New South Wales Supreme Court CITATION : Millane & Ors v Nationwide News Pty Ltd t/as Cumberland Newspaper Group [2004] NSWSC 1023 HEARING DATE(S) : 28/10/04 JUDGMENT DATE : 3 November 2004 JUDGMENT OF : Hoeben J at 1 DECISION : Defendant's application for indemnity costs rejected - plaintiffs to pay the defendant's costs of the proceedings on a party and party basis. CATCHWORDS : Defendant's Calderbank offer - indemnity costs - Notice to Admit Facts LEGISLATION CITED : Supreme Court Rules - Pt 52A r19 Calderbank v Calderbank (1975) 3 WLR 586 Hillier v Sheather (1995) 36 NSWLR 414 CASES CITED : Leichhardt Municipal Council v Green [2004] NSWCA 341 Multicon Engineering Pty Limited v Federal Airports Corporation (1996) 138 ALR 425 Oshlack v Richmond River Council (1998) 193 CLR 72 Palmolive v Cussons (1993) 118 ALR 248 John Millane - First Plaintiff Andrew Partridge - Second Defendant PARTIES : Mathew Partridge - Third Plaintiff Relocorp Pty Ltd t/as Cousins & Co - Fourth Plaintiff Nationwide News Pty Ltd t/as Cumberland Newspaper Group - Defendant FILE NUMBER(S) : SC 20213/02 COUNSEL : Mr CA Evatt/Mr CJ Dibb - Plaintiffs Mr A Henskens - Defendant SOLICITORS : Peter R Murphy & Co - Plaintiffs Cropper Parkhill - Defendant IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION HOEBEN J Wednesday, 3 November, 2004 20213/02 – John MILLANE Andrew PARTRIDGE Mathew PARTRIDGE and RELOCORP PTY LTD t/as COUSINS & Co v NATIONWIDE NEWS PTY LIMITED t/as CUMBERLAND NEWSPAPER GROUP JUDGMENT – Re: Costs 1 HIS HONOUR: Judgment was entered in favour of the defendant on 17 September 2004. Subject to further submissions, the costs order proposed was that the plaintiffs pay the defendant's costs on a party and party basis. The defendant now seeks the following orders: (a) That the plaintiffs be ordered to pay its costs from 8 June 2004 on an indemnity basis. (b) Alternatively, that the plaintiffs be ordered to pay sixty percent of its preparation costs after 18 August 2004 and fifty six percent of its costs of the hearing on an indemnity basis. 2 Significant dates in the matter are: 2 May 2002 - publication of article. May/June 2002 - plaintiffs commence proceedings seeking damages for defamation. 27-28 May 2003 - section 7A hearing. 26 May 2004 - offer by plaintiffs to defendant to settle - $180,000 inclusive of costs. 1 June 2004 - defendant offers to settle – judgment for defendant but each party pay own costs. 8 June 2004 - plaintiffs reject defendant's offer and serve Offer of Compromise - $90,000 plus costs. 17 August 2004 - defendant serves Notice to Admit Facts. 31 August 2004 - plaintiffs serve Notice Disputing Facts. 31 August - 9 September 2004 - hearing as to defences and damages. 3 It was not in dispute that the offer made by the defendant on 1 June 2004 was a real offer in that as of that date, the defendant had incurred legal costs and disbursements of at least $80,000. It was not in dispute that the defendant's offer of 1 June 2004 operated as a "Calderbank" offer although its terms did not strictly conform with the letter considered in that case (Calderbank v Calderbank (1975) 3 WLR 586). It was not in dispute that the offer by the defendant of 1 June 2004 was more favourable to the plaintiffs than the judgment. 4 The applicable principle has been recently analysed by the Court of Appeal in Leichhardt Municipal Council v Green [2004] NSWCA 341. Although that case was concerned with a decision of the District Court, and referred specifically to the District Court Rules, it is equally applicable to the Supreme Court (SCR Pt 52A r 22(6)). Having reviewed all relevant authority and the Rules Santow JA who gave the leading judgment said: "43. The rule provides basically that a defendant will be entitled to party and party costs from the date of an unaccepted offer of compromise, if the plaintiff obtains a result no better than the offer. This incentive only really has any effect when the plaintiff is successful, which is not the case here. It is important to note that this is not really anything over and above what the defendant would recover if it had been totally successful in the case. Unlike with the case of offers by a plaintiff, the rules of court do not provide any entitlement to indemnity costs for a defendant. The rules do not have anything at all to say in a situation such as the present." 5 His Honour then observed: "It would be a curious thing if a different result were to prevail if a defendant makes its offer by way of Calderbank letter. Although the rules do not constrain a court's discretion as to costs when dealing with a Calderbank letter ( Jones v Bradley (supra)) it should not be forgotten that policy objectives behind the two procedures remain wedded." … "The fact that the defendant may ultimately have a verdict in its favour does not alter the incentive scheme. A successful defendant will generally receive party and party costs when it wins. No additional sanction is ordinarily necessary to make a plaintiff consider the defendant's settlement offer over and above that. A plaintiff will ordinarily have regard to any defendant's offer without need for additional incentives, because a plaintiff as initiator of the action, primarily bears the risk of the claim. If the plaintiff's claim fails, the plaintiff's own investment (in costs) will be lost and the plaintiff will carry the burden of the investment it has forced the defendant to make in costs also. Defendant offers are thus treated differently in the Rules than plaintiff offers for good reason." 