Lassanah v State of New South Wales

(c) The first defendant resists the plaintiff's application for indemnity costs.

I have made an order for indemnity costs concerning the defamation proceedings pursuant to s 40 Defamation Act 2005 (NSW).

As to the false imprisonment claim, I have refused the application by the plaintiff for indemnity costs other than the costs of the submissions, the indemnity costs for which are to be paid by the first defendant/cross-claimant.

(d) The first defendant seeks an order for costs of the whole of these proceedings against the second defendant/cross-defendant, including any order for indemnity costs.

I have made the costs orders sought by the second defendant/cross-defendant, the precise nature of which is set out below.

(e) The second defendant/cross-defendant divides the costs sought against it by the first defendant/cross-claimant into three categories, and submits that by reason of the settlement between it and the plaintiff of the defamation claim, and its conduct of the trial (including making an apology) costs of defending the action of the first defendant should not be awarded against the second defendant/cross-claimant.

(f) The second defendant resists the claim of the plaintiff for indemnity costs.

I have made an order to this effect, in that there is an order for indemnity costs for the defamation claim (to which the second defendant/cross-defendant is not a party) and the submissions stage of these proceedings (which indemnity costs order is made against the first defendant/cross-claimant only).

[3] I note generally that it is a feature of defamation litigation that the costs of the action are generally well in excess of the damages awarded, and costs applications of this kind should be expected by parties who have not made settlement offers, conducted litigation expeditiously or otherwise put themselves at risk of special costs orders.

[4] The first issue for determination is whether the first defendant (the sole party against whom the defamation action was brought) should pay the costs of the defamation claim on an indemnity basis pursuant to s 40 Defamation Act 2005 (NSW).

Costs of the defamation proceedings between the plaintiff and the first defendant

[5] In terms of time and legal complexity, the claim for defamation tended to dominate the hearing time. The publication was limited, and the damages small, but while the size of the damages might be relevant in other proceedings, the terms of s 40 very clearly set out the mischief the legislature sought to remedy.

[6] Section 40 provides as follows: " 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.

"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."

[7] 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 v Nationwide News Pty Ltd [2008] NSWSC 946 at [26] per McClellan CJ at CL) and also because of concern that defamation actions were being brought to stifle free speech (Second reading speech, Hansard, p.18518).

[8] In Larach v Urriola (No 2) (2009) 9 DCLR 81 at [10] I noted that the kind of conduct likely to be caught by the section included not only failure to make an offer, or misuse of a superior financial position, but also such matters as failure to comply with orders, repetitious applications, multiple adjournments, prolix pleadings or other tactics which might tend to discourage an opponent. The facts tend to vary from case to case. In the present case, the total failure to make any offer of any kind is the first matter to consider, for the reasons explained by the NSW Court of Appeal in Habib v Nationwide News Pty Ltd (No 2) [2010] NSWCA 291 at [49], where the Court noted: "[The defendant] chose not to [make an offer], but rather to use its extensive resources to seek the complete defeat of Mr Habib's claim. Having failed in that endeavour, it is reasonable that it bear the costs of the liability hearing."

[9] The first defendant's submissions were that the first defendant believed it had a strong case, that the police have important work to do and should not be hindered by a statutory requirement such as s 40, and that the guilty party was really the second defendant/cross-defendant, as was apparent from my finding that the second defendant/cross-defendant should fully indemnify the first defendant/cross-claimant. Mr Caspersonn also noted that there was no offer of settlement from the plaintiffs.

[10] The policy behind s 40 is to encourage early settlement. In the present case, one of the plaintiffs was profoundly intellectually disabled, and at a real disadvantage in this litigation. The first defendant, the State of New South Wales, is, as Mr Evatt noted in submissions, a model litigant.

[11] The first defendant had two opportunities to resolve this litigation prior to trial. The first was when the medical report outlining the second plaintiff's intellectual disability was served (which would have confirmed that the first plaintiff was with him in his professional capacity). The second was on the first day of the trial when, after seeing the extent of the second defendant's intellectual disability and hearing the first plaintiff's evidence of his impressive career in the US army and navy, the second defendant, in response to a call from the plaintiff, made an open apology in court. The first defendant elected not to apologise in the same manner.

