Duffy v Google Inc (No 3)

[2016] SASC 1

SUPREME COURT OF SOUTH AUSTRALIA

(Civil)

DUFFY v GOOGLE INC (No 3)

[2016] SASC 1

Judgment of The Honourable Justice Blue

21 January 2016

DEFAMATION - ACTIONS FOR DEFAMATION - COSTS - INDEMNITY COSTS

DEFAMATION - ACTIONS FOR DEFAMATION - COSTS - GENERAL RULE - COSTS FOLLOW THE EVENT - COSTS OF ISSUES

Costs in action for defamation.

Reasons for judgment previously delivered finding the defendant liable for defamation and assessing damages at $100,000 and awarding interest of $15,000.

The plaintiff seeks costs of action up to the delivery of reasons for judgment on liability on an indemnity basis pursuant to subsection 38(2) of the Defamation Act 2005 on the ground that the defendant unreasonably failed to make a settlement offer. The defendant does not resist an order on a party/party basis but contends that there is no ground for an award on an indemnity basis.

After delivery of reasons for judgment on liability, the defendant made an offer to settle the action on an all inclusive basis by paying $190,000 on terms that acceptance of the offer would not preclude an appeal by it on liability and that there be a stay of execution pending such an appeal. The defendant contends that the plaintiff unreasonably failed to accept this offer and the plaintiff should pay its costs on a party/party basis incurred thereafter. The plaintiff seeks an order for costs pursuant to subsection 38(2) of the Defamation Act 2005 on an indemnity basis.

Held:

1.  The defendant unreasonably failed to make a reasonable settlement offer (at [35]).

2. The offer made in November 2015 was not a “settlement offer” within the meaning of section 38 of the Defamation Act 2005 (at [36]-[37]).

3.  The defendant should pay the plaintiff’s costs of action up to delivery of reasons for judgment on liability on an indemnity basis (at [47]-[49]).

4.  The plaintiff failed in her claims for damages for economic loss and aggravated damages.  Due to the mixed result on quantum, the plaintiff should be deprived of 50% of her costs of action incurred after delivery of reasons for judgment on liability (at [52]).

5.  The making of the offer of settlement in November 2015 does not afford a ground to deprive the plaintiff of her costs of action incurred after delivery of reasons for judgment on liability (at [58]).

6.  The defendant is to pay 50% of the plaintiff’s costs insofar as they relate to damages and were incurred between 27 October and 22 December 2015 on an indemnity basis.  The defendant is to pay the balance of the plaintiff’s costs of action on an indemnity basis (at [60]).

Defamation Act 2005 (SA) s 38; Supreme Court Act 1935 (SA) s 40, referred to.
Cornes v The Ten Group Pty Ltd (No 2) (2012) 114 SASR 106; Haddon v Forsyth (No 2) [2011] NSWSC 693; Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd [2014] SASCFC 103; Ryan v Premachandran Supreme Court of NSW, Nicholas J, 13 November 2009, unreported; Summers v Repatriation Commission (No 2) [2015] FCAFC 64, discussed.
Australian Trade Commissioner v Disktravel [2000] FCA 62; Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107; Calderbank v Calderbank [1975] 3 All ER 333; Cornes v The Ten Group Pty Ltd (No 2) [2011] SASC 141; Davis v Nationwide News Pty Ltd [2008] NSWSC 946; Jackson & Anor v Abram & Anor [2015] SASCFC 175; Manefield v Child Care (NSW) [2011] NSWSC 104; McMahon v John Fairfax Publications Pty Ltd (No 8) [2014] NSWSC 673; Parabanks Shopping Centre Pty Ltd v City of Salisbury & Anor (No 2) [2013] SASC 204; Ramsey v Annesley College (No 2) [2013] SASC 145; Trkulja v Google (No 5) [2012] VSC 533; A v Google New Zealand Ltd [2012] NZHC 2352; Dr Yeung, Sau Shing Albert v Google Inc [2014] 4 HKLRD 493; Bleyer v Google Inc (2014) 88 NSWLR 670, considered.

DUFFY v GOOGLE INC (No 3)
[2016] SASC 1

Civil:

BLUE J:

1. Dr Janice Duffy sued Google Inc for defamation.

2. On 27 October 2015, after a trial on liability, I delivered reasons for judgment.[1] I found that Dr Duffy was defamed by publication by Google via its Australian website between January and December 2010.

