Plaintiff v First Defendant Second Defendant

2 After I had delivered my reasons for judgment, Mr C Dibb, who appeared as counsel for the plaintiff, applied for an order that the plaintiff be awarded costs on an indemnity basis. It was decided that that application should be the subject of written submissions on behalf of each party. Such submissions were filed on behalf of the plaintiff and the defendants. As a result of some matters raised in the submissions filed on behalf of the defendants, it became necessary to hear oral argument in respect of the plaintiff's application.

3 The plaintiff submits that he should have his costs on an indemnity basis for two principal reasons, namely:

(a) It was submitted that the defendants unreasonably failed to make a "settlement offer" and, accordingly, pursuant to s 40 of the Defamation Act 2005 ("the Act"), the plaintiff is entitled to indemnity costs.

(b) The plaintiff made two offers in the course of the proceedings, neither of which were accepted by the defendants. It was submitted that the plaintiff achieved a result, by judgment, which was more advantageous to the plaintiff than that contained in either of the offers made by him.

4 In support of the first submission, Mr Dibb contended that the defendants had unreasonably failed to make an "offer to make amends", pursuant to the provisions of Part 3 Division 1 of the Act, after the plaintiff's then solicitors had sent a letter to the defendants dated 25 November 2009, and to which I have referred in my earlier decision.[2] Rather, he submitted, the defendants simply denied that they were responsible for the matter complained of. Notwithstanding taking that position, the defendants, subsequently, admitted publishing the matter to anyone who had downloaded it and read it using the Yahoo 7 search engine. Accordingly, Mr Dibb submitted that, if the defendants had properly considered their position at an early stage, the proceedings might have been avoided by the defendants making an appropriate offer of amends.

5 Further, Mr Dibb submitted that, in any event, it was unreasonable for the defendants not to make an offer of compromise, once the defendants appreciated that they were, in fact, publishers of the matter complained of by the plaintiff. In particular, he submitted that it was unreasonable for the defendants to persist in that position, after I had made a ruling, during the interlocutory stages of the proceeding, that the material, published by the defendants, was capable of bearing the imputations pleaded by the plaintiff. Mr Dibb submitted that it was unreasonable for the defendants not to give effect to the possibility that a jury might find one or more of the imputations, pleaded by the plaintiff, to have been conveyed by the defamatory material. Mr Dibb submitted that the purpose of s 40 of the Act was to promote settlement on a realistic basis.[3]

6 Mr Dibb also relied on two offers, which were made by the plaintiff to resolve the matter before trial. First, he relied on a "without prejudice" letter dated 9 June 2011 sent by the plaintiff, himself, to the defendants' solicitors. In that letter the plaintiff stated:

"I am prepared to settle this case now for the sum of $200,000 plus the money the plaintiff own (sic) to the defendants $21,074.51.

This offer is open until 30 June 2011 only.

The defendant to prepare Documents of Release. And the plaintiff will sign Confidentiality agreement and withdraw the case in the Supreme Court."

7 Mr Dibb contended that that offer, made by the plaintiff, met all the requirements of an offer under Order 26 of the Supreme Court (General Civil Procedure) Rules 2005 except that it did not contain a statement to the effect that it was served pursuant to that Order, as required by Rule 26.02(3)(b). He submitted that I should dispense with that requirement, in light of the fact that the offer was made by the plaintiff, without legal assistance. Alternatively, he submitted that the offer, made by the plaintiff, was a "settlement offer" within the meaning of s 40(3) of the Act, or, alternatively, it should be treated in accordance with the principles pertaining to "Calderbank" offers of compromise.[4]

8 In addition, Mr Dibb also relied on an oral offer made by his instructing solicitor, Mr Graham Efron, to the defendants' solicitor, on 24 February 2012, offering to settle the proceeding on the basis that the defendants pay to the plaintiff the sum of $200,000 inclusive of costs. I interpolate that the trial of the proceeding, before the jury, commenced on 1 March 2012.

