(1) Unless the court orders otherwise, the costs of any application or other step in any proceedings, including:
(a) costs that are reserved, and
(b) costs in respect of any such application or step in respect of which no order as to costs is made,
are to be paid and otherwise dealt with in the same way as the general costs of the proceedings.
(2) Unless the court orders otherwise, costs referred to in subrule (1) do not become payable until the conclusion of the proceedings."
36 The broad terms of UCPR r 42.7(1) must mean that a "step in any proceedings" includes mediation within the meaning of s 28. Thus, UCPR r 42.7, when read with s 98 of the CPA, includes a power to award the costs of mediation under s 28. That is to say, as ordinarily understood, the costs of proceedings under UCPR r 42.7 include the costs of mediation.
37 This does not mean that s 28 has no work to do, as Mr Cummings submitted would be the case on this construction. The work that it does is to define the circumstances under which costs of mediation are payable. Section 28, as I have observed, makes plain that, in the absence of an order or agreement, costs of mediation are not payable. This is to be contrasted with the position in certain other States such as Western Australia, where by O 29 r 3(ba) of the Rules of the Supreme Court 1971 (WA) "each party's costs of and incidental to a mediation conference shall be the party's costs in the cause" unless otherwise ordered or agreed to, and Queensland, where by r 351 of the Uniform Civil Procedure Rules 2005 (Qld) "each party's costs of and incidental to an ADR process not resulting in the full settlement of the dispute between the parties are the party's costs in the dispute" unless otherwise ordered by the court.
38 In my view, s 28 does not create a special category of costs, as Mr Cummings submitted. I do not think that the legislative scheme relating to costs admits of such a construction.
39 The appellant relied upon the decision of Bergin J in Mead & Anor v Allianz Australia Insurance Ltd [2007] NSWSC 500. In that case her Honour, for two reasons, declined to construe "cost of these proceedings" as including the costs of the mediation. First, her Honour found that such a construction would be inconsistent with the agreement to mediate that the parties in that case had made. Her Honour said that, when the parties entered into that agreement, "they regarded the mediation as a separate aspect of their litigious process; that is, they saw it as necessary to make a separate application for costs of the mediation" (at [13]). Secondly, her Honour was of the view that, as a matter of policy, it would not be appropriate to hold that "costs of the proceedings" included mediation costs in circumstances where there was a consensual order for mediation, a mediation agreement and subsequent compromise.
40 There is nothing in the agreement to mediate that the parties in the present case entered into that is to the same effect as that which obtained in Mead & Anor v Allianz Australia Insurance Ltd.
41 As to matters of policy, while I accept the force of Bergin J's remarks, there are compelling policy reasons why costs of mediation should be included in the costs of the proceedings. These are discussed in two cases that I mention below.
42 In Higgins v Nicol (No 2) (1972) 21 FLR 34, Joske J observed at (57-58):
"I see no reason why [the costs of attempting to arrive at a compromise] should not be regarded as part of the course of the hearing and be allowed for on a party and party taxation just as much and in the same way as the calling and examination of witnesses is part of the course of the hearing and is allowed for on taxation. What is to happen when, as happened in this very case, suggestions for a settlement come from the court itself?"
43 Mansfield J in Charlick Trading Pty Ltd v Australian National Railways Commission [2001] FCA 629 expressed the same notion (at [92]):
"I do not accept the proposition … that costs of negotiations to explore compromise of a claim should never be allowed on a party and party taxation. There is a substantial public interest, as well as private interest, in the resolution of disputes by negotiation or by mediation. It is not a common feature of litigious claims that the parties are required to consider, and often to participate in, pre-trial mediation. The Rules prescribe powers and procedures to that effect. Negotiation and mediation may resolve a dispute entirely. Apart from the benefit to the parties of such resolution, such an outcome saves the costs associated with the trial and releases judicial and court resources to deal with other matters. Negotiation and mediation often also partly resolve a dispute so as to enable the focus of the parties in litigation to be more confined, again with consequential savings of time and expense to the parties and to the benefit of the public. In my view, steps taken by the parties to confine the areas of their dispute will often be able to be categorised as necessary or proper for the attainment of justice. They will often facilitate the presentation of the case so as to enable a just result to be achieved in an expeditious and economic manner. Even if those processes do not in fact result in any consensual outcome, either totally or in relation to certain issues or matters which then do not require proof, it does not follow that the processes themselves were not necessary or proper for the purpose of [whether those costs are allowed on taxation]."
44 Mansfield J went on to say (at [93]):
"I do not consider that the line drawn by Holroyd J in Mackay v Hamilton [1905] VLR 457 at 460 - 461 between costs : "...incurred by a party for the simple purpose of making a settlement ... [and] costs incurred in fighting or prosecuting the action until from one cause or another it has to stop" is one which should continue to be rigidly given effect to. Indeed, his Honour recognised that costs incurred in seeking to procure a settlement may overlap with costs which would have been necessary for the prosecution of the action, and made allowance for that. But, in my view, in the light of the more modern approach to litigation discussed above, that sharply drawn line no longer exists."