   [1]    Duffy v Google Inc [2015] SASC 170.

3. On 23 December 2015, after a trial on quantum of damages, I delivered reasons for judgment.[2] I assessed damages at $100,000. I granted judgment in favour of Dr Duffy against Google for $115,000 inclusive of interest.

   [2]    Duffy v Google Inc (No 2) [2015] SASC 206.

4. These reasons address costs.

   Statutory provisions

5. Section 40(1) of the Supreme Court Act 1935 (SA) (the Supreme Court Act) provides:

   40—Power of court with regard to costs

   (1)Subject to the express provisions of this Act, and to the rules of court, and to the express provisions of any other Act whenever passed, the costs of and incidental to all proceedings in the court, including the administration of estates and trusts, shall be in the discretion of the court or judge, and the court or judge shall have full power to determine by whom and to what extent such costs are to be paid.

6. Section 38 of the Defamation Act 2005 (SA) (the Defamation Act) provides:

   38—Costs in defamation proceedings

   (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

   (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.

7. Section 38(2)(a) of the Defamation Act, considered in isolation, provides that if:

   1.defamation proceedings are successfully brought by a plaintiff;

   2.costs in the proceedings are to be awarded to the plaintiff;

   3.the defendant unreasonably failed to:

   (a)     make an offer[3] to settle the proceedings before the proceedings are determined that was a reasonable offer at the time it was made; or

   (b)    accept an offer proposed by the plaintiff to settle the proceedings before the proceedings are determined that was a reasonable offer at the time it was made;

   4.the interests of justice do not require otherwise;

   the Court must order costs of and incidental to the proceedings to be assessed on an indemnity basis.[4]

   [3]    Which may be an offer to make amends under section 13. Note that section 18 provides that the making of an offer to make amends may amount to a defence to an action if it meets prescribed conditions including that the offer was reasonable in all the circumstances.

   [4]    See Davis v Nationwide News Pty Ltd [2008] NSWSC 946 at [27] and [30] per McLellan CJ at CL; Cornes v The Ten Group Pty Ltd(No 2) [2011] SASC 141 at [6] and [16]-[17] per Peek J; McMahon v John Fairfax Publications Pty Ltd (No 8) [2014] NSWSC 673 at [8], [22], [24] and [26]-[28] per McCallum J.

8. Subsections 40(1) of the Supreme Court Act and 38(1) of the Defamation Act, considered in isolation from subsection 38(2), provide that costs are in the discretion of the court. The discretion encompasses the questions which party (if any) should pay the opponent’s costs, whether different costs orders should be made by reference to different aspects of or issues in the proceeding, whether the amount of a party’s costs ordered to be paid by the opponent should be reduced and whether a costs order should be on a party/party, solicitor/client or indemnity basis. In exercising this discretion, the court may have regard, amongst other things, to the event (who has been successful overall),[5] whether there was mixed success on separate issues,[6] and the conduct of the parties in the litigation.[7]

   [5]    See Parabanks Shopping Centre Pty Ltd v City of Salisbury & Anor (No 2)[2013] SASC 204 at [5]-[8] per Blue J.

   [6]    See Australian Trade Commission v Disktravel [2000] FCA 62 at [3] per French, Kiefel and Mansfield JJ; Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107 at [3]-[6] per Finkelstein and Gordon JJ; Ramsey v Annesley College (No 2) [2013] SASC 145 at [70] per Blue J.

   [7]    See Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd [2014] SASCFC 103 at [53]-[59] per Blue J (with whom Sulan and Parker JJ agreed); Summers v Repatriation Commission (No 2) [2015] FCAFC 64 at [29] per Kenny, Murphy and Beach JJ.

9. One possible interpretation of subsection 38(2) of the Defamation Act is that, if the four conditions identified at [7] above are satisfied, the court must order that the defendant pay the plaintiff’s costs of action on an indemnity basis regardless of whether the court would otherwise have made an order that the plaintiff only recover a portion of the plaintiff’s costs.[8] That interpretation, which is not advanced by Dr Duffy, should be rejected: subsection 38(2) addresses the scale of costs and does not require the court to determine merely that costs be awarded or not awarded. Nor does it preclude the court awarding a portion only of costs in favour of the plaintiff. This appears from the text of subsection 38(2) which provides that it does not limit subsection 38(1) which in turn entitles the court to have regard to any matters considered relevant. It appears from the context of subsection 38(2) as part of section 38 addressing costs in defamation proceedings. It accords with the evident purpose of subsection 38(2) to address the scale of costs and subsection 38(1) to address other aspects of a costs order. It would be irrational if a court were left with a discretion to deprive a successful plaintiff of 100% of the plaintiff’s costs of action but not of 95% of the plaintiff’s costs of action.