9 In response to Mr Dibb's first submission, Mr Wheelahan SC made two arguments. First, he submitted that the plaintiff had failed to establish, by admissible evidence, that the defendants had not made a "settlement offer" pursuant to s 40(2) of the Act. In that respect, he drew my attention to the fact that the plaintiff, in his affidavit in support of this application, had only deposed that he had received no "offer of compromise" of the proceeding from either defendant. He submitted that the phraseology of the plaintiff's affidavit was deliberately chosen, because the plaintiff could not, properly, depose that no settlement offer at all was made. Mr Wheelahan's submission, in that respect, is to be understood by the fact that a mediation had taken place between the parties, to which I shall later refer in these reasons.

10 Mr Wheelahan next contended that, if the plaintiff has established that the defendants had not made any settlement offer in the proceeding, their failure to do so was not unreasonable for the purposes of s 40(2) of the Act. In particular, he submitted that the meaning of the words contained in the publication, complained of by the plaintiff, was always reasonably in dispute by the defendants. The meaning of those words was, he submitted, a "classic jury question", and the defendants could not have been said to have acted unreasonably in failing to make an offer of settlement to the plaintiff.

11 Mr Wheelahan further submitted that the defendants did not act unreasonably in failing to agree to either of the two offers made by the plaintiff and relied on by Mr Dibb. In particular, he submitted that, in a case in which the defendants had a perfectly reasonable defence, the conduct of the defendants in not responding to those offers could not be properly described as an "unreasonable failure" under s 40(2) of the Act.

12 The first question, which I must determine, is whether the plaintiff has established, for the purposes of s 40(2) of the Act, that the defendant did not make a "settlement offer" to the plaintiff before the conclusion of the proceeding. If the answer to that question is in the affirmative, then the second question, which I must determine, is whether the defendants "unreasonably failed" to make such an offer to the plaintiff.

"(2) Without limiting sub-section (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; ... ."

14 As I have already indicated, Mr Wheelahan submitted that the plaintiff had failed to establish that the defendants had not made a "settlement offer" in the proceeding. He submitted that the plaintiff in his affidavit had failed to depose to the fact that the defendant had not made any such settlement offer; rather, he simply deposed that he had received no "offer of compromise" of the proceeding. He submitted that that passage in the plaintiff's affidavit was carefully drafted, since the plaintiff knew that he was not able to depose to the fact that no settlement offer, at all, had been made.

15 In the written submissions filed on behalf of the defendants, it was stated:

"The plaintiff's submission that the defendants 'obdurately' made 'no offer at all' and hung on 'in hope' is wrong. The defendants made offers at a mediation in February 2011 ... ."

16 Mr Wheelahan accepted that that passage in the defendants' submissions contained an implied admission that the defendants had not made any settlement offer to the plaintiff outside the mediation. However, he submitted that that admission did not constitute evidence that the defendants had not made a settlement offer at all. He further submitted that the plaintiff could not depose to the fact that no such settlement offers had been made; indeed, he contended that, if the plaintiff had filed an affidavit to that effect, it would be excluded under s 135 of the Evidence Act 2008.

17 In response, Mr Dibb pointed out that s 24A of the Supreme Court Act 1986 precluded the admission into evidence of anything said or done at the mediation. Accordingly, he contended that, if Mr Wheelahan's submission is correct, s 40(2) of the Act would have no effect in any proceeding in which a mediation had occurred. Otherwise, in such a case, the plaintiff would not be able to prove that no reasonable offer of settlement had been made by the defendant in the proceeding. Thus, he submitted that s 40 of the Act must be construed as referring to the making of settlement offers outside the mediation.