6 His Honour formulated the test as follows: "46. It is respectfully submitted that there is no principle of law or persuasive policy reason why a defendant's unaccepted offer of compromise made by Calderbank letter should give rise to costs sanctions on any basis different to that provided by the rules. Under the rules, such costs would only be awarded in exceptional circumstances if the court "otherwise orders". For the court to depart from the general rule there must be particular grounds on which the court can exercise its discretion. Hillier v Sheather (1995) 36 NSWLR 414. A defendant must resort to showing that the plaintiff's rejection of the offer was "unreasonable" under the general law: Multicon Engineering Pty Limited v Federal Airports Corporation (1996) 138 ALR 425. That discretion is to be exercised in all the circumstances of the case: SMEC Testing Services Pty Limited at [37] per Giles JA affirmed in Jones v Bradley at [9]. Indemnity costs do not flow as a matter of course from unaccepted defendant offers." 7 His Honour reviewed what situations would amount to "exceptional circumstances" so as to justify the making of a special costs order in favour of a defendant. His Honour quoted with approval the considerations noted by Sheppard J in Colgate Palmolive v Cussons (1993) 118 ALR 248: "(a) The making of allegations of fraud knowing them to be false, and the making of irrelevant allegations of fraud; (b) Evidence of particular misconduct that causes loss of time to the court and the other parties; (c) The fact that proceedings were commenced for some ulterior motive; (d) The fact that the proceedings were commenced in wilful disregard of known facts or clearly established law; (e) The making of allegations that ought never have been made or the undue prolongation of a case by groundless contention; (f) an imprudent refusal of an offer of compromise; (g) an award of costs on an indemnity basis against a contemnor." 8 His Honour also had regard to the comments of Gaudron and Gummow JJ in Oshlack v Richmond River Council (1998) 193 CLR 72 at 89: "There is no absolute rule with respect to the exercise of the power conferred by a provision such as s 69 of the Court Act that, in the absence of disentitling conduct, a successful party is to be compensated by the unsuccessful party … Nor, before or since the introduction of the Judicature system, has there been any absolute proposition that the sole purpose of a costs order is to compensate one party at the expense of another … It may be true in a general sense that costs orders are not made to punish an unsuccessful party. However, in the particular circumstance of a case involving some relevant delinquency on the part of the unsuccessful party, an order is made not for party and party costs but for costs on a "solicitor and client" basis or an indemnity basis. The result is more fully or adequately to compensate the successful party for the disadvantage of what otherwise would have been the position of the unsuccessful party in the absence of such delinquency on its part." 9 Applying the principles which have been distilled in the Leichhardt Municipal Council decision, the question in relation to the first part of the defendant's argument is whether there are sufficient circumstances in this case to displace the general rule that only party and party costs ought be recovered by a successful defendant. This involves a consideration of two related questions: (i) Should indemnity costs be awarded because the plaintiffs should have known that their action would fail in the sense that the plaintiffs had no regard to the facts or to the law; and (ii) Should indemnity costs be awarded because the plaintiffs unreasonably refused the Calderbank offer. 10 It was submitted by the defendant that "special circumstances" had been established in this case for the following reasons: (i) Comprehensive particulars of the "truth" defence which was ultimately successful had been provided by the defendant to the plaintiffs almost twelve months prior to the offer. (ii) From that date it must have been known to the plaintiffs that their claim had no reasonable prospects of success. (iii) In the circumstances it was unreasonable for the plaintiffs to reject the defendant's offer. 11 At the heart of the defendant's submission was the rejection in the judgment of the plaintiffs' evidence on three crucial issues – the representation by Mr Gilbert that Mr and Mrs Fair would only remain in the premises for two months following the sale of the business, the fact and date of discussions between the plaintiffs and Mr Coddington concerning the construction of a rear access and the circumstances surrounding the confrontation between Mr Mathew Partridge and Mr Fair on 24 April 2002. The rejection of the plaintiffs' evidence on these issues was clear and unequivocal. It is that circumstance which is relied upon by the defendant as constituting special circumstances sufficient to entitle the defendant to a special costs order for indemnity costs. 