[12] Mr Evatt submitted that the conduct of the proceedings by the first defendant, including the circumstances in which there was aggressive cross-examination and adjournments caused by the bringing of an unpleaded defence, also warranted a costs order.

[13] While the delay caused by the bringing of an unpleaded defence was regrettable, no other conduct of these proceedings by the first defendant in my view attracted the provisions of s 40. This is a very clear case of a defendant who was given an opportunity to avoid indemnity costs by making an apology in court.

[14] Mr Caspersonn submitted that the making of such an apology would have prevented him from conducting his case at all. That is not correct. Section 20 Defamation Act 2005 (NSW) provides: "(1) An apology made by or on behalf of a person in connection with any defamatory matter alleged to have been published by the person:

(a) does not constitute an express or implied admission of fault or liability by the person in connection with that matter, and

(b) is not relevant to the determination of fault or liability in connection with that matter.

(2) Evidence of an apology made by or on behalf of a person in connection with any defamatory matter alleged to have been published by the person is not admissible in any civil proceedings as evidence of the fault or liability of the person in connection with that matter.

(3) Nothing in this section limits the operation of section 38."

[15] Accordingly, the first defendant is to pay the costs of the plaintiffs on an indemnity basis in relation to the claim for defamation. This includes the submissions stage. As is set out in the next section of this judgment, the entitlement of the plaintiffs to indemnity costs for the submissions concerning wrongful arrest and false imprisonment is restricted to the first defendant's submissions on all issues; the costs order against the second defendant/cross-defendant is on a party/party basis only.

The claim for wrongful arrest and false imprisonment - both defendants

[16] No offer was made in relation to these claims, which are factually tied up with the defamation claim to a very high degree. Should s 40 extend to actions other than defamation?

[17] The basis for awarding defamation costs in proceedings other than defamation is approached on a very different basis. Section 98 Civil Procedure Act 2005 (which defines the power and circumstances) and r 42 r 42.5(b) Uniform Civil Procedure Rules 2005 (NSW) (which sets out the way costs are assessed, namely by a reversal of the onus of proof as to what are unreasonable costs) are provisions designed to be invoked by the courts by a judicious exercise of the costs discretion: Degmam Pty Ltd (in liq.) v Wright (No 2) [1983] 2 NSWLR 354. While indemnity costs were historically awarded only in extreme cases, this principle has changed with the increasing emphasis on justice being just, cheap and quick: Chaina v Alvaro Homes Pty Ltd [2008] NSWCA 353 at [111].

[18] Problems may arise where a party has been successful in attracting an indemnity costs order for part of the proceedings because of statutory provisions such as s 40. In Photi v Target Australia (No 3) [2008] NSWDC 340 I awarded costs on an indemnity basis where an application to raise a defence of qualified privilege at common law was raised for the first time in submissions, although those costs related only to the trial and to the submissions. In addition, where a party has been successful in one part of litigation but not another, there is an increasing tendency to look at success on an issue by issue basis where issues are severable: Rosniak v Government Insurance Office (1997) 41 NSWLR 608.

[19] The factual circumstances here are similar to Photi, in that the issues of the defamation and the false imprisonment claim are intertwined. As was the case in Photi, there has been delay in the handing down of this judgment by reason of the raising of a new defence, in this case the plea of "coherence", and also because this action was travelling with the litigation between the same defendant and two other plaintiffs, Mr Moses and Mr Kawenga. In fact, the submissions about the claim of coherence in these proceedings consisted largely of reliance upon similar submissions for the proceedings brought by Mr Moses and Mr Kawenga.

