1 The successful appellant seeks orders that the respondent pay her costs, both of the appeal and of the trial, the former on an indemnity basis. The respondent concedes that it should pay the appellant's costs of the appeal but on the usual basis, namely, taxed as between party and party, and that the costs of the trial should abide the outcome of the new trial ordered by this Court. No application for costs has been made against senior counsel for the respondent at trial whether pursuant to RSC r 63.23 or otherwise.

2 The appellant argues in support of her application for the costs of the appeal on an indemnity basis that, because conduct by the respondent's counsel at trial was 'designed to rob (her) of a fair trial, and in fact did so', she should be entitled to as much protection as possible from the consequences of such conduct. But the conduct of the appeal by the respondent was in no way criticised. Nor could it be. There is no basis for making a special order as to costs of the appeal. The normal order would be for the costs of the appeal to be taxed on a party and party basis and paid by the losing party. We do not consider that there is any reason to depart from that course in this case.

3 As far as the costs of the trial are concerned, the respondent argues that those costs are subject to s 135AB(28) of the Accident Compensation Act 1985. That section prescribes a regime for the awarding of costs:

In proceedings for the recovery of damages commenced in accordance with s 134AB after a statutory offer was made, or deemed to have been made ...

There follow four sub-sections, designated (a) to (d), each of which describes a possible outcome of a proceeding to which sub-s 28 might relate. Sub-section 28 concludes by restricting the relevant court's power to award costs by requiring that ' ... the court must not otherwise make an order as to costs'.

Assuming that the factual basis required by the preamble to sub-s 28 exists, it is necessary to examine the application of the sub-section to the circumstances here: when the Court of Appeal has set aside a verdict and judgment and ordered a new trial.

4 In O'Neill v T D Williamson (No 2),[1] Cavanough J construed the limiting provision in s 134AB(28) as not depriving the Court of the power to make orders as to costs in interlocutory proceedings where the substantive proceeding, to which they are interlocutory, fell within s 134AB(28). His Honour confined the limiting provision to cases having an outcome as described in s 134AB(28)(a), (b), (c) or (d). He held that sub-s 28 '... supplies particular rules to deal with each of the four situations specified in it'. He considered that the limitation merely emphasised that each rule was mandatory where it applies.

5 The decision of Cavanough J was followed by Beach J in Papadopoulos v M C Labour Hire Services Pty Ltd (No 3).[2] The same conclusion was reached by Mandie JA (with whom Buchanan JA and Byrne AJA agreed) in this Court in Spotless Services Australia Limited v Herbath:[3]

Spotless submitted that the concluding phrase in s 134AB(28) 'and the Court must not otherwise make an order as to costs' might be interpreted in two possible ways. One way was "exclusionary" ie that no order other than those referred to in paragraphs (a) to (d) might be made in a proceeding which was subject to s 134AB. The second way was to give the phrase "must not otherwise" a connotation of inconsistency ie the Court may make other orders as to costs but not orders which were inconsistent with any of paragraphs (a) to (d). Spotless submitted, and I would agree, that the second way was the correct interpretation.

The respondent argued that to award the costs of the trial at this stage to the appellant would be inconsistent with s 134AB(28)(a). But the situation described in that sub-section has not arisen here. This is not a case where 'no liability in the employer to pay damages has been established', as part (a) requires. All that has occurred is that a judgment has been set aside by this court and a new trial ordered for error, pursuant to RSC r 62.3. Section 134AB(28)(a) has no application to such a situation, nor do parts (b), (c) or (d) of sub-s 134AB(28) apply for the same reason. It follows that this Court may deal with the costs of the first trial in accordance with ordinary principles, unconfined by s 134AB(28). The analogue of this situation is an interlocutory order in a proceeding not yet tried. There is no impediment to this Court awarding the costs of the first trial to the appellant. The question remaining is whether it should do so.

6 The ordinary rule concerning the costs of the first trial where a new trial is ordered by the Court of Appeal is that the costs of the first trial abide the result of the new trial. The rule, which was said to be the English practice since the Judicature Acts, was adopted by the Full Court of the Supreme Court in 1885 in the cases of Malpas v Malpas[4] and Stewart v M'Kinley.[5] Indeed it was adopted not only by the three judges who heard those cases (Williams, Holroyd and Cope JJ) but also by Higinbotham J who was consulted by them and who, incidentally, was the trial judge in both cases.[6] Williams J cited Morton v Palmer[7] as an example of the English practice.

7 The Full Court applied the rule in Stewart but in Malpas it did not. In Malpas the new trial had been occasioned by the reception of inadmissible evidence in the first trial. The Court ordered the respondent to the appeal to pay the costs of the first trial because the admission of the inadmissible evidence had been pressed by him before the trial judge.

8 In this case the respondent argued that, as no malicious intent designed to 'rob the plaintiff of a fair trial' was attributed to counsel for the respondent by the court in its judgment, there was no need for the court to signify its disapproval of what occurred by ordering costs against the respondent. But an award of costs is not made against a party by way of punishment. It is compensatory. As Samuels JA pointed out in a case where the conduct of counsel had necessitated a new trial:

... if the jury is discharged or a new trial ordered, the party whose counsel has transgressed may properly be ordered to bear the costs: Taylor v Edwards[8] but this consequence follows, not as a sanction, but because the costs thrown away should be made good by the party responsible.[9]

9 In Rees v Bailey Aluminium Products Pty Ltd (No 2),[10] a case in which the conduct of counsel for the respondent was one of the matters which led to the granting of a new trial, a different constitution of this Court ordered each party to pay his or its own costs of the first trial. But the circumstances there were different. The facts were somewhat more complicated and the lack of action by counsel for the appellant was a far greater contributing factor to the Court's decision to grant the new trial than was the case here. Here, absent the impugned conduct of counsel for the respondent at trial, there would have been no new trial required.

10 In the circumstances the respondent should pay the appellant's costs of the first trial to be taxed as between party and party. Were the order contended for by the respondent made - that the costs of the first trial abide the result of the second - if the appellant is unsuccessful on that trial she would have imposed upon her, not only the costs of that trial but the costs of the first trial as well. This would be plainly unjust.

That the respondent pay the appellant's costs of the first trial and of the appeal, including reserved costs, such costs to be taxed on a party and party basis.

[1] [2008] VSC 430.

[2] [2009] VSC 183, [13].

[3] [2009] VSCA 285,[38].

[4] (1885) 11 VLR 670.710, 711.

[5] [1885] VicLawRp 149; (1885) 11 VLR 802, 809.

[6] The four judges referred to constituted all but one of the active judges of the Supreme Court at the time. Sir William Stawell CJ was on leave. Molesworth J was acting Chief Justice and Cope J, a Judge of County Courts, was an acting puisne judge, replacing Molesworth J. There were no other judges.

[7] (1882) 9 QBD 89, 92 (Cave J).

[8] (1967) 87 WN (Pt 1) (NSW) 386, 391.

[9] Steele v Mirror Newspapers Limited (1975) 2 NSWLR 48, 56.

[10] [2008] VSCA 244; (2008) 21 VR 478, 521.