New South Wales Supreme Court CITATION : McGaw v Channel Seven Sydney Pty Ltd [2006] NSWSC 1270 HEARING DATE(S) : 14 November 2005 - 30 November 2005, 7 November 2006 JUDGMENT DATE : 29 November 2006 JURISDICTION : Supreme Court JUDGMENT OF : Rothman J DECISION : (i) Verdict for the plaintiff in the amount of $385,000; (ii) The defendant shall pay interest on the above amount from 11 June 2003 until 28 November 2006 at the rate of three percent being an amount of $40,425; (iii) The defendant shall pay the plaintiff's costs of and incidental to the proceedings up to and including Wednesday 16 March 2005, as agreed or assessed; (iv) The defendant shall pay the plaintiff's costs of and incidental to the proceedings incurred on and from 17 March 2005, on an indemnity basis, as agreed or assessed; (v) The Court certifies for two Counsel. CATCHWORDS : CIVIL LAW - COSTS - Interest on defamation damages award - indemnity costs - unreasonable to reject Offer of Compromise. LEGISLATION CITED : Civil Procedure Act 2005 Supreme Court Act Amalgamated Television Services Pty Ltd v Marsden [2002] NSWCA 419 Australian Consolidated Press v Driscoll (1988) Aust Torts Reports 80-175 Hillier v Sheather (1995) 36 NSWLR 414 CASES CITED : John Fairfax & Sons Ltd v Kelly (1987) 8 NSWLR 131 MBP (SA) Ltd v Gogic (1991) 171 CLR 657 McGaw v Channel Seven Sydney Pty Ltd [2006] NSWSC 1147Russell v Edwards (No. 2) [2006] NSWCA 52 Vilo v John Fairfax & Sons Limited [2000] NSWSC 1206 PARTIES : P: Mark McGaw D: Channel Seven Sydney Pty Ltd FILE NUMBER(S) : SC 20340/2003 COUNSEL : P: Mr T Molomby SC, Mr A Gemmell D: Mr T E F Hughes AO QC, Mr K P Smark SOLICITORS : P: Colin W Love & Co D: Mallesons Stephen Jaques - 1 - IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION defamation LIST ROTHMAN J 29 November 2006 20340 of 2003 McGAW v CHANNEL SEVEN SYDNEY PTY LTD JUDGMENT 1 HIS HONOUR: On 2 November 2006, I published reasons for judgment, which indicated that an award for damages would be made to the plaintiff in the amount of $385,000. I reserved to the parties liberty to apply and to address on interest and on the question of costs. The parties have now addressed me on those issues. This judgment should be read in conjunction with the reasons for judgment delivered on 2 November 2006 in McGaw v Channel Seven Sydney Pty Ltd [2006] NSWSC 1147. Interest 2 Pursuant to the terms of s100 of the Civil Procedure Act 2005, interest is payable up to judgment on the amount awarded. Generally the appropriate rate for non-economic loss is four percent: MBP (SA) Ltd v Gogic (1991) 171 CLR 657. The principles on the awarding of interest in defamation cases take account of the assumption that damages represent, at least in part, a loss spread over the period from the date of publication to trial. 3 Counsel for both the plaintiff and defendant have, very helpfully, referred me to a number of judgments in this regard. Each of the parties rely upon the judgment of McHugh JA in John Fairfax & Sons Ltd v Kelly (1987) 8 NSWLR 131 and the defendants submits that the practice in defamation matters thereafter has been to award interest at a rate of two percent (i.e. half the appropriate rate for non-economic loss) unless there is some good reason to depart from that practice. In particular, the defendant refers to the judgment of Simpson J in Vilo v John Fairfax & Sons Limited [2000] NSWSC 1206, in which her Honour said: "In this case, as in others, I think it should be taken that the damage to the plaintiff's reputation and the injury he suffered, was spread (perhaps not evenly) over the period of 17 years. But it must be taken to cease on the award of damages. Although it may be reasonable to conclude that the greater damage was occasioned in the earlier part of the period, thus tilting the balance slightly in favour of the plaintiff for a larger interest rate, I think to do justice to both parties it is more appropriate to treat the injury as spread evenly over the period. This would justify a having of the interest rate declared by the High Court. I propose to award interest on the whole of the damages over the whole of the period, at a rate of 2 percent." ( Vilo at [25]) 4 The original judgment of McHugh JA in John Fairfax (with which on this issue Kirby P agreed) was relevantly in the following terms: "The correct approach in theory would seem to be that, since the plaintiff was entitled to damages immediately upon publication, the proper enquiry is first to determine to what extent the award was increased by reason of continuing injury. In strict theory the interest, in respect of this additional sum, would need to take account of the fact that the injury was spread over a period after publication. That is, leaving aside any question of future loss, the matter should be approached on the basis that the plaintiff is prima facie entitled to interest on the whole amount of the award from the date of publication. However, that amount has to be reduced for any sum additional to 'vindication damages' awarded in consequence of injuries suffered between publication and verdict. This approach gives rise to obvious difficulties of assessment. But if, as I think is the case, the plaintiff is entitled to part of his damages from the date of publication, the choice is between awarding no interest at all or attempting to calculate interest on a basis which, although not mathematically perfect, achieves a measure of justice. Since it is unfair to plaintiffs to deprive them of interest for the period in which they have been deprived of their money, interest ought to be awarded to the extent that it is fair and proper." (at 143D-F) 5 While that approach has been followed to the effect that interest has been spread and the proper interest rate halved, that has not been a universal practice: see for example Australian Consolidated Press v Driscoll (1988) Aust Torts Reports 80-175. 