Federal Court of Australia

Callan v Chawk (Costs) [2023] FCA 1198

ORDERS

THE COURT ORDERS THAT:

1.    Orders 2 and 3 of the orders made on 3 August 2023 be vacated.

2.    The respondent is to pay pre-judgment interest on the award of damages in accordance with s 51A of the Federal Court of Australia Act 1976 (Cth) and in accordance with paragraph 2 of the Federal Court of Australia Interest on Judgments Practice Note (GPT-INT) for the period from 16 October 2020 to 3 August 2023 in the sum of $6,873.78.

3.    Pursuant to r 25.14 and r 40.02(b) of the Federal Court Rules 2011 (Cth), the respondent is to pay the applicant’s costs on an ordinary basis up to 11.00 am on 6 October 2022 and thereafter on an indemnity basis, in lump sum amounts to be determined by a Registrar of this Court.

4.    The applicant, as the costs applicant, is to file and serve a costs summary no longer than 5 pages, together with any documents that the applicant wishes to serve with that costs summary by 4.00 pm on Monday, 23 October 2023.

5.    The respondent, as the costs respondent, is to file and serve a costs response no longer than 5 pages, together with any documents that the respondent wishes to serve with that costs response by 4.00 pm on Monday, 6 November 2023.

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

REASONS FOR JUDGMENT

HALLEY J:

A.    Introduction

1    On 3 August 2023, I gave judgment for the applicant, Dr Peter Callan, in the sum of $50,000, plus interest and delivered reasons for judgment: Callan v Chawk [2023] FCA 898 (Judgment or J). I also made orders that the respondent, Zachariah Chawk, pay Dr Callan’s costs as agreed or taxed (Costs Order) and that Mr Chawk pay pre-judgment interest for the period from the start of the limitation period until the date the orders were made (Interest Order).

2    Dr Callan now seeks a variation to the Costs Order to provide that (a) Mr Chawk pay his costs on an indemnity basis from three alternative dates on a lump sum basis, and (b) a revised interest order that provides that pre-judgment interest for the period from 16 October 2020 up to 3 August 2023 be fixed in the amount of $6,873.78 (Costs Application).

3    Mr Chawk opposes any order that he pay costs on an indemnity basis or that costs be determined on a lump sum basis. Mr Chawk also seeks a stay of any costs order pending the final determination of the appeal that he has filed from the Judgment.

4    At a case management hearing held on 8 September 2023, after the exchange of submissions as to costs, the parties agreed that the Costs Application should be determined on the papers. In the course of the case management hearing, the parties also made oral submissions addressing a stay application made by Mr Chawk and the lump sum orders sought by Dr Callan.

5    I note that the submissions of Dr Callan were supported by an affidavit of Bronte Callaghan, a solicitor employed by Company Giles, the solicitors for Dr Callan, sworn on 15 August 2023.

6    For the reasons that follow, I have determined that:

(a)    Mr Chawk should pay Dr Callan’s costs on the ordinary basis up to 11.00 am on 6 October 2022 and, thereafter, on an indemnity basis (Revised Costs Order);

(b)    Dr Callan’s costs should be determined on a lump sum basis;

(c)    an order should be made fixing Dr Callan’s entitlement to pre-judgment interest in the amount of $6,873.78 (Revised Interest Order); and

(d)    there should be no stay of the Revised Costs Order.

7    These reasons for judgment assume a familiarity with the Judgment and they should be read in context with it.

B.    Background

8    Dr Callan made the following offers in the course of the proceedings, none of which was accepted by Mr Chawk, on the following dates:

(a)    23 November 2021: Judgment for Dr Callan (no damages), an undertaking to take down the Review and to permanently refrain from republishing it, or other matter carrying the same or similar imputations, and payment of Dr Callan’s costs in the sum of $30,000 (First Offer);

(b)    2 August 2022: Judgment for Dr Callan in the sum of $50,000 plus costs (Second Offer); and

(c)    6 October 2022: Judgment for Dr Callan (no damages) and payment of his costs as agreed or assessed (Third Offer).

C.    Indemnity Costs

C.1.    Legal principles

9    Rule 25.14(3) of the Federal Court Rules 2011 (Cth) (Rules) provides:

25.14    Costs where offer not accepted

…

(3)    If an offer is made by an applicant and not accepted by a respondent, and the applicant obtains a judgment that is more favourable than the terms of the offer, the applicant is entitled to an order that the respondent pay the applicant’s costs:

(a)    before 11.00 am on the second business day after the offer was served—on a party and party basis; and

(b)    after the time mentioned in paragraph (a)—on an indemnity basis.

