McMahon v John Fairfax Publications Pty Ltd

Special costs provisions in defamation proceedings 6The objects of the Defamation Act 2005 include providing effective and fair remedies for persons whose reputations are harmed by the publication of defamatory matter and promoting speedy and non-litigious methods of resolving disputes about the publication of defamatory matter: see s 3 of the Act. 7One of the ways in which the Act strives to achieve those objects is by providing for costs sanctions against a party who (to paraphrase) protracts the litigation or unreasonably fails to engage with opportunities to settle the proceedings out of court. Section 40 of the Act 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. 8In Davis v Nationwide News Pty Ltd [2008] NSWSC 946, McClellan CJ at CL (as his Honour then was) observed that those special costs provisions were introduced in response to a concern that the costs of defamation proceedings may be prohibitive for some plaintiffs (at [26]). His Honour said (at [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. 9The Chief Judge rejected an argument that Ms Davis should be awarded only a portion of her costs on the basis that she had not succeeded on all imputations. His Honour said (at [31]): The defendant further submitted that because Ms Davis succeeded in relation to only three imputations in two of the publications she should not be awarded all of her costs. It was submitted that an order for half her costs was appropriate: (see Windsurfing International Inc v Petit (1987) AIPC 90-441). In other circumstances the submission would have force. If an offer had been made which provided for an award of compensatory damages, the reasonableness of that offer may have to be considered by having regard to the prospects of success in the entire proceedings. Those prospects would have to be assessed at the time the offer was made. A settlement offer is referred to in s 40(3) as an "offer to settle the proceedings." Because the Act contemplates a single cause of action, even if there is more than one defamatory imputation in a publication (s 8) and the assessment of damages in a single sum (s 39) where there is more than one cause of action, the approach in Windsurfing may have limited application. The special costs rules in the Act are directed towards early settlement of the proceedings. If the failure by the defendant to make a reasonable offer means the proceedings continue to trial and the plaintiff obtains a judgment, the fact that he or she fails in relation to some of the pleaded imputations will be of limited relevance. 10I would respectfully adopt those remarks. It follows that, if I am satisfied that the defendants unreasonably failed to make a settlement offer or agree to a settlement offer proposed by Mr McMahon, I must order that the costs of and incidental to the proceedings to be assessed on an indemnity basis unless the interests of justice require otherwise. 11It may be noted that Ms Davis was awarded indemnity costs in accordance with s 40(2)(a) even though she was awarded less in damages than was contemplated in her settlement offer. She had offered to accept $150,000 plus costs as agreed or assessed. She was awarded $140,000 in damages.

Settlement offers in these proceedings 12On 1 November 2007, shortly after publication of the two articles, a solicitor acting for Mr McMahon sent a concerns notice to the editor of The Australian Financial Review seeking a retraction and apology of the imputations alleged to arise from the second matter complained of. That was not a settlement offer but it afforded the defendants an early opportunity to seek to make amends. The defendants did not avail themselves of that opportunity. A short letter from their solicitor communicated their blanket denial of any wrongdoing and their refusal to publish any apology (exhibit A on the costs application). 13The proceedings were commenced on 28 April 2008. On 19 December 2008, a lengthy defence was filed raising the defence of truth. 14On 11 March 2010, Mr McMahon served two settlement offers purportedly drawn as offers of compromise under the rules. The offers were in the same terms except that one specified an acceptance date of 9 April 2010 whereas the other allowed until 13 April 2010. Each offer was in the following terms: The plaintiff offers to compromise the claim made by him against the defendants on the following terms: (i) That there be a verdict entered for the plaintiff against the defendants in the sum of $100,000.00. (ii) That the defendants pay the plaintiff's costs of these proceedings on a party/party basis, such costs to be agreed or assessed. 15Although the offers were expressed as offers of compromise under r 20.26 of the Uniform Civil Procedure Rules 2005, Mr McMahon accepts that they did not in fact comply with the requirements of that rule, for the reason explained in Whitney v Dream Developments Pty Ltd [2013] NSWCA 188. In that case, the Court held that a purported offer of compromise seeking payment of costs as agreed or assessed does not comply with r 20.26, which requires that an offer of compromise must be "exclusive of costs". The Court explained that the process contemplated by the rules is that the offer should address the claim alone, the treatment of costs flowing from its acceptance or rejection (and potentially other considerations) being expressly dealt with in part 42: at [25] per Bathurst CJ; at [50] to [53] per Barrett JA; Beazley and McColl JJA agreeing with both at [46] and [47]; and see [75] per Emmett JA. In light of that decision, Mr McMahon accepted that he cannot rely on r 42.14 as the basis for an award of indemnity costs. 