Federal Court of Australia Colagrande v Kim (No 2) [2022] FCA 659 File number(s): NSD 587 of 2021 Judgment of: JAGOT J Date of judgment: 7 June 2022 Catchwords: COSTS — application for indemnity costs due to respondents' unmeritorious denials in face of overwhelming contrary evidence and failure to accept settlement offers — where no basis for indemnity costs under general law but s 40 of Defamation Act 2005 (NSW) applies — where respondents unreasonably failed to make settlement offer and no foundation for interests of justice requiring otherwise than indemnity costs under s 40(2) — indemnity costs ordered Legislation: Defamation Act 2005 (NSW) ss 3(d), 13, 17, 18, 40, 40(2)(a), 40(3) Federal Court Rules 2011 (Cth) Cases cited: Australian Competition and Consumer Commission v Colgate-Palmolive Pty Ltd (No 5) [2021] FCA 246; (2021) 151 ACSR 26 Colagrande v Kim [2022] FCA 409. Davis v Nationwide News Pty Ltd [2008] NSWSC 946 Hayson v The Age Company Pty Ltd (No 3) [2020] FCA 1163; (2020) 280 FCR 139 Vector Corrosion Technologies Limited v E-Chem Technologies Ltd [2022] FCA 519 Zoef v Nationwide News Pty Ltd (No 2) [2017] NSWCA 2 Division: General Division Registry: New South Wales National Practice Area: Other Federal Jurisdiction Number of paragraphs: 38 Date of last submissions: 20 May 2022 Date of hearing: Determined on the papers Counsel for the Applicant: Ms S Chrysanthou SC and Mr H Elachkar Solicitor for the Applicant: Fraser Lawyers Counsel for the Respondents: Mr N Olson Solicitor for the Respondents: Company Giles Pty Ltd ORDERS NSD 587 of 2021 BETWEEN: CESIDIO COLAGRANDE Applicant AND: MIN SIK KIM First Respondent ANNA MIN Second Respondent order made by: JAGOT J DATE OF ORDER: 7 JUNE 2022 THE COURT ORDERS THAT: 1. Order 5 of the Court's orders dated 21 April 2022 be varied by deleting the words "as agreed or taxed" and replacing them with the words "on an indemnity basis". Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT JAGOT J: 1 The remaining issue in this matter is costs. 2 On 21 April 2022 I made orders which included that: (a) the respondents pay the applicant damages for non-economic loss, including aggravated damages, assessed in the amount of $420,000, (b) the respondents pay the applicant special damages assessed in the amount of $31,511.29, and (c) the respondents and each of them be permanently restrained from publishing or re-publishing the False Review as defined in paragraph 4 of the statement of claim or any matter to the same or a similar effect as the False Review. I also made an order that the respondents pay the applicant's costs as agreed or taxed. I gave the parties liberty to apply within seven days to vary this costs order. The applicant, Dr Colagrande, has applied to vary the costs order by seeking indemnity costs for the whole of the proceeding or, alternatively, from 19 February 2022 on the basis of an offer of compromise or offer to settle the proceeding, or under s 40 of the Defamation Act 2005 (NSW) (Defamation Act). 3 These reasons for judgment are to be read with the principal judgment: Colagrande v Kim [2022] FCA 409. 4 I have decided that I should make an order for indemnity costs under s 40 of the Defamation Act which operates separately from the general law principles applying to indemnity costs. 5 The relevant general law principles are clear. As I said in Vector Corrosion Technologies Limited v E-Chem Technologies Ltd [2022] FCA 519 at [38]: The Court has a broad power to award costs in proceedings, including indemnity costs, under s 43 of the Federal Court of Australia Act 1976 (Cth). While the purpose of an indemnity costs order remains compensatory, the basis for such an order is a conclusion that the unreasonable conduct of a party (be it bringing or persisting in a case the party should have known was hopeless, causing unnecessary costs to be incurred, prolonging a hearing, bringing or persisting in a case for an ulterior motive, or otherwise) should result in full compensation to the other party for the costs incurred. 6 Justice Wigney provided a convenient summary of these general law principles in Australian Competition and Consumer Commission v Colgate-Palmolive Pty Ltd (No 5) [2021] FCA 246; (2021) 151 ACSR 26, see relevantly at [7]–[9] (emphasis in original): 7 The discretion to award costs on a basis other than as between party and party, including on an indemnity basis, is "unfettered, save that it must be exercised judicially and not arbitrarily or capriciously": Australian Competition and Consumer Commission v The Construction, Forestry, Mining and Energy Union (No 4) [2018] FCA 684 at [96]. The discretion must also be exercised in light of the requirement that the Court consider any failure by a party to comply with the overarching purpose of the civil practice and procedure provisions to facilitate the just resolution of disputes according to law as quickly, inexpensively and efficiently as possible: see ss 37N(4), 37M(1) of the FCA Act; LFDB v SM (No 2) [2017] FCAFC 207 at [7]. 