18 The answer to the submission made by Mr Wheelahan is to be found in a proper understanding of the rules of admissibility relating to offers made at a mediation. At common law, any "without prejudice" offers were subject to a privilege, which could only be waived by both parties to the offer, namely, the offeree and the offeror.[5] It was that principle which gave rise to the development of "Calderbank offers", which were designed to restrict the privilege, attaching to "without prejudice" communications, so that they might be admissibly referred to on any question concerning the costs of a proceeding.[6] That position has been altered by s 131(2) of the Evidence Act 2008, and in particular, by s 131(2)(h), which permits evidence to be adduced as to offers made to settle the proceeding when determining the liability of a party for costs. On the other hand, s 24A of the Supreme Court Act 1986 prohibits the admission into evidence "at the hearing of the proceeding" of anything said or done by a person at a mediation. It is now well established that s 131(2)(h) of the Evidence Act, as a general statutory provision, is subject to, and thus does not affect, s 24A of the Supreme Court Act, which is a specific statutory provision. Accordingly, s 131(2)(h) has been construed to apply to "without prejudice" communications other than those which are made in the course of a mediation, to which s 24A of the Supreme Court Act applies.[7]

19 Section 40(2) of the Act must be construed and understood in the context of the legal framework which defines the nature of the offers of settlement that might be admissibly proven in a legal proceeding. In any application for indemnity costs under s 40(2) of the Act, it would be necessary for the plaintiff to establish that the defendant had failed to make a settlement offer. Section 40(2) is thus premised on the proof, if necessary by admissible evidence, of that fact. It is now commonplace for civil proceedings, and particularly defamation proceedings, to be the subject of mediation. Indeed, the clear intention of s 40 of the Act is to promote early dispute resolution between the parties, including by way of mediation. It follows, that in order that s 40(2) be given a sensible meaning, it must be construed as referring to the making, or failing to make, of offers, which might be admissibly proven in court. By contrast, if the submission made by Mr Wheelahan in this respect is correct, s 40(2) would be deprived of any worthwhile effect, in any case in which a mediation had taken place. Accordingly, in my view, s 40(2) must be construed as referring to the making, or failing to make, of settlement offers outside any mediation process in the proceeding.

20 That conclusion is supported by the decision of Harrison J of the Supreme Court of New South Wales in Mundine v Brown (No 7)[8]. In that case, the plaintiff, who succeeded in an action for damages for defamation, sought indemnity costs under s 40(2) of the Act. She asserted that the defendants had not made any settlement offer to her. The first and third defendants, against whom the plaintiff succeeded, resisted the application, arguing that, because s 30(4) of the Civil Procedure Act 2005 (NSW) prohibited disclosure of the terms of any offer made during a mediation, the judge should not make an order pursuant to s 40(2) of the Defamation Act 2005 (NSW), because to do so would be contrary to the "interests of justice". In particular, it was submitted that the defendants may, in fact, have made an offer of settlement at the mediation, to the terms of which they were now prevented from referring.

21 Harrison J rejected that submission, holding that s 40(2) is to be construed as referring to offers of settlement, which might be permissibly referred to in evidence. Thus, his Honour stated[9]:

"... it was at all times open to the first and third defendants to make an offer of settlement that was not subject to the disclosure constraints that applied to anything occurring within a mediation. The rationale behind maintaining the sanctity of what occurs at a mediation is clear: parties must feel free to negotiate in the confident expectation that nothing that is said or done within a mediation can be used at a later time to their disadvantage in the proceedings if they are not resolved. No part of that reasoning applies to the right or the entitlement of any party at any time outside the context of the mediation to communicate settlement offers and responses on without prejudice terms save as to the question of costs. This applies equally to offers of compromise in accordance with the rules or Calderbank offers as generally understood. Reference to such offers is not embargoed by legislation or in any other way at all. In my opinion s 40(2) operates in favour of a plaintiff such as Ms Mundine if no offer which can be permissibly referred to has been made by the first or third defendant. ... Section 40(2) clearly contemplates parties relying upon offers of settlement that are not excluded from view by s 30(4) of the Civil Procedure Act."

22 It follows, therefore, that, in light of the admission by the defendants that they made no offers of settlement to the plaintiff outside the mediation, the plaintiff has established that the defendants did not make any settlement offer, for the purposes of an application under s 40(2).

