Applications for indemnity costs in defamation proceedings
11Section 40 is 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.
(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."
12As counsel for the defendants points out (written submissions, paragraph 12), s 40 (and the costs provisions upon which it was modelled, s 48A Defamation Act 1974 (NSW)) represented a radical departure from costs rules generally applicable in Australia. The differences between its operation, and the operation of the Offer of Compromise system (Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), Pt 42 Div 3) and Calderbank offers (Calderbank v Calderbank [1975] 3 All ER 333), include the following:
(a)Indemnity costs may be awarded for the whole of the proceedings, not merely from the date of expiry of an offer;
(b)The settlement offer does not need to be a valid offer of compromise, or better than the result; the question is whether the unsuccessful party "unreasonably failed to accept a settlement offer" (s 40(2));
(c)In determining the entitlement of a party to indemnity costs, the court may have regard to the conduct of the case by the party in question (s 40(1)(a)), or any other matter the court considers relevant (s 40(1)(b)). Section 40(2), which provides the court "must" make orders in specified circumstances where an offer has been made, specifically starts with the words "without limiting subsection (1)"; and
(d)"Settlement offer" includes an offer of amends (s 40(3)). This imports a further concept of "reasonable" offers, as the offer must be "reasonable" (s 18(1)(c)). The statutory checklist set out in s 18(2) includes the extent and prominence of the apology, the period of time between publication and the offer of amends, disagreement about defamatory meaning and "any other matter that the court considers relevant". However, the question of whether an offer is "reasonable" and whether a plaintiff "unreasonably" failed to accept it (s 40(2)(b)) are separate issues.
13Section 40 was enacted to discourage the bringing of claims which were trivial or politically motivated (Jones v Sutton (No. 2) [2005] NSWCA 203), or where inequality of resources between the parties (a common problem, due to the rarity of defamation insurance and complexity of the cause of action) needed to be addressed.
14Section 40 was modelled on s 48A Defamation Act 1974 (NSW). When introducing the Defamation Amendment (Costs) Bill 2003 (Hansard, 16 October 2003, p. 4027), Mr David Barr MLA gave a lively account of the long history of libel costs legislation, starting as far back as 1886, when Sir George Reid (later to become Australia's fourth Prime Minister) sought to introduce a "very similar" provision. The problem was that, in those harsh times, a successful libel litigant who could not pay his legal costs was liable to be imprisoned for debt. Sir George Reid complained that winning (in 1886) was a Pyrrhic victory where "the costs amount to hundreds of pounds, and a poor defendant... has to endure the term of twelve month's imprisonment."
15Mr Barr MLA stated that, while bankruptcy (rather than prison) was now the remedy, the high defamation legal costs problem remained unresolved, and New South Wales was now "the defamation capital of the world" (at 4030). The purpose of the these new costs provisions was to discourage the bringing of trivial actions, and to deal with amendments to the Supreme Court Rules following West v Nationwide News Pty Ltd [2003] NSWSC 767.
16Section 40 was one of a series of reforms subsequently included in the uniform legislation enacted in 2005. There are separate provisions in s 40 for applications by plaintiffs and for applications by defendants. As to plaintiffs, the general approach to s 40(2)(a) indemnity costs applications has been explained by McClellan CJ at CL in Davis v Nationwide News Pty Ltd [2008] NSWSC 946. In Davis, the plaintiff made an offer of compromise of $150,000, and ultimately received a sum, inclusive of interest, of $150,736.00. The defendant had only made a "walk away" offer, which the defendant argued was sufficient to amount to compliance with s 40. McClellan CJ at CL did not accept this submission, nor did he accept that the failure of the plaintiff on certain aspects of the claim, such as the finding that a number of the imputations pleaded had not been conveyed, would disentitle the plaintiff to claim indemnity costs.
17Davis v Nationwide News Pty Ltd, supra, is one of a number of cases where a successful plaintiff had been able to rely upon s 40(2)(a) (see also Ryan v Premachandran (New South Wales Supreme Court, Nicholas J, 13 November 2009); Cornes v The Ten Group Pty Ltd (No. 2) [2011] SASC 141; Hocken v Morris (No. 2) [2011] QDC 137; Manefield v Child Care NSW (No 2) [2011] NSWSC 104). A defendant may be caught under one of two provisions in s 40(2)(a) where a plaintiff is successful, namely for failure to make any offer at all, or to agree to an offer proposed by the plaintiff.