16Mr McMahon submits, however, that each of his offers was a "settlement offer" within the meaning of s 40(2) of the Defamation Act 2005. In my view, that is plainly right. 17For reasons not clearly articulated in their written submissions, the defendants implicitly assumed that an offer framed as an offer of compromise but which fails to meet the requirements of the rules of such an offer cannot be a "settlement offer" within the meaning of s 40 (paragraph 36(a) of the defendants' outline of submissions as to costs). I think that construction is contrary to the clear terms of the section, which contains its own definition, as follows (in subsection (3)): "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. 18The express inclusion in that definition of offers to make amends (a reference to part 3 of the Act, which encourages the resolution of civil disputes without litigation) makes plain that the provisions of s 40 are intended to encourage a broad range of settlement options and are not confined to formal offers of compromise under the rules. The only requirements are that the offer be an offer to settle the proceedings made before the proceedings are determined and that the offer be reasonable at the time it was made. 19I acknowledge that, in Whitney, the Court of Appeal held (at [42]) that the offer which failed to meet the requirements of an offer of compromise could not be construed alternatively as a Calderbank offer, but that conclusion was based on the particular requirements of Calderbank offers. The Chief Justice noted that there was nothing to indicate the offers would be relied on in relation to the question of costs should a verdict more favourable than the offer be achieved, which his Honour considered to be the essence of a Calderbank offer. 20In the present case, by his purported offers of compromise, Mr McMahon expressly offered to compromise his claim on identified terms. I see no reason why (subject to its being reasonable) such an offer should not qualify as a "settlement offer" within the meaning of s 40(2) of the Defamation Act. Leaving aside the plain words of the section, support for that construction may be found in the decisions of Haddon v Forsyth (No 2) [2011] NSWSC 693 at [31] per Simpson J and Holt v TCN Channel 9 Pty Ltd (No 2) [2012] NSWSC 968 at [50] per Adamson J. 21The defendants did not respond to either of Mr McMahon's offers. 22Section 40(2) is enlivened where a plaintiff has been successful in defamation proceedings and costs in the proceedings are to be awarded to the plaintiff. If those two conditions are satisfied, which they plainly are in the present case, the next task is to consider whether the defendant unreasonably failed to make a settlement offer or agree to a settlement offer proposed by the plaintiff. 23I accept that Mr McMahon's offers were reasonable at the time they were made. The defendants have put nothing to suggest otherwise. However, I do not think I can conclude on the strength of the material before me that it was unreasonable of the defendants not to agree to either of those offers. In hindsight, it would have been preferable for the defendants to do so but that is not the test. 24I am nonetheless satisfied that, in all the circumstances, the defendants unreasonably failed to make a settlement offer at that stage. That view might once have been considered heretical. Parties are entitled to have their causes determined by the court. There is no ordinarily obligation to negotiate with an opponent. But the special costs provisions in the Defamation Act 2005 deliberately encroach on that comfortable domain, making it clear that a defendant in defamation proceedings who fails to engage in any process of negotiation does so at his or her own risk as to costs. 25In Holt, Adamson J expressed the view (at [65]) that the mere contemplation of the possibility of losing a case does not make the failure to make any settlement offer unreasonable. As her Honour observed, there is no such thing as a case that cannot be lost. I would respectfully agree with her Honour's remarks, but I do not think they reflect the present case. 26The articles were plainly defamatory. Whether they were defensible as being true can by no means have been certain at any stage. Tom Hughes QC is credited with the sage advice that a defendant in defamation proceedings should "justify or settle". An offer to accept $100,000 plus costs was a clear flag of Mr McMahon's willingness to compromise what he considered to be the full value of his claim. In my view, having regard to Mr McMahon's prospects of at least partial success in the proceedings and the likely disproportionate cost of the trial as it must have appeared at that stage, a reasonable approach with due regard to the objects of the Defamation Act required the defendants at least to engage with that willingness. A level-headed assessment ought, in my view, to have prompted the conclusion that, even if the defamation were able to be justified in part, the claim might well be compromised for a figure somewhere between nought and $100,000. In my assessment, it was unreasonable of the defendants not to explore the prospect of settlement out of court at that stage by putting their own settlement offer. 