8 The discretion to depart from an order for party and party costs will not be exercised unless there is some special or unusual feature or the justice of the case so requires: Cirillo v Consolidated Press Property Ltd (formerly known as Citicorp Australia Ltd) (No 2) [2007] FCA 179 at [3]; Seven Network Ltd v News Ltd (2009) 182 FCR 160; [2009] FCAFC 166 at [1102]; Melbourne City Investments Pty Ltd v Treasury Wine Estates Limited (No 2) [2017] FCAFC 116 at [5]. 9 The purpose of a costs order is to compensate the successful party, not to punish the unsuccessful one: King v Yurisich (No 2) [2007] FCAFC 51 at [19], citing Latoudis v Casey (1990) 170 CLR 534; Seven Network at [1099]. An award of indemnity costs is to "serve the purpose of compensating a party fully for costs incurred, as a normal costs order could not be expected to do, when the court takes the view that it was unreasonable for the party against whom the order is made to have subjected the innocent party to the expenditure of costs": Hamod v New South Wales (2002) 188 ALR 659; [2002] FCAFC 97 at [20]; see also Kazal v Independent Commission Against Corruption and Ors (No 2) [2020] NSWSC 17 at [60]–[62]; Cirillo at [4]–[5]; Melbourne City Investments at [5]. 7 In support of his application under the general law for indemnity costs for the entirety of the proceeding, Dr Colagrande principally relies on the alleged unreasonable conduct of the respondents in denying, and thereby putting him to the costs of proof, of the fact that they published the False Review. I found in [21] of the principal judgment that the respondents published the False Review. I concluded at [60] that the "fact that the respondents have chosen to continue to deny responsibility for publication in the face of overwhelming contrary evidence is another aggravating factor". As a result, I held at [64] that the cap on the maximum damages for non-economic loss did not apply. 8 I accept that the respondents' denial of responsibility for publication of the False Review caused Dr Colagrande to incur expenses he would not otherwise have incurred. Those expenses comprise, in the main, the preliminary discovery proceeding and the expert evidence of Dr Desmond. I am not persuaded that the hearing took materially longer than it otherwise would have taken by reason of the respondents' denial of publication, but accept that Dr Colagrande's legal costs would have been greater than they otherwise might have been by reason of the need to conduct the preliminary discovery proceeding, obtain the expert evidence of Dr Desmond, and prepare for the hearing, including by written submissions dealing with the issue of responsibility for publication. 9 However, I am also aware that: (a) I made a special damages award to compensate Dr Colagrande for the cost of the preliminary discovery proceeding, (b) the cost of retaining Dr Desmond and the additional preparation costs will be part of the costs recoverable under the existing costs order, albeit on a party-party basis, and (c) I took into account the respondents' conduct in denying publication in assessing the general damages for non-economic loss. 10 Factors (a) and (c) above are of significance having regard to the compensatory purpose of a costs order, even an order for indemnity costs. Factor (a) means that Dr Colagrande has already been compensated fully for the preliminary discovery proceeding. Factor (c) means that Dr Colagrande has been compensated for the aggravation resulting from the respondents' unmeritorious denial of publication. While the compensation was for aggravation and not for the increased legal costs associated with the denial, the effect was to increase the amount the respondents were required to pay Dr Colagrande albeit by an amount which cannot be quantified. 11 While I accept that unreasonable conduct which has resulted in an increased damages award by reason of aggravation may, in some cases, also found a proper claim for indemnity costs under general law principles, I am not persuaded this is such a case. The unmeritorious denial of responsibility for publication did involve some degree of additional legal costs being incurred by Dr Colagrande, but I cannot infer that these costs would be material. 12 It was submitted further for Dr Colagrande that: The respondents have conducted the proceedings in a manner that went well beyond simply failing to comply with the overarching purpose of the civil procedure provisions. Their conduct in failing to make any concessions in the light of overwhelming evidence, being dishonest, maintaining an improper and unjustifiable plea of mitigation until days prior to the hearing, and in failing to make any genuine attempt at resolution is unreasonable conduct and warrants the engagement of the Court's unfettered discretion to award the indemnity costs of the entire proceedings to the applicant. The applicant should never have been subjected to the expenditure of costs in these proceedings, and should be compensated fully as a result. 