District Court New South Wales Medium Neutral Citation: Aaren Pty Ltd trading as Price Beat Travel v Arya (No. 2) [2020] NSWDC 705 Hearing dates: On the papers Date of orders: 16 November 2020 Decision date: 16 November 2020 Jurisdiction: Civil Before: Abadee DCJ Decision: See paragraphs 52-53 Catchwords: COSTS – defamation suit – verdict and judgment for defendant – application by defendant for indemnity costs – application of s 40(2) of the Defamation Act 2005 (NSW) – whether successful defendant's offer to settle was unreasonable – whether unsuccessful plaintiff's rejection of offer to settle was unreasonable – time from which costs to be awarded on an indemnity basis – consideration of 'interests of justice' STATUTORY INTERPRETATION – ss 40(2) and 40(3) of Defamation Act 2005 (NSW) – whether provisions may be construed distributively to deal with different types of settlement offers – whether words may be read down Legislation Cited: Civil Procedure Act 2005 (NSW), s 98 Defamation Act 2005 (NSW), ss 9, 40 Uniform Civil Procedure Rules 2005 (NSW), rr 20.26, 42.1, 42.21 Cases Cited: Aaren Pty Ltd trading as Price Beat Travel v Ariya [2020] NSWDC 657 Born Brands Pty Ltd v Nine Network Australia (2014) 88 NSWLR 421; [2014] NSWCA 369 Chahwan v Euphoric Pty Ltd t/as Clay and Michel (2008) 227 FLR 43 Haddon v Forsyth (No. 2) [2011] NSWSC 693 Hafertepen v Network Ten Pty Ltd [2020] FCA 1456 Hyndes v Nationwide News Pty Ltd [2012] NSWCA 349 R v Young (1999) 46 NSWLR 681 Category: Costs Parties: Aaren Pty Ltd trading as Price Beat Travel (Plaintiff) Ms P Arya (Defendant) Representation: Counsel: Mr C Dibb for the plaintiff Ms S Chrysanthou SC and Mr N Olson for the defendant Solicitors: Redline Legal for the plaintiff Gill Lawyers for the defendant File Number(s): 2019/67916 Publication restriction: Nil Judgment INTRODUCTION 1. In this defamation proceeding, on 2 November 2020, I ordered that there be Verdict and Judgment for the defendant with the plaintiff to pay costs as agreed of assessed. 2. A central finding underscoring that verdict was that the Court was not persuaded that the plaintiff had the capacity to sue for defamation, in the sense of employing less than 10 persons; although the claim would also have failed on the basis that the defendant had made out defences of common law qualified privilege and honest opinion (itself founded on the opinion being based on an occasion of common law privilege). 3. The defendant now seeks a variation of that costs order. She invokes s 40(2) of the Defamation Act 2005 (NSW) which provides: "Without limiting subsection (1), a court must (unless the interests of justice require otherwise)— … (b) if defamation proceedings are unsuccessfully brought by a plaintiff and costs in the proceedings are to be awarded to the defendant--order costs of and incidental to the proceedings to be assessed on an indemnity basis if the court is satisfied that the plaintiff unreasonably failed to accept a settlement offer made by the defendant. (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." 1. Where this provision is engaged, it has been said that the defendant will be entitled to the whole of her costs of the proceeding; not just those incurred after the settlement offer was made [1] . In this case, the proceeding was commenced on 1 March 2019. The defendant seeks an order that (a) all of her costs of and incidental to the proceeding are paid on an indemnity basis; or (b) only those costs from 21 May 2020 be – the day after the defendant served a settlement offer – payable on an indemnity basis. 2. The defendant also seeks the release of monies paid by the plaintiff into the Court as security for the defendant's costs to be released to it. 3. These reasons assume familiarity with the reasons for those orders [2] . THE FACTS 1. As indicated in My Earlier Reasons, the Court found that the post on the Facebook page on 2 (or 3) July 2018 was defamatory. On 20 July 2018, lawyers for the plaintiff sent (by email) a 'Concerns Notice' to the plaintiff which relevantly asserted that the post was defamatory and foreshadowed legal action, but indicated that it would not proceed with such action if the defendant was prepared to make a public apology, in the form of an open letter addressed to the plaintiff, made on all Facebook pages on which the posts about the plaintiff were posted and a retraction. The apology that was demanded was in the following terms: "Apology by Preeti Arya (aka Reet Walia on Facebook) to Price Beat Travel On 2 and 3 July this year, I posted statements on Facebook in which I made serious and unfounded allegations against Price Beat Travel in connection with my travel back to India with my daughter. I withdraw those allegations unconditionally and accept that they were completely false. I apologise to Price Beat Travel for the hurt and embarrassment my false allegations must have caused." 1. The defendant did not reply to this notice. 2. On 1 March 2019, the plaintiff commenced the proceeding. 