23 The next question, then, is whether the defendants, by not making a settlement offer in the proceeding for the purposes of s 40(2), thereby "unreasonably failed to make a settlement offer". I shall, for the moment, consider that question separately to the issue as to whether the defendants unreasonably failed to respond to the two offers of settlement made by or on behalf of the plaintiff.

24 In determining this question, it is important to bear in mind the evident purposes of s 40(2) of the Act. In Davis v Nationwide News Pty Ltd[10], McClellan CJ (at CL) described those purposes as follows:

"[26] The special costs provisions were introduced following a concern that the costs of defamation proceedings may prohibit persons who have a legitimate claim from pursuing relief. Unless in appropriate cases costs were awarded on an indemnity basis the plaintiff may be out of pocket to such an extent that the risks in bringing proceedings were unacceptable. Furthermore, the intention of the legislation was to promote a 'speedy and non litigious method of resolving disputes and to avoid protracted litigation wherever possible' (Second Reading Speech, Legislative Assembly, 12 November 2002). ...

[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 proceeding than the offer which he or she has made."[11]

25 In determining whether the defendants unreasonably failed to make a settlement offer to the plaintiff, it is important to bear in mind that, at all times, the issues which were in contention between the parties in the litigation were clearly defined. The first such issue was whether the plaintiff was able to prove, by appropriate evidence, that the matter complained of by the plaintiff had been published, in the sense that it had been downloaded by one or more persons using the Yahoo! 7 internet search engine. While, in my view, it was perfectly reasonable for the defendants, at trial, to put the plaintiff to proof of that matter, nevertheless, I do not consider that the agitation of that issue, and the lack of resolution of it until trial, would make it reasonable for the defendants not to have made any offer of settlement to the plaintiff in the proceeding.

26 On the other hand, the second, and the principal, issue which lay between the parties, was whether the defendants' publication bore any of the imputations pleaded by the plaintiff, or a permissible variant of them. That matter was very much in issue throughout the litigation, including at trial. In an early interlocutory ruling, I decided that a jury could reasonably conclude that the defendants' publication conveyed three out of the four imputations sought to be pleaded by the plaintiff. In reaching that conclusion, however, I expressed some doubt as to whether, ultimately, the plaintiff would succeed on any of those meanings, if he only sought to rely on them as "false" imputations.[12] Ultimately, the jury found that the matter, published by the defendants, did give rise to two of the three imputations pleaded by the plaintiff, both in their ordinary and natural meaning, and also by reason of extrinsic facts relied on by the plaintiff.

27 In reaching that conclusion, the jury were, quintessentially, best placed to determine what meanings the matter, published by the defendants, would have conveyed to the ordinary reasonably reader. I agree with Mr Wheelahan's submission that the question, as to whether the matter bore the imputations relied on by the plaintiff, was essentially a matter for a jury. While I consider that the jury were well justified in reaching the conclusion that the material bore two of the imputations relied on by the plaintiff, that does not mean that the defendants acted unreasonably in seeking to defend the proceeding. The critical question, of course, is whether the defendants unreasonably failed to make an offer of settlement. In determining that question, it is relevant that, at all times, the dispute between the parties, as agitated before the jury, was narrow in compass. The trial was quite short. The evidence in chief, cross-examination, and submissions by both sides to the jury, were relatively brief and to the point. Those matters indicate the narrow scope of the issues in the litigation. It was clear, both from the definition of the issues in the pleading, and by the manner in which the trial was conducted, that the trial was never going to be lengthy, or expensive, for either party.

28 That consideration is relevant to determining whether, in the circumstances, the defendants, by not making an offer of settlement, unreasonably failed to do so, for the purposes of s 40(2). In my view, the defendants were fully entitled to have determined, by a jury, the question as to whether the imputations, pleaded by the plaintiff, would have been conveyed to an ordinary reasonable person, who downloaded the words and images, published by the defendants, on the internet. I do not consider that it was unreasonable for the defendants to have declined to made an offer of settlement in the case. In other words, in my view the fact, that the defendants did not make a settlement offer to the plaintiff, did not constitute an unreasonable failure by the defendants to do so, for the purposes of s 40(2) of the Act.