13 The respondents' conduct of the proceeding did involve putting Dr Colagrande to proof by an unmeritorious denial of responsibility for publication. It also involved the unmeritorious plea in mitigation which was ultimately abandoned. At [61] of the principal judgment, I characterised this plea as another aggravating circumstance which I took into account in assessing damages for non-economic loss. However, it is not apparent that this plea increased the costs of the litigation to any material extent. 14 In these circumstances, if the general law alone applied, I would not make an order for indemnity costs by reason of the respondents' unreasonable conduct, albeit that I accept that aspects of their conduct of the proceeding were unreasonable. 15 However, the general law is not the end of the matter. It was also submitted for Dr Colagrande that an indemnity costs order should be made under s 40 of the Defamation Act. Section 40 relevantly provides that: (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 … (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. 16 The respondents did not suggest that s 40 of the Defamation Act did not apply to this proceeding: cf Hayson v The Age Company Pty Ltd (No 3) [2020] FCA 1163; (2020) 280 FCR 139 at [20]. Nor did the respondents explain why I should conclude that they had not "unreasonably failed to make a settlement offer" for the purpose of s 40(2)(a). Rather, the respondents' submissions focused on why their refusal of Dr Colagrande's settlement offer was not unreasonable. 17 It is clear that s 40 supplements and expands the general law. The reason for the provision was explained by McClellan CJ at CL in Davis v Nationwide News Pty Ltd [2008] NSWSC 946 at [26] as follows: The special costs provisions were introduced following a concern that the costs of defamation proceedings may prohibit persons who have a legitimate claim from pursuing relief. Unless in appropriate cases costs were awarded on an indemnity basis a plaintiff may be out of pocket to such an extent that the risks in bringing proceedings were unacceptable. Furthermore, the intention of the legislation was to promote a "speedy and non litigious method of resolving disputes and to avoid protracted litigation wherever possible" (Second Reading Speech, Legislative Assembly, 12 November 2002). 18 Accordingly, the fact that I have concluded that I would not order indemnity costs under general law principles does not mean that there should be no such order under s 40 of the Defamation Act, specifically s 40(2)(a). 19 I consider that s 40(2)(a) provides two alternatives. The first is that the defendant has unreasonably failed to make a settlement offer. The second is that the defendant has unreasonably failed to agree to a settlement offer made by the plaintiff. Given that the concept of "unreasonableness" in both ss 40(2)(a) and 40(3) (which defines "settlement offer") involves an evaluative issue capable of yielding a range, the alternatives in s 40(2)(a) are important. The provision is intended to ensure that, one way or another, a reasonable settlement offer is made. As a result, a defendant might reasonably refuse an unreasonable offer by a plaintiff. However, that fact will not shield a defendant from indemnity costs unless the defendant has itself made a reasonable offer of settlement (subject to the overriding requirement of the interests of justice). 20 Further, as explained in Zoef v Nationwide News Pty Ltd (No 2) [2017] NSWCA 2 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). 21 Further again, s 40(2) provides that if the provision is engaged, the court must make an indemnity costs order unless the interests of justice require otherwise. The fact that I would not make such an order but for s 40(2)(a) cannot be a reason why the interests of justice require otherwise. The purpose of s 40 is to expand the circumstances in which indemnity costs are to be ordered. Given the terms of s 40(2), it is for a defendant to demonstrate why the interests of justice require otherwise if the provision is satisfied. 