FEDERAL COURT OF AUSTRALIA

Hayson v The Age Company Pty Ltd (No 3) [2020] FCA 1163

ORDERS

THE COURT ORDERS THAT:

1.    The respondents pay the applicant’s costs of the proceeding, to be assessed on the usual basis, including the costs already awarded on 8 February 2019 and on 17 May 2019, and the costs of the competing costs applications.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

BROMWICH J:

1    This is an adjudication of competing costs applications made following the delivery of judgment on liability for defamation on 19 March 2020: Hayson v The Age Company Pty Ltd (No 2) [2020] FCA 361 (trial judgment).

2    In summary, the applicant’s case was that he had been defamed by each of five imputations he alleged were conveyed by an article published in the print edition of The Age newspaper on Friday, 3 June 2016, entitled “Match-fixing link to gambler”. The applicant commenced this proceeding on 2 June 2017, the day before the first anniversary of publication.

3    The applicant’s case as pleaded asserted the following five imputations:

(a)    The applicant engaged in a criminal scheme with a jockey to match-fix a South Sydney Rabbits versus Manly Sea Eagles rugby league match in 2015.

(b)    The applicant paid six rugby league players $50,000 each to underperform in a South Sydney Rabbits versus Manly Sea Eagles rugby league match so that he could make substantial profits by betting on that match.

(c)    The applicant illegally match-fixed two NRL games.

(d)    The applicant is an organised crime criminal.

(e)    The applicant, who was banned from gambling at the TAB, breached that ban by placing $75,000 in bets using Kieran Foran’s TAB account.

4    By the end of the trial in September 2019, the respondents conceded that the first two of the above five imputations were made out, but not the other three. The other three imputations were found not to have been made out in the trial judgment.

5    As summarised in the trial judgment (at [31]), the applicant alleged that the following four circumstances warranted the award of aggravated damages:

(1)    Ms McClymont’s knowledge of animosity between him and Mr Ange [a source relied upon for the article];

(2)    the fact that, when given a proper opportunity to meet and have allegations put to him, he had taken up that opportunity and refuted them;

(3)    the lengthy time Ms McClymont had between the 1 March 2016 meeting and the time of publication on 3 June 2016 to put to Mr Hayson the allegations that were published, and the assertion that she should have taken sufficient steps to check the allegations with him before they were published – he went further, suggesting that Ms McClymont failed to put the allegations to him properly because she did not want to be burdened by any denials he might make; and

(4)    the way in which this proceeding was conducted by the respondents.

6    The third of those four bases advanced in support of aggravated damages succeeded to a limited extent, namely confined to the unjustifiability of aspects of Ms McClymont’s conduct in preparing The Age article: trial judgment [194]. The modest aggravation of damages exceeded, but only by a small measure, the limited mitigation of damages. The damages largely turned on the content of The Age article.

7    The applicant, having succeeded in establishing that he had been defamed by way of the two imputations that were ultimately conceded, obtained a verdict and judgment in his favour and an award of $50,000. With pre-judgment interest, that rose to $55,689. That sum has been paid by the respondents.

8    Both sides seek indemnity costs – primarily for everything by the applicant, and effectively for the trial by the respondents. The parties sought to have the determination made on the papers.

Overview of the competing costs applications and conclusion reached

9    Each of the parties advanced a case for a costs order in their favour by way of written submissions, supported by affidavit evidence, and each furnished written submissions in reply opposing what the other side sought. That left many issues in limbo, and there was little in the way of common ground. This costs dispute is a tangled web of competing views, reflecting very different ways of looking at many aspects of what transpired from the commencement of the proceeding to the delivery of judgment, including as to the significance of what was decided. In the final result, I do not wholly agree or disagree with either side’s primary position, necessitating a complicated path to resolution.

10    The applicant primarily seeks indemnity costs for the entire proceeding, based on the terms of s 40 of the Defamation Act 2005 (NSW), relying upon an offer to settle made in July 2019. In the first alternative he seeks his costs on a party/party basis until and including 2 July 2019 and on an indemnity basis thereafter, based upon the respondents’ failure to accept his offer to settle, as a Calderbank offer.

11    In the second alternative, the applicant seeks his costs of abandoned defences of contextual truth (s 26) and qualified privilege (s 30) on an indemnity basis, with the balance of his costs on a party/party basis. In the third alternative, he seeks his costs on a party/party basis, arising from a verdict in his favour.

12    The respondents contend, explicitly in reply submissions, that s 40 of the Defamation Act does not apply to this proceeding. That is a threshold issue addressed below, and determined adversely to the respondents. It is clear to me that s 40 does apply, for the reasons below.

13    The respondents next assert that the refusal to accept the applicant’s Calderbank offer to settle was not unreasonable. Rather, they contend, it is the applicant who should pay their costs on an indemnity basis from the Friday before the trial (which commenced on a Monday). This was upon the basis that it was unreasonable of the applicant not to accept the respondents’ Calderbank offer to settle made a week before the trial, expiring the Friday before the trial. The respondents apparently accept that they should meet the applicant’s costs on a party/party basis until the settlement offer expired just before the trial.

14    The conclusion I have reached, for the reasons set out below, is that the respondents should pay the applicant’s costs of this proceeding on a party/party basis, including the costs of the competing costs applications.

Departing from costs following the event

15    The usual rule is that costs follow the event. That is so well established that it is not necessary to cite authority. The starting point is therefore that the applicant, having secured judgment in his favour, is entitled to an order that the respondents pay his costs. The live issues for determination are:

(1)    whether the applicant has made good an argument for a better order than party/party costs for the entire proceeding in his favour; or

(2)    whether the respondents have made good an argument that less be awarded than party/party costs for the entire proceeding in the applicant’s favour.

This necessarily includes consideration of the terms of s 40 of the Defamation Act.

16    I will first consider the respondents contention that s 40 of the Defamation Act does not apply to this proceeding. The arguments on the substance of the competing applications will then be considered.