6 The Court of Appeal has recently discussed this issue in Amalgamated Television Services Pty Ltd v Marsden [2002] NSWCA 419. In dealing with an appeal from the judgment of Levine J, the Court referred to the judgment of Simpson J in Vilo, above (as had Levine J at first instance) and said: "[1551] In other cases the spread of loss over the relevant period has been reflected by halving the interest rate (see for example Hartley v Nationwide News Pty Limited (Allan J, 4 May 1995, unreported); Thompson v Australian Capital Television Pty Ltd (1998) 133 ACTR 1, effectively following the practical approach of McHugh JA. That has not always been done (see for example Norris v Illawarra Newspaper Holdings Pty Ltd (Badgery-Parker J, 15 December 1995, unreported) and Erskine v John Fairfax Group Pty Ltd (Levine J, 6 May 1998, unreported). … [1553] Interest awarded in the exercise of the power in s94 of the Supreme Court Act is discretionary. Levine J was not obliged to follow a formula. He considered that 2 percent over the whole period ' represents a fair and just outcome '. He did not, as the respondent's submissions in effect asserted, blindly follow the approach of Simpson J without regard to the facts of the present case…. [1554] His Honour recognised that vindication was a substantial component of the award, and the entitlement was as at the day of publication. His Honour appears to have been moved by two considerations. One was that it accorded with the principle ' as to the continuum over which the initial loss has been sustained '. The other was the artificiality of trying to allocate sums of money to particular components; this must have meant allocating the damages between injury to feelings and reputation and vindication of reputation." ( Amalgamated Television Services Pty Ltd v Marsden [2002] NSWCA 419, per Beazley, Giles, Santow JJA) 7 Applying the principles as in the above judgments, it is clear that it is impermissible to apply mathematically a formula without assessing the appropriateness of the interest rate and determining, on the basis of that assessment, that which is fair and proper. 8 The submission of the plaintiff is that, on a proper analysis of the earlier judgment, approximately one-half of the plaintiff's damages were directed to vindication and initial hurt and the other half equally spread over the period between publication and judgment. That assessment errs on the side of minimising that portion of the damage which goes to vindication and initial hurt. Nevertheless I accept, in order to arrive at a result which is just and fair, that an apportionment of 50 percent in the manner submitted, is appropriate. On that basis half of the amount awarded would be subject to the full four percent interest rate over the entire period and the other half would be subject to an interest rate spread, more or less equally, over the period between publication and judgment. Arithmetically, the effect of such an apportionment is the same as would be the case if I applied an overall interest rate of three percent on the entire judgment. I adopt that approach and award interest up to the date of judgment at three percent per annum. Costs 9 The issue between the parties on the question of costs relates to offers that were made by the plaintiff to settle the proceedings. On the basis of the non-acceptance of those offers, together with a verdict which is greater than the offer made, the plaintiff claims indemnity costs in accordance with the well known principles relevant to Calderbank offers. 10 The defendant submits that special costs orders based upon the rejection of a Calderbank offer should not be made unless the rejection of the offer was unreasonable, and cite Russell v Edwards [No. 2] [2006] NSWCA 52. I should add that there is no Offer of Compromise in accordance with the Rules which is relevant to this issue. There is no significant issue between the parties as to the principles to be applied and the plaintiff submits that he "has obtained a more favourable result at trial than was offered to the defendant, that the failure to reply to the offer was unreasonable, and that the defendant should accordingly pay the plaintiff's costs from the date of the offer on an indemnity basis". 11 The determination of the basis upon which costs will be ordered in proceedings is a matter within the jurisdiction and discretion of the Court. It is a discretionary assessment of what is fair and appropriate in the circumstances and the exercise of discretion is dependant upon either or both the inherent jurisdiction of the Court and the statutory powers conferred under the Civil Procedure Act 2005 (and previously the Supreme Court Act). Nevertheless, the discretion reposed in the Court must be exercised judicially and in accordance with the principles that have been established. 12 The factual matrix of offers is: Letter from Date Offer Colin W Love & Co (P's solicitor) 1 September 2004 $190,000 + costs Colin W Love & Co 24 February 2005 $120,000 + costs Mallesons Stephen Jaques (D's solicitor) 10 October 2005 $30,000 + costs Colin W Love & Co 14 October 2005 Rejection of 10 October offer Mallesons Stephen Jaques 4 November 2005 $60,000 + costs Colin W Love & Co 7 November 2005 $120,000 + costs of $273,000 (total of $393,000) 13 The plaintiff seeks indemnity costs from 1 September 2004. Without more, such an order could not be made. It cannot be said that it was a reasonable expectation that the offer to settle made on 1 September 2004 would be accepted on the same day. A reasonable time after the making of the offer is to be expected. However, I will deal with the matter on the basis of principle. 