18The provision for defendants' applications, s 40(2)(b), essentially mirrors this provision, but with one principal difference, namely that unsuccessful plaintiffs are not penalised if they have not make any offer at all. Where a defendant has complied with s 40, and the plaintiff has failed to accept the offer (s 40(2)), the court, again, "must" make an order for indemnity costs if the plaintiff unreasonably failed to accept a settlement offer made by the defendant: National Auto Glass Supplies (Aust) Pty Ltd v Nielsen & Moller Auto Glass (NSW) Pty Ltd (No. 9) [2007] FCA 1826 at [2] (in relation to s 48A(2)(b) in the repealed legislation). Curiously, defendants have a much lower success rate than plaintiffs in s 40 applications.
19In Bechara v Bonacorso (No 5) [2010] NSWDC 260, the defendant had made an offer of compromise in the sum of $35,000. The plaintiff failed at the trial on all issues, including publication. The application for indemnity costs was made pursuant to UCPR r 42.15A, for costs from the time of the offer of compromise. As is noted at [11]-[17] of the judgment, the defendant specifically did not seek costs of the whole of the trial pursuant to s 40(2)(b) but only from the date of the offer of compromise, and pursuant to the offer of compromise regime. This was a deliberate decision by the defendant's representatives, as is noted in [17] of the judgment. It was a wise decision to make, given the lack of success s 40(2)(b) has enjoyed since that time.
20In Haddon v Forsyth (No 2) [2011] NSWSC 693 defences of qualified privilege and justification succeeded. The successful defendants sought an order that the whole of the costs of the proceedings be borne by the plaintiff on an indemnity basis, or alternatively from the date of two specific offers of compromise made pursuant to UCPR r 42.15A. Simpson J noted that the provisions of s 40(2)(b) should prevail over the UCPR offer of compromise positions, and first considered the entitlement of the defendants to indemnity costs under this provision.
21The offers were as follows. The plaintiff made a pre-litigation offer involving an apology and no payment of money, but the parties could not agree on the terms. The defendants then made a "walk away" offer of compromise in a letter attaching the draft defence (at [20]). A second offer of compromise, offering $20,000 in costs but no damages, was made three months before the hearing. A third offer, of a "statement" but no damages or costs, was made shortly before the trial. Interwoven with these offers were complaints from both sides about s 40(1) issues, such as the defendants' refusal to agree to the proceedings being transferred to the District Court.
22Her Honour found, in relation to the principal issue, namely whether it was unreasonable for the plaintiff to refuse any or all of the offers of settlement, that "the only basis upon which he could be said to have been unreasonable was that the proceedings were unsuccessful", a factor which her Honour considered to be "insufficient". However, the second of the offers of compromise triggered the principles underlying UCPR r 42.15A, and indemnity costs could be granted from the date upon which that offer was made.
23Simpson J explained (at [55]) the difference between UCPR r 42.15A and s 40(2)(b) as follows:
"[55] The position is different with respect to UCPR 42.15 A. There a defendant is "entitled" (unless the court otherwise orders) to an order that costs be assessed on an indemnity basis from the beginning of the day after an offer of compromise was made. No considerations of unreasonableness of refusal arise."
24In other words, a defendant is worse off under s 40, because under the offer of compromise system, all that has to be established is that an offer of compromise has been made; "no considerations of unreasonableness of refusal arise". This was no doubt the reason for reliance on the offer of compromise provisions (rather than s 40) in Bechara v Bonacorso (No. 5), supra, as is noted in [17] of that judgment.
25Simpson J has given the test of "unreasonableness" generous parameters. This is in contrast to the test for applications to extend time to commence proceedings require the plaintiff to establish that it was "not reasonable" (s 56A(2) Limitation Act 1969 (NSW) to commence proceedings within the limitation period. In Rayney v State of Western Australia (No 3) [2010] WASC 83 this test was described as setting "a difficult hurdle" which could only be satisfied in "relatively unusual circumstances" (see also Noonan v MacLennan [2010] QCA 50 at [15]; Pingel v Toowoomba Newspapers Pty Ltd [2010] QCA 175). While I have been careful not to conflate the test in limitation provisions with the test for s 40(2)(b), one feature which these tests ought to have in common is that the test is objective, in that the plaintiff cannot simply prove a subjective belief that the offer was not reasonable.