Power to award indemnity costs under s 40(2) of the Defamation Act 2005 (NSW)

17    The applicant contends that his entitlement to indemnity costs principally arises out of the indemnity costs provisions in s 40(2) of the Defamation Act, which mandate such an award in particular circumstances, subject only to the interests of justice, and which he contends exist in this case. The respondents raise a threshold question of whether those specific costs provisions validly apply to defamation proceedings brought in this Court, in light of the general costs provisions in s 43 of the Federal Court of Australia Act 1976 (Cth) (FCA). This argument principally relies upon the proposition that there is inconsistency between State and Commonwealth legislation, and that the latter prevails under s 109 of the Australian Constitution. For the reasons that follow, that proposition is misconceived, and the remaining arguments are not sustained.

18    Section 43 of the FCA relevantly provides:

(1)    The Court or a Judge has jurisdiction to award costs in all proceedings before the Court (including proceedings dismissed for want of jurisdiction) other than proceedings in respect of which this or any other Act provides that costs must not be awarded. …

(1A)    …

(2)    Except as provided by any other Act, the award of costs is in the discretion of the Court or Judge.

(3)    Without limiting the discretion of the Court or a Judge in relation to costs, the Court or Judge may do any of the following:

…

(g)    order that costs awarded against a party are to be assessed on an indemnity basis or otherwise;

…

19    Section 40 of the Defamation Act provides as follows:

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.

20    The thrust of the respondents’ main threshold argument is that s 40 of the Defamation Act is invalid under s 109 of the Constitution by reason of inconsistency with s 43 of the FCA. The respondents therefore argue that, if the Court finds that s 40 is capable of applying on the facts of this case, notices to the Commonwealth, State and Territory Attorneys-General need to issue under s 78B of the Judiciary Act 1903 (Cth). Such notices are required when a cause pending involves a matter arising under the Constitution or involving its interpretation. For s 78B of the Judiciary Act to be enlivened, it must be established that the foreshadowed challenge does indeed involve a matter arising under the Constitution: see Re Finlayson; Ex Parte Finlayson (1997) 72 ALJR 73 per Toohey at 74; quoted and expressly endorsed by Gummow, Hayne and Callinan JJ in Glennan v Commissioner of Taxation [2003] HCA 31; 77 ALJR 1195; 198 ALR 250 at [14]. Thus the issuing of s 78B notices will not be required if all that is involved is a question of statutory interpretation that does not of itself involve a matter arising under the Constitution.

21    The issue raised requires a brief excursion into the way in which this Court has jurisdiction over defamation proceedings in the first place. In Crosby v Kelly [2012] FCAFC 96; 203 FCR 451 at [35], a primary source of that jurisdiction was identified as being s 9(3) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth). That provision gives this Court jurisdiction that could be exercised by the Supreme Court of a territory, relevantly the Australian Capital Territory, necessitating a publication in the ACT (as pleaded by the applicant). This is not the only route, but the applicable one in this case: see Rana v Google Inc [2017] FCAFC 156; 254 FCR 1 at [18], [24].

22    Once federal jurisdiction is engaged, the entire matter is within federal jurisdiction, and there is no concurrent federal and State jurisdiction being exercised: Rana at [20]. As noted above, the statement of claim in this proceeding engaged federal jurisdiction by alleging publication, inter alia, in the Australian Capital Territory. Once such federal jurisdiction is engaged, the laws necessary to give effect to that jurisdiction in a case brought in New South Wales apply by the operation of s 79 of the Judiciary Act, because the Defamation Act, as a New South Wales statute, does not apply of its own force: Solomons v District Court (NSW) [2002] HCA 47; 211 CLR 119 at [21].

23    Section 79(1) of the Judiciary Act provides:

The laws of each State or Territory, including the laws relating to procedure, evidence, and the competency of witnesses, shall, except as otherwise provided by the Constitution or the laws of the Commonwealth, be binding on all Courts exercising federal jurisdiction in that State or Territory in all cases to which they are applicable.

24    Section 79(1) therefore creates a form of legislative shorthand, filling gaps that would otherwise apply in the exercise of federal jurisdiction: Rizeq v Western Australia [2017] HCA 23; 262 CLR 1 at [63], [91]. In this case, the respondents in effect seek to create a different sort of gap by arguing that most of the Defamation Act applies, but that s 40 does not.

25    Section 79(1) also overcomes the prohibition that would otherwise apply by which a State legislature is forbidden by Ch III of the Constitution from controlling or interfering with the procedures of a federal court: Rizeq at [58]-[60], [63]; see also Residual Assco Group Ltd v Spalvins [2000] HCA 33; 202 CLR 629 at [21]; APLA Ltd v Legal Services Commissioner (NSW) [2005] HCA 44; 224 CLR 322 at [230].

26    Instead of the Commonwealth Parliament replicating State or Territory legislation in a given area within federal jurisdiction, s 79 enables such legislation to be picked up and applied in the same manner as Commonwealth legislation. The text so picked up is “Commonwealth law to govern the manner of exercise of federal jurisdiction”, being the limit of the operation of s 79: Rizeq at [63]; see also [81]-[82], [87] and [103]. The term “surrogate”, in the phrase “surrogate federal law” is often used as an adjective to explain this way of creating federal legislation, but that should not be used to suggest any inferiority as a form of Commonwealth law: see Rizeq at [81].

27    A conceptually identical, but broader, regime exists in s 68 of the Judiciary Act confined to federal criminal cases, additionally picking up “laws of a State or Territory respecting the arrest and custody of offenders or persons charged with offences” and the related procedures pertaining to summary hearings, committals, trials and appeals.

28    The regimes under both ss 68 and 79 of the Judiciary Act are a convenient and flexible equivalent to the Commonwealth Parliament re-enacting the same words as used by State or Territory legislatures, but without the need to amend that legislation each time the local legislature does so. This operation of the Judiciary Act is subject to constitutional constraints because it is not a means by which the Commonwealth Parliament can exceed its powers. A statute or provision of a statute is not picked up if it is beyond the power of the Commonwealth Parliament. There is no suggestion made by the respondents that the Commonwealth Parliament cannot legislate for the award of indemnity costs in proceedings in this Court. Nor, sensibly, could there be.

