Larach v Urriola

LEGISLATION CITED: Defamation Act 1974 (NSW), s 48A Defamation Act 2005 (NSW), ss 14 and 40

Davis v Nationwide News Pty Ltd [2008] NSWSC 946 Hennessy v Lynch (No 4) [2008] NSWDC 15 CASES CITED: Larach v Urriola [2009] NSWDC 97 Leichhardt Municipal Council v Green [2004] NSWCA 341 Tickell v Trifleska Pty Ltd (1990) 25 NSWLR 353

TEXTS CITED: New South Wales, Parliamentary Debates, Legislative Assembly, 12 October 2005, 18518

First Plaintiff: Oscar Larach PARTIES: Second Plaintiff: Stormwater Solutions LLC First Defendant: Humberto Urriola Second Defendant: Atlantis Corporation Pty Limited

COUNSEL: Plaintiffs: Mr R Potter Defendants: Mr M McHugh

SOLICITORS: Plaintiffs: Bolzan & Dimitri Defendants: Alexander & Associates

1. On 22 May 2009 I handed down judgment (Larach v Urriola [2009] NSWDC 97) for the plaintiffs awarding damages totaling $20,000 for the first plaintiff (a corporation) for three publications and for the sum of $20,000 for the second plaintiff (a director of the corporation) for one publication. Pursuant to a liberty to restore the parties now seek to determine issues of interest and costs.

2. The orders for interest and for the costs occasioned by reason of the vacating of an earlier hearing date are not disputed and I have made orders concerning these matters by consent.

3. The remaining issue for determination is the plaintiffs' application pursuant to s 40 Defamation Act 2005 (NSW) for indemnity costs.

4. Section 40 provides: " 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." 5. The history of offers, according to the affidavits relied upon by the parties, are: (a) a "concerns notice" sent under the provisions of s 14 Defamation Act 2005 calling for a retraction of the allegations and an apology for making them. It should be noted that two of the three imputations were later conceded by the defendants, during the hearing, to be both conveyed and defamatory, and the third imputation set out in the letter was found by me to be conveyed and defamatory. This letter warned that the response to it would be relied upon in relation to costs as well as damages. The defendants replied asserting that the imputations were all true. (b) An offer of compromise for $49,000 plus costs was served on 15 February 2008. This figure is slightly higher than the sum awarded. No response was ever received.

(c) Although the solicitors for the defendants thought they had sent a "walk-away" offer on 6 July 2007, they now concede this letter was never sent.

(d) The parties did contact each other directly to discuss settlement in July or August 2008 (although just who approached whom is hotly disputed), but nothing ever eventuated. This did, however, give the solicitors for the plaintiffs a chance to remind the solicitors for the defendants of the terms of their offer of compromise and to add "We look forward to your advice as to any offer your client proposes to put in this matter."

(e) During the hearing, on 11 February 2009, at a time when Mr McHugh said his clients' case was "at its highest", the defendants invited the plaintiffs to make an offer. An oral offer to accept $150,000 inclusive of costs was put. There was also a request not to write letters stating that the plaintiffs' products were copies of the defendants. This was responded to on the following day by a "walk-away" offer.

(f) The hearing was completed and submissions were made by counsel. In the course of these submissions, counsel for the defendants sought leave to reopen the case to call further evidence and the hearing had to be adjourned to 27 March 2009. On 26 March 2009 the defendants' solicitors sent a letter repeating the "walk-away" offer. I note that in my judgment I formally refused leave to the defendants to reopen and further held that if I had erred in refusing leave I would not have found the additional evidence the defendants sought leave to adduce persuasive. 6. The question for determination is whether costs awarded to the plaintiffs should be on a party/party or indemnity basis. I note that the defendants' position was that costs should only be awarded on a party/party basis, and that there was no "fall back" position that in the alternative some percentage only should be awarded.

Both parties referred to Davis v Nationwide News Pty Ltd [2008] NSWSC 946, where Ms Davis' solicitors sent a "concerns" notice and offer of compromise but all the defendants did was to make a "walk-away" offer.

There are two factual differences between these cases, both of which were relied upon by the defendants. The first is that Ms Davis' offer of compromise was for a sum less than that awarded at the trial (which entitled her to indemnity costs from the date of that offer), and the second is that the publication was a mass media publication.

Section 40 is based on s 48A Defamation Act 1974 (NSW), which was introduced following public concerns that the costs of defamation proceedings may inhibit plaintiffs who have a legitimate claim for defamation from pursuing relief (Davis at [26]) and also because of concern that defamation actions were being brought to stifle free speech (Second reading speech, Hansard, p.18518). The history of this section is referred to in Hennessy v Lynch (No 4) [2008] NSWDC 15.

The reference in s 40 to "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)" relates more to conduct of the kind that used to be called "sharp conduct" such as repeated failure to comply with orders, repetitious applications or appeals, multiple adjournments, prolix pleadings or cross-examination, in circumstances in which such conduct was designed to inhibit the opponent from bringing or defending a claim. No such conduct can be complained of in these proceedings. Counsel for both sides have conducted the case with courtesy and propriety.