14 The defendant relies on a number of matters, mostly findings made by the Court in its reasons, to show that its rejection of the offers that were made was not unreasonable. The defendant submits that the factors going to the lack of unreasonableness were: "a) As the Court noted in [2006] NSWSC 1147 at [5], the truth of the imputations was an essential ingredient of the cases for each side and that matter depended very much on whether one believed the evidence of Ms Boucheron or Mr McGaw (or neither of them); b) Despite the processes of discovery and interrogatories, each side had real access only to its "own" witness (that is, Mr McGaw for the plaintiff and Ms Boucheron for the defendant); c) Mr McGaw had the added advantage of actually knowing what occurred, while the defendant did not (although Ms Boucheron did). It would be apparent to the Court from the manner in which the case was conducted that the defendant had taken careful stock of the version of events advanced by Ms Boucheron and had relied on that version as truthful; d) At the time the hearing commenced, neither side could have confidently predicted which way the case would be decided. Perhaps the plaintiff had additional insight into the matter, as he had (presumably) the benefit of knowing what evidence his mother and Mr Laverty would give (such information was not directly available to the defendant), but even he must have been uncertain of the outcome; e) While it is clear that the Court, ultimately, overwhelmingly preferred the plaintiff's case to that mounted by the defendant, there is no reason to conclude that such an outcome should have been obvious to the defendant. While the Court considered that Ms Boucheron's evidence should not be accepted and suffered from inconsistencies, and conversely that Mr McGaw's evidence should be accepted, there is no reason to conclude that the defendant should have known that such a result was "on the cards", especially at the commencement of the hearing; f) That the Court (so far as one can tell from the reasons for judgment) apparently came to such a conclusion without hesitation is not a basis for concluding that, objectively speaking, the defendant should also have done so. Until each of the major protagonists gave evidence in chief, and was then tested under cross-examination, neither side in a case such as this could be fairly said to be acting unreasonably in rejecting a settlement offer from the other." 15 The defendant submits, and, with respect, I accept, that "even skilled legal representatives do not have the gift of prophecy" (Hillier v Sheather (1995) 36 NSWLR 414 at 423B, per Kirby P). 16 The first offer of the plaintiff made on 1 September 2004 was made at a time after the jury had found that there were defamatory imputations in the publication. The only matter left to be determined were the defences and the assessment of damage. 17 While it is true that success in the proceedings depended on the acceptance on one or other of the main protagonists, there were a number of indicators which ought to have put the defendants on notice as to the reasonableness of accepting an offer of settlement. In some senses, the fact that the defendants themselves made offers, leads inexorably to that conclusion. 18 There are, of course, many reasons why a party may make an offer of compromise or write a Calderbank letter. Such efforts mostly concern the commercial reality of resolving litigation without the need to suffer the expense and stress of the litigation process itself. 19 The defendant at no stage sought to cross-examine or establish by independent evidence that Mr McGaw and Ms Boucheron were lovers, as contained in their imputation. Further, at least by the time the case was substantially prepared, the defendant must have been aware that there was significant interpolation by the defendant in the account of Ms Boucheron. It also would have been aware that its recounting of the result of the assault charge was inaccurate. 20 Moreover, the defendant at no stage sought to prove the truth (as distinct from contextual truth) of the second imputation and ought to have been aware, at the time that the matter was prepared for hearing, of the fundamental inconsistencies in the account that Ms Boucheron gave. 21 Having made those comments, it is also fair to comment that the defendant was relying on an account made by a person unconnected with the defendant and did not have the benefit of instructions from a participant in the incidents in question. That factor must affect significantly the reasonableness of acceptance or rejection of an offer at a particular point in time. Bearing in mind all of the circumstances, I do not consider that it was unreasonable for the defendant not to accept the offer made on 1 September 2004. However by 24 February 2005 the defendant should have been in a position in the preparation of its case to understand that it was at serious risk for a significant award of damages and the offer of $120,000 plus costs made on 24 February 2005 by the plaintiff was an offer which, on the view I take, it was unreasonable to reject. I therefore award indemnity costs on and from 17 March 2005, being three weeks after the offer of 25 February 2005 was made and by which date it was reasonable for the defendant to accept it. Conclusions 22 I make the following orders: (i) Verdict for the plaintiff in the amount of $385,000; (ii) The defendant shall pay interest on the above amount from 11 June 2003 until 29 November 2006 at the rate of three percent, being an amount of $40,045.30; (iii) The defendant shall pay the plaintiff's costs of and incidental to the proceedings up to and including Wednesday 16 March 2005, as agreed or assessed; (iv) The defendant shall pay the plaintiff's costs of and incidental to the proceedings incurred on and from 17 March 2005, on an indemnity basis as agreed or assessed; (v) The Court certifies for two Counsel. ********** 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. 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