CJZ Pty Ltd v Giant Dwarf Pty Ltd; CJZ Pty Ltd v Morrow

Court of Appeal (NSW)|2023-09-25|Before: Ward P, Mitchelmore JA, Adamson JA, Stevenson J

Solicitors: Bird & Bird (Applicants) Kay & Hughes (Respondents) File Number(s): 2022/214060; 2022/214083 Decision under appeal Court or tribunal: Supreme Court Jurisdiction: Equity Citation: The Checkout Pty Ltd v Cordell Jigsaw Productions Pty Ltd; Morrow v Cordell Jigsaw Productions Pty Ltd (No 13) [2022] NSWSC 444 The Checkout Pty Ltd v Cordell Jigsaw Productions Pty Ltd; Morrow v Cordell Jigsaw Productions Pty Ltd (No 14) [2022] NSWSC 835 Date of Decision: 13 April 2022; 23 June 2022 Before: Stevenson J File Number(s): 2019/343896; 2020/264993

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

The costs of the Defamation proceedings

The 2020 offer and the 2023 offer will be addressed in turn.

The facts

Mr Morrow commenced the Defamation proceedings on 11 September 2020. On 24 September 2020, Mr Murray sent an email to Mr Morrow's solicitor, Ben Kay. Mr Murray contended, in the narrative set out in the letter, that any loss of reputation which Mr Morrow had suffered had "nothing to do with [Mr Murray] or [his] actions." It contained the 2020 offer, which was a without prejudice offer to settle the proceedings on the basis that Mr Morrow discontinue the Defamation proceedings by 5pm on 30 September 2020, with each party to bear his own costs. This offer was rejected on 28 September 2020.
A further offer was made on 30 September 2020, which extended the previous offer to 9.30am on 1 October 2020. In this offer, Mr Murray said in part: "Without Prejudice Save as to costs: … While my deadline has just passed, before I brief Bird & Bird to act for us, I wanted to check whether you wanted to rethink your client's dismissal of the opportunity to discontinue the action without incurring costs. I have attached examples of the documents which go to the core of both the supposed defamation, the reputational question and damages (ie the reason the ABC decided not to proceed with a consumer affairs program with your client.) 1. The 'Melkman Report' dated 1 April 2019 showing that in late March, the ABC and your client colluded to withhold key information from me and CJZ in the lead up to the finalisation of the Share Sale Agreement. 2. An internal ABC email dated 27 Nov 2019 [sic] detailing a conversation with a former business partner of your client which quite specifically questions your client's treatment of cast and crew together with other extremely serious issues. 3. A detailed brief to ABC management recommending the cessation of dealings with your client due to behavioural and other problems with the relationship between him and the ABC. … This material is the tip of the iceberg. It is highly damaging for your client and if he continues the defamation action, we will aggressively lead this evidence both as a defence and a mitigating factor in assessing damages and reputation of your client. Let me know before 9:30am tomorrow if he wants to discontinue. Otherwise I will brief Bird and Bird to act …"
The brief referred to in paragraph 3 of the above extract contained the following: "PROPOSAL: To cease discussions with Giant Dwarf on The Help Desk, given ongoing significant reputational risk to the ABC, irreconcilable creative differences and the irreparable breakdown in our working relationship with Julian Morrow. … REPUTATIONAL RISK • The reputational risk and damage to the ABC from continuing to work with Julian on The Help Desk is significant and ongoing, as evidenced recently by: ○ His unauthorised and misleading disclosure of confidential correspondence with a senior ABC manager, prompting public criticism of the ABC on social media and across several media outlets. ○ Simultaneously, his ongoing public campaign to pressure the ABC to recommission The Checkout, including orchestrating an online petition, posting social medial videos and contributing to online articles, has prompted further public criticism. ● Julian's recent actions have compounded the substantial and ongoing reputational damage he caused the ABC and its employees … including: ○ His decision to block ABC administrators from The Checkout social media accounts, enabling him to make misleading and damaging claims, such as: ▪ Falsely claiming the program had been "axed". ▪ Falsely drawing a link between the ABC's decision and the Federal Government's indexation freeze. ▪ Falsely claiming that a 7th series of The Checkout was about to go into production. … ● This pattern of behaviour over a significant period of time indicates a willingness to expose the ABC to unfair and substantial public criticism and reputational damage, whenever it suits his purposes. … CREATIVE DIFFERENCES … ● His consistent behaviour … demonstrates clear and irreconcilable creative difference[s] … RELATIONSHIP BREAKDOWN ● Julian's actions over time have damaged the ABC's ongoing relationship with Giant Dwarf and undermined this partnership in respect of future programs. … ● Julian's communications with ABC personnel … are increasingly intemperate, aggressive, adversarial and abusive. His conduct is tantamount to bullying and is impacting the wellbeing of ABC staff … … RECOMMENDATION ● The ABC cease discussions with Giant Dwarf on The Help Desk, given ongoing significant reputational risk to the ABC, irreconcilable creative differences and the irreparable breakdown in our working relationship with Julian Morrow. …"
The recommendation in the brief was accepted and ABC ceased discussions with Mr Morrow and Giant Dwarf for a proposed new consumer affairs program, to be entitled The Help Desk, on 5 December 2019.
The offer of 30 September 2020 was not accepted.

