Federal Court of Australia Palmer v McGowan (No 6) [2022] FCA 927 File number: NSD 912 of 2020 Judgment of: LEE J Date of judgment: 11 August 2022 Catchwords: COSTS – appropriate award for costs – artificiality in assessing success of claim by reference to only economic considerations – need to assess whether, as a matter of substance, one state of affairs (that provided for by the judgment) is more favourable than another state of affairs (that provided for by the offer) – ultimate question is what is a just cost order in all the circumstances – costs awarded but not on an indemnity basis Legislation: Federal Court of Australia Act 1976 (Cth) ss 37M(3), 37N(1), 37N(4) Federal Court Rules 2011 (Cth) rr 25, 40.08 Defamation Act 2005 (NSW) Defamation Act 2005 (WA) s 40 Cases cited: Calderbank v Calderbank [1976] Fam 93 Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56; (2007) 234 CLR 52 Murphy v Nationwide News Pty Ltd (No 2) [2021] FCA 432 Oliver v Nine Network Australia Pty Ltd [2019] FCA 583 Palmer v McGowan (No 5) [2022] FCA 893 Stead v Fairfax Media Publications Pty Ltd (No 2) [2021] FCA 65; (2021) 386 ALR 237 Division: General Division Registry: New South Wales National Practice Area: Other Federal Jurisdiction Number of paragraphs: 43 Date of hearing: 11 August 2022 Counsel for the Applicant / Cross-Respondent: Mr B Dean Solicitor for the Applicant / Cross-Respondent: Sophocles Lawyers Counsel for the Respondent / Cross-Claimant: Mr B W Walker SC Solicitor for the Respondent / Cross-Claimant: Clayton Utz Table of Corrections: 30 August 2022 Order 2–4 amended to read correctly 'cross-claimant' ORDERS NSD 912 of 2020 BETWEEN: CLIVE FREDERICK PALMER Applicant AND: MARK MCGOWAN Respondent AND BETWEEN: MARK MCGOWAN Cross-Claimant AND: CLIVE FREDERICK PALMER Cross-Respondent order made by: LEE J DATE OF ORDER: 11 AUGUST 2022 THE COURT ORDERS THAT: 1. The cross-respondent pay the cross-claimant's costs of the Cross-Claim from 11am on 22 December 2021 and otherwise, there be no order as to costs. 2. The order for costs in favour of the cross-claimant be awarded in a lump sum pursuant to r 40.02(b) of the Federal Court Rules 2011 (Cth). 3. In the absence of any agreement between the parties as to the quantum of costs payable, the Registrar is directed to determine the quantum of the cross-claimant's costs in such a manner as the Registrar deems fit including, if thought appropriate, on the papers. 4. At the conclusion of the process provided for by these orders, the Registrar is to make orders about the payment of the cross-claimant's costs in the sum or sums determined, to be payable within 14 days of such orders. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT (Delivered ex tempore) LEE J: A INTRODUCTION 1 Having heard from the parties today, it is possible to make orders as to costs immediately. 2 The principled approach to determining costs is well known: the discretion is broad, but must be exercised judicially, in accordance with established principle, and by reference to factors directly connected with the proceeding. 3 Only three matters of law need be mentioned. 4 First, it has often been remarked that the discretion is "unfettered", but in exercising the discretion to award costs, s 37N(4) of the Federal Court of Australia Act 1976 (Cth) (Act) now requires the Court to take account of any failure by a party to comply with the overarching purpose of the civil procedure provisions, namely to facilitate the just resolution of disputes according to law as quickly, inexpensively and efficiently as possible. 5 Secondly, although there are no absolute rules, generally the "discretion is exercised in favour of the successful party": Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56; (2007) 234 CLR 52 (at 62–63 [25] per Gleeson CJ, Gummow, Hayne and Crennan JJ). 6 Thirdly, as I explained in Oliver v Nine Network Australia Pty Ltd [2019] FCA 583 (at [131]), the increased appreciation of the Federal Court as a court of general federal jurisdiction has led to a growth of the defamation aspect of the Court's work. The nature of defamation proceedings is as various as the publication of defamatory matters that lead to a controversy arising: at one end of the continuum of cases, a dispute might involve consideration of the triviality defence; at the other end of the continuum, there may be a mass media allegation of conduct ranking high in the calendar of human depravity. And there will be very many cases between these two extremes. But this Court is a superior court of record. To guard against proceedings being brought in this Court that ought more properly to have been brought elsewhere, r 40.08 of the Federal Court Rules 2011 (Cth) (FCR) provides that a party may apply for an order reducing costs otherwise payable if, relevantly, damages are less than $100,000. In Oliver (at [132]–[134]), I attempted to draw general attention to the potential consequences of FCR 40.08 and noted it ought to be borne in mind by those acting for applicants in determining whether a proposed defamation action (which if successful, is unlikely to attract compensatory damages of substance) should be commenced in the Federal Court, rather than another court of limited monetary jurisdiction. This is not to say that the anticipated quantum of damages is the sole consideration in assessing whether the proceeding should be commenced in this