29    The operation of both ss 68 and 79 is also subject to constraints of a legislative nature, which operate somewhat akin to the interpretation of inconsistent Commonwealth statutes. Put simply, a State or Territory statute otherwise able to be picked up, is not picked up, or particular provisions are not picked up, to the extent that they are inconsistent with a Commonwealth statute. Thus, when it comes to this aspect of the operation of the Judiciary Act, no question of one Commonwealth provision prevailing over another arises, but rather legislation that has been enacted by the Commonwealth Parliament will stand in the way of State legislation, that would be inconsistent were it surrogate Commonwealth legislation, being picked up and applied in the first place. Thus any conflict to be resolved is between statutes having the same source, with the “law of a State of Territory which is to operate as surrogate law of the Commonwealth … to be measured beside other laws of the Commonwealth”: Northern Territory v GPAO [1999] HCA 8; 196 CLR 553 per Gleeson CJ and Gummow J at [80]. That does not ordinarily give rise to a constitutional question, but it can.

30    An example of the constitutional barrier to the s 68 operation of the Judiciary Act was considered by the High Court in Brownlee v The Queen [2001] HCA 36; 207 CLR 278. Brownlee concerned the question of whether there was a constitutional barrier imposed by s 80 of the Constitution to a trial on indictment continuing to verdict with fewer than 12 jurors as is provided for by s 22(a)(ii) of the Jury Act 1977 (NSW), if that section was otherwise able to be picked up and applied as surrogate Commonwealth law by s 68 of the Judiciary Act.

31    The High Court in Brownlee determined that there was no constitutional barrier to s 22(a)(ii) being picked up insofar as it provided for a reduction to 10 jurors during the course of the trial and up to verdict, as had happened in that case, but left open the question of whether a further reduction below 10 was permitted by s 80. The respondents do not suggest that there is any constitutional barrier of that kind to the Commonwealth Parliament legislating for the award of costs on an indemnity basis. No such barrier is apparent. The question of the application of s 40 of the Defamation Act to the costs dispute in this case therefore does not involve a matter arising under the Constitution or involving its interpretation.

32    As the operation of s 79 of the Judiciary Act in relation to the Defamation Act does not give rise to the possibility of a clash between State and Commonwealth legislation, s 109 of the Constitution does not apply to this situation, and no occasion arises for the service of s 78B notices. The High Court has been quite blunt about this, in stating that within the field in which s 79 operates, State laws have no valid application and s 109 “for that reason simply has no operation”: Rizeq at [92].

33    This conclusion makes the question of whether s 79(1) picks up s 40 of the Defamation Act, with at least most of the rest of that Act, a matter of statutory construction. For example, ss 21 and 22 mandating trial by jury are not picked up because of the contrary provisions for civil proceedings in this Court in s 40 of the FCA: Wing v Fairfax Media Publications Pty Ltd [2017] FCAFC 191; 255 FCR 61. There may be other provisions that are left behind as a result of some other inconsistency.

34    That exercise of statutory construction involves answering two related questions:

(1)    whether there is a barrier in the manner of the enactment of the Defamation Act to s 40 being left behind; and

(2)    whether there is a barrier within Commonwealth legislation to s 40 being picked up.

35    Section 79(1) does not operate to pick up some, but not all, of a State legislative scheme as surrogate Commonwealth law, if that would give an altered meaning to the legislation so severed: Commonwealth v Mewett (1997) 191 CLR 471 at 556; Solomons at [24]. Section 40 of the Defamation Act is part of an integrated scheme for defamation proceedings in New South Wales, forming part of a suite of provisions directed to encouraging resolution by settlement prior to trial. Part 3 is directed to the resolution of civil disputes without litigation, providing for an offer to make amends, provided this occurs within 28 days after the publisher was given a concerns notice: ss 13 and 14.

36    While s 40 is in Part 4 of the Defamation Act, concerned with the litigation of disputes, s 40 itself links Part 4 to Part 3 by defining a settlement offer to include an offer to make amends whether made before or after a proceeding is commenced, and that in turn may carry indemnity costs consequences. If s 40 does not apply, then an important incentive to make an offer of amends is lost. Thus, the overall effect, and effectiveness, of Part 3 would be adversely altered if s 40 were left out of the equation. This is a barrier to s 40 being left behind, but perhaps not of itself an insurmountable barrier. It follows that the real barrier to the application of s 40 of the Defamation Act that must be considered is whether that provision, as against the terms of s 43 of the FCA, gives rise to any potential statutory inconsistency standing in the way of the operation of s 79 of the Judiciary Act.

37    Section 43(2) of the FCA, quoted above at [18], limits the broad discretion to award costs by the words “[e]xcept as provided by any other Act”. That provision has allowed, for example, s 570 of the Fair Work Act 2009 (Cth) to limit the circumstances in which a costs order may be made by this Court at all. This indicates that the role of s 43 is to facilitate costs orders being made, including upon an indemnity basis, not to prohibit or protect the making of those orders from being inhibited or limited, including by surrogate Commonwealth law that deals with a discrete subject matter not otherwise legislated for by the Commonwealth Parliament. However, the respondents submit that the reference to “any other Act” cannot contemplate s 40 of the Defamation Act by reason of s 38(1) of the Acts Interpretation Act 1901 (Cth), which permits, but does not require, an Act passed by the Parliament of the Commonwealth to be designated by the word “Act” alone.

38    Section 38(1) of the Acts Interpretation Act does not mean that the reference in s 43(2) of the FCA to “any other Act” excludes a reference to Commonwealth legislation brought about by the indirect operation of s 79 of the Judiciary Act rather than being directly enacted by the Parliament of the Commonwealth. For the reasons set out above, the operation of s 79 is to be assessed without reference to the provision’s original status as State legislation, and instead by reference to its potential status as surrogate Commonwealth legislation. To do otherwise would be to constrain the operation of s 79 in a way that is at odds with the provision’s central gap-filling role. For this reason, the respondents’ argument that s 40 of the Defamation Act is not captured by the exception in, and is therefore inconsistent with, s 43(2) of the FCA, is misconceived. The better view is that s 43(2) facilitates the constraint on discretion brought about by s 40, or at least contemplates the discretion being fettered, such that no such fettering is forbidden.