   [8]    See the discussion of the two alternative interpretations in McMahon v John Fairfax Publications Pty Ltd (No 8) [2014] NSWSC 673 at [77] per McCallum J.

10. Nevertheless, in exercising its discretion whether to deprive a successful plaintiff of a portion of the plaintiff’s costs of action, the court is entitled (if not required) to take into account the likelihood that the action (including issues on which the plaintiff did not succeed) would not have proceeded to trial at all if the defendant had not unreasonably failed to make a reasonable settlement offer.

    Applications and submissions by the parties

11. The action was instituted in February 2011. In October 2015, I delivered reasons for judgment finding Google liable for defamation. Dr Duffy succeeded overall on the question of liability and succeeded on most, but not all, of the issues contested at the liability trial.

12. Google did not make any settlement offer up to that point. Google subsequently made a Calderbank[9] offer (without prejudice save as to costs) on 10 November 2015. The offer was for the parties to agree to entry of judgment in favour of Dr Duffy for $190,000 comprising $100,000 damages and $90,000 costs and an order staying payment pending the outcome of any appeal on the basis that the entry of judgment would not preclude Google appealing against liability and on a successful appeal the judgment would be set aside.

    [9]    Calderbank v Calderbank [1975] 3 All ER 333.

13. Dr Duffy did not accept the offer and the action proceeded to trial on quantum. As noted above, I assessed damages at $100,000 and awarded interest of $15,000.

14. Dr Duffy seeks an order that Google pay her costs of action on an indemnity basis pursuant to subsection 38(2) of the Defamation Act because she contends that Google unreasonably failed to make a reasonable settlement offer.

15. Google does not resist an order that it pay Dr Duffy’s costs of action on a party/party basis up to the delivery of my reasons for judgment on liability but contends that Dr Duffy should be deprived of 25% of those costs because of liability issues on which she was unsuccessful. Google contends that it did not unreasonably fail to make a settlement offer and no order for indemnity costs should be made under subsection 38(2) of the Defamation Act.

16. Google contends that an order should be made that Dr Duffy pay its costs of action after delivery of my reasons for judgment on liability on a party/party basis because under ordinary principles she unreasonably failed to accept its 10 November 2015 offer.

    Costs of action up to reasons for judgment on liability

17. It is desirable to distinguish between the costs of action incurred up to delivery of my reasons for judgment on liability and costs of action incurred thereafter.

    Mixed success

18. I first address Google’s contention that Dr Duffy failed on a number of liability issues and should therefore be deprived of a proportion of her costs under ordinary costs principles leaving aside for the time being the potential effect of subsection 38(2) of the Defamation Act.

19. Dr Duffy succeeded on the issue whether Google was (subject to notification) a publisher in respect of the materials of which she complained in the action. This was the major legal issue at trial and more time in addresses was devoted to this issue than any other issue.

20. Dr Duffy succeeded on the issue of notification to Google in respect of the great majority of the materials of which she complained in the action. The incremental time spent at trial in relation to other materials on which she did not succeed was negligible.

21. Dr Duffy succeeded on the issue whether Google published to publishees searching for “Dr Janice Duffy” or “Janice Duffy” the first and second Ripoff Report webpages and paragraphs on Google’s Australian website relating to those two webpages; to publishees searching for “Dr Janice Duffy” paragraphs on Google’s Australian website relating to the first 123 People webpage and the first and second Complaints Board webpages and to publishees searching for “Janice Duffy” the words “Janice Duffy psychic stalker” produced by its Autocomplete function. Dr Duffy failed to prove publication to publishees in respect of other webpages or paragraphs or for other versions of her name. The issues relating to publishees were factual issues. The incremental time spent at trial in relation to material in respect of which Dr Duffy failed to prove publication to publishees was negligible.

22. Dr Duffy succeeded on the great majority of the imputations alleged in respect of the material that I found was published. The incremental time spent at trial in relation to other imputations on which Dr Duffy did not succeed was negligible.