27As events have transpired, Mr McMahon has done considerably better in the proceedings than the offer he made. That is not determinative (see Davis at [27]) but it is a powerful indication of the unreasonableness of simply ignoring a settlement proposal which plainly reflected some willingness to resolve the claim out of court. The defendants' written submissions do not suggest that Mr McMahon's offer was not reasonable; nor do they seek to defend or explain their decision to ignore it. 28In my view it follows that, so far as the defamation proceedings are concerned, I must order that the costs of and incidental to the proceedings be assessed on an indemnity basis unless I am satisfied that the interests of justice require otherwise.

Conduct of the proceedings 29In case that conclusion is wrong, it is appropriate to deal with the alternative basis on which Mr McMahon seeks indemnity costs, which invokes s 40(1) of the Defamation Act. Mr McMahon submits that the defendants' conduct of their defence warrants an order for indemnity costs. The submission was largely based on remarks I made in the principal judgment in the context of dealing with the claim for aggravated damages. In particular, in the judgment: (a)I expressed the view that the defendants' initial reliance on a defence of qualified privilege, which was subsequently abandoned, displayed "optimism" (at [147]); (b)I described the truth defence in respect of two imputations as "bullish" (at [144]); (c)in respect of some of the particulars of truth and interrogatories directed to Mr McMahon I remarked that "the extent of investigation of such banal and incidental matters... reflects a culture in the defence of defamation proceedings brought against major media publishers which is inimical to the overriding purpose of the Civil Procedure Act". I concluded that many such matters were pursued "in unreasonable detail, undoubtedly at unreasonable cost" (at [149]). I referred by way of example to questions as to where Mr McMahon's wife had her wedding dress made and how much it cost and questions directed to Mr McMahon's plans to attend the Rugby World Cup in France. 30Reliance was also placed on the fact that the defendants issued 25 subpoenas in the proceedings. The defendants explained that the process of obtaining records relevant to Mr McMahon's claim was complicated by his old firm's insolvency which rendered it necessary or at least most expedient to obtain many documents from sources other than discovery. It may readily be accepted that those circumstances would have created difficulties. 31Something should be said as to the reliance upon my description of part of the truth defence as "bullish". The plaintiff seized upon my use of that word, repeating it in a submission evidently directed at the defendants or their lawyers personally. The author of the plaintiff's written submissions took the surprising course of attaching a copy of the Macquarie Dictionary definition of the word "bullish", as follows: 1. Like a bull. 2. Obstinate or stupid. 3. (In the Stock Exchange, etc) tending to cause a rise in price. 4. Optimistic. 32The suggestion appears to have been that I must construe my own judgment by reference to the Macquarie Dictionary. The clear insinuation was that I had described the defence (and perhaps the defendants or their lawyers) as "obstinate or stupid". I meant no such thing. I wished only to express the opinion that the pursuit of the truth defence as to those two imputations displayed a high degree of optimism. I would not ordinarily pause to address such a point, but for the unfortunate suggestion that the snide characterisation of the defendants' conduct recorded in the plaintiff's written submissions reflected a view I was to be taken to have expressed. 33Section 40(1) of the Defamation Act is less prescriptive than s 40(2). It calls attention to the way in which both parties to the proceedings conduct their case. In the present case, I would venture to suggest that there was at least one aspect of the plaintiff's conduct of the proceedings which was itself bullish (in the sense in which I use that term). The plaintiff's pursuit of his special damages claim was the subject of comment in the principal judgment at [180], where I expressed the view that it was surprising that Mr McMahon and his legal representatives had persisted in the claim in the face of what I considered to be cogent evidence that the Lumley work was lost to Mr McMahon before 5 October 2007, the date of publication of the first matter complained of. As already noted, that was a claim for over $2 million. 34Had I not been persuaded of Mr McMahon's prima facie entitlement to indemnity costs in accordance with s 40(2) of the Defamation Act, his submissions would not have persuaded me that I should award indemnity costs on the basis of the provisions of s 40(1) of the Act. Based on my observation of the conduct of both parties in the proceedings, I do not think the defendants' conduct marks them out for such an order.