22 The respondents made three offers to settle the proceeding. The first was on 2 November 2021, about five months after the filing of the proceeding. The offer was: (a) to pay Dr Colagrande $55,000 inclusive of costs, (b) to undertake to the Court not to publish any matter containing the pleaded imputations, and (c) to publish on Dr Colagrande's RateMDs profile a statement by the first respondent that: I have known Dr Ces Colagrande to close to 5 years and in my experience he is a skilled surgeon and highly respected. A review was posted on Rate MDs in relation to criminal charges brought against him. That review was misleading and was hurtful to Dr Colagrande. I am happy and relieved that Dr Colagrande was acquitted by the Queensland Court of Appeal in relation to those charges and I wish him and his family all the best. 23 On 2 March 2022, the respondents repeated this offer but: (a) the amount to be paid was increased to $75,000 inclusive of costs, and (b) the statement to be published on the RateMDs profile was to be made in Dr Kim's own name, and remain online for 14 days. 24 On 7 March 2022, two days before the hearing, the respondents made a further offer to pay: (a) $25,000 "for verdict and judgment for the applicant", and (b) $75,000 for Dr Colagrande's costs. There was no offer for an apology or statement on the RateMDs website. 25 I do not consider these offers to be "a reasonable offer at the time it was made". This is because of the following circumstances: (1) the proceeding was commenced on 21 June 2021; (2) the respondents served a notice to produce on 13 July 2021 which required production of, amongst other things, the documents disclosing the relevant IP address and as produced by Telstra in the preliminary discovery proceeding; (3) the documents were produced on 22 July 2021; (4) the defence was filed on 25 August 2021 including the denial of publication and the plea in mitigation; (5) between 7 and 15 October 2021 Dr Colagrande filed eight affidavits; (6) on 20 October 2021 Dr Colagrande filed the expert report of Dr Desmond; and (7) on 13 November 2021 Dr Colagrande filed his affidavit. 26 From this chronology, it must or reasonably ought to have been obvious to the respondents that the offer of $55,000 made on 2 November 2021 would barely meet Dr Colagrande's costs to that date (and the evidence establishes this to be so), and the offers of $75,000 and then $95,000 made on 2 and 7 March 2022 respectively would be unlikely to meet Dr Colagrande's costs to that date (which I infer to be the case). The effect of each offer would have been to pay only a portion of Dr Colagrande's costs and nothing for the vindication of his reputation and the harm done to him by reason of the False Review. 27 Further, it must have been obvious to the respondents after the service of Dr Desmond's expert report that their denial of responsibility for publication was doomed, yet they maintained the denial. 28 Further again, the offers did not include any acknowledgment of the respondents being responsible for the publication. Rather, the respondents once proposed that the first respondent place on Dr Colagrande's RateMDs profile a mealy-mouthed statement which, if anything, implicitly denied the first respondent's responsibility for the False Review and failed to acknowledge the way in which the False Review was misleading. In effect, the statement sought to enhance the first respondent's reputation while doing little to vindicate the reputation of Dr Colagrande. 29 Finally, the offer of 2 March 2022 provided that this statement would be removed from Dr Colagrande's RateMDs profile after 14 days which was a short amount of time compared to the period of publication of the False Review (December 2018 until September 2021). 30 For these reasons, the offers by the respondents did not represent a genuine attempt to settle the proceeding. The respondents must or reasonably should have known that Dr Colagrande's case against them almost certainly would succeed on liability and that Dr Colagrande was likely to have suffered substantial harm as a result of the False Review (a likelihood confirmed by his affidavit affirmed 11 November 2021 which was filed before the second offer). Consistent with the policy underlying s 40 of the Defamation Act (confirmed by ss 3(d), 13, 17 and 18), that litigation for defamation should be avoided by compromise if possible, the respondents ought to have made a settlement offer that was a reasonable offer at the time it was made, in the sense of being an offer that represented a genuine attempt to resolve Dr Colagrande's claims given their obvious strength. The respondents made no such offer. 31 Accordingly, s 40(2)(a) is satisfied – Dr Colagrande successfully brought defamation proceedings and is to be awarded costs in circumstances where the respondents unreasonably failed to make a settlement offer. It follows that indemnity costs of the proceeding must be awarded unless the interests of justice require otherwise. There is no foundation to conclude that the interests of justice require otherwise. This is sufficient to result in an indemnity costs order in Dr Colagrande's favour as he sought, irrespective of the reasonableness or unreasonableness of the offers to settle made by Dr Colagrande. 