23. Dr Duffy succeeded on the justification defence in respect of the psychic stalker and persistent and obsessive harassment imputations. This was the major evidentiary and factual issue at trial and most of the time spent in evidence, as well as a significant portion of time in addresses, was devoted to this issue. Dr Duffy failed on the justification defence in respect of the private use of employer email imputation. This was a discrete issue in respect of which time was spent at trial but it was a small proportion of the total time spent at trial.

24. Dr Duffy succeeded on the innocent dissemination, qualified privilege and contextual truth defences.

25. If Dr Duffy’s costs of action were to be reduced on account of issues on which she failed, the reduction would be modest in the order of 5%.

    Indemnity costs under subsection 38(2)

26. Dr Duffy seeks an order that Google pay her costs on an indemnity basis pursuant to subsection 38(2) of the Defamation Act because she contends that Google unreasonably failed to make a reasonable settlement offer.

    Unreasonable failure to make settlement offer

27. Google contends that it was not unreasonable for it not to make a settlement offer before the determination of liability because the law is not settled as to whether an internet search engine operator is or can be a publisher and it was not unreasonable for Google to seek judicial determination of that issue.

28. It is to be noted that Google not only contested the issue whether it was capable of being a publisher but also contested virtually all of the elements of the cause of action and advanced most of the available defences. Even if Google wished to seek judicial determination of the publisher issue, there is no reason why it could not have made an offer to settle the action subject to determination of that issue.[10]

    [10] Such an offer would not comprise a “settlement offer” within the meaning of section 38(3) but its making would be relevant to the assessment of “the interests of justice”.

29. There may be extreme cases in which liability in defamation is not the subject of any decided cases or principles established by decided cases. In those extreme cases, it may be that it is not unreasonable for a defendant to seek judicial determination of that issue although, even in such cases, it would be relevant to consider whether the defendant contested other issues governed by decided cases or principles. However, this is not one of those extreme cases. At the time of trial, there had been decisions in various jurisdictions on the question whether an internet search engine operator may be a publisher. Google had been a defendant in a significant number of those cases. As analysed in my principal reasons for judgment, the preponderance of those cases established that an internet search engine operator may be a publisher after notification has been given.

30. Google also contends that the law is not settled as to whether snippets returned by an internet search engine operator are capable of being defamatory and it was not unreasonable for Google to seek judicial determination of that issue. In Trkulja v Google (No 5),[11] Google did not put this contention as a ground of its non-obstante application. Nor did it put such a contention in its summary judgment or service-related applications in A v Google New Zealand Ltd,[12] Dr Yeung, Sau Shing Albert v Google Inc[13] or Bleyer v Google Inc.[14] The meaning of the snippets and whether they were defamatory was essentially a question of fact. For the reasons given in my judgment on liability, I consider that the meaning of the snippets and the defamatory nature of those snippets I found to be defamatory was plain.

    [11] [2012] VSC 533.

    [12] [2012] NZHC 2352.

    [13] [2014] HKCFI 1404, [2014] 4 HKLRD 493.

    [14] [2014] NSWSC 897, (2014) 88 NSWLR 670.

31. If Dr Duffy succeeded on liability, it should have been apparent to Google that it would be facing a significant damages award.

32. In assessing whether Google unreasonably failed to make a settlement offer, it is appropriate to consider Dr Duffy’s prospects of success, the hazards of litigation and the costs of litigation.[15] On the one hand, the mere fact that a defendant is unsuccessful in the action, without more, does not entail that the defendant unreasonably failed to make a reasonable settlement offer.[16] On the other hand, the mere fact that a defendant has an arguable defence, without more, does not entail that the defendant reasonably did not make a settlement offer.[17]

    [15]   Ryan v Premachandran (Supreme Court of NSW, Nicholas J, 13 November 2009, unreported) at [30]; Manefield v Child Care (NSW) [2011] NSWSC 104 at [61]-[62] per Kirby J; McMahon v John Fairfax Publications Pty Ltd (No 8) [2014] NSWSC 673 at [26] per McCallum J.

    [16]   Haddon v Forsyth (No 2) [2011] NSWSC 693 at [30] per Simpson J; McMahon v John Fairfax Publications Pty Ltd (No 8) [2014] NSWSC 673 at [25] per McCallum J.

    [17]   McMahon v John Fairfax Publications Pty Ltd (No 8) [2014] NSWSC 673 at [26] per McCallum J.

