Should indemnity costs be awarded?
48Before dealing with s 40 of the Defamation Act 2005, it is instructive to examine the issue in terms of conventional principles relating to indemnity costs, whether in respect of offers of compromise (UCPR r42.14) or Calderbank letters.
49Here the award of $150,000.00 plus interest was calculated in part to serve as vindication of the plaintiff's reputation ( Carson v John Fairfax & Sons Limited (1993) 178 CLR 44 at 60/61). Although the defendant refused to give Mr Manefield an apology, Mr Manefield can point to the damages as a demonstration of the falsity of the imputations. As stated, the award, in substance, was significantly more favourable than both the offers that Mr Manefield signified that he was prepared to accept and the offers made by the defendant. Whilst it may be an exaggeration to describe the result as a "forensic disaster" for the defendant (cf Skalkos v Assaf (No 2) supra para 42), the verdict and combined costs of the plaintiff and defendant exceed by a significant margin the offers made before the litigation began.
50Turning to s 40 of the Defamation Act 2005, the Court is enjoined (s 40(1)(a)) to consider the way in which the parties conducted their cases. The course of the litigation has been described (paras 7-26). Shortly after the defamatory letter, the solicitors for the plaintiff sent a concerns notice to the defendant, identifying a number of imputations (paras 7-10). The letter asserted that the imputations were false. A modest offer was made by the plaintiff to avoid litigation ($40,000.00 damages, $5000.00 costs plus an apology). The final paragraph signaled that a lower figure may be agreed ("if you would like to negotiate a resolution..."). It was a sensible and reasonable letter which the defendant chose to ignore.
51In these circumstances the plaintiff was left with no real alternative than to commence an action. A statement of claim was filed on 10 June 2009. Still no offer was made. After pleadings had closed and various interlocutory steps had been taken, the plaintiff again raised the possibility of settlement in late 2009 or thereabouts (para 17). In the following year there were some discussions. However, no offer was made by the defendant until more than two months after the matter had been set down for trial. When the offer finally came on 29 September 2010, it was for $20,000.00 inclusive of costs (para 19), a sum significantly less than the costs that would have been incurred by the plaintiff to that point. The defendant, in the letter of offer, pointedly added that the offer was made in accordance with the principles in Calderbank v Calderbank .
52The plaintiff responded to that offer on 13 October 2010. A counter offer of $95,000.00 inclusive of costs was made, without insisting upon an apology (supra para 20). The defendant brushed that offer aside, saying that its previous offer was "essentially not negotiable", although it increased its previous offer by $5000.00 to $25,000.00 inclusive of costs. Again, it added that the offer was made in accordance with Calderbank v Calderbank .
53The picture therefore is clear. The plaintiff, adopting the procedure in the Defamation Act 2005, which is designed to provide a remedy to an aggrieved person and avoid litigation, made a reasonable offer that was ignored. Once litigation began, the plaintiff again sought to encourage the defendant to settle on a compromise basis. Finally, after the matter had been set down for trial, and significant costs incurred, the defendant made what can only be described as a derisory offer. I infer that the defendant well knew that an inclusive costs offer of $20,000.00 was for an amount much less than the costs that had already been incurred by the plaintiff. It was, I believe, an offer designed to intimidate, rather than attract the plaintiff. It is unsurprising that it was rejected and that the matter went to trial.
54I turn, then, to the issues that arise under s 40(2) and (3). The plaintiff ultimately succeeded in obtaining a verdict of $150,000.00 plus interest. The damage to his reputation was significant. The verdict, no doubt, would have been greater had the letter been disseminated to a larger audience. Three issues arise under s 40:
First, did the defendant unreasonably fail to make a settlement offer?
Second, did the defendant unreasonably fail to agree to a settlement offer proposed by the plaintiff?
Third, if either question is answered in the affirmative, do the interests of justice require otherwise than that the costs be awarded against the defendant on an indemnity basis?
55I repeat, for convenience, the definition of settlement offer in s 40(3):
"40(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."