[20] I propose to make the same orders in these proceedings as was made in Photi, but to take into account the matters raised by Mr Caspersonn. I shall limit the indemnity costs to the submissions stage, as the hearing of the case does not warrant an indemnity costs order. The delay problem lay in the submissions and, in particular, in the failure of the first defendant/cross-claimant to articulate not only the nature and extent of the defence and how it interacted with the existing defences, but also how it impacted upon the cross-claim. (I have made separate orders below concerning the cross-defendant). Parties should be discouraged from bringing applications to add defences after a hearing, a practice that has become increasingly common in the past few years, notwithstanding the provisions of ss 56 - 62 Civil Procedure Act 2005 (NSW): Bitannia Pty Ltd v Parkline Constructions Pty Ltd (2006) 67 NSWLR 9 at [112]-[117].

[21] The entitlement of the plaintiff to indemnity costs is, however, made only against the first defendant/cross-claimant. For reasons I have set out in more detail below, the plaintiff is only entitled to seek costs on a party/party basis against the second defendant/cross-defendant in relation to the whole of the claim brought against it, namely the wrongful arrest and false imprisonment claim.

[22] The second defendant/cross defendant sought the following orders: (a) A variation of order (7) of the judgment of 30 September 2010 that the indemnity for the costs in these proceedings does not include the costs of the first defendant/cross claimant in defending the proceedings brought by the plaintiffs;

(b) A variation of order (7) of the judgment of 30 September 2010 that the indemnity for the costs in these proceedings does not include the cross claimant's liability to pay costs pursuant to the interlocutory order for costs dated 24 April 2009 (cross claimant's unsuccessful motion for summary judgment); and

(c) A variation of order (7) of the judgment of 30 September 2010 that the indemnity for the costs in these proceedings does not include costs of the plaintiffs or the State, in respect of the plaintiffs' abortive application to re-open their case on 19 February 2010.

[23] The second defendant opposed the application by the plaintiffs for an order for indemnity costs against itself in the main proceedings. In addition, if any order for indemnity costs were to be made against the State, the second defendant/cross defendant submitted that the indemnity under order (7) of the judgment of 30 September 2010 should not extend to include any indemnity costs as against the State of NSW.

[24] The costs of the second defendant/cross-claimant in fact fall into three different categories. To adopt the categories referred to by Kirby J in Patten v Moffatt [1999] NSWSC 1322 at [6]:

(a) Category 1 - the State's costs on the cross claim against second defendant/cross-defendant;

(b) Category 2 - the plaintiffs' costs ordered against the State, including any orders for indemnity costs;

(c) Category 3 - the State's own costs in resisting the plaintiffs' claim.

[25] The second defendant/cross-defendant accepts that it must pay the costs in Categories 1, but seeks a variation of the general order to exclude indemnity (but not party/party) costs within Category 2 and all costs falling within Category 3. This application is opposed by the first defendant/cross-claimant.

[26] The facts in Patten v Moffatt, where an order of this kind was made, were as follows. The plaintiff, a prominent footballer of Aboriginal heritage, commenced proceedings against the State of New South Wales for statements made by police officers about him in the course of a documentary about police work made by the Australian Broadcasting Corporation ("ABC"). The State of New South Wales joined (as a cross-defendant) the ABC, which had broadcast the imputations to a mass media audience (whereas the original publication by the police officers was to each other). A jury awarded damages and determined the ABC should pay 90% of the plaintiff's damages under the cross claim. However, in a hearing concerning the costs of the action, the ABC and the plaintiff submitted that they had proposed to have the matter mediated, but the State of New South Wales had refused to participate. For this reason, the ABC was not ordered by the trial judge to pay the Category 3 costs referred to above (the costs of the Police (cross claimant) in defending the defamation claim).

[27] One of the reasons for this was the desirability of encouraging settlement of litigation, an important factor in defamation proceedings before the enactment of s 40 and its predecessor. Kirby J noted at [39] that: "the costs savings for a trial which was predicted to last (and did last) two weeks, were likely to be substantial. The plaintiff had indicated a willingness to participate. It is unfortunate, in these circumstances, that the defendants' solicitors allowed the matter to drift, and ultimately responded negatively."