1. Google contends that it was clearly arguable that it had defences to the action in the sense of denying elements of the cause of action (publication and imputations) and in the sense of affirmative defences. The mere fact that a defendant has arguable defences does not necessarily entail that the defendant reasonably did not make a settlement offer. Under ordinary costs principles independently of and predating the enactment of section 38, if a defendant does not have an arguable defence, it is likely that costs will be ordered against the defendant on an indemnity basis.[18] It is clear that section 38 was enacted to extend the circumstances in which indemnity costs are awarded.

   [18]   Cornes v The Ten Group Pty Ltd (No 2) [2012] SASCFC 106, (2012) 114 SASR 106 at [3] per Kourakis CJ, Gray and Blue J.

2. Google ought to have realised that it would probably be unsuccessful on the legal issue whether it was a publisher and the factual issue whether the defence of justification would be established in respect of the psychic stalker and persistent and obsessive harassment imputations and that it would be unsuccessful in substance on the other elements of the cause of action and defences pleaded. Google chose to contest all issues, thereby increasing the costs of the litigation. A rational assessment by Google of Dr Duffy’s prospects of success and the hazards and costs of the litigation should have resulted in Google making a substantial settlement offer to Dr Duffy. It failed to do so.

3. In all the circumstances, Google unreasonably failed to make a reasonable settlement offer before publication of my reasons for judgment on liability.

4. The Calderbank offer made by Google in November 2015 does not negate this conclusion. The November 2015 offer does not comprise a “settlement offer” within the meaning of subsection 38(3) of the Defamation Act. A settlement offer is relevantly defined to mean:

   any offer to settle the proceedings made before the proceedings are determined

5. The November 2015 offer was not an offer to “settle the proceedings”. An offer to settle the proceedings involves the final determination of the proceedings by either consent judgment or discontinuance such that there is no further litigation. If Dr Duffy had purported to accept the offer, it would not have resolved the dispute or ended the litigation because Google was not admitting liability. On the contrary, it was continuing to deny liability which would have been left to be determined by the Full Court on appeal. In reality, all that Google was offering to do was to agree on the quantum of damages and costs while continuing to deny liability.

6. It may be that the November 2015 offer was not an offer “made before the proceedings are determined” because the offer proceeded on the basis that I had already determined liability against Google.[19] However, it is not necessary to reach a conclusion on this question because it was not an offer “to settle the proceedings” in any event.

   [19]   In Cornes v The Ten Group Pty Ltd (No 2) (2012) 114 SASR 106 at [12], Mrs Cornes sought an order for indemnity costs in respect of the unsuccessful appeal by The Ten Group. The Full Court said “The definition of ‘settlement offer’ referring to an offer ‘before the proceedings are determined’ suggests that the offer must be made before final judgment at first instance” (at [12]). There was a single trial of liability and quantum in that case. The question whether a “settlement offer” as defined could be made after the determination of liability did not arise for consideration.

7. Communications between the parties from March to May 2015 concerning a possible mediation do not negate my conclusion that Google unreasonably failed to make a reasonable settlement offer. On 18 March 2015, Dr Duffy’s solicitors wrote to Google’s solicitors proposing a mediation. They indicated that, if the matter proceeded to mediation, Dr Duffy would seek damages of $700,000[20] and removal from Google’s search results of the allegedly defamatory material. I construe this as an indication of her formulated claim and opening position but not her final position at a mediation. After Dr Duffy’s solicitors provided an indication of her legal costs incurred to date (in the order of $150,000) in response to a request from Google’s solicitors, on 1 May 2015 Google’s solicitors wrote saying that Google did not propose to participate in a mediation at that late stage in the proceeding. At that point, the trial was listed to commence on 22 June 2015.

   [20]   Comprising $300,000 general damages (close to the statutory maximum) and $400,000 economic loss.

8. Google contends that, given the disparity between the figure of $700,000 referred to in Dr Duffy’s solicitors’ 18 March 2015 letter and the damages award of $100,000 and the amount of legal costs incurred by her to that date, there is no basis to find that Dr Duffy was at any time open to settle for an amount of the order of $100,000 plus costs. Google contends that it follows that it did not unreasonably fail to make a reasonable settlement offer. I reject that contention.

