New South Wales Supreme Court CITATION : Mead & Anor v Allianz Australia Insurance Ltd [2007] NSWSC 500 HEARING DATE(S) : 15/05/07 JUDGMENT OF : Bergin J EX TEMPORE JUDGMENT DATE : 15 May 2007 DECISION : Application refused CATCHWORDS : [MEDIATION] - consensual referral to mediation - order that parties share equally in costs of mediator - mediation unsuccessful - parties settle subsequent to mediation on basis including an order that the defendant pay "the plaintiffs' costs of these proceedings" - application by plaintiffs for order that "costs incurred by the plaintiffs in connection with the court ordered mediation be costs of the plaintiffs of the proceedings on a party/party basis". CASES CITED : Innovative Agricultural Products Pty Limited & Ors v Richard Crawshaw [1996] 758 FCA 1 Medulla v Abdel Hameed [2003] NSWSC 747 Colin Anthony Mead (first plaintiff) PARTIES : David Patrick Watson (second plaintiff) Allianz Australia Insurance Ltd (defendant) FILE NUMBER(S) : SC 50143/05 COUNSEL : DJ Fagan SC (first and second plaintiffs) PR Garling SC/G Doherty (defendant) SOLICITORS : Etheringtons Solicitors (first and second plaintiffs) Tresscox Lawyers (defendant) - 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST BERGIN J 15 MAY 2007 50143/05 COLIN ANTHONY MEAD & ANOR v ALLIANZ AUSTRALIA INSURANCE LIMITED JUDGMENT 1 This is a matter that was listed for hearing for five days commencing on 14 May 2007. That listing was made on 14 November 2006. On that day orders were made vacating a previous trial date of four days on 26 February 2007 for reasons that I do not need to detail. However, on that occasion I made consent orders referring this matter to mediation and that the mediation occur no later than 22 March 2007. There was also an order that "the parties are to share equally in the mediator's costs". 2 The consent orders were varied extending the time within which the mediation was to occur. Mediation took place on 5 April 2007 with the Honourable Trevor Morling QC. That mediation was governed by a Mediation Agreement, the first page of which is in evidence before me. Clause 2 of that Agreement between these parties was as follows: 2. The parties agree to be liable for payment of the mediator's fees in the following proportions: To be borne equally between the parties [the plaintiffs-50% and Allianz-50%] and if the mediation is not successful, then the plaintiffs reserve their rights to make an application at the hearing of Supreme Court of NSW proceedings No 50143/05, or at any relevant time thereafter, that Allianz pay the plaintiffs' costs of the mediation. 3 The mediation was unsuccessful. Offers of Compromise were exchanged on 11 April 2007 and the defendant accepted the plaintiffs' Offer of Compromise on 27 April 2007. The Offer of Compromise made by the plaintiffs was in the following terms: The Plaintiffs offer to compromise these proceedings on the following basis: 1. That the defendant indemnify the second plaintiff for damages for which he is liable under Order No. 6 made by Gzell J on 16 December 2004 in the Supreme Court, Equity Division, proceedings No. 1933 of 2001. 2. That the defendant pay the second plaintiff an amount of $1,000,000.00 in full and final settlement of the indemnity that the second plaintiff claims in prayer 1 of the summons filed in these proceedings on 21 September 2005. 3. That the defendant pays the plaintiffs' costs of these proceedings as agreed or assessed on a party/party basis. 4. This offer is made in accordance with Rule 20.26 of the Uniform Civil Procedure Rules. 5. This offer is open until 5pm 7 May 2007. 4 The proposed Short Minutes of Order reflect paragraphs 1 to 3 of that Offer of Compromise with the addition of paragraph 4 that, "The proceedings otherwise dismissed". 5 The parties notified my chambers that the matter had settled and the hearing was vacated. On 9 May 2007 the defendant's solicitors wrote to my Associate requesting that the matter be listed today for the purpose of making final orders for the disposition of the matter and also to address one outstanding issue between the parties, the question of costs of the mediation which took place on 5 April 2007. 6 Mr Fagan SC, who appears for the plaintiffs today, submits that as a matter of principle, "costs of the proceedings" in proposed Order 3 should include costs of the mediation. He submitted that from a policy point of view there should be no disincentive to parties mediating and certainly no impediment put in the path of parties who seek to mediate their differences. He submitted that an order that does not include costs of the mediation may, in fact, act as a significant disincentive to parties' willingness to mediate. 7 As a matter of principle, it is always important to assist parties to settle their disputation without the need to go to trial or the need for costly litigation. On the other hand, where parties proceed to mediation on a particular basis and/or settle their differences on a particular basis it is important that the integrity of those steps are not adversely affected by a Court order or declaration intruding over the top of it. In this case the parties reached an agreement in terms of the plaintiffs' Offers of Compromise. Mr Garling SC, who appears for the defendant today leading Mr Doherty, submitted that it is not clear what the plaintiffs are seeking from the Court. Mr Fagan submitted that it is appropriate for the Court to indicate in circumstances such as these what is included in the costs so that the costs assessor may be able to assess the costs with more precision. During the course of submissions Mr Fagan crafted an order in the following terms: "Costs incurred by the plaintiffs in connection with the Court ordered mediation be costs of the plaintiffs of the proceedings". In response to Mr Garling's submission that the proposed order was vague and perhaps open to a number of interpretations, Mr Fagan sought to amend the order by adding the words, "on a party/party basis". 