Ardent Legal Pty Ltd 35There is a further issue of some complexity raised by Mr McMahon's application. It relates to the fact that he is a solicitor and has, for at least part of the case, acted for himself. 36At all times, the solicitor on the record for Mr McMahon has been a solicitor from Ardent Legal Pty Ltd. That company was incorporated on 2 July 2007. It has been known by the name Ardent Legal Pty Ltd since 9 October 2007, a date which happens to fall between the publication of the two matters complained of. Mr McMahon's wife has been a director since the company's inception. 37The evidence in the proceedings included an employment contract dated 15 October 2007 between Mr McMahon and Ardent Legal. Under that contract, Mr McMahon is entitled to a fixed annual salary of $52,000. However, the contract also provides for fee sharing in the event that he reaches an annual target of $170,040 of professional fees "rendered and collected". Accordingly, he has a personal interest in seeing the firm he retained charge and recover higher fees. Since 1 November 2010, Mr McMahon has also been a director of the company. As at 17 March 2011, its sole shareholder was Mr McMahon's wife (exhibit 29). 38The proceedings were commenced by statement of claim filed on 28 April 2008. The statement of claim identified Mr Quah-Smith of Ardent Legal as the solicitor for the plaintiff. On 28 April 2011, a notice of change of solicitor was filed in the following (quaint) terms: Bryan Francis McMahon, plaintiff, has appointed Bryan Francis McMahon of Ardent Legal Pty Ltd to act as the plaintiff's solicitor in these proceedings in the place of Gordon Quah-Smith of Ardent Legal Pty Ltd. 39From that date until 11 December 2011, Mr McMahon was the plaintiff, the solicitor on the record for the plaintiff as an employee of Ardent Legal and a director of that company, the other director and sole shareholder being his wife. 40On 11 December 2011, a further notice of change of solicitor was filed re-appointing Mr Quah-Smith in place of Mr McMahon as Mr McMahon's solicitor. 41The defendants submit that, in the circumstances, Mr McMahon is not entitled to any costs "in respect of his own conduct of the proceedings". That was said to be so for two reasons. First, it was submitted that to award such costs in the present case would entail a breach of the indemnity principle. Secondly, it was submitted that Mr McMahon is a solicitor litigant and that the principles relating to such litigants preclude him from recovering the costs of representing himself.