39    Even if it were not open to the Court to form that view of the meaning or operation of s 43(2), s 43(1) of the FCA provides a general jurisdiction to award costs, s 43(2) makes it clear that this is discretionary, and s 43(3)(b) makes it clear that this may extend to indemnity costs. Thus s 43 is an enabling provision, including as to the award of costs being discretionary, even without resort to “[e]xcept as provided by any other Act”. In those circumstances, I am unable to see why, when specialised legislation such as the Defamation Act is picked up, the costs part of that legislation does not also apply, even when a particular outcome is mandated in specific circumstances, with a wide residual discretion being retained in any event by the concept of the interests of justice embedded in s 40(2). No judge is required to make an indemnity costs order if it is not in the interests of justice to do so. Thus no relevant inconsistency arises even if s 43(2) of the FCA is incapable of including a reference to Commonwealth legislation brought about by the operation of s 79 of the Judiciary Act.

40    For completeness, I should note that the respondents support their argument as to how s 40 of the Defamation Act should operate by noting that the Court, in awarding costs, is required by s 37N(4) of the FCA to take into account any failure by a party or a party’s lawyer to comply with the duty imposed by s 37N(1) or (2) respectively. That duty is to conduct civil litigation, including in settlement negotiations, in accordance with the overarching purpose in s 37M to facilitate the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible. I am satisfied that those considerations apply to the question of costs, but do not see this as adding anything to the question of whether s 40 applies. They are complementary to the operation of s 40, not inconsistent with it, notwithstanding that, absent s 40 applying, the discretionary power is not constrained by a mandate of the kind in s 40(2).

41    I see no reason why this Court cannot take into account a party’s or party’s lawyer’s failure to comply with the duty to conduct civil litigation in accordance with the overarching purpose in determining whether or not the party unreasonably failed to make or agree to a settlement offer, just as I see no reason why this Court could not have regard to the factors set out in s 40(1) or the interests of justice whilst making that determination. There is a degree of divergence that is of a different category to the sort of inconsistency which would deny s 40 applying to the specialised nature of defamation proceedings, governing the manner of the exercise of that federal jurisdiction. It is not that there is a costs power that exists separately in relation to defamation proceedings, which is then fettered by s 40 being picked up. Rather, the Defamation Act is picked up largely as a whole (subject to the comments above), with a power to awards costs supplementing that which already exists under s 43, but with its own subject-matter-specific criteria.

42    The present situation is quite unlike that considered by the Full Court in Wing at [27] in relation to trial by jury in civil proceedings in this Court, where the jury provisions in the FCA were fundamentally different and indeed opposite in effect to those in the Defamation Act, so as to be directly inconsistent and incapable of coexisting. It should be noted that parties in this Court in a similar matter, even where their positions were “widely divergent,” have previously been able to proceed on the basis that it was common ground that s 40 of the Defamation Act would be picked up without issue: Hockey v Fairfax Media Publications Pty Ltd (No 2) [2015] FCA 750; 237 FCR 127 at [34]-[39].

43    I therefore reject the respondents’ argument that s 40 does not apply to the determination of an application for indemnity costs for defamation proceedings brought under the Defamation Act as surrogate Commonwealth legislation.

Section 40, Defamation Act and the applicant’s offers to settle in May 2017 and July 2019

44    The applicant’s argument commences with the terms of s 40 of the Defamation Act. That provision is characterised by him as intentionally radical. That is a reasonable characterisation because s 40(2) ups the ante for indemnity costs when reasonable settlement offers are unreasonably refused, so that indemnity costs apply for the entire proceeding, not just from the time of the offer. By contrast, the regime in s 40(1) does not seem to me to add anything to s 43 of the FCA beyond a degree of express articulation of matters that could be taken into account in any event.

45    The plain text of s 40 is reinforced by relatively recent appellate authority. In Zoef v Nationwide News Pty Ltd (No 2) [2017] NSWCA 2, Gleeson JA (with whom Ward and Payne JJA agreed) observed at [59]:

To qualify as a “settlement offer” for the purposes of s 40, the offer to settle the proceedings must answer the description of a “reasonable offer at the time it was made”. If the offer of amends is not a reasonable offer, then it is not a “settlement offer” for the purposes of s 40: Holt v TCN Channel Nine Pty Ltd (No 2) (2013) 82 NSWLR 293; [2012] NSWSC 968 at [50] (Adamson J).

46    Thus the key issue when it comes to any application for indemnity costs relying upon s 40, is whether a reasonable offer has been made by the applicant which has been unreasonably refused, or whether the respondent has failed to make a reasonable offer, assessed at the time it was made. In deciding whether to award costs, the Court may have regard to the way in which the parties conducted their respective cases, including any misuse of a superior financial position to hinder early resolution, or anything else considered relevant: s 40(1). If it is in the interests of justice, the Court must award costs on an indemnity basis if the applicant succeeds (as he did in this case) and the Court is satisfied that the respondents unreasonably failed to make a settlement offer or agree to a settlement offer proposed by the applicant.

47    As noted above, settlement offers include an offer to make amends. As also noted above, the significant advance brought about by s 40(2) is that such indemnity costs are to be awarded for the whole proceeding, not just from the date of the presently relevant trigger event of, it is asserted, the respondents unreasonably failing to agree to an offer to settle made just over two years after the commencement of the proceeding. The evident intent is to provide strong encouragement to resolution, even long after a proceeding has commenced, and especially, I infer, to avoid the need for a trial to take place.

48    The applicant characterises the outcome as being “entirely successful” and having “wholly succeeded”, upon the basis that the cause of action is the defamation, not its constituent imputations: s 8, Defamation Act. However, that does not mean that the degree of success or failure as to the imputations pleaded is irrelevant. It is worth noting that both parties gained positive outcomes from the trial taking place. The applicant gained because two imputations that had been denied were conceded by the end of the trial. The respondents gained because three imputations that were denied were found not to be made out. The imputations that succeeded were of a similar quality to the imputations that failed, but those which failed would have made the defamation considerably more serious if both available and proven.