26The application in Haddon v Forsyth, supra, appears to have failed because all the defendants could show was rejection of offers better than the result, although there was reliance on s 40(1) factors as well. Ultimately, however, Simpson J did award indemnity costs, albeit under the UCPR offer of compromise rules.
27The defendants were even less fortunate in the next three cases as, in addition to their applications for indemnity costs being dismissed, gaps in the offer of compromise system prevented them from relying upon the offer of compromise system in the alternative.
28In Hyndes v Nationwide News Pty Ltd [2011] NSWSC 1443 the defendant succeeded on a justification defence before a jury. The defendant had made what were described in [17] as a number of "substantial and reasonable settlement offers". These included an offer of amends, a series of Calderbank offers (the highest of which was $150,000 plus costs, and was made twice), an Offer of Compromise of $75,000 plus costs, three offers inclusive of costs (the highest of which was $150,000 inclusive of costs) and attending a mediation.
29Hislop J considered that each of these offers in fact fell below what was, in his Honour's opinion, a reasonable assessment of the plaintiff's prospects at the time the offer was made. His Honour considered that, the defendant's offers "may not have been" settlement offers within the terms of s 40(3). These included an offer of $140,000 inclusive of costs, which costs were estimated at $97,000. Hislop J considered the plaintiff's failure to accept this offer (the plaintiff made a counter-offer of $170,000 inclusive of costs) was not unreasonable. His Honour also rejected an application for costs under the general law in relation to the Calderbank offers, stating that "the considerations referred to in relation to s 40" were relevant to the Calderbank issue, and that it was reasonable for the plaintiff not to accept the defendant's offers.
30There is no reference in Hyndes v Nationwide News Pty Ltd, supra, to any finding in relation to the Offer of Compromise. This may be because the offer referred to costs, and such offers at the time were considered to be invalid (Dean v Stockland Property Management Pty Ltd (No 2) [2010] NSWCA 141 at [16]-[29]; Old v McInnes [2011] NSWCA 410). The offer in Haddon v Forsyth, supra, would arguably also have failed for this reason, as it offered a specific sum in costs, but this point was not raised. The relevant provisions in the UCPR have now been changed.
31Hislop J accepted a submission that the offer of amends was insufficient because the plaintiff "wouldn't achieve a verdict" and "wouldn't achieve some real measure of compensation" from the offer to pay reasonable legal costs (at [11(a)]). (The judgment does not disclose whether the offer of amends went to the jury.) However, the effect of an offer of amends, explained in ss 15(3) and 17 of the Act, is just as much an enforceable bargain as any settlement achieved through a Calderbank offer or mediation. As for the contents of the letter to the editor which the defendant offered to publish, it would have been open to the plaintiff to seek appropriate orders under s 15(3)(b) of the Act. The basis upon which the offer of amends (which, by operation of s 40(3), must be regarded as being an offer for the purposes of s 40(2)(b)) was found to be unreasonable is not stated.
32In Szanto v Melville (Ruling) [2011] VSC 618, a defendant who was successful at trial (on a qualified privilege defence) was similarly unsuccessful, despite making a Calderbank offer and an offer of compromise. The offer of compromise was for the sum of $5,000, an offer not accepted by the plaintiff.
33Kaye J notes (at [9]) that, because the plaintiff did not in fact obtain judgment, r 26.08(3) Supreme Court (General Civil Procedure) Rules 2005 (Vic) did not apply to the offer, "a matter which perhaps might be given some consideration by the Supreme Court Rules Committee". This meant that, unlike the defendant in Bechara v Bonacorso (No. 5), supra, the defendant had no recourse under the offer of compromise principles.
34Kaye J held that it was not unreasonable for the plaintiff to have failed to accept either of the offers "at the date at which both of those offers were made, on the information which was then available to the plaintiff" (at [15]). Unlike the offer of amends in these proceedings, which remained open for the whole of the litigation, the offer of compromise was only open for a short period.
35The most recent analysis of s 40(2)(b) can be found in Mizikovsky v Queensland Television Limited & Ors [2013] QCA 68. This was an action for defamation for imputations that the plaintiff was an incompetent builder who caused financial loss to his clients. The jury's answers to questions included findings in favour of the defendants on the contextual imputations, and judgment was entered for the defendants. The trial judge awarded indemnity costs to the defendants pursuant to s 40(2)(b). On appeal, the trial judge's finding was set aside.