3. On 15 May 2019, the former solicitors for the defendant sent a letter to the plaintiff's solicitor. In that letter, the defendant's then solicitors drew attention to the message on the plaintiff's website indicating that the plaintiff had over 40 staff members, based in Sydney, Melbourne and India. The letter also effectively requested further particulars of how many full-time and part-time employees it had with supporting documentation; and reminded the plaintiff's solicitor that in lieu of the voluntary provision of such documentation, they would likely be subject to a request for discovery. Further particulars were also requested relating to the damage claimed. 4. On 22 July 2019, the solicitors for the plaintiff (relevantly) 'confirmed' that the plaintiff was an 'excluded corporation', for the purposes of s 9 of the Defamation Act, after having 'clarified' the plaintiff's instructions, which were to the effect that there were 'five employees in total' and that the plaintiff only had one office, in Sydney. The letter did not provide the supportive documentation that the former solicitors for the defendant had requested in their letter of 15 May 2019. 5. On 6 August 2019, the plaintiff's solicitors served an offer of compromise, purporting to comply with rule 20.26 of the Uniform Civil Procedure Rules 2005 (NSW) ('UCPR'), relating to the whole of the plaintiff's claim. The term was that there be a monetary judgment for the plaintiff of $15,000. The offer was open for acceptance until 4:00pm on 6 September 2019. 6. The defendant relies upon without prejudice correspondence (expressed to be 'save as to costs') between the defendant's solicitors and the plaintiff's solicitors on 13 & 20 August 2019. In the letter of 13 August 2019, amongst other things, the defendant's solicitor conveyed his concerns to the plaintiff, based upon what it said to be his 'preliminary investigations', which was that the plaintiff may not be able to satisfy the Court that it had capacity to sue. Specifically, reference was made to the defendant receiving the services of 'workers', purportedly for the benefit of the plaintiff, from the plaintiff's office in Melbourne. I interpolate, at this point, that My Earlier Reasons focussed upon the status of workers for the plaintiff located in India; and not Melbourne. It is fair to note, however, that a range of other matters were pointed out in the letter; which was made with the objective of inviting the plaintiff to offer a compromise, within 7 days. The letter also alluded to the plaintiff having sent a letter of compromise one week before, on 6 August 2019. That letter of compromise was not in evidence before the Court. 7. By its letter of 20 August 2019, the defendant's solicitor, relevantly, again suggested certain matters which might cast doubt upon whether the plaintiff could prove that it was an excluded corporation. This included a reference to what was contained on the plaintiff's website being that it had 'more than 40 staff individuals situated in Sydney, Melbourne and India'. 8. On 3 October 2019, the defendant obtained an order for security for costs made by Levy SC DCJ. The defendant's solicitor, Mr Gill, deposed that this application was partly brought on the basis of a contention that the plaintiff had low prospects of success because it was unlikely to be able to establish that it was an excluded corporation. That evidence has not been contradicted by the plaintiff's solicitor, Mr Singh, in his affidavit in response. The plaintiff was ordered to pay the costs of the application for security forthwith. 9. The defendant filed its Defence on 20 December 2019. 10. On 20 May 2020, the defendant served an offer of compromise to settle the proceeding. The material part of it was as follows: 1. Our client will offer an apology which states that: "Apology by Preeti Arya to Price Beat Travel On 2 and 3 July 2018, I posted statements on Facebook in which I made allegations against Price Beat Travel in connection with my travel back to India with my daughter. I withdraw those allegations unconditionally. I apologise to Price Beat for the damage this incident has caused to it." 2. The matter be discontinued 3. Each party pay their own costs 4. All previous orders vacated 5. Our client released (sic) by the plaintiff (include directors and employees) of any liability connected to the publication." 1. The offer was expressed to be open for 7 days. 2. It will be noted that the terms of the apology offered on 20 May 2020, although similar to the terms of the apology demanded by the plaintiff in its solicitor's email of 20 July 2018, had some differences: the apology that it offered in May 2020 (a) omitted acceptance that the allegations were 'completely false'; and (b) was directed to for 'damage this incident caused to it', whereas what the plaintiff demanded was an apology for 'the hurt and embarrassment my false allegations must have caused.' 