The indemnity principle 42The indemnity principle holds that the sole purpose of a costs order is to indemnify the successful party. If the successful party is under no legal obligation to pay lawyers fees, no amount is necessary to meet that purpose. In that event there can be no basis for making an order for costs (other than disbursements). 43The defendants submitted that, on the evidence, Mr McMahon has no obligation to pay Ardent Legal in respect of the legal services he performed for himself as an employee of the firm. It was further submitted that, in the absence of any liability to pay any such costs, a costs order in Mr McMahon's favour that extends to the costs of his own professional services would entail a breach of the indemnity principle. 44It may be accepted, and indeed appeared to be common ground, that the evidence does not establish one way or the other what obligation (if any) Mr McMahon has to pay Ardent Legal in respect of the work either he or Mr Quah-Smith performed on this case. 45Mr McMahon submitted that the indemnity principle allows the recovery of costs in all cases where there exists a liability between lawyer and client in respect of costs, even if the prospect of the client discharging that liability is remote. It was submitted that, unless there was an agreement with the solicitors that the client would not be liable for costs, recovery is allowed in accordance with the decision in Adams v London Improved Motor Coach Builders Ltd [1921] 1 KB 495. Mr McMahon noted that the decision in Adams has been applied in a number of decisions in Australia. 46On that basis, Mr McMahon submitted that the defendants bear the onus of establishing the existence of an agreement exculpating him from any liability to Ardent Legal. It was further submitted (with some ingenuity) that "of course there was no such agreement", since it would make no sense to enter into such an agreement and the Court would accordingly be reluctant to infer its existence. That is a rhetorical submission which hardly proves the existence or non-existence of any fact. 47The defendants relied on an answer given by Mr McMahon in evidence to the effect that his time recorded in these proceedings is recorded as "non-chargeable time". 48The defendants also pointed to the likely existence of an agreement exculpating Mr McMahon from any costs (or at least the absence of any liability to pay costs to Ardent Legal) by reference to time costing records in MFI 11. As the reference suggests, that is a document that has only been marked for identification. It is not in evidence. The defendants asserted in their written submissions that they tender it on the costs issue but I had by that point determined that the costs argument would proceed on written submissions. The simple fact is that the document is not before the Court. For the reasons that follow, I do not think it is necessary to afford any further opportunity to tender that document. 49As noted in Mr McMahon's submissions in reply, assuming the position is as he said (that the firm's time records record time spent on this matter as non-chargeable), that is hardly determinative as to the existence of any obligation he may have to pay Ardent Legal. Equally non-probative, conversely, was Mr McMahon's assertion in the same submissions that Mr Quah-Smith has recorded his time and that "Ardent Legal intends to bill for it". Having regard to the corporate details, that appears to amount to an assertion that Mr McMahon has instructed his counsel, for the purposes of a costs application, that he has decided to bill himself for Mr Quah-Smith's time (or that his wife has said she intends to do so). The submission is that the whole amount should be recoverable against the defendants whether or not Mr McMahon has any intention or ability to pay such a bill. 50There is accordingly a measure of artificiality in treating this as an ordinary application of the indemnity principle. Mr McMahon knows whether or not he has any present liability to Ardent Legal. Further, he appears to be in a position to control or influence the quantum of any future liability. The determination of those issues, which are potentially of considerable significance in the assessment of costs, should not be left to speculation or inference based on inadequate evidence. It is not, in my view, an issue which should rest on the defendants' failure to discharge an alleged onus of proof. Mr McMahon is an officer of the Court. Whatever the authorities say about the indemnity rule, the Uniform Civil Procedure Rules expressly assume that indemnity costs, at least, are awarded to indemnify a party in respect of costs in fact incurred (see r 42.5(b)). Assuming the corporate structure is being respected, if Mr McMahon has no liability to Ardent Legal, the allowance of those costs would be a windfall to him rather than an indemnity.