Court, but it is a relevant one. 7 The evidentiary matter of significance, which emerged following judgment, is that an offer of compromise was made by Mr McGowan to Mr Palmer on 20 December 2021 (Offer). If accepted, the Offer would have resulted in each party walking away from the proceedings; each claim would have been dismissed, with no order as to costs. The Offer was open until 25 January 2022. B THE CONTENDING POSITIONS 8 Mr Palmer contends that there should be no further order as to costs, "save that [Mr] McGowan should be ordered to pay half of the costs payable by [Mr] Palmer to the State of Western Australia". Mr McGowan seeks orders that Mr Palmer pay his costs generally (or alternatively, the costs of the Cross-Claim) from the date of the Offer on an indemnity basis. B.1 Mr Palmer's Submissions 9 Mr Palmer makes several general and related points. 10 First, and most importantly, there were only two possible means of vindicating Mr Palmer's reputation: either extracting an apology from Mr McGowan (which was unlikely) or, alternatively, pursuing the matter and obtaining a judgment for more than nominal damages. In the end, Mr Palmer obtained a better result than if he had accepted the Offer. He secured a judgment in defamation, for more than nominal damages, carrying with it the public recognition by the Court that the publications were both defamatory and indefensible. In all the circumstances, it was reasonable to reject the Offer. 11 Secondly, Mr Palmer litigated only after sending successive concerns notices (unlike Mr McGowan), and Mr McGowan litigated only because it would enable him to hedge against the prospect that Mr Palmer might have success on his statement of claim. 12 Thirdly, both parties having recovered more than nominal damages, the prima facie position is that each should be entitled to their costs; but given each party obtained judgment in their favour, these competing entitlements effectively cancel each other out. 13 Fourthly, the conduct of the litigation by Mr McGowan added to the time and cost of the proceedings (this conduct was said to relate to discovery deficiencies, applications as to the mode of giving evidence, the recalling of Mr Quigley, and the unavailability of Mr McGowan's counsel). B.2 Mr McGowan's Submissions 14 Unsurprisingly, Mr McGowan primarily relies upon the rejection of the Offer. Put in simple terms, Mr McGowan behaved reasonably; he was prepared to walk away from the litigation. Costs continued to be incurred only because Mr Palmer was obdurate. Mr McGowan submits that Mr Palmer is worse off than he would have been had he accepted the Offer. The net effect of the final orders is that Mr Palmer must pay $15,000 to Mr McGowan. 15 Additionally, to conclude that it was unreasonable for Mr Palmer to reject the Offer does not require hindsight. Mr Palmer should have known that the Court was likely to find that any harm he had suffered by reason of the imputations was "very minor" such that his damages should also be "very minor". 16 At the very least, it is contended an order should be made that Mr Palmer pay Mr McGowan's costs of the Cross-Claim from the date of the Offer, 20 December 2021, with such costs to be assessed on an indemnity basis. C CONSIDERATION AND CONCLUSION 17 In the primary judgment (Palmer v McGowan (No 5) [2022] FCA 893), I made two findings relevant to the motivations of Mr McGowan in commencing the Cross-Claim: at [144], I observed that it "was Mr Palmer who commenced the litigation and the Cross-Claim was, in substance, 'defensive'"; and at [483], in dealing with the extent of Mr McGowan's reaction to the publication, I noted that it was of "significance that Mr McGowan took no steps prior to the institution of this proceeding, unlike Mr Palmer, to raise any issue with the publications upon which he now sues." 18 Although I considered the Cross-Claim to be a suboptimal use of the limited resources of the Court, it was, after all, Mr Palmer who first engaged the Court's processes. It would be incorrect to equate the Cross-Claim with Mr McGowan unilaterally taking action in this Court as an applicant. I am amply satisfied that, unless Mr Palmer sued, Mr McGowan would not have sued. In circumstances where Mr McGowan was already dragged into Court and was already required to expend legal costs, the commencement of the Cross-Claim in relation to plainly defamatory publications cannot be stigmatised as being unreasonable. 19 My preliminary views in this regard have now been fortified by discovering, for the first time, that an offer of compromise was made. The notion that Mr Palmer and Mr McGowan are equally responsible for these proceedings having consumed significant private and public resources cannot be reconciled with the objective facts. This asymmetry of responsibility is of significance in fastening upon an appropriate order. 20 Given the nature of the mutual dealings as discussed in the primary judgment, like the response to the feud between the houses of Montagues and Capulets, some might consider there is merit in saying a "plague on both your houses", and making no order as to costs. But this result would not reflect the reality that it was Mr Palmer who first picked up the cudgels and, even more importantly, would give insufficient weight to their differing approaches to resolving the dispute. Both men went too far in their political jousting, and both men litigated, but only one was willing to draw back and avoid a long and costly hearing. 