3. Mr Gill, the defendant's solicitor, deposes that at the date that the settlement offer was made (20 May 2020), the plaintiff had not paid the defendant her costs of the application for security. 4. On 27 May 2020, at around 3:10pm, the plaintiff's solicitor, Mr Singh, received an email from the Supreme Court which attached a certificate of costs determination relating to the defendant's costs of its successful application for security, which had been ordered by Levy SC DCJ on 3 October 2019. Mr Singh deposed that this was the first time he was made aware of the amount of the assessed costs relating to that application. Mr Singh's affidavit did not disclose the amount of the defendant's costs that were assessed in connection with its successful application for security. 5. The defendant's offer of compromise was not responded to within the period stipulated for its acceptance, but the next day, being 28 May 2020, the plaintiff's solicitor sent a Calderbank offer. It is pertinent to note that the plaintiff was prepared to accept the form of the apology offered by the defendant in its 20 May 2020 offer – the plaintiff had shifted its position on the content of the apology first articulated in its 'Concerns Notice' of 28 July 2018. 6. It is also pertinent to note that what separated the parties was that instead of the proceeding being discontinued with no order as to costs, the plaintiff proposed that the defendant pay the sum of $2,000 for damages and the plaintiff's costs in the fixed sum of $15,000. That offer was open for acceptance until 4:00pm on 28 June 2020. No response was received by the defendant to the defendant's counter-offer of 28 May 2020. Parties' submissions The defendant's submissions 1. Counsel for the defendant cited the following circumstances to suggest that the plaintiff acted unreasonably in failing to accept its offer of 20 May 2020: 1. the offer was more favourable to the plaintiff then the substantive result that it obtained (a verdict for the defendant with an order that the plaintiff pay the defendant's costs). In this regard: 1. in the absence of any power that the Court had to mandate an apology, the defendant, as offeror, was offering a real benefit to the plaintiff which it could not have obtained in any other way, which would assist with the rehabilitation or restoration of its reputation and social standing lost through the publication of the defamatory publication [3] ; 2. the offer also yielded a substantial monetary benefit to the plaintiff by virtue of the defendant relinquishing the defendant's accrued liability to pay costs quantified at a sum of $17,782.05, 1. a principal basis for the plaintiff's failure was its failure to prove its capacity to sue; and this issue had been identified by the defendant and specifically raised for the plaintiff's consideration prior to the point when the settlement offer was made; and 2. there is no indication that the plaintiff had engaged with that concern by further correspondence. 1. In such circumstances, it was submitted that the plaintiff's failure to accept the offer was unreasonable. The plaintiff's submissions 1. In response, the plaintiff pointed to the following factors: 1. the plaintiff did not know until the last day that the offer was open what value there was to the defendant's costs order associated with the security application; 2. the 20 May 2020 offer was only open for 7 days, well before the matter was set down for trial, so there was no urgency in leaving the offer open for such a short period of time (7 days); 3. the defendant ignored the plaintiff's attempt to settle the matter through the Offer of Amends procedure and it was only after the plaintiff had incurred significant costs that it made its offer; 4. although it was on notice that s 9 was in issue, it understood (based upon the authority of Born Brands Pty Ltd v Nine Network Australia [4] ) that it only had 5 persons working for it; 5. the plaintiff had been seriously defamed and persisted in asserting the truth in what she posted and the owner of the plaintiff's business was justifiably hurt by what was said; 6. it was not unreasonable for the plaintiff to take the view that the ultimately successful defences of common law qualified privilege and honest opinion would not succeed; 7. the plaintiff had a proper basis for believing it was entitled to take its case to trial; 8. the defendant had offered the plaintiff substantially the same apology the plaintiff had requested in its Concerns Notice of 28 July 2018. It was therefore not unreasonable for the plaintiff to form the view (from 20 May to 27 May 2020) that it would be entitled to a small damages award and contribution to its costs and, on that basis, it made its counter-offer on 28 May 2020; and 9. since the terms of s 40 of the Defamation Act are even more onerous than the ordinary costs consequences, the Court should be 'slower to accept' that rejection of the 20 May 2020 offer was unreasonable. CONSIDERATION 1. Both s 40(2)(a) and (b) of the Defamation