Solicitor litigants and the Chorley Rule 51That leads me to the second issue raised by the defendants, which relates to the contention that Mr McMahon was at all times a litigant in person. There is a measure of tension between that and the first point since, to the extent that he was, he has no need of any indemnity against costs payable to another. 52The defendants acknowledge that a litigant in person who is a solicitor can, in some circumstances, recover fees for representing himself. They submit, however, that that cannot be allowed in the present case. They relied on the fact that it was an aspect of Mr McMahon's special damages claim that his new firm had the capacity to do the lost Lumley work and that the firm had not filled the gap left by the loss of that work. It was submitted that, since Mr McMahon had the capacity to attend to his own case, he is not entitled to recover for that time because, in acting for himself, he has not lost the opportunity to do any other paying client work. 53A threshold issue is whether Mr McMahon is properly to be regarded as a "solicitor litigant" (that is, a litigant who, being a solicitor, represents himself in the proceedings). Mr McMahon submitted that he is not a solicitor litigant since he was represented at all times by Ardent Legal. He noted that the law has been "tolerably clear" since Salomon v Salomon & Co [1897] AC 22 that a company is a separate legal entity, even as against its own members. 54The defendants submitted that Mr McMahon should be regarded as a solicitor litigant notwithstanding the legal structure through which he operated. They relied upon the decision of Brereton J in McIlraith v Ilkin & Anor (Costs) [2007] NSWSC 1052. In that case, there was an issue as to whether a solicitor litigant was entitled to profit costs for work done by himself. His Honour said (at [11]): Strictly speaking, Mr Ilkin did not act for himself; a solicitor corporation of which he is the director was the solicitor. However, I have attributed no significance to this distinction, and proceed on the basis that Mr Ilkin is to be regarded as having acted as his own solicitor. 55Mr McMahon submitted that it is not clear from the judgment whether that case is on all fours with the present. It is at least relevant in holding that, in considering costs claimed by a solicitor plaintiff who has appeared in his own cause, it is appropriate to lift the corporate veil. There is an obvious public interest in doing so. 56However, there appear to be two significant differences between McIlraith and the present case. The first is that the solicitor in McIlraith appears to have been the only director of the solicitor corporation, whereas Mr McMahon and his wife are each directors. I should not assume that Mr McMahon's wife had no autonomy in that role. The second is the fact that, in the present case, another employed solicitor was the solicitor on the record for most of the proceedings, albeit possibly under Mr McMahon's control (if Mr McMahon was the principal of the firm, as its origins would suggest). 57I have concluded that professional services provided by Mr McMahon to himself should be treated as work undertaken by a solicitor litigant, while services provided by Mr Quah-Smith should be regarded as having been provided by the separate corporate entity, Ardent Legal. 58Accordingly, as to professional services provided by Mr McMahon to himself, it is necessary to consider the defendants' submissions concerning the "Chorley rule". The general rule is that a litigant appearing in person is not entitled to recover from the unsuccessful party any compensation for time spent preparing and conducting the case. 59In England in 1884, a rule of practice was recognised to operate as an exception to that general rule, providing that a self-represented solicitor is entitled to professional costs. It is known as the Chorley rule or the Chorley exception after the decision in which it was unequivocally recognised, London Scottish Benefit Society v Chorley (1884) 13 QBD 872. In that decision it was explained that, according to the authorities establishing the rule, a solicitor litigant: does not recover such costs in such circumstances in the capacity of a solicitor, but because, he happening to be a solicitor, his costs are able to be quantified by the Court and its officers. 60In 1976, the High Court held that the Chorley rule applies in Australia to allow a solicitor who acts for himself in litigation to recover his professional costs: Guss v Veenhuizen (No 2) (1976) 136 CLR 47. 61The defendants' submissions noted a series of subsequent decisions in which doubts have been expressed about the continuing appropriateness of the rule. However, as cogently explained by Brereton J in McIlwraith, since the High Court has authoritatively endorsed it, it is not open to this Court to discard it: see McIlwraith at [12] to [26]. 