The basis upon which this application is made is that the defendants' failure to make an offer other than the "walk-away" offer made orally part way during the trial (followed up by a written offer sent after submissions were completed) is sufficient to trigger s 40(2)(a) in that the defendants "unreasonably failed to make a settlement offer or agree to a settlement offer proposed by the [plaintiffs]".

The first issue for determination is whether the defendants' "walk-away" offers made orally during the trial and the day before the matter was relisted for the application to reopen the case are capable of being regarded as offers at all, given their timing (in the middle of and at the end of an expensive trial) and on the facts of the case (in particular, in circumstances where the defendants had incurred significant costs on a contextual truth allegation which was later abandoned).

Whether an offer that is merely designed to trigger a costs advantage (such as indemnity costs) but which does not contain an element of compromise is capable of being an offer was considered in Leichhardt Municipal Council v Green [2004] NSWCA 341 (see also Tickell v Trifleska Pty Ltd (1990) 25 NSWLR 353 at 355). In Leichhardt Municipal Council at [37]-[40] Santow JA indicated the kind of factual matters to be taken into account.

The crucial problems for the defendants are, in my view, the very late timing of the "walk-away" offers and the very real likelihood that for all its factual complexity, these proceedings were likely to be awarded damages in a very modest range because of the limited extent of publication. The costs involved in bringing and defending the action were always going to outweigh the damages to a very significant degree.

If a "walk-away" offer had been sent by the defendants in July 2007, that might have been able to be established to have been "a reasonable offer at the time it was made" (s 40(3)). However, "walk-away" offers made at the end of a trial, or in the course of submissions, are simply made too late.

In Davis McClellan CJ at CL took a similar view of the impact of a "walk-away" offer made in that litigation, noting at [27] - [29]: "[27] Section 40(2) obliges parties to defamation proceedings to take a reasonable approach to negotiations for the settlement of those proceedings. A party who unreasonably fails to make or accept a settlement offer may be ordered to pay costs on an indemnity basis. The amount of the offer is relevant for the purpose of assessing the reasonableness of a party's conduct. The section contemplates that an order for costs on an indemnity basis may be made even if a party making an offer does not do better in the proceedings than the offer which he or she has made.

[28] Ms Davis submitted that the behaviour of the defendant in relation to the settlement offers justified an order for indemnity costs irrespective of the offer which she herself made. It was submitted that by merely offering that each party should walk away the defendant failed to make a reasonable offer. The defendant gave no explanation for its failure to offer a monetary sum in settlement or even perhaps judgment for the plaintiff with an apology. Her counsel emphasised that the defendant merely adopted the attitude that it had a good defence and showed no preparedness to compromise or enter genuine negotiations.

[29] The defendant submitted that a distinction should be drawn between the circumstance of a party "unreasonably failing to make a settlement offer" and "failing to make a settlement offer that the court considers is reasonable." It was submitted that in this case an offer was made and accordingly it could not be concluded that it had unreasonably failed to make a settlement offer. Furthermore, it was submitted that the reasonableness of the particular offer must be judged at the time at which it was made and that the judgment could not be informed by hindsight gained from consideration of the ultimate resolution of the proceedings. It was submitted that at the time it made the offer that each party walk away it was reasonable for it to hold the view that it could successfully defend the proceedings." 17. In the present litigation, the plaintiffs succeeded on all the issues. The imputations were all conveyed and defamatory and all the defences failed for all three publications. The hearing had to be adjourned to accommodate extensive expert evidence on an issue which the defendants later abandoned. During this whole period, the defendants made no response to the concerns notices or the offer of compromise; their offer during the trial to walk away was not only too late, but was not a true compromise. At least Ms Davis was left with the option of walking away or pursuing her claim (at [40]) but these offers were made so late that the plaintiffs had in fact almost completed pursuing their claim. It was to prevent this kind of conduct that s 40 was enacted, as McClellan CJ at CL notes in Davis at [26].

18. I accordingly order the defendants to pay the plaintiffs' costs of these proceedings on an indemnity basis.

(1) Vary order 1 of the Judgment of 22 May 2009 to include interest in the sum of $739.74, making a total of $10,739.74 up to and including 22 May 2009 together with a daily interest rate of $2.65 thereafter. (2) Vary order 2 of the Judgment of 22 May 2009 to include interest in the sum of $369.05, making a total of $5,369.05 up to and including 22 May 2009 together with a daily interest rate of $1.32 thereafter. (3) Vary order 3 of the Judgment of 22 May 2009 to include interest in the sum of $337.40, making a total of $5,337.40 up to and including 22 May 2009 together with a daily interest rate of $1.32 thereafter. (4) Vary order 4 of the Judgment of 22 May 2009 to include interest in the sum of $1,349.59, making a total of $21,349.59 up to and including 22 May 2009 together with a daily interest rate of $5.26 thereafter. (5) Vary the costs order of 22 August 2008 concerning the vacating of the trial date from costs reserved to costs in the cause. (6) The defendants to pay the plaintiffs' costs of these proceedings 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.