[28] Kirby J took into account a number of other matters, including the way in which the litigation was conducted. Similarly, in these proceedings, it is submitted that there are discretionary matters which the Court can take into account.

[29] The second defendant/cross-defendant lists these factors as follows: (a) The State raised defences of truth and contextual truth which were abandoned prior to the trial. This was one of the reasons for awarding aggravating damages ( Lassanah v State of New South Wales (No. 3) [2010] NSWDC 241 at [291]);

(b) The State sought summary judgment on the basis of absolute privilege which was unsuccessful ( Lassanah v State of New South Wales [2009] NSWDC 73);

(c) The cross claim was only brought on 1 September 2009 (the date it was signed), not long before commencement of the trial (which was set down for February 2010). Prior to that date, there was no claim for any indemnity in respect for any damages or costs;

(d) The defamation claim as between the plaintiff and the second defendant had already been settled, on terms of a discontinuance without costs, prior to the cross-claim. The second defendant/cross-claimant was brought back into the defamation proceedings (for the first time in respect of the publication by the State) when the cross-claim was brought;

(e) Abandonment of defence under s 231 Police Act 1990 (NSW) prior to trial (see the judgment at [13]);

(f) The introduction of a new defence of 'coherence' without any pleading or application to amend which caused delay (see judgment at [25] and [250]) and the lack of any explanation as to how this impacted the cross-claim (see judgment at [249]);

(g) The maintaining of a triviality defence in the face of serious allegations (see judgment at [243]);

(h) The loss of the defence of common law qualified privilege was because the imputations were constantly repeated by the police, and so were held no longer to be relevant to the occasion (see judgment at [219]). This was in the context of a finding that it was clear to the police that Tag Heuer's accusations were at best misconceived (see judgment at [219]) and in all likelihood the police realised from the very first that there had been a mistake (see judgment at [236]);

(i) The loss of the defence of statutory qualified privilege was primarily due to the failure of the police to obtain the plaintiffs' version of events (see judgment at [231]);

(j) There was a positive finding against the police of malice for failing to obtain their version of events and failing to properly investigate the events, when it was clear that their source of information was under question (see judgment at [231]). The police did not believe the imputations to be true (see judgment at [237]);

(k) Further conduct and findings in respect of the police including:

(i) a significant part of the evidence of the officers was not accepted, especially when it conflicted with Mr Lassanah (see judgment at [74]);

(ii) humiliating conduct towards the plaintiffs by making them sit on the pavement with their feet in the gutter (see judgment at [70a]) and [93]);

(iii) the failure of Sergeant Gibson to determine that there was no evidence of any crime from his inspection of the CCTV (see judgment at [82]);

(iv) the failure of the officers to keep any proper records of what happened when they detailed the plaintiffs (see judgment at [55] and [235]);

(v) the failure by the police to identify and treat Mr Oddie as a 'vulnerable person' and abide by specific regulations (see judgment at [163]), which was reflected in the damages awarded (see judgment at [271]);

(l) Further conduct and findings in respect of the running of the trial including:

(i) A decision to vigorously cross-examine Mr Lassanah and attack his credit by accusing him of lying (see judgment at [70]), which was reflected in the findings concerning aggravation of damage (see judgment at [285]);

(ii) The refusal by the police to apologise at the trial even after a call was made to apologise to Mr Lassanah (see judgment at [285]). An apology to both plaintiffs by the police would have been a more appropriate way to conduct this litigation (see judgment at [289]).

[30] The second defendant/cross-claimant submits that the same findings on costs as were made by Kirby J in Patten v Moffitt, should be made in this case, namely that in all the circumstances it is not appropriate to order the cross defendant to pay the first defendant's costs of defending the action, or any proportion thereof, and further that the second defendant/cross-claimant should not be ordered to pay any costs which are assessed on an indemnity basis.