12 Decisions as to what course of action to follow are always easier in hindsight. What may appear clear after judgment has been delivered is often obscured by other considerations and the process of litigation itself during the course of that litigation and the trial. In many cases there are hotly disputed issues of fact which are fundamentally irreconcilable. Just because those disputed facts are decided decisively in favour of one party rather than another does not in my opinion constitute "special circumstances" sufficient to justify the special costs order sought by the defendant. 13 It is of course arguable that it was unreasonable for the plaintiffs to refuse the defendant's offer in the circumstance of this case. The plaintiffs were under a duty to give careful consideration to any offers made by the defendant. There is no evidence that this process did not take place. It is of some significance that a relatively modest offer was made by the plaintiffs in response to the defendant's offer, the subject of this application. 14 There is another consideration. The factual questions were only part of the issues to be decided. Even if "truth" were substantially decided in favour of the defendant, this was not a complete answer to the plaintiffs' claim. There were legal questions such as "public interest" which also had to be decided. Those questions as the judgment reveals were contentious and were arguable on either side. Even if truth were decided against them but the other defences were not made out, it was not unreasonable for the plaintiffs to expect to receive some modest damages. 15 It could not be said in my opinion that the plaintiffs' case was hopeless or that it must follow that the plaintiffs failed to genuinely consider the offer. It was not simply rejected out of hand. There was no apparent "general delinquency" as referred to by the High Court in Oshlack on the part of the plaintiffs sufficient to persuade me that the general rule as to costs should be displaced in this case. As was indicated in the Leichhardt Municipal Council case: "Such costs orders should be reserved for the most unreasonable actions by unsuccessful plaintiffs [57]." 16 On the facts of this case, this was a modest offer by the defendant albeit in a genuine effort to settle the proceedings at an early stage. In all the circumstances including the nature of the offer, and the complexity of the proceedings, both as to fact and in law particularly given that the plaintiffs had succeeded at the 7A hearing, I do not think it can be said that it was unreasonable for the plaintiffs to refuse the defendant's offer. Notice to Admit Facts 17 In the alternative, the defendant submits that it is entitled to a substantial percentage of its costs on an indemnity basis (see [1] hereof) by relying upon Pt 52A r 19 of the Supreme Court Rules. 18 The defendant submits that this entitlement arises from its Notice to Admit Facts of 17 August 2002. Those facts which were disputed by the plaintiffs were substantially found in its favour. Accordingly it argues that it has a prima facie entitlement to indemnity costs in accordance with that rule. The percentages claimed are calculated by reference to the amount of time and evidence which was directed to the resolution of those factual issues. (Affidavit of Mr Campion, paras 6-9). 19 The Notice to Admit Facts relied upon by the defendant comprised sixty two paragraphs. The effect of the Notice was to challenge the entire factual basis of the plaintiffs' claim. The judgment substantially rejected the plaintiffs' contention as to the facts and the findings therein generally supported the defendant's Notice to Admit Facts. 20 The defendant's submission raises the underlying purpose of Pt 52A r 19. The purpose of that rule is to provide a sanction in situations where a fact which should be admitted is not admitted so that proceedings are needlessly prolonged. It is not intended to provide a mechanism whereby the factual substratum of a party's case can be challenged and if the challenge is successful, for indemnity costs to be payable. 21 As indicated above, the Notice to Admit Facts did not raise only issues which should properly have been admitted but sought admissions favourable to the defendant in relation to the entire factual basis for the plaintiffs' case. This involved a number of matters which were clearly contentious. For the plaintiffs to have admitted those facts was tantamount to an abandonment of their cause of action. 22 In my opinion, it was not unreasonable for the plaintiffs to refuse to admit most of the facts asserted in the defendant's Notice to Admit Facts. Accordingly, I am not prepared to make a special indemnity costs order in accordance with the percentages set out in [1] hereof. To do so would involve a distortion of the purpose behind Pt 18 r 2(2) and Pt 52A r 19 of the Supreme Court Rules. 23 It follows that I reject the defendant's application for indemnity costs. The order which I make is that the plaintiffs pay the defendant's costs of the proceedings on a party and party basis. ********** Last Modified: 11/10/2004 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.