Offers of settlement and costs implications in defamation proceedings

Amidst the anticipation of the verdict in defamation trials, little publicity is given to the issue of costs. However, the issue of costs should not be overlooked – as will be discussed, a party’s conduct leading up to and during the proceedings may influence the type of costs orders which are made and therefore the amount of costs they pay.

1. Costs orders – how do they work?

A costs order requires a party to litigation to pay another party’s legal fees and their disbursements, including filing fees, photocopying, travel, postage, expert’s fees and other such expenses. Under usual circumstances, the unsuccessful party pays the costs of the successful party on a limited “party-party” basis – essentially, including only those costs assessed as reasonable and necessarily incurred in litigation, while excluding costs for services that merely made its conduct more convenient. If there is a special or unusual feature that warrants the departure from the usual practice, the court can require that the successful party be more fully compensated (called “indemnity costs”) – where only costs assessed as unreasonable or unreasonably incurred are excluded.

2. Indemnity costs and offers of settlement

A common situation in which indemnity costs are awarded is where a party unreasonably rejects an offer of settlement. An offer of settlement can be made either in accordance with the court rules, such as the Uniform Civil Procedure Rules (UCPR) in NSW or under the common law in the form of a Calderbank offer.1 A  UCPR offer must comply with the formal requirements of the UCPR and the settlement amount cannot be inclusive of costs. A Calderbank offer, on the other hand, can be made orally or in writing and may include costs in the settlement amount.

3. Defamation proceedings

The Defamation Act has its own costs provision in section 40 which provides that, in awarding costs in defamation proceedings, the court may have regard to:

  • the way in which the parties conducted their cases;
  • any misuse of a party’s superior financial position to hinder the early resolution of the proceedings; and
  • any other matter that the court considers relevant.

Section 40 further provides that the court must (unless the interests of justice require otherwise) make an order for indemnity costs if the unsuccessful party unreasonably fails to make or accept a settlement offer. A “settlement offer” must be a reasonable offer at the time it was made, and includes an offer to make amends.

It is worth noting that section 40 is not restrictive; in other words, the court still has the power to order indemnity costs for some other reason other than what is provided in section 402 – for example, under the common law; or in accordance with the UCPR.

In awarding costs under section 40 the court must bear in mind the purpose of the section, which has been described as “… oblig[ing] parties to defamation proceedings to take a reasonable approach to negotiations for the settlement of those proceedings”.

4. The application of section 40

Wagner v Harbour Radio

In the recent decision of Wagner & Ors v Harbour Radio Pty Ltd & Ors (“Wagner”)4 the Queensland Supreme Court broke down section 40 into its constituent parts and noted that:

  • section 40 confers a general discretion to determine what costs should be ordered and how liability for costs should fall; however,
  • the discretion is restricted by requiring the Court to make an order for indemnity costs if either:
    • the [unsuccessful party] unreasonably failed to make a settlement offer (“first limb”); or
    • the [unsuccessful party] unreasonably failed to agree to a settlement offer proposed by the [successful party] (“second limb”).

The case of Wagner concerned 32 radio broadcasts by Alan Jones.  The Wagner family considered Jones had, in the broadcasts, blamed them for the deaths of 12 people in the 2011 Grantham floods and accused them of acting illegally in building the Wellcamp airport near Toowoomba. The broadcasts were said to give rise to defamatory imputations. The Wagner family were successful in their defamation claim against Jones and the other defendants (except as against one defendant journalist) as they had failed to establish any defence. The Court awarded the Wagner family damages in the amount of $3.7 million. The Wagners subsequently sought indemnity costs under section 40.

The Wagners argued that they were entitled to indemnity costs because the defendants had unreasonably failed to make a settlement offer (the first limb). The defendants had made several counter-offers to settlement proposals from the Wagners, with which the Wagners were dissatisfied. The first counter offer included an amount of $25,000 more than the Wagners had initially proposed, but was said to be unreasonable because it did not include an apology. Subsequent counter-offers made by the defendants were said to be unreasonable because, although they had incorporated an apology, the terms of the apology were argued to provide no element of vindication – because it did not contain an expression of regret or unqualified acknowledgment of falsity.

The Court found that the first limb  was not engaged because:

  • each of the defendants’ offers were genuine attempts to settle the proceedings before the trial and before Mr Jones giving evidence (which were key moments in terms of the costs of litigation);
  • the amount of damages offered was not unreasonable; and
  • the offers proposed that judgment be entered for the Wagners, which would have provided a form of vindication for the Wagner family.

The Court clarified that the failure of the first offer to include an apology did not make the offer unreasonable; particularly in light of the fact that apologies are a form of additional relief that cannot be ordered by a court.

The Wagners further argued that the defendants unreasonably failed to agree to a settlement offer proposed by them (the second limb) because, in essence, the defendants’ defence was weak; and at the time the offer was made, the defendants had made the decision not to defend some of the imputations.