Consideration

Section 40 of the Defamation Act relevantly provides: "40 Costs in defamation proceedings (1) In awarding costs in defamation proceedings, the court may have regard to - (a) the way in which the parties to the proceedings conducted their cases (including any misuse of a party's superior financial position to hinder the early resolution of the proceedings), and (b) any other matters that the court considers relevant. (2) Without limiting subsection (1), a court must (unless the interests of justice require otherwise) - … (b) if defamation proceedings are unsuccessfully brought by a plaintiff and costs in the proceedings are to be awarded to the defendant - order costs of and incidental to the proceedings to be assessed on an indemnity basis if the court is satisfied that the plaintiff unreasonably failed to accept a settlement offer made by the defendant. (3) In this section - settlement offer means any offer to settle the proceedings made before the proceedings are determined, and includes an offer to make amends (whether made before or after the proceedings are commenced), that was a reasonable offer at the time it was made."
At the time the 2020 offer was made, the material which tended to establish that Mr Morrow was the author of the damage to his reputation was available and was furnished to him by the applicants in order to persuade him to walk away from the proceedings. While the matters complained of were defamatory, it was inevitable that the measure of damages awarded to Mr Morrow, even if he was successful in defeating the defences raised (including truth and qualified privilege), would be exceeded by the amount of his costs. This is not an uncommon result of defamation proceedings.
In effect, the 2020 offer was an offer the acceptance of which required Mr Morrow to capitulate entirely, neither on the basis that the matters complained of were not defamatory, nor that they were communicated on an occasion of qualified privilege, but rather, that Mr Morrow's loss of reputation within the ABC had been brought about by his own conduct and not by the publication of the matters complained of.
A "walk-away" offer may, in some circumstances, amount to a genuine compromise (Leichhardt Municipal Council v Green [2004] NSWCA 341). However, in circumstances where Mr Murray had not retained solicitors in respect of the Defamation proceedings, he was, in effect, giving up nothing, whereas if Mr Morrow accepted the offer, he would lose the chance of recouping the costs he had already incurred in commencing proceedings as well as of vindicating his potential rights and being awarded damages. There was, in these circumstances, little for Mr Morrow to gain by accepting the offer, as adjudged from his point of view at the time it was made.
In these circumstances, I am not persuaded that Mr Morrow unreasonably failed to accept the 2020 offer. Thus, Mr Murray and CJZ are not entitled to indemnity costs on the basis of the 2020 offer. It is, accordingly, not necessary to address the further submissions made on behalf of Mr Morrow, including as to the alleged disentitling conduct by Mr Murray and CJZ; that the period for which the 2020 offer was open was insufficient; or that Mr Morrow was entitled to vindication in respect of the imputations of fraud.

