JWR Productions Australia Pty Ltd v Duncan-Watt

THAWLEY J: 1 Judgment in these proceedings was delivered on 5 March 2020: JWR Productions Australia Pty Ltd v Duncan-Watt (No 2) [2020] FCA 236 (JWR Productions (No 2)). 2 The applicants in both sets of proceedings failed on each claim. They were ordered to pay the costs of the respective respondents, subject to any party applying for a different order as to costs. Both Mr Duncan-Watt and Mr Gooding, the successful respondents, applied for different orders as to costs: (1) Mr Duncan-Watt applied for indemnity costs: (a) from 11.00am on 6 September 2017 on the basis of a Notice of Offer to Compromise issued under r 25.01(1) of the Federal Court Rules 2011 (Cth) dated 4 September 2017; and (b) alternatively, from 11.00am on 21 February 2019, on the basis of a Calderbank offer made on 19 February 2019. (2) Mr Gooding applied for indemnity costs: (a) for the entire proceeding payable by the applicants, or alternatively by the second applicant, on the basis of s 43 of the Federal Court of Australia Act 1976 (Cth) (FCA Act) and s 40 of the Defamation Act 2005 (NSW); and (b) alternatively, from 21 February 2019, on the basis of a Calderbank offer.

Claim for indemnity costs 3 Rule 25.14(2) of the Rules provides: (2) If an offer is made by a respondent and an applicant unreasonably fails to accept the offer and the applicant's proceeding is dismissed, the respondent is entitled to an order that the applicant pay the respondent's costs: (a) before 11.00 am on the second business day after the offer was served - on a party and party basis; and (b) after the time mentioned in paragraph (a) - on an indemnity basis. 4 On 4 September 2017, Mr Duncan-Watt, by his solicitor, served a notice of offer to compromise. The Notice stated: The Respondent offers to compromise this proceeding. The offer is: 1. the Respondent return to the Applicants the documents (Documents) referred to in paragraph 29 of the statement of claim dated 23 February 2017 (SOC); 2. the Respondent's solicitors hold one copy of each of the Documents at its office, and undertake that those copies can only be used to defend or prosecute a claim in regards to them; 3. the Respondent remove any material on his website at that refers to the novel 5 ½ or any iteration of it as referred to at paragraphs 11-19 of the SOC; and 4. the Respondent pay to the Applicants $2,000. This offer is inclusive of costs. This offer of compromise is open to be accepted for 14 days after service of this offer of compromise. The amount of the offer will be paid within 28 days after acceptance of this offer. This offer is made without prejudice. 5 The main issue raised by r 25.14(2) for present purposes is whether the applicants unreasonably failed to accept the offer. If they did unreasonably fail to accept the offer, then Mr Duncan-Watt is "entitled" to an order for indemnity costs from 11.00am on 6 September 2017, because the applicants' claims were dismissed. No doubt the Court is not obliged to make an offer for indemnity costs, for example by applying r 1.35, but the evident object of the rule is to create an entitlement to indemnity costs if the facts mentioned in the rule subsist. Once a respondent has shown that the matters identified in r 25.14(2) exist, namely that an offer within the meaning of the rule was made, that the applicant's proceeding was dismissed and that the applicant's failure to accept the offer was unreasonable, it is for the applicant to establish the existence of circumstances and reasons why the order should not be made. 6 The applicants placed significant reliance on cases which concerned an earlier iteration of the present rule. Considerable care is required in applying these authorities. The previous rule, O 23 r 11 of the Federal Court Rules 1979 (Cth), included the words "unless the Court otherwise orders". The omission of these words has been said to strengthen the presumptive nature of the present rule: Lodestar Anstalt v Campari America LLC (No 2) [2016] FCAFC 118 at [23], [27]; Australian Skills Quality Authority v Western Institute of Technology Pty Ltd [2017] FCAFC 183 at [23]. In any event, it is the words of the present provision to which attention must be paid. 7 The applicants asserted that their failure to accept the first offer was not unreasonable. The applicants relied on the fact that there was no exposition accompanying the offer explaining why the applicants' claim must fail. There is no question that the reasonableness of a failure to accept an offer can be affected by whether an explanation was provided as to why the claim must fail. However, the significance of whether an explanation was provided to the reasonableness of the refusal inevitably depends on the particular facts and circumstances. Here, the applicants were well represented by experienced and competent legal practitioners. The terms of their letter of 27 September 2017, which expressly rejected the offer and proposed a different settlement, leave little room for concluding that any explanation by the respondent of the reasons why the claims would fail would have affected any decision or contributed in any material way to a decision to reject the offer. In addition, by the time of the offer, the parties had already exchanged their views about the strength of their respective cases and had attended a mediation. 