36The Court of Appeal first noted the structure of s 40:
"[46] Section 40(1) of the Act requires a court in awarding costs in defamation proceedings to have regard to the way in which the parties conducted their cases and any other matters that the court considers relevant. Section 40(2)(b) provides that if defamation proceedings are unsuccessfully brought by a plaintiff and costs in the proceedings are to be awarded to the defendant, the court must, unless the interests of justice require otherwise, 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."
37However, despite noting s 40(1), the terms of which lead into s 40(2), the court went on to construe the trial judge's reasoning as if the costs application had been a Calderbank-style offer with a requirement of "a reasonable decision" (at [47]) superimposed:
"[47] The trial judge rejected the respondents contention that the appellant's failure to accept the respondents' offer was unreasonable for the purposes of s 40(2)(b) of the Act. The trial judge observed that it would have been "a reasonable decision" for the plaintiff to accept the offer, but was not convinced that it was unreasonable not to have accepted the offer. In so finding, the trial judge took into account the following matters. This was an unusually "fact rich" case and the credit and reliability of the evidence of witnesses called by the defence to prove the substantial truth of two of the pleaded imputations and of the contextual imputations were very much an issue. One of the two plaintiff's imputations was found to be substantially true and four of the six contextual imputations were found to be substantially true, reflecting "nuanced findings of fact" based on the evidence of those witnesses. Whilst the factual findings ultimately favoured the respondents more than the appellant, the findings were not wholly in the respondents' favour. There was nothing which would have made the appellant understand that it was more probable than not that the witnesses of truth would present well. The respondents had provided summaries of the evidence which the witnesses of truth would give and the nature of the respondents' case was plain, but much depended upon the jury's assessment of the witnesses under cross-examination. The appellant had available evidence which, if accepted, supported his case. The trial judge found that it could not be concluded that when the offer was made the appellant ought to have realised he had poor prospects.
[48] In nevertheless ordering costs to be assessed on the indemnity basis, the trial judge made the following findings and observations. Appropriately advised, the plaintiff must have realised that there was a real risk that he might not succeed. Although the offer was not expressed to be a Calderbank offer, because it was made pursuant to the rules it could potentially be brought to the attention of the court on the question of costs. It seemed anomalous that under r 361(3) an offer made shortly before the first day of the trial did not entitle a defendant to indemnity costs if not accepted. The defendants were wholly successful. The plaintiff did not accept the substantial sum offered to him before the trial. The plaintiff took a risk in making that decision because the outcome of the case was likely to turn on the jury's determination of factual matters on the basis of the jury's view of lay witnesses, who the plaintiff had no opportunity to assess before the trial. Both sides were well resourced and likely to incur considerable costs in a trial which might run beyond the period of three weeks for which it was set down."
38The Court went on (at [49]) to set out the UCPR requirements for offers resulting in indemnity costs, and the application of these rules in proceedings where the cause of action was not a claim for defamation. Once again, the court noted a lacuna in these rules under rule (3), which prevented the defendants from relying upon the offer (made on the first day of the trial) under the UCPR rules for offers (at [50]). This meant that the only basis upon which the defendants could seek indemnity costs was pursuant to s 40(2)(b) of the Act.
39The trial judge awarded indemnity costs under s 40(2)(b) but on appeal this was set aside:
"[51] The appellant argued that the trial judge, having found that it was not unreasonable for the appellant to reject the offer, misdirected herself in ordering the assessment of the respondents' costs on an indemnity basis on the ground that it would have been reasonable for the appellant to have accepted the offer. The appellant submitted that Velvet Glove Holdings Pty Ltd v Mount Isa Mines Ltd established that assessment on an indemnity basis should not be ordered on the ground that the plaintiff did not obtain a judgment as favourable as the defendants' offer in the absence of any element of unreasonableness by the plaintiff in not accepting the offer. The respondents relied upon Sultana Investments Pty Ltd v Cellcom Pty Ltd (No 2) and Emanuel Management Pty Ltd (in liq) v Foster's Brewing Group Ltd for their contrary argument that the making of an offer "is a very relevant circumstance" and, if no countervailing circumstances are raised, "the order for indemnity costs is likely to be made".