Again, the Court found that the second limb was not engaged. That was because the Wagners’ offer had included the defendant journalist who was ultimately successful in defending the proceedings against him. It was not possible to construe the offer as if it were only made to Jones and the other defendants. Moreover, their offer had not been strictly rejected – the defendants had accepted some of its terms and responded with a counter-offer.

The Court then considered whether indemnity orders ought to be made in favour of the Wagners under its general discretion. In support of their case, the Wagners relied on the Court’s earlier finding that Mr Jones was motivated by a desire to injure the Wagners’ reputation and was wilfully blind to the truth or falsity of what Jones broadcast.5 However, the Court observed that the purpose of indemnity costs is not to punish a party.

Nonetheless, the Court found that indemnity costs were justifiable in this case because of the following factors:

  • late changes were made to the defence, including on the last day of trial;
  • the defendants’ truth defence was “weak and unmeritorious” and “hopeless”;
  • the defendants’ expert witness did not add anything significant;
  • despite two Commissions of Inquiry into the Grantham floods headed by “lawyers of eminent standing”, the defendants tried to justify the imputations;
  • the defendants did not make submissions on the “fair report” defence, despite pleading it; and
  • the defendants’ conduct caused the plaintiffs to incur unnecessary and wasted costs in preparing for a trial.

The Wagner case provides a useful insight into how the court will approach section 40 and what kind of circumstances and conduct the court will consider when deciding whether an indemnity costs order ought to be made.

Benhayon v Rockett

In the recent decision of Benhayon v Rockett (No 9) (“Benhayon”)6 the Court ordered that Mr Benhayon pay Ms Rockett’s costs on an indemnity basis under the second limb of section 40.

In Benhayon, Ms Rockett had published blogs and tweets concerning Mr Benhayon, a “spiritual healer”. Mr Benhayon commenced defamation proceedings against Ms Rockett. The outcome was described as a “comprehensive defeat” for Mr Benhayon and a “comprehensive victory” for Ms Rockett7 who was able to successfully defend the case put against her. As the unsuccessful party, the Court ordered that Mr Benhayon pay Ms Rockett’s costs. Ms Rockett applied to have her costs paid on the indemnity basis.

The main question for the Court was whether Mr Benhayon had unreasonably failed to accept a settlement offer made by Ms Rockett. The Court’s answer – yes – proceeded on two bases.

The Court found that Ms Rockett’s offer had been made at a reasonable time before significant costs had been occurred; and the remedy was reasonable. Significantly, the Court remarked that a failure to accept a reasonable offer does not make the rejection unreasonable.

Moreover, the conduct of Mr Benhayon and his solicitors was found to be unreasonable. Mr Benhayon had indicated that he would only settle if Ms Rockett apologised to him and admitted that she had fabricated each of the pleaded imputations sexually vilifying him – “only an outcome that publicly demeaned [Ms Rockett] and her motivations would be acceptable.”8 His solicitors had engaged in unreasonable and discourteous conduct including, for instance, sending to Ms Rockett a 31-page letter written in an “unnecessarily peremptory and demeaning” tone on the day of her father’s funeral in circumstances where she was not legally represented and had requested that there be no communication with her on that day out of respect for her family.9 Despite the reproachable conduct of Mr Benhayon and his solicitors, the Court – as it did in Wagner – noted that an order for indemnity costs must not be intended to punish the unsuccessful party.

In light of Wagner and Benhayon, the following key points can be made:

  • offers of settlement made to more than one party should be drafted in such a way that parties can be severed from the offer (in order to maximise the chance of being awarded indemnity costs if some parties are ultimately successful and some are not);
  • the purpose of indemnity costs is not to punish the other party, even if their conduct is unsatisfactory;
  • the lack of an apology does not make an offer to settle unreasonable; and
  • a failure to accept a reasonable offer does not, of itself, make the rejection unreasonable.

These cases also illustrate the type of conduct and other relevant matters that the court will take into account when determining what kind of costs order should be made under section 40 – although, it is important to remember that each case will turn on its facts.

Whilst costs orders come at the end of often long litigation, they reflect the parties’ conduct at earlier stages of the proceedings.  Whether to make or accept a settlement offer that has been made requires careful consideration as it can provide a certain amount of future proofing of the case to come.

1. Named after the decision of Calderbank v Calderbank [1975] 3 All ER 333.
2. Nationwide News Pty Ltd v Weatherup [2018] 1 Qd R 19 at [70] per Applegarth J.
3. Davis v Nationwide News Pty Ltd [2008] NSWSC 946 per McClellan CJ at CL at [27].
4. [2018] QSC 267.
5. Wagner at [29].
6. [2019] NSWSC 172.
7. Benhayon at [7].
8. Benhayon at [43].
9. Benhayon at [31]. See also [30] and [32].

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© ADDISONS. No part of this document may in any form or by any means be reproduced, stored in a retrieval system or transmitted without prior written consent. This document is for general information only and cannot be relied upon as legal advice.

Liability limited by a scheme approved under Professional Standards Legislation.
© ADDISONS. No part of this document may in any form or by any means be reproduced, stored in a retrieval system or transmitted without prior written consent. This document is for general information only and cannot be relied upon as legal advice.

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