8 The applicants submitted that, at the time of the first offer, the pleadings had closed, a mediation had taken place before a Registrar (19 June 2017) but no evidence had been filed by either side. It was said that the early stage of the proceeding alone made the rejection of the offer reasonable. I reject that submission. The making of an offer at that point in time was appropriate. The parties had presumably carefully considered their respective prospects for the purposes of engaging meaningfully in a mediation. They had exchanged views about their respective prospects before proceedings had commenced. The offer was made before the incurring of the significant expense of preparing evidence. One evident objective of rules such as r 25.14(2) is to encourage parties to give careful consideration to resolving their dispute at any appropriate stage, and an early stage of proceedings is often, if not generally, an appropriate time. 9 The applicants submitted that the offer was not an offer to settle the whole proceeding. This was said to arise out of the fact that the offer did not mention each and every claim pleaded. I reject that submission. The offer could only reasonably have been understood as one for settlement of the entire proceedings. The applicants submitted that there was no duty on the applicants to clarify the terms of the offer, referring to Specsavers Pty Ltd v The Optical Superstore Pty Ltd (2012) 208 FCR 78 at [60] (Foster, Barker and Griffiths JJ). The offer did not need clarification. The applicants were legally represented. No legal practitioner acting reasonably could have thought other than that the offer was one to resolve the entire proceedings. The applicants did not submit, or adduce evidence to the effect that, they did not consider the offer to be one to resolve the entire proceedings and the letter dated 27 September 2017 rejecting the offer, written by the applicants' solicitors, is not written in terms which suggest that they did not understand the offer to be one to settle the whole proceedings. 10 The applicants submitted that the offer was "not a real compromise in substance as it otherwise requires an effective capitulation and walk-away by the applicants before evidence". In this respect, the applicants relied upon Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2011] FCAFC 141 at [19]. The weight to be given to this factor depends on the circumstances and on the degree of compromise which the offer reflects. The circumstances included the following. First, I infer that the applicants brought the proceedings at least in part in response to the proceedings which had been brought against the applicants in the Supreme Court of New York. The Australian proceedings should be seen in the broader context of the whole dispute between the parties. The claims included at least one claim which was, in substance, invented - see: sections B.17 and F of JWR Productions (No 2). By the time the offer was made, the applicants must have known that Mr Duncan-Watt had incurred significant legal costs, including in relation to an attempt to settle the dispute through mediation. Potential recovery of those costs would be foregone by Mr Duncan-Watt, and Mr Duncan-Watt offered a payment to the applicants of $2,000, which I infer would not have covered the applicants' costs. I accept that Mr Duncan-Watt's offer was one which contained little compromise, but it did contain an element of compromise. The fact that the compromise from Mr Duncan-Watt's perspective related mostly to costs does not mean there was no element of compromise. The applicants knew the central facts on which their claims were based, including that one of the claims was, in substance, invented. The purpose of an award of costs is compensatory, not punitive: Oshlack v Richmond River Council (1998) 193 CLR 72. Nevertheless, a party's knowledge of the facts, being probative of the party's knowledge of the strength of the case brought, is relevant to the reasonableness of a rejection of an offer. In my view, the failure to accept the offer was not shown to be reasonable on the basis that the offer contained a low level of compromise, whether on that basis alone, or in combination with the other circumstances. 