The latest on offers of settlement and costs implications in defamation proceedings

Given the time and expense that can be associated with litigation, it is important that litigants properly understand the possible consequences of making, accepting or rejecting offers of settlement. This is especially so in defamation cases, which may run for years and where an offer of settlement can have a particularly acute effect on the costs that are ultimately awarded at trial.

In April 2019, we published a paper concerning costs implications in defamation proceedings of offers of settlement against the background of two judgments that were handed down around that time, Wagner v Harbour Radio1 and Benhayon v Rockett.2 The primary issue in those cases was whether indemnity costs ought to have been ordered in circumstances where offers of compromise had been made. This paper considers some further decisions which raise other important issues concerning offers of settlement and costs in defamation proceedings.

Offers of compromise in the Federal Court of Australia

In Parke v Rubenstein3 Mr Sharma (the third respondent) offered to settle the defamation proceeding that Ms Parke had brought against him in the Federal Court of Australia. His offer was a formal offer of compromise under the Federal Court Rules 2011 (Cth) (FCR). Mr Sharma’s offer was dated 15 July 2020 and stated to be open for 28 days (that is, until 12 August). On 17 July, Ms Parke rejected Mr Sharma’s offer, and proposed a counter-offer. Mr Sharma’s solicitors did not accept Ms Parke’s counter-offer and continued to carry out legal work, incurring approximately $25,000 in costs and disbursements. On 12 August, Ms Parke notified Mr Sharma of her acceptance of Mr Sharma’s 15 July offer.

Mr Sharma argued that Ms Parke’s purported acceptance of the 15 July offer on 12 August was invalid because his offer had expired when Ms Parke made her counter-offer (i.e. on 17 July). Under common law principles of offer and acceptance, the making of a counter-offer implies that the original offer has been rejected, at which point the original offer comes to an end. However, because Mr Sharma’s 15 July offer was made under the FCR, the common law position did not apply to it.

Crucially for Mr Sharma, the FCR state that an offer is open to be accepted within the time stated in the notice of offer to compromise (which must not be less than 14 days after the offer has been made – rule 25.08(1)). Under rule 25.07, an offer can only be withdrawn within 14 days after it is made, and if one of the following occurs:

  1. the offeror makes another offer in more favourable terms to the offeree; or
  2. or the offeror makes an application to the Court for leave to withdraw the offer and that application is granted.

Mr Sharma’s 15 July offer was said to be open for a period of 28 days. Because his offer had not been withdrawn under one of the two circumstances described above, it was open to Ms Parke to accept the offer on the 28th day, notwithstanding her earlier rejection. Ms Parke was, in effect, entitled to “see if she could achieve a better result, but at the same time, preserve the ability to accept the initial offer.”4

If Mr Sharma had intended for his offer to expire upon its rejection and/or the making of a counter-offer, he ought to have made a Calderbank 5 offer under the common law. Alternatively, he could have obtained leave from the Court to withdraw his offer.

New South Wales

Under the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) if an offer of compromise has been made at least two months before trial, it must be open for acceptance for 28 days; otherwise, it must be open for a “reasonable” time. The UCPR expressly state that an offer may be accepted even if a further offer is made during the period of acceptance for the first offer. An offer cannot be withdrawn during the period of acceptance for the offer unless the Court orders otherwise.6

Part 3, Division 1 of the Defamation Act 2005 (NSW) deals with offers to make amends. Unlike the FCR and the UCPR, the Defamation Act does not require an offer to make amends to be open for acceptance for any specified period.7 So long as the offer has not been accepted, it may be withdrawn at any time.

The decision in Nationwide News Pty Ltd v Vass 8 illustrates how the settlement provisions under the UCPR and the Defamation Act interact. In Vass the media outlet made an offer to make amends to Mr Vass under the Defamation Act. The offer was expressed to be open to be accepted until commencement of the trial unless withdrawn in writing. Some time later, Mr Vass made an offer of compromise pursuant to the UCPR. The media outlet did not respond to the offer of compromise. Almost two years later, and five weeks before the trial was due to commence, Mr Vass accepted the media outlet’s offer to make amends. The media outlet’s position was that the offer to make amends was no longer open for acceptance as it had been rejected by Mr Vass when he made his offer of compromise.

