COSTS - whether a modest allowance for the loss of the chance of deriving substantial income should be treated as substantial failure on that issue - whether failure of a claim for exemplary damages significant when aggravated damages justified by the same facts.

Andrews v Barnes (1887) 39 ChD 133 at 141

Preston v Preston [1982] 1 ALL ER 41 at 58

Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 202; (1988) 81 ALR 397

Colgate-Palmolive Company v Cussons Pty Limited [1993] FCA 536; (1993) 46 FCR 225 at 233

Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd (unreported, Federal Court, 3 May 1991) at 8

Ragata Developments Pty Ltd v Westpac Banking Corporation (unreported, Federal Court, 5 March 1993)

Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 3) (1979) 42 FLR 213 at 219

Australian Transport Insurance Pty Ltd v Graeme Phillips Road Transport Insurance Pty Ltd [1986] FCA 85; (1986) 10 FCR 177 at 178

Thors v Weekes (1989) 92 ALR 131 at 152

J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (WA Branch) (No 2) [1993] FCA 42; (1993) 46 IR 301);

Messiter v Hutchinson (1987) 10 NSWLR 525

Maitland Hospital v Fisher [No 2] (1992) 27 NSWLR 721

EMI Records Ltd v Ian Cameron Wallace Ltd [1983] Ch 59

Packer v Meagher [1984] 3 NSWLR 486

Australian Guarantee Corporation Ltd v De Jager [1984] VicRp 40; [1984] VR 483

Lenox Hewitt v Queensland Newspapers Pty Limited (unreported, SCACT, 18 July 1996)

Theophanous v Herald and Weekly Times Ltd [1994] HCA 46; (1994) 182 CLR 104

Chakravarti v Advertiser Newspapers Ltd [1998] HCA 37; (1998) 154 ALR 294

Lange v The Australian Broadcasting Corporation [1997] HCA 25; (1997) 189 CLR 520

1. That the defendant pay the plaintiff's costs of the action on a party and party basis.

1. On 3 July 1998 I found a verdict for the plaintiff and ordered that judgment be entered in his favour in the sum of $82,500. I reserved the question of costs.

2. The plaintiff has now applied for an order that the defendant pay his costs on an indemnity basis. On the other hand, the defendant not only maintains that costs should be payable only on a party and party basis but submits that it should be obliged to pay only two thirds of those costs since it was substantially successful on two issues which involved significant time during the trial.

3. The usual order for costs which a successful litigant is entitled to receive is, of course, on a "party and party" basis. A party who seeks an order on a more favourable basis than usual must point to some factor justifying an order of that kind. The most favourable order is one requiring that costs be paid on an indemnity basis. From time to time different tests have been suggested as to when a departure from the usual course of ordering costs on a party and party basis might be justified. In Andrews v Barnes (1887) 39 ChD 133 at 141 the Court of Appeal said that there was a general and discretionary power to award costs as between solicitor and client "as and when the justice of the case might so require". In Preston v Preston [1982] 1 ALL ER 41 at 58 Brandon LJ expressed the view that there should be some special or unusual feature in the case to justify a departure from the normal practice. This test seems to have been followed by Woodward J in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 202; (1988) 81 ALR 397. In Colgate-Palmolive Company v Cussons Pty Limited [1993] FCA 536; (1993) 46 FCR 225 at 233 Sheppard J said that most judges have resolved the particular case before them by dealing with the circumstances of that case and finding in it the presence or absence of factors warranting a departure from the usual rule. He also referred with approval to the view of French J in Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd (unreported, Federal Court, 3 May 1991) at 8 that the categories in which the discretion that might be exercised are not closed and noted that Davies J had expressed a similar view in Ragata Developments Pty Ltd v Westpac Banking Corporation (unreported, Federal Court, 5 March 1993).

4. It was submitted by Mr Wheelhouse, who appeared for the defendant, that indemnity costs were awarded only in "clearly exceptional cases or very limited circumstances". In fact, the discretion has been described as "absolute and unfettered", though it is clear that it must be exercised judicially: Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 3) (1979) 42 FLR 213 at 219; Australian Transport Insurance Pty Ltd v Graeme Phillips Road Transport Insurance Pty Ltd [1986] FCA 85; (1986) 10 FCR 177 at 178 and Colgate-Palmolive Company v Cussons Pty Limited at 230. The exercise of this discretion has been said to be appropriate where there is "some special or unusual feature in the case to justify the court in exercising its discretion in that way" (per Brandon J in Preston v Preston at 58). In Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd, Woodward J expressed the view, at 401, that it was appropriate to consider awarding costs on a solicitor and client or indemnity basis whenever it appeared that an action had been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success, because in such cases the action could be presumed to have been commenced or continued for some ulterior motive or because of some willful disregard of the known facts or the established law. His Honour observed that such cases were fortunately rare. However, it is one thing to acknowledge that circumstances justifying an order for indemnity costs occur infrequently and another to postulate some further test confining the ambit of the discretion in the manner suggested.