32 Dr Colagrande made two offers. The first was a formal offer of compromise made on 17 February 2022. The offer was for judgment for Dr Colagrande in the sum of $300,000 and the respondents to pay Dr Colagrande's costs on an indemnity basis. The respondents' submissions appear to misunderstand this offer as being conditional on the "without prejudice save as to costs" letter of offer made on the same date. This is incorrect. There were two separate offers made on 17 February 2022. 33 The first formal offer of compromise did not require any apology. It required the payment of $300,000 and indemnity costs. Given the terms of s 40(2)(a) of the Defamation Act, this was a genuine compromise of Dr Colagrande's claim. The respondents should have appreciated that Dr Colagrande had good prospects of obtaining a significantly larger award than $300,000 and indemnity costs under s 40(2)(a) if the respondents did not accept this offer. The respondents should have realised that Dr Colagrande's case against them for a substantial award of damages was strong. They unreasonably failed to do so given that all the evidence had been filed. The respondents' apparent position, that Dr Colagrande's offer was at or above the top of the likely range of damages, was unrealistic and unreasonable in terms of its evaluation of the extent of publication and the harm suffered by Dr Colagrande, and seems to have taken no account of the respondents' obvious responsibility for the False Review and the serious degree of malice involved in their conduct. 34 The second "without prejudice save as to costs" offer was for $275,000, indemnity costs, an apology posted on various online platforms (including the RateMDs website), and an agreed restraining order with respect to future publications. The respondents submitted that the apology could only be described as grovelling and was required to be published far more widely than the False Review, including on the first respondent's own website. In fact, the substance of the apology does no more than reflect the findings I made in the principal judgment. These findings themselves reflected the undisputed evidence. The apology proposed was: I Dr Mitchell Kim and my wife Anna Min hereby acknowledge that we have defamed Dr Ces Colagrande by publishing a fake review about him on the website www.ratemds.com in which I masqueraded as a female patient, falsely claiming that he had sexually assaulted me. I or my wife have never spoken to, met or been a patient of Ces Colagrande. I posted the fake review and hyperlinked a misleading news corp article with the intention of maliciously damaging Dr Colagrande's reputation in the marketplace in which we effectively compete. I unreservedly apologise to Dr Ces Colagrande and his family for my conduct. I understand it has caused significant damage and distress to him and his family. 35 Accordingly, I see no basis upon which to describe the proposed apology as unreasonable. The False Review had been published for a lengthy period. The circumstances described in the principal judgment expose the respondents' malicious intent. As a result, it was not unreasonable for the apology to be widely published. In any event, for an extra $25,000 ($275,000 compared to $300,000) the respondents could avoid an apology. 36 The respondents unreasonably failed to agree to these settlement offers. As a result, s 40(2)(a) of the Defamation Act also would be satisfied on this basis. Dr Colagrande's offers were genuine attempts at compromise. They involved a maximum amount at the low end of the range of likely damages for Dr Colagrande's non-economic loss in circumstances where there was no viable defence. The proposed indemnity costs reflected the likely operation of s 40(2)(a) of the Defamation Act. Dr Colagrande was not demanding everything to which he was entitled. He was not seeking that the respondents capitulate. I infer that the amounts in question, $300,000 and $275,000 respectively plus indemnity costs, were assessed to represent a commercial compromise with which Dr Colagrande could live, even though they would not give him full compensation for the harm done to him by the respondents. This conclusion also would be sufficient to result in an indemnity costs order in Dr Colagrande's favour as he sought. 37 For these reasons, it is unnecessary to consider the operation of the Federal Court Rules 2011 (Cth) or the principles applying to Calderbank offers. 38 It is also unnecessary for any order to be made reflecting the calculation of interest submitted by Dr Colagrande. Order 6 made on 21 April 2022 is self-executing. The respondents must pay pre-judgment interest calculated as specified. I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jagot. Associate: Dated: 7 June 2022