Act are predicated upon the circumstance that costs are to be awarded to a party. In Hyndes v Nationwide News Pty Ltd [2012] NSWCA 349, Basten JA (with whom McColl JA and Tobias AJA agreed) observed that there is nothing in s 40 which precludes, either expressly or by implication, the continued operation of provisions conferring that basic entitlement. In this way, s 98 of the Civil Procedure Act 2005 (NSW) and the ordinary rule (r 42.1 of the UCPR) that costs follow the event, remain engaged in the costs outcomes arising from contested defamation proceedings. Plainly, here, the defendant is entitled to an award for its costs. His Honour also found that the other general provisions for offers of compromise under Court rules and principles relating to Calderbank offers also remain potentially applicable (at [55]-[56]). 2. To obtain the benefit of s 40(2), the defendant must establish that (a) the offer was reasonable at the time that it was made and (b) that it was unreasonably rejected by the plaintiff: Hyndes at [58]. In practice, the relevant considerations applicable to each of these matters overlap. If the Court finds that the defendant's settlement offer was unreasonably rejected, then subject to the interests of justice, under s 40(2)(b), the Court "must" make the order for indemnity costs. Was the offer reasonable at the time it was made? 1. First, I find that the defendant's offer of 20 May 2020 was a genuine offer of settlement. It was not merely a 'walk away' offer. The offer substantially contained two parts. First, it provided an apology that the plaintiff could not get from Court order. Contrary to what the plaintiff submits, the apology which was the subject of the 20 May 2020 offer was not substantially the same as that which the plaintiff had requested in its 'Concerns Notice' for the reasons outlined at paragraph 19, above. The earlier apology sought from the defendant required the defendant to acknowledge hurt and embarrassment to a corporation, which was a non- sequitur. The content of the apology contained in the 20 May 2020 settlement offer also featured a withdrawal of the allegations in the post and apologised (to a corporation) for damage that, presumptively, the post had caused (to the corporation). The apology in the 20 May 2020 settlement offer was substantially the same as the form of apology which was the subject of the plaintiff's counter-offer made on 28 May 2020. If one was to isolate the content of the apology, the plaintiff had shifted its position from its Concerns Notice to accepting the defendant's version of the apology. 2. The second aspect of the 20 May 2020 offer was that the defendant effectively offered to forego its costs order of its security application. In this regard, whilst I accept Mr Singh's evidence that he did not know of the quantification of the costs associated with the security application, I do not accept that he would not have recognised that the extant costs order relating to the security application was likely to have not insubstantial value to the defendant. I infer that he would have had an appreciation as to the plaintiff's own costs associated with the security application. He did not give any indication in his affidavit in response that the costs determination made in the defendant's favour was in any way disproportionate to the plaintiff's estimate of its own costs, such as to take the plaintiff completely by surprise. 3. Another related point concerns the circumstances in which the Court had granted security for costs against the plaintiff. Although the reasons of Levy SC DCJ for the grant of security were not in evidence on this application, the plaintiff does not dispute that the defendant contended that the plaintiff's prospects of success were low on account of the s 9 issue. The prospect of success for a claim is one of a number of relevant considerations to the discretionary power to grant security [5] . But if the plaintiff was not already on notice as to its potentially dispositive nature of s 9 from correspondence it had received on the defendant's behalf in August 2019, I infer that it would have been from September 2019 when the application for security was filed and then prosecuted. At any rate, the ball was well and truly in the plaintiff's court to obtain all necessary evidence to sustain its contention that it had the capacity to sue by the time the offer of settlement was served on 20 May 2020. 4. In these circumstances, I do not consider that the period for acceptance of 7 days was unreasonably short in the circumstances, or otherwise prejudicial to the plaintiff and although a submission was made that the period was unreasonably short, that was not based upon anything beyond uncertainty as to the quantum of the costs for the security – not on the completeness of the evidentiary picture (or the plaintiff's ability to obtain the evidence it needed) for the purpose of the hearing of the substantive dispute, or on any real inability to evaluate the defendant's offer in that period. 