[31] The first defendant/cross claimant reminds me that Kirby J in Patten v Moffatt & Ors determined that the awarding of these "category 3" costs was a question of discretion. The issue of costs discretion was explained by Einstein J in Furber v Stacey [2005] NSWCA 242 at [119] as follows: "119 In my view the following propositions may be usefully distilled from the authorities:

· the touchstone of the exercise of judicial discretion is:

"the requirement of doing justice to the parties in each particular case, the court having regard to the particular circumstances, including the evidence adduced, the parties' conduct and the ultimate result": Howitt v W Alexander & Sons Ltd [1948] SC 154 at 159 per Lord Russell.

· in terms of the exercise of the discretion to award costs, the test is what is fair and just between the parties by reference to their conduct in connection with the litigation [permitting regard to be had to their conduct antecedent to the litigation insofar as it bears on matters leading up to that litigation]: cf Earnshaw v Loy (No 2) [1959] VR 52 per Sholl J at 253;

· as explained in GE Dal Pont 'Law of Costs' LexisNexis Butterworths 2003 (at [11.28]:

"The third party procedure is directed at avoiding multiplicity of proceedings. To this end, its objects are: first, to get the third party bound by the decision between the plaintiff and the defendant; second, to get the question between the defendant and the third party decided as soon as possible after the decision between the plaintiff and the defendant, so that the defendant may not be in the position of having to wait before establishing his or her right of indemnity against the third party at a time when the plaintiff is enforcing judgement against the defendant; and third, to save the extra expense that would be involved in two independent actions."

· even where the making of a third party claim can be seen to have been justifiable this is not necessarily sufficient to make it appropriate to pass the costs of a successful third party on to the plaintiff.

[It is reasonably common to find an insured defendant making a third party claim against an insurer. Such a claim will often raise what has been regarded as "private issues". Notwithstanding that the insurer has an interest in the proceedings between plaintiff and defendant in terms of it is likely liability to provide, should the insurer be found liable, it will also obviously have another interest in terms of whether or not the policy response in the particular circumstances];

· the fact that plaintiff's claim may be seen to have been causative in terms of the making of the third party claim may have some relevance that in itself likely be insufficient to justify passing the costs of the successful third party on to the plaintiff;

· any suggested misconduct by the plaintiff requires to be carefully assessed as where such conduct may make it fair to impose some liability on the plaintiff for the costs burden otherwise shouldered by the defendant in terms of its obligation to pay the costs of a successful cross defendant;"

[32] The discretionary matters the first defendant/cross-claimant asks me to take into account (and my response to these submissions) are: (a) The court has found the second defendant/cross-defendant to be 100% responsible, unlike Patten , where the jury found the cross-defendant 90% liable . However, 10% difference is not a significant amount in my view.

(b) The defence to the claim had merit . However, that was even more the case in Patten, where the broadcaster simply put to air the publication by the police officers and made no attempt to defend this by a complex defence.

(c) The first defendant/cross-claimant was entitled to bring the cross-claim and it was successfully brought . However, this is reflected in other costs orders in this party's favour.

(d) None of the matters referred to above by the second defendant/cross-defendant resulted in any reduction of its liability . This is true, but that does not entitle the first defendant/cross-claimant to conduct its case in whatever way it wished. In particular, the second defendant/cross-defendant had no control over the defamation claim, to which it was not a party, and was not able to take any steps to require the first defendant/cross-claimant to comply with its s 40 obligations. Those steps it could take, such as settling the defamation litigation and apologising in court, it did take.

(e) The remaining matters in Mr Caspersonn's list ((e) - (o)) consist essentially of asserting that the first defendant/cross-claimant had a strong defence.

[33] The complex nature of defamation proceedings, the hardships caused to the parties caught up in cases where the legal fees can render victories Pyrrhic, and the increasing burden placed on court resources by these factors, are the reason not only for a separate costs regime under s 40 but a more critical scrutiny of the way in which cases are conducted.