62The defendants submitted, however, that the Chorley rule is properly characterised as allowing an indemnity (in the case of solicitor litigants) against "opportunity cost" rather than the direct cost of the solicitor's professional time, citing Atlas v Kalyk [2001] NSWCA 10 per Handley JA at [9], Meagher and Sheller JJA agreeing at [13] and [14] respectively. It is appropriate to consider the whole of the relevant passage: It might be said, with respect, that although solicitors representing themselves in litigation have no need of any indemnity against professional costs paid or payable to another practitioner, there is still scope for the indemnity principle. Such solicitors will have spent time and trouble representing themselves and, to that extent, they will have lost the opportunity of using that time doing professional work for other clients and being remunerated accordingly. The indemnity in the case of solicitor litigants is, therefore, against the opportunity cost rather than the direct cost of their professional time spent on their own case. 63The defendants relied upon the fact that, in the proceedings before me, Mr McMahon gave evidence (in support of his claim for special damages) that as a result of the publication of the matters complained of he had lost the Lumley work and had been unable to replace it. Specifically, he said that he only had enough work to fill approximately 20 hours per week (T344.15 - 49). On that basis, the defendants argued that, by working on his own case, Mr McMahon did not lose any real opportunity of doing other paying work (since he would not have had a full load of other paying work in any event). 64Mr McMahon submitted that that is a selective statement of the rationale for the Chorley rule which does not reflect the principle approved by the High Court in Guss. Regrettably I feel compelled, if not bound, to accept that submission. In Khera v Jones [2006] NSWCA 85, the Court of Appeal refused leave to appeal in a case in which it was argued that there should be an exception to the Chorley rule in the case of an unemployed solicitor who was arguing the case in his spare time: Khera v Jones [2006] NSWCA 85. Although a decision to refuse leave does not stand as binding authority, the Court's reasons provide a clear statement of the present law. 65The Chorley rule did not emerge unscathed. The Court said (at [3]): If the "rule of practice" deserves continuing application, the present case is a most undeserving applicant for inclusion. Indeed, it casts further doubt on the sustainability of the Chorley rule. 66Had the issue been "uncluttered by authority", the Court would have favoured the approach of the Full Court of the Supreme Court of Western Australia in Dobree v Hoffman (1996) 18 WAR 36 in which the Chorley rule was abandoned. However, the Court concluded, following the decision in Atlas v Kalyk, that the decision in Guss is binding, reiterating the High Court's admonition that it is for that Court alone to determine whether one of its previous decisions is to be departed from or overruled: see Garcia v National Australia Bank Ltd (1998) 194 CLR 395 at 403. 67The rationale for the Chorley rule explained in Guss is, quite simply, that unlike the case of an ordinary layman, work done by a solicitor can be quantified on a taxation of costs: at 52.6. Neither the appropriateness of the rule nor the untested assumption that work done by "ordinary laymen" cannot be quantified appears to have been in dispute. The decision turned on differing views as to the significance of the fact that, due to an error in the registry, the particular solicitor's name had not been entered in the Register of Practitioners of the High Court, raising an issue as to whether his costs could indeed be "quantified on a taxation" in accordance with the rules of court. The case accordingly did not afford the occasion for a particularly satisfactory analysis of the competing considerations for exempting people who happen to be solicitors from the general rule that a litigant who represents himself cannot recover compensation for the time spent doing so. 68Ultimately, however, that is the authority that binds me. It follows, in my view, that if Mr McMahon is properly characterised as a solicitor litigant, he is entitled to the benefit of the Chorley rule notwithstanding his own evidence suggesting that he was able to act for himself during what would otherwise have been spare time. As already explained, I am of the view that Mr McMahon is to be regarded as a solicitor litigant as to those legal services provided by himself. 69It remains to consider the significance of those considerations in the context of the application for indemnity costs under s 40(2) of the Defamation Act. Under an assessment on the ordinary basis, "party/party" costs are assessed by determining appropriate fair and reasonable costs: see ss 364 and 365 of the Legal Profession Act 2004. However, where party/party costs are assessed on an indemnity basis, the assessor is to allow all costs other than those that appear to have been unreasonably incurred or appear to be of an unreasonable amount: s 364(4) of the Legal Profession Act r 42.5 of the Uniform Civil Procedure Rules 2005. 70The position is complicated by the fact that the evidence is inconclusive as to whether Mr McMahon has any liability to Ardent Legal.