49    Many cases on a single given cause of action may have components of the underlying allegations succeed or fail. That may have no ultimate impact on costs, as in Davis v Nationwide News Pty Ltd [2008] NSWSC 946 (discussed below at [60]), or it may be of greater significance, as I have found it to be in this case. I do not think that s 8 precludes having regard to the litigated issues that succeeded or failed in the exercise of the discretion, and resulted in costs being incurred, notwithstanding the mandate to award costs upon an indemnity basis. There must be some content to the concept of the interests of justice as an express exception to that mandate, as well as being relevant to the related issues of reasonableness of offers made, and reasonableness of the rejection of such an offer.

50    To open the door to indemnity costs via s 40(1), the applicant relies upon the way in which the respondents conducted their case, including a contested assertion as to the first respondent’s superior financial position, and an assertion that the respondents unreasonably refused to agree to either of the two settlement offers proposed by him. He also relies upon a range of other factors:

(1)    reliance by the respondents upon contextual imputations that were incapable of establishing contextual truth for the purposes of the defence in s 26;

(2)    reliance by the respondents, until two days before the trial, upon a defence of statutory qualified privilege under s 30 which was always doomed by what is asserted to be their unreasonable conduct in their preparation and publication of the article in the print edition of The Age newspaper on Friday, 3 June 2016; their failure to explain why this happened so late, their wasting of time and costs in the filing of a reply, as well as interrogatories, discovery, subpoenas and an interlocutory application – an application for indemnity costs was foreshadowed on 6 September 2019;

(3)    reliance by the respondents upon Mr Ange as the source of the published imputations, knowing that Mr Ange hated the applicant, and also made wild allegations about a range of other people;

(4)    the respondents’ failure to elicit the applicant’s version of events, in the context of him having vigorously disputed prior allegations which were then not published;

(5)    the respondents’ failure to make any attempt to speak to other persons whom the published article said were involved in the events described, Mr Danny Nikolic (express evidence he was not contacted) and Mr Kieran Foran (no evidence he was contacted);

(6)    the respondents’ failure to respond within 28 days to a concerns notice, inviting them to make amends – the applicant contends that given that the respondents never had any real defence to the claim, their failure to provide an apology and pay some compensation at the outset was inexcusable, noting that it was never said that the two ultimately admitted imputations were substantially true, nor explained why it took two years to make that concession, asserting that it should be inferred that they came to this conclusion well before September 2019;

(7)    the respondents’ failure to accept the second offer to settle made on 2 July 2019, also asserted to be a reasonable offer, unreasonably not accepted, considered in more detail below.

51    The potential application of s 40(2)(a) of the Defamation Act, which is the heart of the dispute, is triggered by the applicant’s success in establishing that he had been defamed. Both limbs of that provision are relied upon, being:

(1)    an asserted unreasonable failure of the respondents to make a settlement offer to him; and

(2)    an asserted unreasonable failure to accept the settlement offers that he made.

52    Authority is cited as to the meaning of each limb, but, as the applicant submits, that meaning is plain enough, if expressed in a somewhat convoluted way. The key questions for the second limb are, first, whether any offer made by the applicant was itself reasonable, and if so, whether rejection was unreasonable. The key questions for the first limb are whether there was a failure by the respondents to make an offer, and if so, whether that was unreasonable in all the circumstances. The first limb falls to be considered later in these reasons in the context of the offer that the respondents made on the eve of the trial.

53    In relation to the second limb and the offers made by the applicant, it is not in dispute that the applicant’s 26 May 2017 concerns notice contained a settlement offer given the definition in s 43(3), provided the contents of the offer were themselves reasonable. The offer referred to all five pleaded imputations, asserting each was defamatory and each was also completely false, a claim that was only partially sustained because of the substantial overreach by three of the five pleaded imputations. The invitation to make amends asked the respondents and their non-party associated companies to agree by noon on 1 June 2017:

[1]    To immediately remove the matter complained of or any other article conveying the same or similar imputations, from each of the The Age website and any other Fairfax or associated companies’ websites which produce the matter complained of in answer to a Google search;

[2]    To immediately provide our client with a signed and dated apology and retraction as follows:

“Apology to Eddie Hayson”

On 3 June 2016, The Age published an article written by Kate McC1ymont about Eddie Hayson.

The article made allegations that were false, defamatory and highly offensive. It should never have been published. We unreservedly retract all of the allegations that it contained.

The Age and Kate McClymont sincerely apologise to Mr Eddie Hayson for the hurt and distress caused to him and his family by the publication of the Article.”

(the “apology”).

[3]    To pay our client’s reasonable legal costs in pursuing this matter.

[4]    To pay an amount to our client (to be agreed), by reason of the damage that has been caused to him as a result of the publication of the matter complained of.

[5]    To provide an undertaking by The Age Company Pty Ltd, (and related entities) and Ms McClymont, to never republish the matter complained of or the imputations in the Concerns Notice (or imputations not substantially different) in future.

[6]    Ms McClymont to immediately delete all Tweets relating to the matter complained of.

[7]    The Age Company Pty Ltd (and/or their related entities) to publish the apology in The Age newspaper in normal front page font and size.

[8]    The Age Company Pty Ltd (and/or their related entities) to publish the apology on The Age website for 14 consecutive days.

54    The applicant notes that the respondents had 28 days to offer to make amends in response to the concerns notice (s 14, Defamation Act), but did not do so, and had not (as at the time of the submissions) offered any explanation for failing to do so.