5. Secondly, the defendant plainly obtained a better result than the terms that were offered to the plaintiff. 6. I find that the offer was reasonable at the time that it was made. Was it unreasonable to reject the offer? 1. I have already addressed point (a) and point (h) (to the extent that it raises a question of timing) from the plaintiff's submissions in paragraph 26, above. 2. Point (b) is of little substance and, to some degree, is in tension with the complaint that the defendant had timed its offer in a way that allowed the plaintiff to run up its own costs. Court rules generally, and s 40 in particular, plainly encourage the parties to try to solve their differences prior to trial and, in effect, to have the possibility of settlement, in preference to the continued pursuit of a judicial adjudication, in the forefront of their considerations. The offer upon which the defendant relies was not served on the eve of the hearing, but was served 5 months before its commencement. There was no unreasonable delay in serving it. 3. Point (c) is, firstly, an inaccurate characterisation of the defendant's conduct. In particular, the defendant raised requisitions (including for supportive documentation) of the plaintiff's contention that it was an 'excluded corporation' from as early as May 2019, and the plaintiff's substantial response to that matter was simply to reiterate, by way of bare assertion, the plaintiff's position. Failing any convincing demonstration by evidence that it had the capacity to sue, the defendant was entitled to take the view that it could succeed even if its specific defences were unsuccessful. As to the second part of the plaintiff's point, if there is any unfairness in the plaintiff incurring a liability for indemnity costs whilst it has accrued its own costs, that is always a potential risk of failing to accept reasonable offers of compromise in civil proceedings generally and is heightened in defamation suits by s 40. Further, the unfairness might partially be alleviated by the timing of when an order for indemnity costs should run from; a matter I refer to below. 4. Point (d) is superficially of greater force. As noted in My Earlier Reasons (at [40]-[45]), the ambit of s 9 was, with respect, left in a somewhat unsettled state following the Court of Appeal's decision in Born Brands. But I do not consider that this was a factor which would justify rejection of the settlement offer. To the contrary, any uncertainty as to the proper construction of s 9 should have given the plaintiff serious pause to consider whether it should accept the benefit of the apology that was offered to it on 20 May 2020; which would plainly be much more beneficial to its reputation than continuing the pursuit of litigation in respect to which it might lose simply on the issue of its capacity to sue. In this regard, as early as May 2019, the defendant specifically drew to the plaintiff's attention the content of its own website, which publicly broadcasted – for its marketing purposes – that it had over 40 staff members in different locations (including India). This was important evidence which I partly relied upon in forming my opinion on the question of capacity ([65] of My Earlier Reasons). Despite that indication, the plaintiff persisted and its solicitor reiterated his client's 'instructions' without grasping the implications of that evidence. 5. Even at the hearing, the Court formed the impression that the plaintiff was scrambling in its efforts to prove its capacity to sue, evidenced partly through the extremely belated tender of the agency agreement with the consulting agency (virtually at the point of close of the plaintiff's case) and its multiple failed efforts to persuade the Court to allow Mr Sharma to give lay opinion evidence or express conclusions as to how many employees the plaintiff had, either inside the jurisdiction or offshore. These matters indicate that, at least from an early point in the litigation, the plaintiff struggled to come to grips with what ultimately proved to be the dispositive question in the proceeding. My Earlier Reasons plainly indicate (at [68]-[75]) that there were many evidentiary questions which the plaintiff, reasonably advised, should have considered on the s 9 issue, but which were not the subject of proof. I agree with the defendant's submission that the plaintiff never did sufficiently engage with the issue of its capacity to sue. 6. Points (e), (f), and (g) and (h) (to the extent it relies upon the plaintiff's subjective views) are similar, in that they go to the plaintiff's subjective views about the merits of the parties' respective cases. But that of course presumes that the plaintiff would be able to persuade the Court that it had the capacity to sue. If it did not, the merits of the parties' cases would not have mattered. This, in effect, is what happened. At any rate, it will almost invariably be the case in a contested defamation suit that a publisher will raise defences and it may succeed in some or all of them. Further, the fact that the losing party had a subjective belief in the eventual success of its claim is of minimal significance in the context of what is an objective inquiry. Finally, even if a litigant's perspective for what is an ostensibly objective test is relevant, the plaintiff only sought a very modest amount of damages ($2,000) in its counter-offer of 28 May 2020 (plus some recovery for costs). Its real focus was on vindicating its position. But it could have achieved effective vindication by accepting the defendant's settlement offer, incorporating the apology, of 20 May 2020. 