants in the proceedings were to pay portions of the Council's costs of the proceedings as agreed or assessed.

The parties failed to agree on the amount of the Council's costs and a costs assessor was appointed. The defendants objected to the inclusion of the costs of the mediation in the Council's bill of costs on the basis that the parties had not agreed that the costs of the mediation would be included as costs of the proceedings and there was no court order to that effect.

The Council then brought proceedings to seek a declaration that the costs of the mediation be included in the consent orders for its "costs of the proceedings".

At first instance, Sidis DCJ upheld the Council's application and varied the consent orders specifically to include the costs of the mediation. Her Honour had regard to the following matters:

• the mediation was court ordered

• the mediation was discussed before the court on a number of occasions

• the mediation occurred on the Court's premises

• the mediation was conducted by a judicial officer.

In light of these matters, her Honour concluded that the mediation was "clearly undertaken as part of the litigation process".

The defendants appealed Sidis DCJ's decision.

The Decision

The Court of Appeal upheld Sidis DCJ's decision. The reasons for the Court of Appeal's decision were given by Justice Ipp (Justices Beazley and Hodgson agreeing).

Ipp JA focused on the proper construction of the words "costs of the proceedings" under the Civil Procedure Act 2005 (the Act). The Court determined that the mediation was part of "the proceedings" because the mediation occurred as a result of a court order and was therefore subject to Part 4 of the Act which contains a number of provisions relating to court ordered mediations such as the duty of the parties to mediate in good faith, duties of confidentiality and directions by the mediator.

Ipp JA considered a submission to the effect that costs of mediation fall into a special category and that, if costs of mediation are payable, there must be an express order to that effect or the parties must expressly so agree.

His Honour rejected this submission on the basis of the Court's general powers to award costs under section 98 of the Act and to award costs in interlocutory applications under rule 42.7 of the Uniform Civil Procedure Rules. His Honour stated that mediation can be considered a "step in any proceedings" under rule 42.7 so that the Court has a power to award the costs of mediation.

His Honour distinguished the earlier decision of Justice Bergin in Mead v Allianz [2007] NSWSC 500 in which her Honour had declined to construe the expression "costs of these proceedings" to include costs of a mediation. In Mead, the parties had expressed that the mediation was outside the litigation process in a mediation agreement.

Ipp JA identified some policy reasons for regarding mediation costs as costs of the proceedings. His Honour referred, in particular, to the argument that a mediation may enable settlement and thereby mitigate further costs and allow better use of judicial and court resources.

In agreeing with Justice Ipp, Justice Hodgson thought that where the parties clearly express an intention that the costs of a court ordered mediation are to be dealt with separately from the costs of the proceedings, then the court will give effect to that agreement. His Honour thought that this required a clear expression of intention from the parties. Hodgson JA also suggested that the matter be addressed in a court order as well.

Comment

The expression "costs of the proceedings" will generally include the costs of a court ordered mediation. Where a party is subject to an order for mediation (whether by consent or not) and intends that the parties will pay their own costs of the mediation, then that party should require the other party to enter into a mediation agreement which deals with costs. It would also be prudent to have the matter clarified in either the order for mediation or the orders that subsequently dispose of the proceedings.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.