5. In Colgate-Palmolive Company v Cussons Pty Limited, Sheppard J referred to some of the circumstances which judges have thought would warrant the exercise of the discretion. These circumstances include making knowingly false or irrelevant allegations of fraud (referred to Woodward J in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd) and Gummow J in Thors v Weekes (1989) 92 ALR 131 at 152; misconduct causing loss of time to the court and other parties, (referred to by French J in Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd); the commencement or continuance of proceedings for an ulterior motive (referred to by Davies J in Ragata Developments Pty Ltd v Westpac Banking Corporation), or in wilful disregard of known facts or established law (referred to by Woodward J in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd and French J in J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (WA Branch) (No 2) [1993] FCA 42; (1993) 46 IR 301); the making of allegations which ought never have been made or undue prolongation of a case by groundless contentions (referred to by Davies J in Ragata Developments Pty Ltd v Westpac Banking Corporation; imprudent refusal of offers of compromise (see, for example Messiter v Hutchinson (1987) 10 NSWLR 525; Maitland Hospital v Fisher [No 2] (1992) 27 NSWLR 721); and contempt of court (Megarry V-C in EMI Records Ltd v Ian Cameron Wallace Ltd [1983] Ch 59. In addition, Brandon LJ allowed costs on a "common fund" basis in Preston v Preston because the solicitors for the party against whom costs were sought had caused increased expense by extreme dilatoriness and lack of proper co-operation in the conduct of proceedings. Orders for indemnity costs have also been made because the conduct of the opposing party constituted an abuse of the process of the court (Packer v Meagher [1984] 3 NSWLR 486 and Australian Guarantee Corporation Ltd v De Jager [1984] VicRp 40; [1984] VR 483).

6. Whatever may have been the position in earlier years it is now clear that in some circumstances the rejection of a reasonable offer of settlement and a refusal to make a realistic counter offer may be considered so unreasonable as to justify an order that costs be paid on an indemnity basis. In Quirk v Bawden (1992) 111 FLR 115 the Full Court of the Supreme Court of the Australian Capital Territory made it clear that a party would not necessarily be entitled to an order for indemnity costs merely because the judgment was for an amount which exceeded that which he or she had previously offered to accept. There must be a failure to act reasonably and that failure must be sufficiently serious to warrant the costs order sought.

7. In the present case Mr Tobin QC who appeared for the plaintiff submitted that the course of negotiations between the parties revealed an unreasonable rejection of various offers made by the plaintiff and an unreasonable failure to make adequate counter offers. He pointed out that by the time the plaintiff made his initial offer on 11 April 1996 the imputations relied upon had already been particularised in the statement of claim. Furthermore, the defendant had had the benefit of a letter of demand which not only placed the defendant on notice that any imputation that his decision to retire was precipitated by allegations of workplace harassment had been completely unfounded but also revealed that the defamatory publication had had an immediate and extremely embarrassing impact upon the plaintiff. It was in this context that the plaintiff had offered to accept the sum of $47,500 together with costs in the sum of $16,500. The offer was rejected by letter dated 16 April 1996.

8. Mr Wheelhouse submitted that the seemingly brusque rejection of this offer should not be regarded as unreasonable because the defendant's solicitor had made a judgment that the sum of $16,500 was unreasonably high and apparently reflected a claim for costs on an indemnity basis. I do not accept this submission. The writ was issued on 28 November 1994 and the defendant had more than 17 months in which to take a statement from the journalist who had written the offending article and otherwise assess the prospects of successfully defending the plaintiff's claim. It had also had ample opportunity to verify the plaintiff's assertion that his decision to retire had nothing to do with any allegation of workplace harassment. It had been informed that he had been humiliated by being told that he was no longer wanted as Master of Ceremonies at an important function in Melbourne when his involvement in that role had already been announced and that information could presumably have been verified if the defendant had had any reason to doubt it. If the decision was based upon some view as to the reasonableness of the amount claimed for costs then one would have expected some enquiry as to the basis upon which that amount had been calculated. No such enquiry was made. Furthermore, it is difficult to see how any view as to the amount claimed for costs could have warranted the outright rejection of the plaintiff's offer in relation to damages. I am satisfied it was unreasonable to reject the offer without seeking any explanation as to the amount claimed for costs and without indicating any willingness to negotiate.

9. On 23 July 1996 the defendants made what purported to be a final offer of settlement in the sum of $20,000 inclusive of costs. The defendants must have known that if the figure of $16,000 previously claimed for costs were to be taken at face value then this offer was derisory. Whilst the defendant's solicitors may have adhered to their view that the amount claimed for costs was unreasonable they had still not communicated this view to the plaintiff's solicitors or sought any explanation. Furthermore, they must have anticipated that the plaintiff may have incurred further costs in the time which had elapsed since his offer. I do not accept that this constituted a reasonable offer to settle the proceedings.