21 Stripped of presently irrelevant complication, FCR 25 provides that if an offer is made by someone making a claim and it is unreasonably rejected, and a judgment is obtained in terms better than the offer, then indemnity costs follow; similarly, if someone defending a claim makes an offer and it is unreasonably rejected, and the result was more favourable to the person making the offer than the terms of the offer, indemnity costs follow. 22 The Offer was also framed as a form of "without prejudice" offer, known as a Calderbank offer. The rejection of such a proposal can also lead to an award of indemnity costs if the offer is bettered by the result ultimately obtained by the offeror: see Calderbank v Calderbank [1976] Fam 93. 23 It can be seen immediately that having obtained judgment in the sum of $20,000, Mr McGowan secured a more favourable outcome on his Cross-Claim than discontinuance with no order as costs as provided for in the Offer. 24 The position in relation to Mr Palmer's claim is more nuanced and demonstrates the unusual nature of these two claims in defamation compared to, say, competing claims in a commercial case. 25 As I explained in Stead v Fairfax Media Publications Pty Ltd (No 2) [2021] FCA 65; (2021) 386 ALR 237 (at 243 [26]), even in a simple case, where there is only one claim, the necessary evaluative assessment is whether, as a matter of substance, one state of affairs (that provided for by the judgment) is more favourable than another state of affairs (the relevant offer). 26 Mr McGowan says at the end of the day Mr Palmer is $15,000 behind scratch. Further, vast costs were expended between the date of the Offer and the entry of judgment. In effect, Mr McGowan submits: how is Mr Palmer to be perceived as being better off, when all Mr Palmer got on his claim was chump change? 27 But it cannot be ignored that by the entry of judgment, Mr Palmer secured curial recognition of the fact he had been defamed, and that no defence was available to Mr McGowan. As Mr Dean put forcefully, this is no small thing. Further, the judgment on his claim, although very minor, was not an award of nominal damages. It follows that insofar as the Offer relates to the Primary Proceeding alone, I do not consider Mr McGowan obtained a more favourable outcome than he had offered as a matter of substance. 28 As oral submissions progressed, the determinative question was framed by Mr Palmer as being whether the action of Mr Palmer in rejecting the Offer was reasonable. 29 Framing the question in this way is understandable because of the focus on the assessment of reasonableness in rejecting offers of compromise and Calderbank offers. But, in the particular circumstances of this case, this is too narrow a focus. I do not intend to decide the issue of costs by reference to any rigid application of FCR 25. In a commercial case, even if there have been competing claims, only one will succeed, or it will at least be possible to identify the overall economic consequence of the final outcome. But defamation is not all about economics. On any view, and for a variety of reasons, this was a singular case. A broad brush approach not only suffices, but is well suited to the present circumstances. The ultimate aim is to identify a just outcome in all the circumstances. 30 Although it is an overstatement to characterise the Offer as being made "on the eve of the trial", it was only made after Mr Palmer had paid significant amounts to his solicitors and barristers. If accepted, it also would have resulted in Mr Palmer being out of pocket for the reimbursement of costs incurred by the State of Western Australia for third-party discovery. But despite this, when the Offer was eventually made, it was still prior to the intensive preparation that would have occurred early this year. Moreover, when the Offer eventually came, it was sensible and, if acted upon, would have saved a great deal of time, money and effort. 31 All parties must conduct negotiations for settlement in a way that is consistent with the overarching purpose: see s 37N(1) of the Act. Mr Palmer may not be unduly troubled about spending his money on litigation, but he had an obligation to facilitate the just resolution of the dispute according to law, and as quickly, inexpensively and efficiently as possible. The interests at stake go beyond the individual parties and extend to the responsible use of the Court system generally. The cost of the litigation was disproportionate to any benefit it was likely to produce, and this should have been evident in December last year. Failing even to respond to, or engage with, the Offer is not a pointer to reasonableness. 32 In this last respect it is notable that Mr Dean conceded (correctly in my view) that it would have been unreasonable for Mr Palmer to have rejected the Offer if it had provided for the entry of a judgment in favour of Mr Palmer but without the payment of damages. But despite this, no offer of compromise was made by Mr Palmer in these terms when it became apparent that the matter was headed for a final hearing. To respond that this course was not adopted because Mr McGowan would never have agreed to a judgment is not a sufficient answer. Even assuming this assessment was correct, such a counter-offer would have marked out the essential difference between the parties, and served to assist Mr Palmer in contending that he had not been unreasonable about the ongoing conduct of the litigation. 