29 That conclusion brings me to the two offers of settlement made by or on behalf of the plaintiff, each with a sum of $200,000. The first such offer was made by the plaintiff under cover of a "without prejudice" letter dated 9 June 2011. As I have already stated, Mr Dibb submitted that I should treat that offer as a formal offer of compromise under Rule 26.02 of the Supreme Court (General Civil Procedure) Rules 2005. In particular, he submitted that I should dispense with the requirement, under Rule 26.02(3)(b), that the offer contain a statement to the effect that it was served in accordance with the Order. In support of that proposition, he referred to the fact that the plaintiff made the offer in his own right, "without the benefit at that time of legal advice". However, that submission is contradicted by the express terms of the letter. In that letter, the plaintiff stated that he had been "advised by my QC" that he had a very good case. He further stated, "I have QC and his Junior who will be taking my case pro bono". Later in the letter he stated: "My QC believed that the jury propyl (sic) instructed will give me the maximum defamatory damages limit is $285,000, plus aggravated damages".

30 It is clear, from the text of the letter, that the plaintiff did have the assistance of legal advice when preparing it. For those reasons, I reject the submission, made on his behalf, that I should regard the letter as having been served under Rule 26.02.

31 The question, then, is whether the defendants acted unreasonably in failing to agree to the settlement offer proposed by the plaintiff, pursuant to s 40(2) of the Act. A similar question would arise if I were to regard the letter as a "Calderbank offer". In such a case, it is now well established that the critical question " ... is whether the rejection of the offer was unreasonable in the circumstances".[13]

32 In my view, the defendants did not act unreasonably in failing to accept the offer made by the plaintiff. As I have already observed, I do not consider that the defendants acted unreasonably in not making an offer of settlement in the case. The same reasons, which I have expressed for that conclusion, apply equally to their failure to accept the offer made by the plaintiff. Indeed, the amount which the plaintiff offered to accept - $200,000 - is only a moderate amount less than the sum of damages, which I ultimately awarded to the plaintiff. In a case, in which the critical issue in dispute was whether the material, published by the defendants, bore the imputations pleaded by the plaintiff, it was, in my view, not unreasonable for the defendants to have declined to have accepted such an offer made to them by the plaintiff.

33 The same conclusion applies to the verbal offer, which was made to the defendants' solicitors by the plaintiff's solicitor on 24 February 2012. I have not been referred to any fact or circumstance, which might have altered the position, from the viewpoint of the defendants, shortly before trial, when they declined to accept that offer made on behalf of the plaintiff. In those circumstances, I do not consider that the fact that they did not accept the offer made on behalf of the plaintiff constituted an unreasonable failure by them to do so.

34 For the foregoing reasons, I decline the application by the plaintiff for an award of indemnity costs in his favour.

35 Before considering what orders should be made in the case, it is necessary for me to briefly mention two other matters. First, in his written submissions, and at the outset of his oral submissions, Mr Wheelahan contended that I should read two affidavits, which had been sworn by the plaintiff, at an earlier stage in the proceeding, in relation to what had transpired at the mediation. Those affidavits had been sworn by the plaintiff in relation to an application made by the defendants against the plaintiff in the interlocutory stages of the proceeding. Beach J ordered that the affidavits be placed in a sealed envelope, and not be opened save upon the order of the judge in charge of the Major Torts List. His Honour later varied that order, in order to enable me to open the envelope, and read the affidavits, if I saw fit. After Mr Wheelahan had persuaded me to read the affidavits, in order to determine whether they might be admitted in evidence on the costs application, he then resiled from his application that the affidavits be admitted in evidence in the costs application. Accordingly, they have been re-placed in the original envelope and appropriately sealed.

