Korolak v Bauer Media Pty Ltd

The Calderbank offer

1. After the summary judgment argument was listed for hearing, the defendant wrote again, on 26 May 2016, repeating the objections to be taken and, in the separate letter set out below, repeating the warning as to costs: "We refer to the Statement of Claim in this matter and our open letter of today's date. For the reasons outlined in that letter Bauer Media Pty Limited (Bauer) has every confidence in resisting the claim. Nevertheless, Bauer is aware of the potentially unrecoverable legal costs which it may incur, even at the most preliminary stages of these proceedings. Bauer is prepared to resolve this matter on a commercial basis by way of a costs-inclusive payment of $10,000 in return for a discontinuance and release on usual terms, including confidentiality. Given that the matter is listed on 2 June 2016 this offer is open for a period of 7 days. Please let us know by return if the Plaintiff does not consider this time period to be a reasonable period for consideration of the offer. If the Plaintiff proceeds to Court but obtains an outcome no more favourable than offer contained in this letter the Defendant will rely upon its contents in seeking an order that the Defendant's costs be paid on an indemnity basis in accordance with the principles in Calderbank v Calderbank [1975] All ER 333."

The relevant principles

1. Section 98(1) of the Civil Procedure Act 2005 (NSW) provides: "98 Courts powers as to costs (1) Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis."
2. While s 98(1) confers an unfettered discretion on the Court, that discretion must be exercised judicially: Oshlack v Richmond River Council (1998) 193 CLR 72.
3. Rules 42.1 and 42.2 Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") provide: "42.1 General rule that costs follow the event Subject to this Part, if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs. 42.2 General rule as to assessment of costs Unless the court orders otherwise or these rules otherwise provide, costs payable to a person under an order of the court or these rules are to be assessed on the ordinary basis."
4. The overriding purpose of "just, quick and cheap" resolution of disputes, as set out in ss 56-62 Civil Procedure Act 2005 (NSW) is of central importance in the determination of these issues. Section 60 specifically requires courts to have regard to issues of proportionality in relation to costs.
5. When determining the question of indemnity costs following the making of a Calderbank offer, the court must take into account the list of relevant factors set out by Basten JA in Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [12] (in turn taken from Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435 at [25]), which are: 1. The stage of the proceeding at which the offer was received; 2. The time allowed to the offeree to consider the offer; 3. The extent of the compromise offered; 4. The offeree's prospects of success, assessed as at the date of the offer; 5. The clarity with which the terms of the offer were expressed; and 6. Whether the offer foreshadowed an application for indemnity costs in the event of the offeree's rejecting it.

The parties' submissions

1. The defendant's submissions are that they acted reasonably in this litigation and in accordance with these principles, in that: 1. The defendants, in their correspondence dated 12 October 2015 and 26 May 2016, set out in detail the problems with the plaintiff's claim and warned that they proposed to bring the summary judgment application. 2. The offer's timing gave sufficient opportunity to the plaintiff, who was not only represented by lawyers experienced in defamation but herself had legal qualifications (according to the matter complained of) and contained all the relevant material necessary to respond to their offer of compromise. 3. This was an offer of substance and the plaintiff achieved an outcome less favourable than its terms. 4. In accordance with s 40 Defamation Act, indemnity costs should be awarded from the date of the defendant's offer (i.e. after 26 May 2016), on the basis that the plaintiff unreasonably failed to accept it.
2. The plaintiff's submissions were that there should be no orders as to costs, for the following reasons: 1. The 7 days allowed for acceptance was an unreasonably short time. The plaintiff's solicitor had difficulty contacting her because she lives in the countryside in Victoria. 2. The offer was withdrawn without notice during the seventh day (2 June), which was the day of the hearing of the application. The plaintiff should have been allowed, pursuant to the terms of the offer, to accept or reject it up until close of business on 2 June, even though the hearing had been completed and judgment reserved, because the 7-day period actually expired after the hearing was over. 3. The Calderbank offer was invalid because "offers of compromise including costs are not permitted" (submission dated 15 June 2016). 4. The matter complained of was "in garish colour on the front page" and was "a fabrication by the defendant" in that the words attributed to the plaintiff were "never said".
3. In response to my request, both parties also provided further submissions in relation to s 98 Civil Procedure Act and to issues of proportionality in costs orders under the Legal Profession Uniform Law (NSW).

Analysis of the parties' submissions

1. The principal issue of contention is whether the offer was still open at the commencement of the hearing or shortly thereafter and whether it was fair to withdraw it prior to the close of business on 2 June 2016 (which was after the hearing had finished and I had reserved judgment).
2. I am satisfied, from the language of the correspondence, that the offer was intended to avoid the costs of the hearing of the argument, and should be read in that light. It was clear from the terms of the offer that the plaintiff had the choice of running the argument or accepting the offer, but not both. Its withdrawal during (or after) argument does not render its terms unreasonable, nor does it invalidate its terms.
3. As to the assertion that 7 days was insufficient, the defendant's request to be told "by return" if the plaintiff did not consider this time period to be reasonable was a sensible and reasonable proposal and, if there were problems with the proposed time limit, this is what the plaintiff's legal advisers should have done.
4. The Calderbank offer was a genuine compromise in that it offered a significant sum, particularly given the terms of the offer in the plaintiff's solicitors' notice of concerns. In the modern world of electronic communications, claims that a client lives in rural Victoria and is difficult to contact are, without further explanation, unacceptable.
5. The plaintiff's submission that offers of compromise inclusive of costs cannot be made is irrelevant to a consideration of a Calderbank offer. If the plaintiff's point is that an offer of compromise should have been made, I note that the very short time frame between the commencement of these proceedings and the hearing of the summary judgment application meant there would barely have been enough time to put one on. Additionally, even an invalid offer can be sufficient to trigger costs: Lowe v Lowe (No 3) [2015] NSWSC 1800.
6. Taking into account the circumstances set out above, I am satisfied that it was unreasonable for the plaintiff not to have accepted the Calderbank offer prior to the hearing.
7. If I have erred in regarding the Calderbank offer as valid notwithstanding its withdrawal on what the plaintiff says is the seventh day, I would have made an indemnity costs order on the same basis as that taken by Kunc J in Lowe v Lowe (No 3) at [39] - [54] in relation to the informal offer made inter partes, outside the Calderbank and offer of compromise structures.