The facts

The 2023 offer was made on 6 April 2023 in the following terms: "1. This offer of compromise (Offer) is made by the first applicant and second applicant (Applicants) to the respondent, in accordance with rules 20.26 and 51.47 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR). 2. For the purposes of, and pursuant to rules 20.26(2)(a)(i) and 51.47 of the UCPR, this Offer relates to the whole of the Applicants' claim, as specified in the summons seeking leave to appeal filed in these proceedings on 21 September 2022 and draft notice of appeal included in the White Folder at Tab 6 (Defamation Appeal). 3. Pursuant to rules 20.26(2)(a)(ii) and 51.47 of the UCPR, the proposed orders for the entirety of the Defamation Appeal are: (a) The Defamation Appeal is discontinued; (b) Order (1) made on 23 June 2022 at paragraph [141] of The Checkout Pty Ltd v Cordell Jigsaw Productions Pty Ltd (No 14) [2022] NSWSC 835 (23 June 2022 Orders) is permanently stayed; (c) Order (2) of the 23 June 2022 Orders is permanently stayed; (d) Order (4) of the 23 June 2022 Orders is permanently stayed; and (e) Each party to bear its own costs in the Defamation Appeal and the proceeding below. 4. For the purposes of and pursuant to rules 20.26(2)(f), 20.26(5)(b) and 51.47 of the UCPR, this offer is open for acceptance for a period of 21 days."
In order to understand the offer, it is necessary to set out the orders made by Stevenson J (the primary judge) on 23 June 2022 in the Defamation proceedings, which were relevantly as follows: "1. Order that the defendants pay the plaintiff: (a) general damages of $30,000; (b) aggravated damages of $5,000. 2. Order that the defendants pay the plaintiff interest, including interest on costs from 5 July 2019, at the rate of 3.5%. 3. Note the undertaking given to the Court by the second defendant, on his own behalf, and on behalf of the first defendant that he will not publish any statement to the effect that the plaintiff engaged in fraud against the first defendant. 4. Order that the defendants pay the plaintiff's costs of the proceedings. …"

Consideration

The offer met the requirements of UCPR, r 20.26. Had the offer been accepted, the orders proposed in the offer, when made, would have deprived Mr Morrow of the judgment and the order for costs in the Defamation proceedings but protected him from the possibility that this Court would allow the appeal in the Defamation proceedings and make a costs order against him for the costs of the appeal and/or the costs of the hearing before the primary judge. The orders made by this Court in the principal judgment with respect to the Defamation proceedings set aside the judgment in his favour and the order for costs and ordered him to pay the costs of the hearing before the primary judge and of the appeal. This is a considerably worse result for Mr Morrow than had he accepted the offer (the costs can be assumed to be substantial as the hearing before the primary judge, including the costs argument, lasted for 11 days and the hearing in this Court lasted for three days).
It was submitted on behalf of Mr Morrow that the 2023 offer amounted to a request for "total capitulation", particularly as it would have left the appeal and cross-appeal in the Commercial proceedings (which were heard together with the appeal in the Defamation proceedings) on foot. Thus, it was submitted, any savings in costs were likely to be trivial. Further, it was put on behalf of Mr Morrow that he had an interest in defending the undertakings which had been made to Stevenson J (from which Mr Murray was released by this Court on 20 June 2023). Mr Morrow also submitted that settling the Defamation proceedings on the basis proposed in the 2023 offer would leave him open to imputations which conveyed that he was fraudulent from which he was protected by the undertakings noted by the primary judge in the orders made on 23 June 2022.
While the time allocated to the appeal and cross-appeal in the Commercial proceedings and the appeal in the Defamation proceedings was allocated on the basis of all of the matters in issue, the appeal from the orders in the Defamation proceedings comprised a substantial area of dispute which took considerable time to argue before this Court. Had the Defamation proceedings been resolved, there would have been a material saving in cost and time, for both parties and for the Court.
Had Mr Morrow accepted the 2023 offer, he would have been in a considerably better position than he is in now as a result of prosecuting the appeal because he would have avoided being liable to pay the applicants' costs of the Defamation proceedings at first instance and on appeal. Further, he would have had the benefit of the undertakings noted by the primary judge (in (3) of the orders made on 23 June 2022) from which the applicants did not seek to be released in the 2023 offer. Accordingly, unless this Court otherwise orders, the applicants are entitled to their costs of the appeal in the Defamation proceedings on an indemnity basis from the day following the date of the offer (7 April 2023): UCPR, r 42.15.
The 2023 offer was open for acceptance for 21 days (from 6 April 2023 until 27 April 2023). When the offer was made, all the parties' written submissions on the appeal had been filed (CJZ's reply submissions having been filed on 20 February 2023). The day on which the offer expired, 27 April 2023, was 25 days before the appeal was listed to commence. This period was significant since the appeal was listed for 2-3 days. Had the offer been accepted, the costs of the preparation for the oral hearing of the appeal would have been considerably reduced.
It is also of some significance that Mr Morrow himself offered (by Offer of Compromise dated 28 February 2023) to settle the Defamation proceedings on an identical basis to that offered by the applicants on 6 April 2023. His offer, however, was tied to acceptance of a related offer (which was not acceptable to the applicants) which would have resolved the Commercial proceedings. The existence and terms of Mr Morrow's offer provides support for the submission that the 2023 offer amounted to a genuine compromise of the Defamation proceedings. The applicants, in these circumstances, were entitled to expect that, if the 2023 offer was not accepted and they achieved a better result in the appeal, there would be no reason to displace the consequences for which the UCPR provided.
In these circumstances, the 2023 offer ought be seen as offering a substantial benefit to Mr Morrow and, therefore, constituted a genuine offer of compromise. Mr Morrow's non-acceptance of that offer was unreasonable.