7. Finally, in relation to point (i), subject to a qualification, I accept that the terms of s 40, where they apply, are more onerous, but this does not assist the plaintiff. To the contrary, the risks of rejecting a reasonable offer are elevated by the potential costs consequences arising by the operation of s 40, and accordingly require a closely considered risk-benefit analysis relating to settlement offers received from the other party in a defamation suit. In this context, amongst other things, service of the offer of settlement required the plaintiff to seriously consider the adequacy of its proof on the question of its capacity to sue. The qualification is that I think there is force in the complaint that the plaintiff should incur liability, under s 40(2)(b), for all of the defendant's costs of proceeding on an indemnity basis. That point is, however, addressed further below (at paragraphs 46-49) when considering the question of the date from which any order for indemnity costs are payable. 8. For these reasons, I find that the plaintiff unreasonably failed to accept the defendant's offer of 20 May 2020. Do the interests of justice require otherwise? 1. The plaintiff made no submission that the interests of justice required a different result than that which s 40(2)(b) provides for. Timing from when indemnity costs should run 1. The 20 May 2020 offer was the first offer of compromise made and therefore the defendant's first serious signal to the plaintiff as to its potential exposure to an order for indemnity costs. 2. In Haddon v Forsyth (No. 2), Simpson J said at [4]: "To the extent that there are differences between the various provisions, particularly UCPR 42.15A and Defamation Act, s 40, a question arises as to which ought take precedence over the other. In my opinion, because of its specific application to defamation proceedings, it is s 40. The interesting difference between the two is that, while UCPR 42.15A envisages a calculation of costs on an indemnity basis only from an appropriate time after an offer of compromise is made, s 40 does not draw any such distinction: s 40(2)(b) is open to the interpretation that, if the plaintiff is unsuccessful in the proceedings and, if the pre-condition (that the plaintiff unreasonably failed to accept a settlement offer made by the defendant) is met, then a calculation of costs on an indemnity basis applies to the whole of the costs of the defendant(s). It is not limited to a time relevant to the time when the offer is made. That that is the correct interpretation is supported by a consideration of the purpose for which the legislature made specific provision for costs in defamation proceedings. That purpose is to oblige parties to defamation proceedings to take a reasonable approach to settlement negotiations: see Davis v Nationwide News Pty Ltd [2008] NSWSC 946 at [27]. The sanction against failure to take that reasonable approach is the risk of an award of indemnity costs. Why that sanction ought to apply to defamation cases as distinct from others is not stated." 1. In Haddon v Forsyth (No. 2) it was unnecessary for Simpson J to apply this construction of s 40 since her Honour found that it was not unreasonable for the unsuccessful plaintiff to reject the successful defendant's settlement offer made after litigation commenced. In that sense, her Honour's construction of s 40 is obiter. Notwithstanding the force of this view, and in particular, her Honour's eminence and renowned expertise in defamation law, in my view, it is open to the Court, should it find s 40(2)(b) to be otherwise engaged, to limit the time from when indemnity costs are to be awarded where it is satisfied to do so "in the interests of justice". That concept would appear to embrace the matters referred to in s 40(1)(a) and (b). When the words "unless the interest of justice require otherwise" are used in s 40(2), they are expressed as a reservation – so as not to limit the discretionary power in s 40(1). If the preclusive effect of s 40(2)(b) is as identified by her Honour, then it is difficult to divine the purpose of the reservation recorded in s 40(2). I do not see why the notion of the 'interests of justice' cannot be invoked to relieve potentially harsh consequences of the literal application of s 40(2)(b) in terms of