8 In resisting any order other than the orders that have been agreed between the parties, Mr Garling relied on Innovative Agricultural Products Pty Limited & Ors v Richard Crawshaw [1996] 758 FCA 1 and Medulla v Abdel Hameed [2003] NSWSC 747. In Innovative Agricultural Products Lee J dealt with an application by the respondents to have the costs of the time spent in and preparing for pre-trial mediation conferences included in the costs of litigation. His Honour said at page 4: I consider that unless there are unusual circumstances which require such an order, for example, circumstances to which Order 62 r 36 of the Federal Court Rules apply, no order should be made that the costs of any party incurred in the conduct of mediation proceedings are to be included in the costs of the litigation. Mediation is a consensual proceeding in which the parties are encouraged to resolve or compromise their differences without subjecting themselves to the risks and the costs of a trial. It is in the public interest that parties be encouraged to undertake mediation proceedings without being concerned that additional party and party costs will be incurred if they do so. 9 Medulla v Abdel Hameed was a unique case in which Austin J awarded damages of $86.50 for trespass. There was a real issue about whether costs should be awarded in that case. His Honour set out the history of the parties' attempts to mediate and declined the plaintiff's application that the costs of the mediation be included in the costs of litigation. In that case the mediation did not take place as a result of any direction by the Court, although Austin J had encouraged it. 10 In the present case the parties decided to settle their differences subsequent to the mediation. Mr Fagan relies upon paragraph 2 of the Mediation Agreement referred to above and emphasises the plaintiffs' reservation of their rights to make an application "at any relevant time" either during the proceedings or after the proceedings that the defendant pay the plaintiffs' costs of the mediation. That, of course, is not what is being sought here. The order sought is not that the defendant pay the plaintiffs' costs of the mediation. The parties decided to settle all their differences with an order that the defendant pay the plaintiffs costs of these proceedings as agreed or assessed on a party/party basis. At the time they did that on 27 April 2007 it seems to me that any right that was reserved in the plaintiff to make an application for the costs of the mediation was subsumed into or waived by the agreement that was reached. 11 I agree that the Court should not put any impediments in the way of parties mediating and I agree that the Court should be careful not to create significant disincentives to parties going to mediation, however it is important that parties ensure that the arrangements they make for themselves in respect of what costs will be paid are clear when they reach an agreement to settle their disputes. 12 It seems to me that this is really an application for me to construe an agreement that was reached between the parties; that is, whether that in agreeing that "the defendant pay the plaintiffs' costs of the proceedings" the parties intended that such costs included the costs of the mediation. 13 The only evidence that is before me which may assist in the construction of the agreement reached between the parties is paragraph 2 of the Mediation Agreement. That seems to me to favour the defendant's position; that is, the parties were before the mediator sharing his costs equally and, on one view of it, sharing the whole of the costs equally, but if the mediation was unsuccessful there was the residuum; that is, the plaintiffs' reservation of their rights to make an application for a separate order that the defendant pay the costs of the mediation. It seems to me that such right was given up when the defendant agreed to the Offer of Compromise that made no mention of the costs of the mediation. It also seems to me that when the parties entered into the Mediation 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. 14 Notwithstanding that there is no particular Motion before me I have entertained this application to try to assist the parties to finalise their differences. It seems to me, however, that to make an order as sought by Mr Fagan would be inconsistent with the agreement reached between the parties and, in any event, as a matter of policy it would not be appropriate to make such an order in circumstances where a consensual order for mediation was made; a Mediation Agreement was entered into; and a compromise was reached between the parties. 15 In all the circumstances, I refuse the plaintiffs' application. By consent, I make the orders in the Short Minutes of Order initialled by me and dated today. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.