10    As the Full Court of this Court relevantly explained in JMC Pty Ltd v Commissioner of Taxation (Costs) [2023] FCAFC 95 at [6] (Bromwich, Thawley and Hespe JJ):

Rule 25.14 does not expressly or implicitly turn on whether a rejection of an offer was “reasonable”. Rather, it turns on the question whether the judgment “is more favourable than the terms of the offer”. Where the judgment “is more favourable than the terms of the offer” the applicant “is entitled” to indemnity costs in accordance with the terms of r 25.14(3).

11    Rule 1.35 of the Rules provides a discretionary power to make an order that is “inconsistent” with the Rules. It provides:

1.35    Orders inconsistent with Rules

The Court may make an order that is inconsistent with these Rules and in that event the order will prevail.

12    If the Court were to make an order that a party that had received an offer from an applicant that was less favourable than the judgment achieved by the applicant, pay the costs of the trial on the ordinary basis rather than the indemnity basis, it would be “inconsistent” with r 25.14.

13    The party seeking an order under r 1.35 that is inconsistent with r 25.14, bears the onus of establishing that the inconsistent order should be made: JMC at [8].

14    The Full Court of this Court stated in JMC in the following passages:

10    The discretion in r 1.35 is confined by the requirement that it be exercised judicially having regard to the purpose for which it was conferred. It has been said that the discretion to make an order inconsistent with the Rules must “be exercised for proper reasons which will generally only arise in exceptional circumstances”: Lodestar at [27]. This is undoubtedly correct, although care must be taken not to transform or confine the broad statutory discretion by permitting judicial descriptions of the circumstances in which the discretion might be exercised to become constraints not sourced in the statute or glosses on the terms of the statute: Sydney Equine Coaches Pty Ltd v Gorst [2017] FCAFC 34 at [22].

11    In exercising the discretion under r 1.35 to make an order inconsistent with r 25.14, the reasonableness of the rejection of the offer will be relevant. It is most unlikely that an order inconsistent with r 25.14 would be made where the rejection of an offer was not reasonable. On the other hand, merely establishing that the rejection of an offer was reasonable at the time of rejection is not necessarily sufficient.

15    An offer of compromise that is not made under Pt 25 of the Rules does not give rise to any presumption that indemnity costs should be awarded in favour of an applicant that obtains a judgment that is more favourable than an offer made to the respondent. A failure to accept an offer of compromise that is not made under Pt 25, however, may give rise to an award of indemnity costs where the Court is satisfied that either the rejection was “imprudent or unreasonable” or “imprudent or plainly unreasonable”, having regard to the circumstances that existed at the time the offer was made: Dukemaster Pty Ltd v Bluehive Pty Ltd [2003] FCAFC 1 at [7] (Sundberg and Emmett JJ); Seven Network Limited v News Limited (2007) 244 ALR 374; [2007] FCA 1489 at [59]-[61] (Sackville J); Hardingham v RP Data Pty Limited (No 2) [2021] FCAFC 175 at [19] (Greenwood, Rares and Jackson JJ) at Camm Cattle Company Pty Ltd v Acumen Finance Pty Ltd (No 3) [2021] FCA 1611 at [13] (Downes J). For present purposes, it is unnecessary to express a view as to which formulation is to be preferred.

16    The Full Court of this Court in Anchorage Capital Partners Pty Limited v ACPA Pty Ltd (No 2) [2018] FCAFC 112 at [7] (Nicholas, Yates and Beach JJ), stated that the matters to be taken into account in assessing whether the refusal of an offer to compromise was “unreasonable”, included:

(a)    the stage of the proceeding at which the offer was received;

(b)    the time allowed to the offeree to consider the offer;

(c)    the extent of the compromise offered;

(d)    the offeree’s prospects of success, assessed as at the date of the offer;

(e)    the clarity with which the terms of the offer were expressed; and

(f)    whether the offer foreshadowed an application for an indemnity costs in the event of the offeree rejecting it.

C.2.    Submissions

17    Dr Callan submits that by reason of the following findings in the Judgment, Mr Chawk could not reasonably have been confident of successfully defending the proceedings on any of the dates on which the three offers were made:

(a)    Prior to Dr Callan’s surgery, Mr Chawk had self-assessed himself as having a very high level of nasal dysfunction and repeatedly told doctors how much he was struggling with his nose: Judgment [29], [31], [33].

(b)    Mr Chawk was provided with and accessed information about the nature of the surgery to be performed by Dr Callan and its risks and potential complications: Judgment [32].

(c)    Mr Chawk was told in clear terms that his deviated septum was not the cause of his breathing difficulties: Judgment [47].

(d)    Mr Chawk was told in clear terms that he could not be given any guarantees about the outcome of the surgery, and that further revisional surgeries may well be necessary: Judgment [47].

(e)    Mr Chawk’s nose was objectively much improved after the surgery with Dr Callan: Judgment [55].