[52] Sultana Investments Pty Ltd v Cellcom Pty Ltd (No 2) concerned a Calderbank offer. White AJA (with whose reasons McMurdo P and Holmes JA agreed) observed in that respect that in the case of a Calderbank offer the Courts are "inclined to the award of indemnity costs as an incentive to parties to consider seriously offers to settle which are reasonably made". The respondents and the appellant agreed in their submissions that the respondents' offer in this case was not expressed to be a Calderbank offer and that it should not be treated as such an offer. Emanuel Management Pty Ltd (in liq) v Foster's Brewing Group Ltd, which was approved in Sultana Investments Pty Ltd v Cellcom Pty Ltd (No 2), also concerned a Calderbank offer. It is distinguishable on the further ground that Chesterman J found that the plaintiffs prosecuted their case when they should have appreciated that it had no worthwhile prospects of success, and that finding informed his Honour's further finding that it was unreasonable for the plaintiffs not to accept the first defendant's Calderbank offer.
[53] Another ground of distinction is that Chesterman J considered that r 361(3) did not apply in that case only because the plaintiffs did not obtain any judgment; his Honour thought that a defendant who was completely successful and had made an offer to settle which was better than the result for the plaintiff should not be in a worse position than a partly unsuccessful defendant who made such an offer. That reasoning is not applicable in this case because the respondents' offer was made before the first day of the trial. The rules leave scope for costs orders adapted to the particular circumstances of the case and r 361 did not apply in this case because the appellant did not obtain any judgment, but the closest analogy here is r 361(2) (which refers to costs on the standard basis) rather than r 361(3) (which refers to costs on the indemnity basis). The trial judge described that contrast between rr 361(2) and 361(3) as "anomalous", but the contrast was apparently deliberate.
[54] In Velvet Glove Holdings Pty Ltd v Mount Isa Mines Ltd, the relevant principle was stated as being that "...a party who unreasonably refuses to accept a Calderbank offer, on terms more favourable than the court's subsequent order, may be ordered to pay indemnity costs". The principle should not be more generous in the case of a defendant who makes an offer which, as the respondents accepted was the case here, is not a Calderbank offer. That offer afforded the respondents a significant protection against the adverse costs order which would probably be made if the appellant obtained even a relatively small judgment in his favour. In such a case, the appellant's failure to accept the offer would displace the usual presumption of costs following the event of the litigation, provided that the judgment in favour of the appellant was not more favourable to him than the respondents' offer. As the litigation fell out, it was the respondents who were entitled to the benefit of that usual approach to costs, but it does not follow that the appellant's mere failure to accept the offer afforded a ground for the costs awarded in favour of the respondents to be assessed on an indemnity basis.
[55] The circumstances identified by the trial judge provided an insufficient basis for departing from the usual basis of assessment of a successful party's costs. In the kind of defamation litigation described by the trial judge - which is presumably not atypical of serious defamation litigation - it would be reasonable for a plaintiff to accept any one of a very broad range of offers. To adopt that as a sufficient ground for ordering indemnity costs where the plaintiff has not acted unreasonably in any respect would unduly erode the basic principle that indemnity costs orders are the exception rather than the norm."
40The court has dealt with the terms of the offer as if it were another form of offer of compromise or Calderbank offer. This approach raises many questions. Should s 40(2)(b) be construed in the light of the whole of s 40, having regard to the opening words to ss 40(1) and 40(2)? If so, the trial judge is given a broad discretion to consider "any other matters", which would include such matters as the circumstances in which the claim for defamation was brought (Jones v Sutton (No 2), supra), the conduct of the case by a party, and matters which may be adverted to in any list appended to the offer of amends of factors making the offer reasonable (a step the defendants took in these proceedings). Is s 40 only the equivalent, in terms of defamation proceedings, of an offer of compromise system, with an additional (and generously interpreted) factor of unreasonableness? Given the list of factors in s 40(1), this seems unlikely. Is the offer of amends defence intended to operate as statutory equivalent of an offer of compromise? In fact, the contrary was stated by Mr Debus MLA when the Defamation Bill was put before the Parliament (Second Reading Speech, 13 September 2005, p. 17637).
41It is not necessary for me to resolve these issues, for two reasons. First of all, the offer of amends sets out the factual matters relied upon by the defendants in relation to "reasonableness" and is the subject of findings of fact in the judgment. This is not conclusive in any way, but it is a helpful guide. Secondly, the offer of amends made in these proceedings has unique features, by reason of the facts of this case, which enable me to determine issues of "unreasonableness" on the facts of this case, and it is to the determination of that issue that I now turn.