[34] The first defendant/cross-claimant did not just owe obligations to the plaintiff in relation to the defamation action; it owed obligations to the second defendant/cross-defendant, the more so because this party was no longer a party to the defamation cause of action, having settled it with the plaintiff. Both plaintiffs, and in particular the second plaintiff, are persons who are particularly vulnerable, and the second defendant/cross-defendant's counsel's recognition of this factor, and the apology he proffered in open court on behalf of his client (however inadequate or late this may have been to the first plaintiff) are factors warranting the exercise of discretion as to costs. Courts should not lose sight of the fact that members of the public may find commencing litigation, or giving evidence, to be daunting; in the case of the second plaintiff, he was not only frightened to be in court but also, by reason of his intellectual disabilities, unable to give evidence at all. These court proceedings would have been distressing not only for him but for the family members who care for him.

[35] I note the comments of Handley JA in James Hardie & Co Pty Ltd v Wyong Shire Council (2000) 48 NSWLR 679 at 684, but each case turns on its facts, and a costs order that is appropriate for commercial litigation may not be appropriate for actions such as the present. I accept the submission of the second defendant/cross-defendant that it would be unjust for LVMH to bear not only the plaintiffs' costs, the State's costs on the cross claim, but also the State's entire cost of running its defence against the plaintiffs.

[36] I acknowledge the success of the first defendant/cross-claimant in the cross-claim but, for the reasons set out above, and conformably with the decision of Kirby J in Patten, propose to make the costs orders sought by the second defendant/cross-defendant, namely to restrict the indemnity as to costs to the category 1 and 2 costs.

[37] In addition, there are interlocutory costs which the second defendant/cross-defendant submits ought not to be sheeted home to the second defendant/cross-defendant in the event that I reject these submissions. In the event that I have erred in making the costs orders set out above, I set out my findings for each of these individual costs issues.

(a) The interlocutory order for costs dated 24 April 2009

[38] The judgment dated 24 April 2009 (Lassanah v State of NSW [2009] NSWDC 73) dismissed the State's motion for summary judgment and ordered that costs be the plaintiffs' cost in the cause. This was five months before any cross-claim had been brought, and the second defendant/cross-defendant did not therefore participate. It should not be responsible for the plaintiffs' costs (through the cross-claim) or the State's costs (if my finding concerning Category 3 costs set out above is set aside) incurred in bringing that unsuccessful motion.

(b) The plaintiffs' abortive application to re-open their case on 19 February 2010

[39] On 18 February 2010 an application was made by the plaintiffs under section 46 of the Evidence Act 1995 (NSW). This application took little or no time (T 406) and I see no reason for any special costs order.

The plaintiffs' application for indemnity costs against the second defendant

[40] The second defendant submits that there should be no primary liability for it to pay indemnity costs in relation to any matters under s 40 of the Defamation Act on the basis that the second defendant did not unreasonably fail to agree to a settlement offer proposed by the plaintiff (s 40(2)(a)).

[41] The second defendant firstly relies upon an offer made by the plaintiffs by letter of 6 March 2009 to withdraw the defamation claim on the basis of each party paying their own costs. That offer was accepted the same day by letter from Thurlow Fisher to Friend & Co. Therefore there were no defamation proceedings which had been successfully brought against LVMH, only defamation proceedings which had been settled on agreed terms. I agree with this submission.

[42] As to the application for indemnity costs for the wrongful arrest and false imprisonment claim against both defendants, I note the plaintiffs wrongly rely upon ss 56-60 of the Civil Procedure Act 2005 (NSW). It is s 98 which provides a power to order costs on an indemnity basis and which should be applicable. Under UCPR 42.2 costs are to be on an ordinary basis unless the court otherwise orders and examples of such cases are collected at UCPR Note 42.5.

[43] I accept the submissions of the second defendant that indemnity costs should only be considered where there is real evidence of unreasonable conduct or misconduct. No evidence is provided of this and the only grounds suggested by the plaintiffs are that both defendants made no offers and the second defendant called no witnesses. The first ground is literally accurate, but I consider this action to be related to the making of a public apology (to call evidence in such circumstances could just as easily be said to be evidence of not being sincere in the apology). Accordingly, the second defendant's liability to pay the plaintiff's costs of these proceedings is on a party/party basis.