(f)    Mr Chawk must have known that his nose and breathing were significantly improved after Dr Callan’s surgery: Judgment [148]-[149].

(g)    Mr Chawk did not believe in the truth of the content of the Review: Judgment [160].

18    Mr Chawk submits that Dr Callan has exaggerated the findings made in the Judgment because (as written):

a.    it is not said at [55] that the nose is much improved;

b.    re [148] – [149] the so called improvement (further surgery was needed) of Mr Chawk’s nose was a submission of Dr Callan that was accepted. It was not a finding of fact the Court could make as Mr Chawk’s nose pre-further surgery was not independently assessed. As Dr Callan noted himself at the post operative consultation Mr Chawk’s nose was

“..still collapsing “a bit on the right side”

c.    the court’s finding of defamation rested on the conclusion that revision surgery was:

i.    something that was reasonably predictable;

ii.    the necessity for which Dr Callan could not be impugned.

d.    The conclusion in the previous paragraph in turn rested on the Court rejecting Mr Chawk’s evidence that:

i.    he was told the surgery would be effective the first time - which was rejected [160];

ii.    Mr Chawk’s breathing had improved sufficiently to put Dr Callan beyond criticism – a matter of fine judgement – especially since the learned trial judge observed Mr Chawk was best placed to determine whether his breathing was improved or not.

(Citations omitted.)

19    Mr Chawk submits that it was not unreasonable to reject an offer to pay $50,000 or costs of $30,000 because:

(a)    but for the Court’s “fine judgment” the finding that Mr Chawk’s language in the review lacked moderation could have “gone the other way”;

(b)    the standard of reasonableness imposed in the Judgment on Mr Chawk was “arguably an unexpectedly high one”;

(c)    Mr Chawk’s performance in the witness box “could not have been predicted at the time of the offers” because he unexpectedly became “befuddled” and “confused” by reason of the fact that he was “(using old parlance) somewhat ‘simple’”;

(d)    the approach taken by the Court in the Judgment in estimating likely views could not have been predicted and such an approach was largely rejected in Lorbek v King [2023] VSCA 111;

(e)    the Court’s award of $50,000, despite the finding that there was not “substantial publication”, could not reasonably have been predicted;

(f)    the reliance by the Court on Colagrande v Kim [2022] FCA 409, was misplaced as it was an outlier in terms of proof of publication and was not apposite;

(g)    there are an increasing number of defamation proceedings failing on either the serious harm threshold or failure to prove publication or on both bases; and

(h)    the award of damages in defamation proceedings are “broadly evaluative and not amenable to prediction”.

20    Mr Chawk also seeks to rely more generally on the findings in the Judgment ruling out malice and aggravated damages and an offer to settle the proceedings dated 31 August 2022, by way of the payment of $5,000 towards Dr Callan’s costs.

C.3.    Consideration

C.3.1.    First Offer

21    I am not persuaded that Dr Callan has demonstrated that Mr Chawk’s failure to accept the First Offer was sufficiently “imprudent” or “unreasonable” to warrant an award of indemnity costs from 11.00 am on 24 November 2021, given (a) Mr Chawk was only given one day to accept the offer, (b) the relatively early stage of the proceedings, (c) the absence of any evidence of any accompanying explanation of the weakness of Mr Chawk’s defence, and (d) the offer was not made under Pt 25 of the Rules, so no presumption otherwise arises that indemnity costs should be awarded because the Judgment obtained by Dr Callan was more favourable than the offer.

C.3.2.    Second Offer

22    The Second Offer was made under Pt 25 of the Rules and the Judgment obtained by Dr Callan for $50,000, together with pre-judgment interest, now calculated in the sum of $6,873.78, was objectively more favourable than the Second Offer. It follows that, at least, on a prima facie basis, Dr Callan is entitled to an award of indemnity costs from 11.00 am on 4 August 2022.

23    On balance, I am satisfied, however, that an order pursuant to r 1.35 of the Rules should be made that is inconsistent with r 25.14(3) that Mr Chawk pay Dr Callan’s costs on the ordinary basis up to 6 October 2022. I have come to that view for the following reasons.

24    First, the Second Offer was only marginally less than the judgment achieved by Dr Callan and then only by taking into account pre-judgment interest.

25    Second, as submitted by Mr Chawk, damages in defamation proceedings are essentially evaluative and inherently difficult to predict, attempts to determine likely damages necessary to vindicate reputations from perceived similar cases are inherently challenging and of limited assistance.

26    Third, the extent of the compromise was not substantial, particularly given the limited publication of the offending Review.

27    Fourth, the findings in the Judgment relied upon by Dr Callan to establish imprudence or unreasonableness need to be assessed against the qualifications and matters advanced by Mr Chawk that I refer to at [18] and [19] above.