36 The second matter, which I should note, relates to one particular argument appearing in the written submissions filed on behalf of the plaintiff. In those submissions, Mr Dibb was critical of the defendants' solicitors for engaging, at trial, two members of counsel, each of whom are of the rank of Senior Counsel. It is not necessary for me to recite the submission. It was, in my view, entirely misconceived. Mr O'Meara, who appeared in the trial as junior counsel to Mr Wheelahan, had had the conduct of the proceeding, as junior counsel, from a relatively early stage in it. He was appointed Senior Counsel late last year. It is a convention in Victoria that, upon appointment as Senior Counsel, a member of counsel is entitled to remain available to the client, and to act as junior counsel, in a matter in which he or she has already been involved, at least for twelve months. In my view, it was entirely appropriate that Mr O'Meara was retained to appear, as junior counsel to Mr Wheelahan, in the proceeding on behalf of the defendants, notwithstanding that he has now been appointed Senior Counsel. Mr O'Meara has considerable expertise in this specialised area of practice. The defendants were entitled to have available to them Mr O'Meara's expertise and assistance in the trial. I therefore reject the submission made on behalf of the plaintiff in that respect.

37 At the hearing of this costs application, it was agreed that "costs should follow the event" in respect of the application. Accordingly, and subject to hearing counsel in relation to the precise terminology, I propose to make the following orders:

(1) There be judgment for the plaintiff against the first and second defendants for damages for the sum of $241,310.48 (such judgment sum including damages in the nature of interest in the sum of $16,310.48).

(2) The defendants pay to the plaintiff the costs of the proceeding, including any reserved costs, except for the costs of and incidental to the application by the plaintiff for indemnity costs.

(3) The plaintiff pay to the defendants the costs of and incidental to the application by the plaintiff for indemnity costs, including the costs of the written submissions, and the costs of the appearance on 23 May 2012.

(4) The defendants be entitled to set off, against the costs payable by them to the plaintiff in accordance with paragraph 2 hereof, the costs to which they are entitled in accordance with paragraph 3 hereof, together with the sum of $15,135.97 costs ordered to be paid by the plaintiff to the defendants by Associate Justice Wood on 2 April 2012.

(5) That the orders made in paragraphs 1 to 4 be stayed for a period of 14 days from the date hereof.

[1] Trkulja v Yahoo! Inc LLC & Anor [2012] VSC 88.

[3] Manefield v Childcare NSW (No 2) [2011] NSWSC 104 [61] (Kirby J); Davis v Nationwide News Pty Ltd [2008] NSWSC 946, [26]-[27] (McClellan CJ at CL).

[4] Calderbank v Calderbank [1975] 3 WLR 586; [1976] Fam 93.

[5] See for example Walker v Wilsher (1889) 23 QBD 335, 336-7 (Lord Esher MR), 339 (Bowen LJ); Cutts v Head [1983] EWCA Civ 8; [1984] 2 WLR 349, 359 to 60 (Oliver LJ); 366-7 (Fox LJ).

[6] Calderbank v Calderbank [1975] 3 WLR 586; [1976] Fam 93.

[7] Forsyth v Sinclair (No 2) (2010) 23 VR 635, 639 [13]-[14]; Pinot Nominees Pty Ltd v Federal Commissioner of Taxation [2009] FCA 1508; (2009) 181 FCR 392, 397 [30] (Siopis J); Tony Azzi (Automobiles) Pty Ltd v Volvo Car Australia Pty Ltd [2007] NSWSC 375; (2007) 71 NSWLR 140, [12]-[13], [18] (Brereton J).

[8] [2011] NSWSC 170.

[10] [2008] NSWSC 946.

[11] See also Mundine v Brown (No 7) [2011] NSWSC 170, [47] (Harrison J).

[12] Trkulja v Yahoo! Inc & Anor [2010] VSC 215.

[13] Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; (2005) 13 VR 435, 441 [23].