11 The applicants submitted (emphasis in original): Despite Mr Duncan-Watt's application being expressly based only on the rejection of two offers (DWS [5], [8]-[16]), the submissions advanced under "Overview" go well beyond that basis. The use of terms such as "spurious", "unmeritorious", "trifling prospects", "disregard of known facts" and "ulterior purpose" (see DWS [2], [7]) is redolent of other categories of cases in which the particular facts and circumstances might warrant an order other than on the ordinary basis: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 821 ALR 397 at 401 (Woodward J); Colgate Palmolive [Co v Cussons Pty Ltd (1993) 46 FCR 225] at 233-234; InterTAN Inc v DSE (Holdings) Pty Ltd [2005] FCAFC 54 at [11] ( Ryan, Finkelstein and Bennett JJ). That is not this case. Mr Duncan-Watt has not put his claim for indemnity costs on that basis, no doubt because it is a high threshold. He cannot sneak under that high bar under the cloak of asserted unreasonableness. Tellingly, no evidentiary foundation is put forward for the (extraordinary) proposition that the proceeding was for an "ulterior purpose" to "stifle" the NY proceedings. 12 As the applicants submitted, a claim for indemnity costs may be made on the basis that proceedings were conducted in disregard of known facts or for an ulterior motive. The focus of the line of cases of which Colgate Palmolive is an example is on the manner in which proceedings were commenced or conducted. That was not expressly the basis of Mr Duncan-Watt's claim for indemnity costs. However, it does not follow that, because certain facts and circumstances might have founded an argument for indemnity costs on one basis, those facts and circumstances cannot be relied upon in the assessment of whether the refusal of an offer was unreasonable. The principles with respect to indemnity costs consequent upon an unreasonable failure to accept an offer and the principles with respect to indemnity costs based upon a party's unsatisfactory conduct of proceedings have different fields of operation. That does not mean that they cannot both be informed by the same underlying facts. A party's prospects of success necessarily inform whether that party's failure to accept an offer was reasonable. A party's prospects of success are necessarily influenced by the veracity of the material facts that party puts forward by way of pleading or evidence. If the party knows the facts that party put forward to be wrong, then that circumstance necessarily affects the assessment of the reasonableness of that party's conduct in failing to accept an offer. 13 In my view, the applicants should be ordered to pay Mr Duncan-Watt's costs on an indemnity basis from 11.00am on 6 September 2017 because the requirements of r 25.14(2) have been met and there no sufficient reason has been shown for displacement of the "entitlement" to indemnity costs. In those circumstances, it is not necessary to consider whether the applicants' rejection of the second offer was unreasonable. However, for reasons analogous to those given above, I would have so concluded.

Lump sum costs 14 The applicant also sought an order that, instead of taxed costs, costs be ordered in a lump sum pursuant to r 40.02(b) and (c) of the Rules. Mr Duncan-Watt's solicitor provided evidence that invoices for costs had been issued in the amount of $297,153.77, inclusive of GST. He considered that if those costs were assessed on a party / party basis an amount of at least $222,865.33 would be recovered, representing 75% of the total costs incurred. The applicants consented to costs being referred to a Registrar for determination of a lump sum amount, but opposed the Court fixing costs on the basis of the evidence adduced for the purposes of this application. The applicants pointed to various potential anomalies in the material and submitted that the evidence did not comply with the Federal Court Costs Practice Note (GPN-COSTS) [4.10]-[4.11]. 15 In my view, it is appropriate for costs to be fixed by the Court in a lump sum. A Registrar will be asked to assist in determining appropriate orders for resolution of this issue and as a consultant. The further costs which are incurred in relation to fixing the lump sum are to be determined with regard to the material already provided and, if relevant, any further offers in relation to costs which might be made. The determination of costs by lump sum, whilst more efficient and quick than other means of determining costs, still puts the parties to considerable additional expense. Subject to hearing from the parties, I propose to take into account the level of costs claimed to have been incurred, as identified in this application, in determining what (if any) order should be made about the costs of fixing the costs in a lump sum. In light of the length and complexity of the proceedings, and the obligations of legal practitioners in dealing with costs, it is difficult to regard the level of costs claimed as surprising. However, that is an impression only and is a matter which can only be finally determined after hearing from the parties.

Release of security 16 I am satisfied on the basis of the evidence adduced that it is highly likely that Mr Duncan-Watt will comfortably recover more than the bank guarantees in the amount of $155,668.50 held by the Court as security under orders made on 4 August 2017 and 26 November 2018. In those circumstances, and in light of the fact that Mr Duncan-Watt is an individual litigant who has been out of pocket a considerable time, it is appropriate that the security be released forthwith: Boz One Pty Ltd v McLellan (No 2) [2015] VSCA 145 at [56].