56Here, dealing with the concerns notice of October 2008, each imputation (though less ornate than the imputations ultimately pleaded) (supra para 10) was clearly conveyed by the publication and others besides. Each was disparaging of the plaintiff and plainly defamatory. I would have expected the defendant to have recognised that the plaintiff had been defamed at the time of publication. It would certainly have known once it had been pointed out in the concerns notice .
57Was the plaintiff's offer in the concerns notice reasonable? By the measure of damages awarded in the action ($150,000.00 plus interest) unquestionably it was. From the perspective of the plaintiff, it was plainly reasonable at the time the offer was made. However, the offer was clearly not the last word. There was an invitation to negotiate. One infers the plaintiff was hoping to salvage at least some of his reputation by an apology. The amount included for costs was modest ($5,000.00). The offer clearly involved an element of compromise, since the plaintiff's reputation had been seriously damaged within the child care community of NSW, which had been his consuming interest. Yet the defendant neither accepted the offer nor made an offer in response. Ultimately, it made what I have described as a derisory offer shortly before the trial.
58Was the failure on the part of the defendant to make an offer, or agree to the plaintiff's settlement proposal, unreasonable? I believe it was. As stated, the defendant would have recognised that its publication had defamed the plaintiff. I infer that it also recognised that it had caused him significant anguish and had damaged his reputation. The only defence relied upon was qualified privilege at common law. One assumes that, when weighing up the plaintiff's offer and whether to make a counter offer, the defendant had that defence in mind. Significantly, the defendant did not rely upon statutory qualified privilege (s 30 Defamation Act 2005), where it would have been obliged to prove that its conduct in publishing the letter was reasonable in the circumstances (s 30(1)(c)). Qualified privilege at common law, in contrast, protected a communication made on a privileged occasion whether reasonable or unreasonable ( Roberts v Bass [2002] HCA 57; (2002) 212 CLR 1 per Gleeson CJ at 13 (para 14).
59However, you would also have expected the defendant (and its advisors), when assessing the plaintiff's offer, and giving thought to a counter offer, to be mindful of two things. First, it may be assumed they knew that the privilege would be defeated were the plaintiff to establish express malice. Here, the plaintiff and the defendant had a relationship extending over several years. The relationship ended when the defendant dismissed the plaintiff as Executive Officer of the association. Their relationship and his dismissal were likely to provide fertile ground for suggestions of malice.
60Further, the plaintiff, perhaps naively, had written to the defendant in advance of the launch of Early Learning Australia. He sought the defendant's cooperation. He invited discussion on the issues he raised in his letter. He provided his mobile telephone number. The defendant chose to ignore that invitation and the text of the letter. It did not speak to him before writing directly to its members. One would have expected the defendant (and its advisors) to have recognised that such circumstances may conceivably give rise to allegations of malice, which, if established, would defeat the privilege. As mentioned, the defendant did not assert (and, under common law qualified privilege, was not obliged to assert) that it had acted reasonably. Nonetheless, you would have expected the association (and its advisors) to have recognised that there is a fine line between conduct in publishing defamatory material which is unreasonable and conduct which may support an inference of malice. In short, the defendant was not bound to win. Compromise should have been in their contemplation.
61The second matter, which ought to have given the defendant pause, is one of some notoriety. Litigation, by its nature, is hazardous. Things may occur unexpectedly, such that a good case is lost or a doubtful case, won. The hazards of litigation are perhaps greater in defamation than in most other areas. But quite apart from that, litigation is expensive, even for those who ultimately win. With these things in mind, as a matter of enlightened self interest, it was important for the parties to consider compromise and commercial reality.
62Here, the defendant chose to ignore these hazards. It refused to negotiate. At the heel of the hunt, once the matter had been set down for trial, it made an offer that was manifestly inadequate.
63The defendant in the circumstances unreasonably failed to make a settlement offer. Whilst the offer of the plaintiff in the concerns notice was modest and reasonable, it was, by its terms an invitation to treat, such that I would not find it unreasonable for the defendant to refuse to accept it. But a counter offer was called for as well as earnest endeavors to reach a compromise agreement. The requirements of s 40 are satisfied. The defendant should pay indemnity costs. The interests of justice do not require otherwise.