(c) Liability of the second defendant/cross-defendant for indemnity costs awarded against the first defendant/cross-claimant

[44] As is set out above, the second defendant/cross-defendant had no control over the actions of the State, so far as it chose whether to engage or not engage in settlement negotiations with the plaintiffs, and that it would be manifestly unjust to sheet home any such liability through the cross claim. The second defendant conducted itself reasonably in the conduct of the proceedings against itself, by agreeing to a settlement offer proposed by the plaintiff concerning the defamation claim and by apologising and not calling evidence concerning the wrongful arrest and false imprisonment claim.

[45] As to the liability to indemnify the first defendant concerning the defamation claim, the rationale for the enactment of s 40 (and its predecessor s 48A) has been considered in a number of decisions of the Federal, Supreme and District Courts ( I set out the history of these legislative reforms in Hennessy v Lynch (No. 4) [2008] NSWDC 15 at [10] - [27]). The first purpose of these provisions is to prevent misuse of a party's superior financial position. This can occur whether the party with the superior financial position is the plaintiff or the defendant. Section 40(2) is of particular relevance in the present case. It provides that where a plaintiff has commenced proceedings for defamation, if the defendant has unreasonably failed to make a settlement offer "or agreed to a settlement offer proposed by the plaintiff" a court "must" order costs of and incidental to the proceedings on an indemnity basis.

[46] Section 40 does not envisage any situation where a party (who has otherwise conducted itself reasonably) could be liable for the unreasonable conduct of another party and this section should not be 'indirectly' used against another party who has settled a defamation action, but against whom liability is sought through a cross claim, to indemnify the State in respect of its unreasonable conduct unless that unreasonable conduct was inspired or added to in some way by the second defendant. No such claim has been made here.

[47] Accordingly I note my findings that independent of any costs order that I have made concerning the category 3 costs for the second defendant/cross-defendant, if I have erred in making those orders, then the second defendant/cross-defendant should not have to indemnify the first defendant/cross-claimant in relation to the indemnity costs either for the defamation action or for the wrongful arrest and false imprisonment action, by reason of its reasonable conduct during the trial.

[48] The application brought by the plaintiff for indemnity costs has only succeeded against the first defendant/cross-claimant, and only on limited grounds, namely the defamation claim and that part of the wrongful arrest and false imprisonment claim relating to submissions.

[49] The application brought by the second defendant/cross-defendant to vary the costs order to exclude what it calls "category 3" costs and liability to indemnify the first defendant/cross-claimant for indemnity costs has been successful.

[50] The obligations for justice to be "just, cheap and quick" (s 56 Civil Procedure Act 2005 (NSW)) mean that courts give credit to parties who make appropriate concessions in litigation and that parties who do not bear this in mind when deciding upon litigation tactics may face costs consequences as a result.

Orders As between the plaintiff and first defendant/cross-claimant:

(1) Pursuant to s 40, the first defendant/cross-claimant pay the plaintiffs' costs of the defamation claim on an indemnity basis (including this application for costs).

(2) The first defendant/cross-claimant pay the plaintiffs' costs of the wrongful arrest and false imprisonment claim on a party-party basis up until the end of the trial, and the costs of the plaintiffs' preparation and presentation of written and oral submissions be paid on an indemnity basis.

As between the plaintiff and the second defendant/cross-defendant:

(3) The plaintiff's application to vary the orders of 30 September 2010 so as to award indemnity costs against the second defendant/cross-defendant is dismissed (including this application for costs).

As between the first defendant/cross-claimant and the second defendant/cross-defendant:

(4) A variation of order (7) of the judgment of 30 September 2010 that the indemnity for the costs in these proceedings does not include the costs of the first defendant/cross claimant in defending the proceedings brought by the plaintiffs.

(5) The first defendant/cross-claimant's claim that the second defendant/cross-defendant indemnify it for costs orders on an indemnity basis made in favour of the plaintiff (see orders 1 and 2 above) dismissed.

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.