Whether an order for restitution ought be made

The applicants relied in support of their application for this order on unchallenged evidence which established the following. On 24 April 2023, the applicants paid to Mr Morrow, in compliance with orders (1) and (2) made by Stevenson J on 23 June 2022, the sum of $39,638.22 (the judgment sum) by electronic bank transfer. Receipt of this sum was acknowledged by Mr Morrow's solicitor.
On 26 June 2023, following publication of this Court's decision on the appeal on 20 June 2023, the applicants' solicitors sent a letter of demand to Mr Morrow's solicitor, asking that the judgment sum be repaid. Further demands have been made for repayment of that amount. No response to these demands has been received.
The applicants are plainly entitled to the return of the amount paid pursuant to a judgment which has been set aside. Having regard to the delay on the part of Mr Morrow in returning the sum to the applicants, I am satisfied that it is appropriate that the Court order him to repay the judgment sum. It is appropriate, in the circumstances, that this order be expressed as a judgment rather than an order to pay to aid enforcement, if this be necessary.

The costs of the appeal and cross-appeal in the Commercial proceedings

This Court's orders to dispose of the appeal and the cross-appeal in the Commercial proceedings included the following order: "(4) … order the respondents to pay the applicants'/appellants' costs of the appeal."
The applicants seek that this order be varied in two respects: first, that the costs of the cross-appeal be included in the order; and, secondly, that the liability for the costs be borne by the first respondent/second cross-appellant (Giant Dwarf) and the second respondent/third cross-appellant (Mr Morrow) and not by the third respondent/first cross-appellant (The Checkout Pty Ltd). The reasons for this is that CJZ is, as a result of this Court's order rescinding the Share Sale Agreement, a 50% shareholder of The Checkout Pty Ltd. To make CJZ, in effect, bear half the liability of complying with a costs order in its favour was not the intention of the Court's orders and would enable Giant Dwarf to profit from its own breach. In these circumstances, I am persuaded that the order sought by the applicants ought be made.

Proposed orders

For the reasons given above, I propose the following orders: In proceedings 2022/214060 (the Commercial proceedings) (1) Vary order (4) made on 20 June 2023 and, in lieu thereof, order that the first respondent/second cross-appellant and the second respondent/third cross-appellant pay the applicants'/appellants'/cross-respondents' cost of the appeal and the cross-appeal. (2) Order the respondent to pay the applicants' costs of the amended notice of motion filed on 25 July 2023. In proceedings 2022/214083 (the Defamation proceedings) (1) Vary order (4) made on 20 June 2023 and, in lieu thereof, order the respondent to pay the applicants' costs of the appeal: 1. on the ordinary basis up to and including 6 April 2023; and 2. on an indemnity basis from 7 April 2023. (2) Make the following further order and notation in the Defamation proceedings: (7) Judgment for the defendants in the sum of $39,638.22. (8) Note that the judgment sum in order (7) above constitutes reimbursement to the defendants of the sum paid by them to the plaintiff in compliance with orders (1) and (2) made by Stevenson J on 23 June 2022, following the setting aside of those orders by this Court on 20 June 2023. (3) Order the respondent to pay the applicants' costs of the amended notice of motion filed on 25 July 2023.

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. Decision last updated: 25 September 2023

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