Mr Gooding's claim for costs 17 Mr Gooding sought costs on an indemnity basis for the entire proceeding payable by the applicants, alternatively, by Mr Rockefeller. In this respect, Mr Gooding relied upon s 43 of the FCA Act and s 40 of the Defamation Act 2005 (NSW). 18 If costs were not to be granted on an indemnity basis for the entire proceeding, Mr Gooding sought costs on an indemnity basis from 21 February 2019 and on a party / party basis up to that time. 19 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) - (a) if defamation proceedings are successfully brought by a plaintiff and costs in the proceedings are to be awarded to the plaintiff - order costs of and incidental to the proceedings to be assessed on an indemnity basis if the court is satisfied that the defendant unreasonably failed to make a settlement offer or agree to a settlement offer proposed by the plaintiff, or (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. 20 One purpose of s 40(2) is to encourage parties to defamation proceedings to take a reasonable approach to settlement: Davis v Nationwide News Pty Ltd [2008] NSWSC 946 at [27] (McClellan CJ at CL); Hanson-Young v Leyonhjelm (No 5) [2020] FCA 34 at [40] (White J). 21 Mr Gooding's first offer was made by letter dated 22 February 2017, before the proceedings were commenced. This letter set out in detail some of the perceived difficulties with the applicants' proposed proceedings. At the beginning, the letter stated: We note that we have not yet been able to take full instructions in regards to the matters raised in your letter and SOC for the same reasons stated in our letter dated 20 February 2017 (such letter having noted that we expect to be in a position to provide a substantive response by next Tuesday, 28 February 2017). However, as your email response on the same day requested that we respond substantively by midday today, we are writing this letter, in response to your letter and SOC, based on the instructions that we presently hold. On that basis our response below should not be taken to be our client's final position on the matters stated herein. 22 At the end of the letter there was a settlement offer in the following terms: 4. Proposal In light of the above matters, we note that if your clients intend to commence proceedings in Australia against our client on the basis as set out in the SOC, our present instructions are that our client will vehemently defend those proceedings. Despite the above, and to avoid the incurring of unnecessary legal costs of having to conduct proceedings that deal with the same issue(s) in both Australia and the US, our client proposes, on a no admissions basis, to remove the relevant Facebook post complained of in the SOC if your clients agree to release him of the claims in connection with the Article and the relevant Facebook post complained of in the SOC. In the event that your client does not accept the above proposal and proceeds to commence proceedings against our client, we note that our client reserves his rights in full and will seek appropriate costs orders against your client, including costs on an indemnity basis. 23 The applicants' solicitor responded on 23 February 2017, which included: We note that your letter states that it should not be taken as your client's final position. This is an unsatisfactory response by your client and a clear attempt to further delay this matter. Your client's proposal to remove the offending post from Facebook is not an adequate resolution of the harm and damage done by your client. Mr Gooding has defamed Mr Rockefeller, causing significant damage to his reputation and loss. Simply removing the post does not rectify that loss and damage. As previously indicated, in order to resolve this matter, our client requires that Mr Gooding: (a) remove the offending Facebook post; (b) publish an apology to him on the same Facebook page; and (c) undertake to not again make statements which carry the defamatory imputations. If you client was to do these things Mr Rockefeller would release him from the claim for damages arising out of the Facebook post. 24 On 28 February 2017, Mr Gooding's solicitors wrote to the applicants' solicitors noting that the Facebook post had been taken down. This elicited a response from the applicants' solicitors by letter dated 6 March 2017, which included: We note that your client has on a without admissions basis removed the offending post from Facebook. However, your client has not: 1. Given any undertaking that the offending material will not be reinstated or otherwise republished; or 2. Taken any steps or given any undertakings that seek to remedy the very serious damage which has been done to our client's reputation. 25 On 2 October 2018, Mr Gooding's solicitors wrote a letter to the applicants' solicitors providing a schedule which identified the costs which Mr Gooding had incurred and estimated Mr Gooding's future costs, including the costs associated with the anticipated eight day hearing. This indicated that Mr Gooding had incurred approximately $163,000 in costs by 30 August 2018 and that a further $205,000 were anticipated to be incurred. 26 On 14 February 2019, the applicants offered to settle the proceedings on various terms, including that Mr Gooding pay $50,000 in settlement of all disputes relating to the Australian proceedings, inclusive of all costs. The terms included that Mr Gooding undertake that he would not: (i) represent that he is the owner of all rights, including copyright, in the stage play entitled "Thank You For Being A Friend" (TYFBAF) or make representations to similar effect; (ii) represent that Mr Rockefeller stole the stage play or make representations to similar effect; (iii) further publish the matter complained of, as defined in the Second Further Amended Statement of Claim (SFASOC) and shown at Annexure A of the SFASOC, of and concerning Mr Rockefeller; and/or (iv) further publish any other matter giving rise to the imputations (or similar imputations not differing in substance) as set out at paragraph 16 of the SFASOC, each of which concerns Mr Rockefeller. 27 This offer was open for acceptance until 21 February 2019. The trial was to commence on 5 March 2019. 