C.3.3.    Third Offer

28    The position with respect to the Third Offer is fundamentally different. It was an exceptionally generous offer given the judgment ultimately achieved by Dr Callan. Other than a requirement to pay costs on an ordinary basis, it was effectively an offer to accept a judgment with no financial implications for Mr Chawk. I, therefore, do not accept that any order should be made under r 1.35 that is inconsistent with r 25.14 with respect to Dr Callan’s costs after 11.00 am on 6 October 2022.

29    The matters relied upon by Mr Chawk, other than the proposition that damages in defamation proceedings are essentially evaluative and inherently difficult to predict, are, at best, of peripheral relevance to whether an order should be made under r 1.35. Many may well be relevant to the grounds of appeal that Mr Chawk may be proposing to advance in his appeal from the Judgment, in particular the references to findings in other cases that are alleged to be inconsistent with the findings made in the Judgment. These are matters that may well have to be considered by the Full Court of this Court in the appeal. Any expectations by Mr Chawk of his prospects of success based on allegedly analogous cases and understanding of the law, however, cannot provide any substantive support for the proposition that he acted reasonably in rejecting the Third Offer. Of course, if Mr Chawk is ultimately successful in his appeal, any costs orders made at first instance will need to be revisited.

30    Nor is it apparent, how any concessions or inconsistent evidence given by Mr Chawk in the course of his cross-examination, are relevant to the question of the reasonableness or the prudence of his decision not to accept the Third Offer. Having observed Mr Chawk in the witness box, he presented as an articulate witness with no language difficulties but at the same time, as a witness that had a profound grievance against Dr Callan and what could fairly be described as a somewhat selective memory.

D.    Lump sum costs

31    Rule 40.02(b) of the Rules provides that a party who is entitled to costs may make an application to the Court that their costs should be determined on a lump sum basis. The Court’s approach to lump sum costs orders and the practice and procedure that it adopts is set forth in the Costs Practice Note (GPN-COSTS) issued on 25 October 2016 (Practice Note). The Practice Note identifies the material to be provided in support of a lump sum costs order, the material to be provided in response, the role of Registrars and states that the Court’s preference is that the lump sum procedure be employed “wherever it is practicable and appropriate to do so”.

32    As stated above, Dr Callan seeks an order that his costs be assessed on a lump sum basis. The order is opposed by Mr Chawk. The only submission advanced by Mr Chawk in support of his position was that both senior and junior counsel had been engaged by Dr Callan in the proceeding and the costs therefore could be “quite considerable” and “we would want them scrutinised”.

33    As submitted by Dr Callan, this was a relatively small and simple case and, therefore, readily amenable to a determination by a Registrar on a lump sum basis. The engagement of both senior and junior counsel in itself does not dictate the need to incur the additional expense and delay of a formal taxation. Any particular concerns as to the retainer of senior counsel can be addressed within the framework of the exchange of statements as part of the lump sum costs process.

E.    Stay of costs order

34    Mr Chawk seeks a stay of the costs order. The only submission advanced by Mr Chawk in support of the stay was that it was “just and convenient not to have to pay a significant sum and then retrieve it”. No concern was expressed or raised about any inability to recover any costs paid if Mr Chawk’s appeal against the Judgment was successful: see Australian Federation of Consumer Organisations Inc v Tobacco Institute of Australia Ltd (No 2) (1991) 30 FCR 548 at 552 (Morling J).

35    In the circumstances, I am not persuaded that I should stay the costs order that I propose to make. The payment of a significant sum and the possibility of a subsequent need to retrieve it in the event that Mr Chawk’s appeal succeeds does not justify a departure from the usual rule that a successful party is entitled to the fruits of their victory at first instance. A judgment is not to be treated as provisional. The Court starts with the premise that the judgment is correct and the successful party is entitled to the benefit of that judgment: Gill v Ethicon Sárl (No 8) [2020] FCA 771 at [48] (Katzmann J).

F.    Pre-judgment interest

36    As stated above at [2], Dr Callan also seeks an order that quantifies the amount of the pre-judgment interest to which he is entitled in the form of the Revised Interest Order. The Revised Interest Order was not opposed by Mr Chawk.

37    I am satisfied that the calculation of pre-judgment interest in the Revised Interest Order is correct and the order should be made.

G.    Disposition

38    Orders will be made that Mr Chawk is to pay the costs of Dr Callan on the ordinary basis up to 11.00 am on 6 October 2022 and, thereafter, on an indemnity basis, in a lump sum to be determined by a Registrar of this Court and that pre-judgment interest is to be paid of $6,873.78.

39    Neither party has achieved all that they sought and I do not propose to make any costs order with respect to the costs incurred by either party on this Costs Application.

Associate:

Dated:    10 October 2023