55    The respondents contend that the 26 May 2017 offer, viewed in light of the findings in the trial judgment, was not reasonable, and therefore was not a settlement offer for the purposes of s 40, because:

(1)    it sought amends in respect of two imputations that were found not to be capable of being conveyed, and one that, although capable of being conveyed, was not in fact conveyed – that is, the applicant sought amends for aspects of The Age article that were not defamatory;

(2)    it sought amends upon the basis of asserted distress, without acknowledging that much the same allegations were published at about the same time in an article in the Sydney Morning Herald that were not sued upon, thereby failing to reflect the true position as to the source of the hurt asserted – the trial judgment (at [31]) found this to be at most a trivial amount of hurt;

(3)    there was no proper basis for any inference to be drawn that the respondents had concluded the first two imputations were conveyed well before the trial;

(4)    no weight should be given to the characterisation of a failure to apologise as inexcusable, in light of the trial judgment finding (at [186]) that it was difficult to see how an apology in relation to, or a retraction of, The Age article would have been capable of being any balm to the applicant’s hurt feelings;

(5)    the respondents did not entirely abandon the defence of contextual truth, in the sense that this was still relied upon in mitigation of damages;

(6)    the submission that the defence of statutory qualified privilege was doomed because of unreasonable conduct in the preparation and publication of the The Age article was not supported by any finding in the trial judgment;

(7)    rather than inferring that the respondents concluded that the two defences were hopeless, the more reasonable inference is that counsel came to the conclusion that each had insufficient prospects of success to be pressed as a matter of ethics and duty to the Court;

(8)    the assertion of wasted costs was exaggerated because the product of interrogatories and discovery were used in support of the claim for aggravated damages, and the subpoena dispute was resolved in the respondents’ favour as to access, noting that the broadly asserted extent of wasted costs was not quantified in any way;

(9)    the expressed intention to seek indemnity costs on the eve of the trial adds nothing to the weight of the arguments; and

(10)    the suggestion of superior financial resources is no more than an assertion, without evidence as to the nature or extent of those resources, which cannot be assumed to exist in the current media environment, and in any event, there was nothing to show that any such advantage was misused.

56    I am not prepared to attach much weight to the factors that the applicant relies upon as taking an entitlement to costs much further than the judgment in his favour. The amends sought required a capitulation on matters that were never capable of being sustained. The inferences that the applicant seeks to have drawn are less than compelling. And the assertion of wasted costs is not much more than that – an assertion. If excessive costs have been incurred, then that is ordinarily met within the ambit of a costs order upon the usual basis following the event. The real issues concern the later settlement offers, both ways. I therefore find that the 26 May 2017 offer objectively was not reasonable, and therefore was not a settlement offer within the meaning of s 40(1)(a). Even if I was wrong about that, I would not find that refusing the offer was unreasonable, for much the same reasons.

57    In relation to the applicant’s offer of settlement by a letter dated 2 July 2019, it is again not in doubt that was a further settlement offer within the terms of s 40(3), provided the terms proposed were themselves reasonable. That letter sought the following by way of settlement (emphasis in original):

[1]    Payment to our client of $ 49,000 in lieu of damages within 21 days.

[2]    The amount of the sum in 1 above, to be confidential between the parties.

[3]    Payment of our client’s legal costs in relation to this matter to be agreed or taxed on a party/party basis.

[4]    An undertaking by The Age Newspaper Pty Limited (and related entities) and Ms McClymont, to never republish the matter complained of or the imputations pleaded in the Statement of Claim or imputations not different in substance.

[5]    Ms McClymont to immediately delete all Tweets referring and/or relating to the matter complained of.

[6]    The Age Newspaper Pty Limited (and related entities) and Ms McClymont to publish the apology being Annexure A to this letter on page 2 of The Age in normal font and size within 14 days.

[7]    The Age Newspaper Pty Limited (and related entities) and Ms McClymont to publish the apology being Annexure A to this letter on The Age website for 14 consecutive days.

[8]    Kate McClymont to immediately sign and provide the apology being Annexure B to this letter to our client to be used as he sees fit.

58    The applicant characterises that offer as being reasonable because, he asserts, it was made:

(1)    well before commencement of trial preparation when costs were still relatively low – identified elsewhere in the letter as being in the vicinity of $95,000, which also predicted an award of damages in excess of $150,000, plus aggravated damages;

(2)    after the proceedings had run for long enough for the respondents to have known that they had no prospects of successfully defending the claim;

(3)    for a reasonable amount in the circumstances, having regard to the serious nature of the allegations and the considerable extent of publication;

(4)    the apology sought was “standard” for such serious allegations which were not suggested by the respondents to be true.

59    The respondents counter by characterising this offer as not being reasonable at the time it was made because:

(1)    again, three of the five imputations were not made out, with two not being capable of being made out, asserting that the applicant should have appreciated the deficiencies in his case and not sought more than was pleaded by way of the request for undertakings not to convey something that was not in fact conveyed;

(2)    the terms of the offer included the removal of tweets and the publishing of apologies which formed no part of the pleaded claims and would have required Ms McClymont to sign a separate apology which included a statement by her that her subsequent tweets caused him significant hurt and distress, despite that having nothing to do with the case as pleaded – asserting that it was not unreasonable to decline to give something that was not capable of being achieved in the litigation; and

(3)    the demand for a signed apology from Ms McClymont as was an unnecessary and unreasonable additional requirement on top of the request for an apology to be published in The Age, characterising this as vindictive and intended to be humiliating, especially as there was no pleading for an apology, and it was therefore not something that could have been achieved in the litigation.

60    The respondents acknowledge that there is weighty authority in Davis per McClellan CJ at CL at [31] to the effect that failure in relation to some imputations will be of limited relevance where a plaintiff has obtained a judgment subsequent to a defendant’s failure to make a reasonable offer. It may be noted that this paragraph of McClellan CJ at CL’s judgment was dealing specifically with a failure on the defendant’s part to make a reasonable offer and the consequences this might have for the relevance of the plaintiff’s failure in relation to some imputations in an otherwise successful claim. In that circumstance, the respondents’ submission is more relevant to the consideration of their own offer (below) than the applicant’s offer under consideration here. The respondents seek to distinguish McClellan CJ at CL’s conclusion because Davis was a jury case and there was no suggestion that the failure was for want of capacity.

61    That is not the only important point of distinction between Davis and this case. In the following paragraph, [32], his Honour recorded his satisfaction that “although the jury only found for Ms Davis in relation to three [out of nine] imputations it was reasonable to believe before trial that she would have achieved a greater degree of success”, a conclusion not available to the applicant here. The only offer made by the defendant in Davis was that each party walk away and pay their own costs. This combination of circumstances led to [32] being concluded as follows:

The fact that Ms Davis ultimately failed in respect of some of the pleaded imputations is not in my opinion reason in the interests of justice to deprive her of an award of indemnity costs for the entire proceedings. Being left with only the alternative of walking away or pursuing her claim in my opinion she was justified in pursuing that claim including each of the alleged defamatory imputations which were pleaded.