10. On 10 September 1996 the plaintiff made a further offer of $35,000 plus costs and disbursements "on a solicitor and client basis". The suggestion that costs should be paid on this basis was supported by reference to the then recent decision of Higgins J in Lenox Hewitt v Queensland Newspapers Pty Limited (unreported, SCACT, 18 July 1996). The defendant's solicitors replied by letter dated 13 September 1996 offering the somewhat puzzling suggestion that the offer would be void for uncertainty unless the scale under which the plaintiff was seeking costs were clarified and expressing the view that the plaintiff was not entitled to costs on an indemnity basis. However the letter did convey a counter offer of $25,000 plus costs on the Supreme Court scale as taxed or agreed. The offer was conditional upon "the usual terms of a release including a confidentiality clause".

11. It is true that the damages ultimately awarded were treble this sum even if the component for interest were ignored. Nonetheless, the offer was made prior to the plaintiff's answers to the defendant's interrogatories and in the circumstances an offer of $25,000 plus costs may have been a reasonable basis for negotiations had it not been for the requirement of a confidentiality clause. However, it should have been obvious to the defendant that the plaintiff was seeking to vindicate his reputation and the requirement of confidentiality might well be unacceptable.

12. Thereafter a course of negotiations ensued culminating in a Calderbank letter on 2 April 1998 offering the sum of $65,000 plus costs. Mr Tobin pointed out that on any view this offer exceeded the amount which the plaintiff had initially offered to accept some two years earlier. He maintained that if the defendant had taken a realistic approach to the case at that time or shortly thereafter all of the costs occasioned by the ensuing proceedings would have been saved. Indeed, he pointed out that the plaintiff had subsequently reduced his offer yet it had still been rejected. It had taken some three and a half years after the institution of proceedings for the defendant to make an offer reasonably commensurate with the measure of damages which the plaintiff was likely to receive.

13. Whilst these observations were valid, an order for indemnity costs is not necessarily justified by one or more unreasonable decisions in the course of negotiations or by subsequent offers which proved to be significantly less than the damages ultimately awarded. The real question is whether the conduct of the defendant has been so unreasonable that a departure from the normal practice is warranted and an indemnity costs order justified.

14. Mr Tobin also relied upon the fact that the defendant had pleaded several defences which it abandoned only late in the proceedings. In Lenox Hewitt v Queensland Newspapers Pty Limited Higgins J took the view that costs should be paid on an indemnity basis because the defendant should have appreciated that it had no substantive defence and had it done so much of the proceedings might have been avoided. Mr Tobin contended that the same conclusion should be drawn in relation to the present proceedings.

15. The defendant's initial defence filed in March 1995 had included pleas of qualified privilege, contextual truth and what was referred to as "the constitutional defence" following the decision of the High Court of Australia in Theophanous v Herald and Weekly Times Ltd [1994] HCA 46; (1994) 182 CLR 104. Mr Tobin submitted that the filing for these defences had the effect of perpetuating the allegations thereby inflaming the plaintiff's hurt feelings and consternation and that they had led to an unnecessary increase in costs of the action. The constitutional defence was withdrawn shortly prior to trial and the defence of qualified privilege was abandoned on the second day of the trial. The plea of the defence of contextual truth was also withdrawn at trial.

16. Mr Wheelhouse did not attempt to persuade me that the defence of qualified privilege had been potentially viable at some stage and in my view it was always doomed to failure.

17. Mr Wheelhouse did maintain that the defence of contextual truth was withdrawn only because of the decision of the High Court in Chakravarti v Advertiser Newspapers Ltd [1998] HCA 37; (1998) 154 ALR 294. Mr Tobin submitted that this explanation should not be accepted because only two of the five judges in that case had suggested that such a defence was contrary to principle and those comments had been strictly obiter. In any event, there is a statutory basis for such a defence at least in relation to publications in New south Wales. He maintained that the defence was unreasonably pleaded and unreasonably maintained.

18. It is true that, as Director of the Australian War Memorial the plaintiff was a significant public figure and at least until the decision of Lange v The Australian Broadcasting Corporation [1997] HCA 25; (1997) 189 CLR 520 the defendant may not have been acting unreasonably in maintaining some hope that the principles recognised in Theophanous v Herald and Weekly Times Ltd might be extended to the plaintiff's claim.