Proportionality

1. Although Beazley P was only referring to the changes in costs assessment appeals when her Honour described the Legal Profession Uniform Law (NSW) as "labyrinthine and, at this stage, largely unexplored in the case law" (Wilkie v Brown [2016] NSWCA 128 at [49]), the impact of the new legislation and its interaction with the Civil Procedure Act 2005 (NSW) will be a matter of increasing relevance to costs application. It may mean, for example, that a rejection of proportionality as a relevant issue under s 364 Legal Profession Act 2004 (NSW) in eInduct Systems Pty Ltd v 3D Safety Services Pty Ltd (2015) 90 NSWLR 451 should not be viewed as the final word on this issue. Nevertheless, in eInduct Systems Pty Ltd v 3D Safety Services Pty Ltd the Court of Appeal noted that proportionality was a relevant issue for judges to determine under s 60 Civil Procedure Act 2005 (NSW) in relation to costs applications brought under that Act (such as s 98).
2. As to proportionality generally, the defendants' submissions are that ss 172 and 173 Legal Profession Uniform Law (NSW) limit proportionality issues to the assessment process. I am, however, of the view that ss 172 and 173 of the new legislation, when read in the light of s 60 Civil Procedure Act 2005 (NSW), may require practitioners to show a greater degree of flexibility in terms of compliance with the requirement for litigation to be "just, quick and cheap." That does not, however, derogate from longstanding case management procedures designed to promote early settlement, such as the making of offers of compromise or Calderbank offers.
3. My principal reason for my asking the parties to consider proportionality issues is because, in practical terms, this has been the approach of the courts in several other summary dismissal applications, notably Falkenberg v Nationwide News Pty Ltd (Supreme Court of New South Wales, Levine J, 16 December 1994) ("Falkenberg"), a case to which I referred the parties during the hearing of the summary judgment application.
4. The matter complained of in Falkenberg was a Gary Larson "The Far Side" cartoon, captioned "graffiti in hell". This cartoon depicted the devil as being in a rage because a graffiti artist, instead of the usual crude drawings and insults, had drawn happy images of birds, butterflies, a flower and a "smiley face", together with "graffiti" that "Satan is a warm and tender guy" and, instead of the usual phone number for some illegal or immoral activity, had added: "For a pleasant conversation call Satan on: [a telephone number beginning with 555]".
5. The problem the plaintiffs had was that the telephone number in the American cartoon was their telephone number in Australia. In the United States, "555" is a fictional phone prefix commonly used in television programs and films, to avoid precisely the kind of problem the Falkenbergs encountered, namely unknown (and probably mentally unwell) members of the public attempting to telephone that number., The plaintiffs had, as a result of this cartoon, been subjected to a barrage of disturbing calls from "weird people", as Levine J put it.
6. His Honour held that the matter was incapable of being understood to be published of and concerning the plaintiffs and incapable of conveying the imputations relied upon. He struck out the claim, but commended a reasonable costs order to the defendants to take into account the obvious difficulties the plaintiffs had suffered.
7. Whether that request was successful is unknown, but it is a good example of the court endeavouring to ensure that a party with a genuine grievance who, but for some relevant aspect of the defendant's conduct (Swindells v Victoria [2016] VSCA 77; Ritter v Godfrey [1920] 2 KB 47; Donald Campbell & Co Ltd v Pollack [1927] AC 732), would not have initiated proceedings. I drew this to the parties' attention in case material of that kind was available in these proceedings, since it was obvious, from the text of the matter complained of, that the tragic events described in the matter complained of had profoundly affected the plaintiff.
8. The defendant submits that issues of what the defendant calls "fairness" are irrelevant to costs orders. However, courts need to take into account issues of the kind that Levine J, drawing on his Honour's lengthy experience and expertise in defamation law, considered relevant in Falkenberg. That is all the more the case now that Internet publication has the risk to expose a person to national or even international scrutiny.
9. As it happens, the plaintiff's solicitors do not put any such matters to me here, beyond repeating the earlier submissions about the unfairness of withdrawing the offer during the hearing. In fact, the proportionality issues go in favour of the defendant. The editor has offered a personal apology, and the defendant has conducted these proceedings with commendable speed and efficiency.
10. I am satisfied that there are no proportionality issues warranting the variation of the indemnity costs order I propose to make.

Orders 1. Pursuant to s 98 Civil Procedure Act 2005 (NSW), the plaintiff pay the defendant's costs of these proceedings on the ordinary basis up until 26 May 2016 and from 27 May 2016 on an indemnity basis.

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: 29 June 2016