33 The Offer did not recognise that Mr Palmer had been defamed and, taken in isolation, it may be argued that rejecting its precise terms could not be classified as "unreasonable" (as that expression has been understood in the authorities as to costs). But the broader approach of Mr Palmer ploughing on with this litigation and not even making a counter-offer lacked reasonableness. When all matters are taken into account, including the glaring disproportion between the costs and the judgment sum, the failure to engage with the Offer did not serve to best facilitate the optimal use of the resources of the Court and the parties. 34 But in the end, Mr McGowan also defamed Mr Palmer, and despite the Offer, he should not get his costs of the Primary Proceeding. Although I do not propose to make any award in favour of Mr Palmer, having regard to all of the circumstances, it would be wrong to make an award in favour of the party against whom judgment was obtained, albeit a very modest one. Accordingly, Mr Palmer should pay Mr McGowan's costs of the Cross-Claim. 35 On balance, however, I do not think the costs should be awarded on an indemnity basis. Mainly because of the mixed ultimate result, but also because Mr McGowan increased costs by running a number of points that were not exactly dripping in merit, including a common law and statutory qualified privilege defence that could not succeed. The order for costs I have identified best reflects the overall just result in these unusual circumstances and also is an exercise of discretion that best promotes the overarching purpose: see s 37M(3) of the Act. 36 I should make seven further brief points. 37 First, the order should run from 11am on 22 December 2021, not, as Mr McGowan submitted, from the date of the Offer. Although I am not applying FCR 25 mechanically, the terms of the Offer incorporated the admonition that, if it was rejected, any proposed cost consequences would start running from 11am on the second business day after the Offer was served. This is the way it was presented, and there is no reason why this should not be the case. 38 Secondly, although I accept Mr Palmer's submission that Mr McGowan only litigated because it would enable him to hedge against the prospect that Mr Palmer might have success on his statement of claim, this merely reflects the fact that he was a reluctant litigant. 39 Thirdly, although there were initial discovery problems, an unsuccessful application to give evidence remotely, the recalling of Mr Quigley, and various issues as to the unavailability of counsel, these factors do not loom large in the exercise of my discretion. To the extent they have any impact it merely fortifies my view that the order should be on a party/party basis. 40 Fourthly, although no application is made under FCR 40.08, for completeness, given the Cross-Claim was defensive, it is explicable that it was commenced in the Federal Court rather than an inferior court, notwithstanding the modest quantum of damages awarded. 41 Fifthly, reference was made in the submissions of Mr McGowan to s 40 of the Defamation Act 2005 (WA). Speaking generally, this section (and, as presently applicable, the New South Wales equivalent) provides that unless the interests of justice require otherwise, if defamation proceedings are successfully brought by one party and that party obtain costs, those costs are to be awarded on an indemnity basis if the court is satisfied that the other party unreasonably failed to make a settlement offer or agree to a proposed settlement offer. I noted the complication as to whether this provision is "picked up" in federal jurisdiction most recently in Murphy v Nationwide News Pty Ltd (No 2) [2021] FCA 432 (at [6]). I would simply note that my exercise of discretion would have been the same, irrespective of whether this provision was applicable. 42 Sixthly, although Mr Palmer contends he should be relieved of his obligation to pay the reasonable costs of the State in complying with the third-party discovery orders, I do not agree. The discovery was sought by Mr Palmer and was perceived by him to be to his benefit. Counsel did not point to any document produced on discovery by the State (rather than Mr McGowan or pursuant to a subpoena) that was material to the disposition of the case. It does not matter, but to the extent I have an impression, most of the State discovery seemed to be directed to the misconceived substantial truth case. It is fair that Mr Palmer should bear those costs, along with his own costs of the Primary Proceeding. 43 Seventhly, although I am probably whistling in the wind, I will again make the point that Calderbank v Calderbank is in the authorised reports ([1976] Fam 93) and this citation should be used rather than one from a commercially produced report ([1975] 3 All ER 333). This is the approach required by the Lists of Authorities and Citations Practice Note (GPN-AUTH) at any final hearing when authorities are referred to in submissions in this Court: see [2.5]. For reasons I explained in Murphy (No 2) (at [10]–[11]), this is not mere pedantry. I certify that the preceding forty-three (43) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Lee. Associate: Dated: 11 August 2022