Mr Ashby, now the chief of staff to One Nation leader Pauline Hanson, wants the Federal Court to overturn the finance department's original call to reject his application for a grace payment.

Under the Public Governance, Performance and Accountability Act, Finance Minister Mathias Cormann can authorise one or more payments to a person if he considers it appropriate due to special circumstances.

Mr Ashby sued Mr Slipper in 2012, claiming his boss sent inappropriate text messages and made lewd remarks.

After two years in the courts, Mr Ashby dropped the sexual harassment legal action against the former Queensland MP as it approached trial.

In documents for the current case, Mr Ashby's lawyers say the Commonwealth created a power imbalance in the 2012 proceedings when a minister in the Gillard government permitted a grace payment for Mr Slipper's legal costs.

Barrister John Hyde Page on Friday suggested the parties enter mediation before the Federal Court reviews the department's decision.

"We believe this matter is highly amenable to a negotiated outcome," he told the court on Friday.

But Justice Robert Bromwich warned court-ordered mediation could be a "waste" of money and time if both parties weren't willing to bargain.

Joanna Davidson, for the Commonwealth, said her client "certainly" sought to defend the legality of the proceedings.

Mediation was relatively unlikely in a judicial review case, particularly one that wasn't "fact-intensive", she said.

But the Commonwealth would be open to proposals if it were to be persuaded of a fundamental legal flaw in the original decision from June 19.

That decision, outlined in an 11-page letter attached to Mr Ashby's current court action, states Mr Slipper's grace payment was motivated by a gap in the liability insurance coverage available to all MPs.

"Mr Ashby chose to pursue litigation where alternate and potentially more economical options were available to him to seek a remedy in relation to his matter," risk and claims branch assistant secretary Gareth Sebar said in the letter.

"Mr Ashby's position, as the instigator of the legal action, is not analogous to that of Mr Slipper."

The One Nation staffer's lawyers say the letter failed to properly deal with a principal argument in the application and argues their client was "a whistleblower acting for a public purpose".

Mr Ashby also disputed his control over the 2012 proceedings, pointing to Mr Slipper's motion to have the case struck out as an abuse of process - overturned on appeal in 2014 - taking up substantial time.

In the alternative, Mr Ashby is seeking damages under the Fair Work Act arguing the June decision constitutes an adverse action against an employee exercising a workplace right.

The case will proceed to hearing on October 22.

Australian Associated Press