This was not the situation that the applicant faced.

62    The observation in Davis about partial success in relation to pleaded imputations being of limited relevance is doubtless of great importance in many cases, but it does not constitute some kind of discretionary straitjacket, especially having regard to the facts in that case as outlined above.

63    In my view, the applicant’s July 2019 offer of settlement has to be considered in the way in which it was made, not edited to remove the parts that were not sued for, and would be most unlikely to be awarded even if they had been, such as the specific form of apology sought. The applicant chose to bring an ambitious case going well beyond the imputations properly to be derived from The Age article. Parts of his case were well-founded, as the respondents ultimately admitted. But parts of it were simply wrong. He sought, by settlement, vindication well beyond what he was entitled to, even though he ultimately succeeded in a monetary sense slightly above the offer he made, and just over 10% better once pre-judgment interest is taken into account.

64    I do not consider that in this case the imputations that failed were of limited relevance, especially when two of them failed at the relatively low bar of capacity and were not ever fit to proceed to the tribunal of fact. I do not think that indemnity costs should be available to support and encourage extravagant pleading or over pleading. They are to provide for indemnity costs when a properly brought claim is made the subject of a reasonable offer to settle. That does not mean that every imputation must succeed, but if imputations fail, the Court is entitled to have regard to that circumstance and conduct a realistic assessment of what has taken place.

65    Publisher respondents risk indemnity costs from the outset if a reasonable offer is unreasonably refused. That is, while s 40 encourages settlement, it expressly does so by reference to reasonable offers and reasonable refusals, which is inextricably tied up with a reasonable case being brought in the first place. It is not carte blanche to demand more than success in the litigation could have delivered, as that could reasonably be viewed and assessed at the time that the offer is made. Section 40 is not to be read as requiring a respondent to compensate on costs beyond the ordinary basis for failing to capitulate on whatever terms are demanded.

66    The applicant never wavered from pressing all of his imputations, including at trial. The case might well not have proceeded to trial had the three unsuccessful imputations not been pressed; and had they not been pressed, the respondents would have had a much more difficult time in defending their conduct when it came to costs, and in resisting an order for indemnity costs. If those imputations, two of them baseless, and one of them very weak and unable to be sustained factually, had been absent, and less had been sought collaterally, the offer would have been reasonable, and the refusal of it unreasonable. However, as made, the offer was not reasonable, and accordingly it was not an offer within the terms of s 40(2)(a). Even if that was not so, refusing to accept it cannot be characterised as unreasonable for much the same reasons.

Competing offers to settle closer to trial

67    In the period after 2 July 2019 and before 9 September 2019, competing offers to settle were made as follows, with none being accepted. Those offers should be recorded for completeness, noting that the respondents object to the costs estimates given due to this being expert evidence. That stance is rejected because the estimates are read for the limited purpose of understanding the applicant’s position in relation to the costs that he would have understood were being incurred, informing the basis for the offers made and the opposing offers being rejected. The text of the offers made are reproduced as follows:

(1)    On 15 August 2019, the respondents offered in respect of this and the parallel proceedings against Nationwide News, which independently settled:

Verdict in favour of the applicant;

Payment to the applicant of the combined sum of $120,000 inclusive of costs;

The settlement sum to be confidential.

At that time, the applicant’s costs were about $110,000 for this proceeding and about $115,000 in the Nationwide News proceeding, which would have resulted in an overall loss to the applicant.

(2)    Also on 15 August 2019, applicant made a counteroffer (emphasis in original):

Verdict in favour of the applicant in both proceedings;

Payment of the combined sum of $600,000 inclusive of costs;

The settlement sum to be confidential.

Take down etc.

(3)    On 21 August 2019, the respondent offered:

Verdict for the plaintiff;

Our clients to pay your client the sum of $100,000 inclusive of his costs, such sum to remain confidential; and

All previous costs orders vacated and no order as to costs.

By this time, the costs and disbursements incurred by the applicant were about $120,000, which again would have resulted in an overall loss to the applicant. The 21 August 2019 offer letter from the solicitors for the respondent also contained an assertion that the defences of contextual truth and qualified privilege were “strong” and that the contrary view was “baseless”. This supports the submission made by the respondents noted above that it should not be inferred that they had formed the view long ago that those defences were hopeless.

(4)    On 3 September 2019, the respondents offered:

Verdict for the plaintiff;

Our clients to pay your client the sum of $120,000 inclusive of his costs, such sum to remain confidential; and

All previous costs orders vacated and no order as to costs.

By this time, the costs and disbursements incurred by the applicant were about $195,000, which would have resulted in substantial loss to the applicant. This was pointed out in general terms by reply correspondence on 6 September 2019. In that three day period, the applicant’s costs had risen to some $230,000, doubtless due to preparation for the impending trial.

Final settlement offer by the respondents made on 9 September 2019

68    On 9 September 2019, a week before the trial, the respondents made a final offer of settlement, being the offer that is now relied upon by the respondents for an order for indemnity costs for the trial, as follows (emphasis in original, omitting paragraph numbering):

Payment to your client of the sum of $49,000 in lieu of damages within 21 days;

The amount of the sum in paragraph 1 to be confidential between the parties;

Payment of your client’s legal costs in relation to this matter to be agreed or taxed on a party/party basis;

An undertaking by The Age Company Pty Limited (and related entities) and Ms McClymont, to never republish the matter complained of or the imputations pleaded in the Statement of Claim or imputations not different in substance.

By this time, the applicant had incurred costs and disbursements of some $238,000.

69    It is important to note that this offer by the respondents may be sought to be relied upon by them in two ways. First, to meet the first limb of s 40(2)(a), by which the applicant seeks indemnity costs based upon his success in the proceeding, and to meet an argument by the applicant that the respondents failed to make a settlement offer, in the sense of a reasonable settlement offer. And secondly, to advance a Calderbank claim for indemnity costs, given that s 40(2)(b) was not available to the respondents because the applicant’s case was not “unsuccessfully brought”.