McColl JA found that the “amends” provisions in the Defamation Act and the “compromise” provisions in the UCPR were not intended to be construed by reference to ordinary contractual principles, and that they each provided their own discrete regime. Moreover, section 12(2) of the Defamation Act – which provides, “[t]he provisions of this Division may be used instead of the provisions of any rules of court or any other law in relation to … offers of compromise” (emphasis added) – makes it clear that the “amends” provisions in the Defamation Act operate separately from the “compromise” provisions in the UCPR.

The media outlet also argued that by filing a statement of claim and commencing proceedings, Mr Vass had impliedly rejected the offer to make amends. Without finally deciding that point, McColl JA said that it would be contrary to the “amends” provisions: the ability to make an offer to make amends before a defence has been served indicates that the procedure may be utilised after the commencement of proceedings.
McColl and Leeming JJA agreed that there was no reason to displace the natural meaning of the words in the media outlet’s offer, which expressly provided that it was open to be accepted until the commencement of the trial.

The effect of the Court of Appeal’s findings was that Mr Vass’ offer of compromise did not operate as a counter-offer to the offer to make amends. Even if it did, the Court of Appeal found that it would not have invalidated the media outlet’s offer since it had not been withdrawn in accordance with the Defamation Act and, on its terms, it was still open for acceptance.
If the media outlet had intended for its offer to make amends to expire upon its rejection and/or the making of a counter-offer, its offer ought to have been clearly expressed in such terms.

Costs in defamation proceedings

The costs regime that applies to defamation proceedings, which is contained in section 40 of the Defamation Act, is discussed in detail in our paper of April 2019. By way of update, a recent decision by the Court of Appeal has explained (in obiter) that section 40 does not apply to appeals, even if the appeal is from a decision originating from a cause of action in defamation.

In Brien v Mrad 9 Mr Brien claimed that because Mr Mrad had failed to accept his settlement offer, he was entitled to indemnity costs pursuant to section 40 of the Defamation Act. The Court of Appeal found that Mr Mrad had not unreasonably failed to accept Mr Brien’s settlement offer and declined to award costs on the indemnity basis. In doing so, the Court of Appeal noted that “Mr Brien’s submissions may have assumed the costs regime in section 40 of [the Defamation Act] applies to an appeal. That approach is incorrect … The expression “defamation proceedings” as used in section 40 does not include an appeal.”

Key points to note

As can be seen from the above cases, when making a settlement offer in defamation proceedings, it is important to consider whether it is in the client’s best interests to make an offer pursuant to the rules of the Court, the Defamation Act, or the common law in the form of a Calderbank offer. It is worth remembering that offers made under the FCR, the UCPR and the Defamation Act offer greater certainty when it comes to awarding costs.

Key considerations are:

  • contractual principles of offer and acceptance do not apply to settlement offers made under the Court rules or the Defamation Act;
  • it is possible for settlement offers to be made under the rules “instead of” the Defamation Act. This means that the offeree is not prevented from making their own offer under the Defamation Act, even if the original offer was made under the rules, and the act of doing so does not invalidate the original offer;
  • care must be taken when formulating and expressing the period of acceptance of the offer. If the offeror intends for a rejection and/or counter-offer to trigger the expiration of the offer, the offer should be clearly expressed in such terms; and
  • leave of the Court may be required to withdraw an offer, and there may be a time limit within which leave must be sought.
    Solicitors can avoid their clients incurring additional costs and avoid the situation Mr Sharma’s legal representatives found themselves in if they are mindful of the nuances of the regime under which a settlement offer has been made.

1 Wagner & Ors v Harbour Radio Pty Ltd & Ors [2018] QSC 267.
2 Benhayon v Rockett (No 9) [2019] NSWSC 172.
3 [2020] FCA 1466.
4 Ibid [27].
5 See Calderbank v Calderbank [1975] 3 All ER 333. Calderbank offers can be made orally or in writing and generally are expressed as being without prejudice save as to costs.
6 See rules 20.26(5), 20.27(2) and 20.26(11) of the UCPR.
7 But see section 18(1)(c), the effect of which is that the making of an offer to make amends can be a defence to an action for defamation, but only if the offer was “reasonable” in all the circumstances.
8 (2018) 98 NSWLR 672 (“Vass”).
9 [2020] NSWCA 259.

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