the timing for when indemnity costs should be ordered from. 2. The question may be looked at in another way. It seems to me that s 40(2), when read with s 40(3), is expressed in the way that it is to accommodate two broad categories of circumstances in which offers of settlement are made, being, first, offers made prior to the institution of a proceeding; and, secondly, offers made during the pendency of proceedings. If, for example, a reasonable offer to settle is made after a defamatory publication, but before the institution of proceedings, and is unreasonably rejected, it is understandable why Parliament might consider that it is generally desirable that the offeree who loses the suit may bear the entire costs of a proceeding subsequently instituted on an indemnity basis. But s 40(2), read with s 40(3), also embraces the situation here where a settlement offer is only made after a proceeding has commenced. 3. In that case, I do not see why the Court cannot construe s 40(2) distributively or read down [6] the provision, so that the automatic sanction of the losing party bearing the entire costs of the proceeding arises from the unreasonable rejection of a settlement offer made prior to the commencement of a proceeding; but does not apply to offers made after a proceeding has commenced. This view has the merit of being consistent with the ordinary operation of Court rules, including Calderbank offer principles which, as Basten JA said in Hyndes, remain relevant even after the enactment of s 40 of the Defamation Act, and accords with the legislative purpose in s 40 of encouraging parties to closely consider settlement offers having regard to the costs consequences of their unreasonable rejection. In this regard, the legislative purpose identified in the third last sentence in Simpson J's observations at [4] in Haddon v Forsyth (No. 2) is no different to the purpose of general rules of Court in relation to costs consequences flowing from rejection of settlement offers. 4. Nevertheless, as indicated, even I am wrong in my preferred construction of s 40(2), in my view, it is open to the Court, "in the interests of justice" to adjust the date in s 40(2)(b) from which an unsuccessful plaintiff is required to pay costs on an indemnity basis. 5. I consider that this adjustment should apply here. There is, I accept, a certain element of unfairness that a successful defendant who delays in making a reasonable settlement offer may, without making any settlement offer, obtain all of its costs of the proceeding from the plaintiff on an indemnity basis. Conventionally in civil litigation, orders for indemnity costs flowing from rejection of settlement offers usually are made from about the time when the offer is made, since it is thought to be fair that an offeree is put on notice of the prospect of an order for indemnity costs should s/he or it reject the offer. I consider that this consideration applies with no lesser force under s 40(2) in circumstances where the point of that provision, consistently with general rules of court and the authorities, is to encourage parties to make and receive (and closely consider) reasonable settlement offers. Here the relevant settlement offer was only made 14 months after the proceeding commenced, by which time, the plaintiff inferentially had incurred not insubstantial costs of its own. Although it intimated by its solicitor's 13 August 2019 letter its willingness to consider settlement, until the settlement offer of 20 May 2020 the defendant took no proactive step to facilitate that prospect by making a reasonable offer. It should not have its costs paid on an indemnity basis on account of that lack of initiative. Security 1. By its submissions, the plaintiff did not resist the defendant's application that the funds paid into Court for security be released to the defendant to give effect to the costs order in its favour. That will be ordered. ORDERS 1. I vary order 2 made on 2 November 2020 and substitute as the appropriate order for costs that, pursuant to s 40(2)(b) of the Defamation Act 2005 (NSW), the plaintiff pay the defendant's costs of and incidental to the proceeding: 1. on the ordinary basis up to and including 20 May 2020; and 2. on an indemnity basis on and from 21 May 2020. 1. I also order that the security for costs paid into Court by the plaintiff be paid out to the defendant. ********** Endnotes 1. Haddon v Forsyth (No. 2) [2011] NSWSC 693 per Simpson J at [4]. 2. Aaren Pty Ltd trading as Price Beat Travel v Ariya [2020] NSWDC 657 ('My Earlier Reasons'). 3. Hafertepen v Network Ten Pty Ltd [2020] FCA 1456 per Katzmann J at [86]-[87]. 4. (2014) 88 NSWLR 421; [2014] NSWCA 369. 5. Rule 42.21(1A)(a) of the UCPR. 6. R v Young (1999) 46 NSWLR 681 per Spigleman CJ at [15] and [18]-[27]; also Chahwan v Euphoric Pty Ltd t/as Clay and Michel (2008) 227 FLR 43 per Tobias JA (Beazley JA and Bell JA agreeing) at [124(b)]. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 17 November 2020