Conclusion 71I have concluded that, as to professional services provided to Mr McMahon by himself, the interests of justice require that the costs of those services be awarded on the ordinary basis, notwithstanding my conclusion that the defendant unreasonably failed to make a settlement offer so as to attract the sanction of s 40(2) of the Defamation Act. That is because there is a clear risk that a solicitor acting in his own cause will not bring to bear the impartiality required to serve the overriding purpose of facilitating the just, quick and cheap resolution of the real issues in the proceedings. I consider it appropriate that those costs be subjected to the undemanding astriction of having to be fair and reasonable. 72As to professional services provided to Mr McMahon by others including Mr Quah-Smith, those costs should be awarded on an indemnity basis. In the event that those costs are not agreed and are required to be assessed, the assessment should be conducted on the basis that it remains for Mr McMahon to establish that he has a liability to Ardent Legal for such costs. It would be open to the costs assessor under s 358 of the Legal Profession Act to require Mr McMahon to produce such documents or written information as the costs assessor sees fit in order to determine that issue. 73Disbursements should be awarded on an indemnity basis. 74The defendants seek an order that Mr McMahon pay their costs of the claim for special damages or at least that any costs awarded to Mr McMahon not include those costs. I have already recorded my view as to the strength of that aspect of the claim. 75I do not think it would be fair or appropriate to order Mr McMahon to pay the defendants' costs of that claim. The more difficult issue is whether Mr McMahon should have his costs of that claim. He relies upon the fact that the claim was an aspect of the defamation proceedings. Juridically, it is not a discrete claim. On that basis, it was submitted that, in order to give effect to s 40(2) of the Act, I am in effect required to award Mr McMahon all of his costs of the defamation proceedings including the costs of that aspect of the claim. 76The section provides (my emphasis) that if defamation proceedings are successfully brought by a plaintiff and costs in the proceedings are to be awarded to the plaintiff, a court that is satisfied that the defendant unreasonably failed to make a settlement offer must order costs of and incidental to the proceedings to be assessed on an indemnity basis (unless the interests of justice require otherwise). 77The section plainly contemplates the possibility that a plaintiff will be successful but not be awarded any costs in the proceedings. In doing so, it arguably contemplates the possibility of a mixed result. On one reading of the section, it provides that, if a successful plaintiff is to be awarded any costs, he should have his whole costs of the proceedings on an indemnity basis. Alternatively, it could be understood to mean that, if a successful plaintiff is to be awarded any costs, such costs as he is awarded should be assessed on an indemnity basis. Either way, the mandate to order indemnity costs is expressly subject to consideration as to whether the interests of justice require otherwise. 78In my view, contrary to the submissions put on behalf of Mr McMahon, consideration of the interests of justice does extend to considering the appropriateness of a differential costs order. The purpose of the section was to address the perceived vice of defamation proceedings in which the parties dig in their heels for a disproportionately expensive fight without making any reasonable attempt to settle. I accept that, had the proceedings been settled, the costs of both advancing and defending Mr McMahon's ambitious claim for special damages would never have been incurred. As submitted on behalf of Mr McMahon, the very vice to which the section is directed may be seen to have eventuated in the present case. 79Conversely, however, the same perceived vice will not be addressed by indemnifying even a successful plaintiff against the cost of running such a manifestly ambitious claim. It seems to me to be contrary to the interests of justice to award Mr McMahon indemnity costs for the special damages claim he mounted in the present case. The pursuit of the claim may reflect the circumstance of Mr McMahon having himself for a client. He may not have subjected that aspect of the claim to the sceptical eye of robustly independent advice. In all the circumstances, I am not persuaded that s 40(2) mandates the inclusion of that aspect of the claim in the costs to be awarded to Mr McMahon and I consider it would be contrary to the interests of justice to do so. 80As to the costs of the unsuccessful injurious falsehood claim, as noted on behalf of the defendants, those costs are not covered by the provisions of the Defamation Act and so are not caught by my conclusion as to s 40(2). In practice, the additional costs occasioned by that claim must be small (in the order of perhaps 10 per cent of the parties' overall costs). There is a substantial degree of overlap between the two claims. I think the complexity and additional cost of attempting to carve those costs out of the costs awarded to the plaintiff would be disproportionate to the interest involved. Doing the best I can, I consider that the fairest way to address that issue is to make no award to the defendants but to reduce the plaintiff's costs by 5 per cent. 81The orders are: (1)That the defendants pay 95 per cent of the plaintiff's costs of the proceedings except for his costs of the special damages claim; (2)That, as to the costs of professional services provided to the plaintiff by himself (in any capacity), those costs be paid as agreed or assessed on the ordinary basis; (3)That, as to disbursements and the costs of professional services provided to the plaintiff by others, those costs be paid as agreed or assessed on the indemnity basis; (4)That the costs payable by the defendants pursuant to these orders be reduced by the amount payable by Mr McMahon pursuant to the costs order of the Court of Appeal made 18 November 2010 in McMahon v John Fairfax Pty Ltd [2010] NSWCA 308 provided that the defendants take all reasonable steps to have those costs agreed or assessed with due expedition, failing which Mr McMahon has liberty to apply to vacate this order.

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