19. However, the defence of contextual truth alleged in essence that other imputations, including presumably the allegation that the Merit Protection Review Agency was investigating complaints of workplace harassment at the Australian War Memorial, were true and that in that context the reputation of the plaintiff was not injured by the imputations of which he complained. Such a defence was in my view bound to fail because the imputations of which he complained were based upon the implication that he had retired prematurely in order to avoid findings that he had been guilty of workplace harassment or that his retirement was otherwise precipitated by those allegations. Nonetheless, the need to distinguish between injury to the plaintiff's feelings and reputation caused by those imputations and any such injury caused by the announcement of the inquiry arose in any event in relation to the question of damages. Accordingly, the maintenance of the defence was unlikely to have added significantly to the cost of the litigation.

20. Finally, Mr Tobin relied upon the conduct of the defendant in publishing such damaging imputations in the circumstances which I found warranted aggravated damages. That conduct is of some relevance to the present application but it should be remembered that it has already led to an award of aggravated damages. Such conduct does not of itself provide justification for the imposition of the further sanction of indemnity costs.

21. Overall, I accept that the present case does display some of the features that were held to justify an order for indemnity costs in Lenox Hewitt v Queensland Newspapers Pty Limited. In particular, I think that the defendant should have realised that it had no viable defence to the overall claim made by the plaintiff. That claim related to a defamatory statement the publication of which had been attended by aggravating circumstances. Yet it initially adopted an unreasonable approach to settlement negotiations and certainly rejected reasonable offers made on behalf of the plaintiff. Whilst it did ultimately make an offer reasonably commensurate with the likely range of damages it did so only very late in the proceedings. Indeed, Mr Tobin maintained that by the time the defendant made its final offer the costs of the litigation had been so substantial that an award of costs of a party and party basis would have left him "almost out of pocket". The defendant also pleaded and maintained some defences which were plainly untenable.

22. However, this was not a case in which the litigation might well have been avoided if the defendant had not pleaded those defences or had accepted the need to abandon them earlier. There were real issues as to the nature of the imputations which the defamatory statement bore and those issues had important implications for the assessment of damages. In fact I rejected the plaintiff's contentions as to some of the imputations alleged. Nor is it a case in which there had been no apology.

23. Ultimately, I am required to make a judgment as to whether the conduct of the defendant was in all of the circumstances so unreasonable as to justify an order for indemnity costs. Whilst I think that the defendant's conduct is open to criticism in the manner which I have mentioned I have ultimately concluded, albeit with some misgivings, that it falls short of that standard. Accordingly, in the exercise of my discretion I reject the plaintiff's application that his costs be paid on an indemnity basis.

24. In support of his contention that the plaintiff should be entitled to only two thirds of his costs Mr Wheelhouse relied upon two matters.

25. First, he contended that the defendant had been substantially successful in relation to the plaintiff's claim that he had suffered significant economic loss as a result of the defamation. It is true that the particulars provided by the plaintiff refer to potential earnings of a substantial amount and that he ultimately obtained only a relatively modest allowance for the loss of the chance that he might have been able to obtain some work of the kind particularised. However, the correspondence suggests that this aspect of the plaintiff's claim had always been based upon the loss of the chance of obtaining earnings of this nature. The mere fact that I ultimately attributed a fairly low value to the loss of that chance does not mean that the plaintiff should be treated as having failed on this issue. It might have been otherwise had the defendant conceded that some allowance should be made in respect of that issue but it in fact maintained that there had been no loss whatever.

26. Secondly, Mr Wheelhouse relied upon the fact that the plaintiff had wholly failed on the issue of exemplary damages. However, as Mr Tobin pointed out, the plaintiff succeeded on the issue of aggravated damages and the facts relied upon in relation to that issue were the same as those relied upon in relation to the claim for exemplary damages. In any event, neither issue consumed a great deal of time at the trial.

27. In all the circumstances I reject the defendant's contention that the plaintiff is entitled to only a proportion of his costs but propose ordering that they be paid on a party and party basis.

28. This may mean that the plaintiff will not recover all the expense which he has incurred. However there are no grounds to fear that a taxing officer would take an unduly niggardly to the approach to the taxation of costs on a party and party basis. In my view the complexity of the matter and the importance to the plaintiff of obtaining a verdict which might be seen to vindicate his reputation plainly warranted the briefing of senior counsel from the earliest stage of the proceedings. Mr Tobin also submitted that I should certify that it had been appropriate to make written as well as oral submissions. Mr Wheelhouse had also made written submissions and he did not suggest that it had been inappropriate for such submissions to be made on behalf of the plaintiff. In these circumstances I do not think it is necessary to make any order about the matter but I do record the fact that I found them of great assistance and that in my opinion the reasonable cost of preparing them was amply justified.

I certify that this and the eleven (11) preceding pages are a true copy of the Reasons for Judgment herein of his Honour, Justice Crispin.

Counsel for the Plaintiff: Mr T Tobin QC with Mr P Hohnen