28 The applicants' offer was rejected by Mr Gooding by letter from his solicitors dated 18 February 2019. By that letter, Mr Gooding made a second offer to resolve the proceedings. This was on the basis, amongst other things, that the applicants pay $235,000 on account of his costs. The terms of the offer also included that Mr Gooding would undertake that he would not: a. Represent that he is the owner of all rights, including copyright, in the stage play entitled Thank You For Being A Friend' (TYFBAF), or make representations to a. similar effect; b. Represent that Mr Rockefeller stole the stage play TYFBAF, or make representations to that effect; c. Further publish the matter complained of, as defined in the Second Further Amended Statement of Claim (SFASOC) and shown at Annexure A of the SFASOC, of and concerning Mr Rockefeller; and d. Publish any material that gives rise to the imputations as set out in paragraph 16 of the SFASOC; 29 This offer was expressed to be open until 25 February 2019. The applicants' solicitor requested, on 18 February 2019, further detail of Mr Gooding's legal expenses and Mr Gooding's solicitor wrote indicating that the expenses incurred were $323,057.21. Further detail as to the breakdown of costs and disbursements was provided by Mr Gooding's solicitor by email on 19 February 2019. 30 Mr Gooding's offer that the applicants pay $235,000 on account of his costs was rejected by letter dated 20 February 2019. The applicants' letter rejecting that offer proposed settlement, amongst other things, on the basis that the proceedings be dismissed with no order as to costs. 31 Mr Gooding rejected the applicants offer and, by letter dated 21 February 2019, offered to settle on the basis, amongst other things, that the applicants pay $175,000 on account of Mr Gooding's costs. The offer remained open for acceptance until 9.00 am on 25 February 2019. It was not accepted. 32 In my view, the rejection of the first offer was not unreasonable. First, it was not clear that the offer was one which was to be regarded as based on full instructions; the letter expressly stated that what appeared in the letter "should not be taken to be our client's final position on the matters" because the solicitors had "not yet been able to take full instructions". Secondly, in responding to the offer, the applicants' solicitor noted that the respondent's letter stated it should not be taken as Mr Gooding's final position, stated that that was "unsatisfactory", and indicated that Mr Rockefeller would release Mr Gooding from a claim for damages arising out of the Facebook post if Mr Gooding removed the post, published an apology on the same Facebook page and undertook not to make statements which carried the defamatory imputations. Later correspondence from Mr Gooding's solicitors provided no clarification regarding the first offer, and did not specify whether full instructions had been provided in relation to this offer. 33 Mr Gooding's second offer was a response to the applicants' attempts to resolve the proceedings. The applicants offered to settle the matter on 14 February 2019, offering to accept various undertakings and a $50,000 payment to the applicants. I infer that the amount of $50,000 would not have covered the applicants' costs. Mr Gooding's counter-offer, sent to the applicants on 18 February 2019, was to offer certain undertakings and accept $235,000 for his costs. This represented, I infer, a recovery by Mr Gooding of party / party costs. In my view, the applicants did not "unreasonably fail to accept a settlement offer" within the meaning of s 40(2)(b) of the Defamation Act. I reach that conclusion principally because the offer was one which involved little, if anything, in the way of compromise on Mr Gooding's part. It represented, it would seem, capitulation by the applicants and recovery of party / party costs by Mr Gooding. 34 Mr Gooding's third offer, dated 21 February 2019, was to provide certain undertakings and accept $175,000 in respect of costs. The third offer involved an element of genuine compromise. It was not unreasonable for Mr Gooding to take the view that he had a strong case and that he would be prepared to settle by offering undertakings in return for recovery of only part of the costs he had actually incurred, rather than litigate with the possibility of recovering more costs. 35 The critical question raised by s 40(2)(b) of the Defamation Act is whether the applicants' failure to accept the offer was unreasonable. The applicants had the benefit of the material in respect of costs which had been provided by Mr Gooding to that point in time and advice from their legal advisers. The applicants should have appreciated that Mr Gooding's offer likely represented a substantial discount on the amount of costs that Mr Gooding was likely to recover. The applicants knew it represented a very substantial discount on the costs in fact incurred by Mr Gooding. The applicants knew the underlying facts relevant to the defence of truth. The applicants knew that significant further costs would be incurred in conducting the hearing. However, there are degrees of unreasonableness and the failure to accept the offer is at the lower end of the spectrum. In my view, the failure to accept the offer was not sufficiently unreasonable to warrant an order for indemnity costs when balanced against other considerations to which regard may be had under s 40 of the Defamation Act and s 43 of the FCA Act. 36 Taking into account all of the circumstances, including the time at which the third offer was made and the low degree of compromise it reflected, the fact that no clear and definite final offer had been made by Mr Gooding early in the proceedings and that he did not respond to the applicants indication that a reasonable early settlement might be achieved, I conclude that Mr Gooding's costs should be paid on a party / party basis by the applicants, including the costs associated with this application. 37 Mr Gooding did not apply for costs to be assessed on a lump sum basis. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Thawley.