70    On the first question of whether the respondents’ 9 September 2019 offer was reasonable for the purposes of the first limb of s 40(2)(a), the offer was for the same amount as the applicant had offered just over four months earlier. I have not found the amount was unreasonable when sought by the applicant; and I do not find the amount unreasonable when offered by the respondents. Both offers proved to be remarkably close to the verdict.

71    The applicant contends that an offer that provides no measure of vindication is not a reasonable offer, asserting that a reasonable offer would have included an apology or some equivalent form of public vindication, citing:

(1)    Davis at [30]:

The resolution of this issue depends upon the application of s 40(3) of the Act which defines “settlement offer” to include an offer to make amends “that was a reasonable offer at the time it was made.” In my opinion it should have been apparent to the defendant at the time of the publications that Ms Davis had been defamed. At the very least a reasonable offer at that time would have included an offer of an apology. It should also have been obvious to the defendant that not only had the published imputations damaged Ms Davis’ reputation but they had also caused her significant anguish. The defendant should have appreciated that Ms Davis would recover a sum for her damage.

and

(2)    Wagner & Ors v Nine Network Australia & Ors (No 2) [2019] QSC 309 at [34], in which it was observed that “[r]esolving the proceeding simply by receiving payment of an amount without an apology or equivalent form of public vindication would have deprived the plaintiffs of the benefit of the judgment and award of damages which was in prospect.”

72    I do not consider that the comparison with those two cases is apt. This was a very different case to either Davis or Wagner. As already noted above, in the trial judgment, I found (at [186]) that it was difficult to see how an apology in relation to, or retraction of, The Age article would have been capable of being any balm to the applicant’s hurt feelings, in the context of much the same allegations being published at about the same time in a larger and much more prominent and detailed article in the Sydney Morning Herald, both in print and online, that were not sued upon, thereby failing to reflect the true position as to the source of the hurt asserted. I also found (at [131]) this to be at most a trivial amount of hurt. In the most unusual circumstances of this case, I do not accept that the absence of an apology rendered the respondents’ 9 September 2019 settlement offer unreasonable for the purposes of s 40(1)(a).

73    Nor were the remaining aspects of the respondents’ offer unreasonable, making the settlement amount only confidential, offering to pay costs on the usual basis, and giving an undertaking to never to republish the matter complained of or the imputations (necessarily including those which were never sustainable and which failed).

74    It follows that the respondents’ offer was enough to deny the applicant’s claim for indemnity costs based on the first limb of s 40(2)(a).

75    Turning to the respondents’ claim for indemnity costs upon the ordinary operation of their Calderbank offer, they rely upon Gleeson JA in Zoef, who at [61], with approval, quoted McClellan CJ at CL in Davis at [27] in regarding s 40(2) as:

oblig[ing] 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.

76    Despite this not being, or being capable of being, a claim by the respondents for indemnity costs under s 40(2)(b), they place a heavy emphasis on the last sentence in the above quote, by reason of the financial aspect of their offer at $49,000 falling just short of the verdict of $50,000, overlooking the final award of $55,689, when just over 10% in pre-judgment interest is included. The respondents seek to have authority in relation to s 40(2)(a) assist with their Calderbank claim for indemnity costs. They characterise the difference between the offer and verdict, and presumably the final award, as being immaterial, relying upon Rosser v Maritime Services Board of New South Wales (No 3) (unreported, Sup Ct, NSW, Young J, 25 November 1997).

77    In Rosser, Young J recorded a submission that a practice had arisen in New South Wales that “if there are negotiations for a settlement and one party makes offers near the mark and the other makes totally unrealistic offers, then the court may make the appropriate orders to reflect the need to encourage bona fide attempts to settle litigation”. His Honour regarded that practice and the case from which it arose as standing only for the proposition that “in an exceptional case it may be unreasonable for a party to refuse an offer that is close to, but less than, the verdict and that such unreasonableness may be tested by the party’s counter-offers”. The respondents do not explain why this is an exceptional case.

78    The respondents contend that they fall within this reasoning in Rosser because they seek to have the Court draw the “only available inference” that the applicant refrained from accepting their offer because he was quite unreasonably insisting that any settlement must include paragraphs (c) to (e) of his 2 July 2019 offer, despite these not being achievable in the litigation. The respondents contend that this unreasonable attitude “in effect” caused the costs of the trial and its preparation to be incurred. I do not accept that submission, because I do not accept that there was only one such reasonable inference to draw. As the evidence discloses, by the time of the offer, the applicant had already incurred very substantial costs in the order of $230,000. The inference I would more readily draw, and in so doing reject the inference the respondents seek, is that the settlement sum offered was considered by the applicant not to be enough as it would entail him ending up being out of pocket and forgoing an opportunity to do much better, even though that is not what happened.

79    I do not think that Rosser helps the respondents. They chose to make an offer that was not an unreasonable amount in all the circumstances, noting that, as it turns out, it was very close to the award that was made. But in the result it was below the judgment sum even without interest, and more than 10% below with interest. Thus the offer goes far enough to assist in passing the second limb in s 40(2)(a) of being a reasonable offer, but not far enough to entitle the respondents to a costs order in their favour, let alone an indemnity costs order.

80    I therefore see no reason why the usual effect of an award exceeding an offer should not apply. The respondents have not made good their Calderbank claim for indemnity costs.

Conclusion

81    For the foregoing reasons, neither side has made good a claim for indemnity costs. In those circumstances, there is no reason why costs should not follow the event on the usual basis. That includes costs that have already been awarded in the applicant’s favour in relation to:

(1)    the respondents’ unsuccessful joinder application by an interlocutory application dated 6 July 2018 and dismissed on 8 February 2019; and

(2)    the case management hearing on 17 May 2019 dealing with discovery and interrogatories.

82    While it is true that costs were reserved following the success of the respondents on an argument on the first day of the trial, by which they obtained access to documents produced on subpoena by police, this was a very small portion of the trial time, and it is not appropriate to separate that out from the general flow of the trial. The costs of that dispute should be costs in the cause, and therefore abide by this overall costs determination.

83    The respondents must therefore pay the applicant’s costs of the proceeding on the usual basis. That should extend to these costs applications.

Associate:

Dated:    14 August 2020