9. First, it is not part of the definition of “settlement offer” in subsection 38(3) that the plaintiff would have or would probably have accepted the offer. The focus of subsection 38(2)(a) is upon the conduct of the defendant in making or not making a reasonable offer rather than upon the hypothetical conduct of the plaintiff in responding if a reasonable offer had been made.

10. Secondly, in a case in which the plaintiff from an early stage of the litigation explicitly and unequivocally tells the defendant that there is no possibility that the plaintiff will settle on terms which the court ultimately determines would have been the subject of a reasonable offer to settle, the defendant’s reasonable belief concerning (as opposed to the objective fact of) the plaintiff’s willingness to settle on reasonable terms could be taken into account in determining whether the defendant’s failure to make a reasonable offer was unreasonable or whether the interests of justice require that no indemnity costs order be made.

11. However, based on Dr Duffy’s solicitors’ 18 March 2015 letter, it could only be mere speculation from the perspective of Google whether, if the matter had proceeded to mediation shortly before trial, it could have been resolved on the basis of a payment by Google in the order of $100,000 plus costs. Plaintiffs universally formulate damages claims and adopt opening positions at mediations substantially in excess, and often formulate such claims and opening positions vastly in excess, of the amount for which they are prepared to settle by the end of a mediation. The rationale of section 38 is to encourage the party who ends up being unsuccessful in the litigation to have made a realistic settlement offer so that the question whether the litigation might have resolved is not hypothetical and speculative but determined by reference to an actual settlement offer. In this case, the letter from Dr Duffy’s solicitors did not convey to Google that there was no possibility that the action could be settled on terms including payment of damages in the order of $100,000.

12. Thirdly, the action was commenced in February 2011. Google failed to make any settlement offer before Dr Duffy’s solicitors’ letter of March 2015. Up to March 2015, Google did not seek or receive any indication from Dr Duffy of an amount for which she was prepared to settle. For the reasons given above, it was unreasonable for Google not to make a settlement offer in the period leading up to March 2015. Indeed, Google itself implicitly contended on 1 May 2015 that it was now too late to explore settlement at mediation.

13. Dr Duffy gave evidence at trial that when she instituted the proceeding in 2011 her object and concern was the removal of the defamatory material from the search results. I find that it is likely that the action would have been resolved if Google had agreed to the removal together with payment of a sum of less than $100,000 by way of damages at that early stage.

    Interests of justice under subsection 38(2)

14. The first three preconditions for the making of an indemnity costs order under subsection 38(2) of the Defamation Act are satisfied. Dr Duffy was successful in the proceedings. Costs are to be awarded in her favour. Google unreasonably failed to make a settlement offer.

15. The interests of justice do not require that no indemnity costs order be made. I am therefore required to make an indemnity costs order.

16. The final issue is whether I should make a reduction on account of the issues on which Dr Duffy failed. Apart from subsection 38(2) and the fact that Google unreasonably made no settlement offer, it might be regarded as finely balanced whether a small reduction should be made. However, when subsection 38(2) operates, the fact that the defendant unreasonably made no settlement offer can be taken into account in determining whether to make a reduction on account of issues on which the plaintiff failed.[21]  If a reasonable settlement offer had been made, the action may well have settled and the costs in question would not have been incurred. Given that the question of a reduction was already finely balanced, in the overall exercise of my discretion is not appropriate to make a reduction on account of the limited issues on which Dr Duffy failed.

    [21]   Davis v Nationwide News Pty Ltd [2008] NSWSC 946 at [31] per McLellan CJ at CL.

17. It follows that Google should pay Dr Duffy’s costs of action up to the determination of liability on an indemnity basis.

    Costs of action since reasons for judgment on liability

18. Different considerations apply to the costs of action incurred by the parties after delivery of my reasons for judgment on liability.

    Mixed success

19. Dr Duffy failed in her claims for damages for economic loss and aggravated damages. While having some relevance to the claim for general damages, the evidence of Ms Freeman and Dr Davis was of particular relevance to the claim for economic loss. The claim for economic loss was a discrete claim. The time devoted at the second trial, and it may be inferred in preparation for the second trial, to the claims for economic loss and aggravated damages was substantial and was a substantial proportion of the total time devoted to the damages issues.

20. In the circumstances, Dr Duffy should be deprived of a proportion of her costs on account of her failure on the economic loss and aggravated damages issues. An appropriate reduction is 50%.

    Settlement offers

21. Google contends that its November 2015 offer was a reasonable offer of settlement that was unreasonably rejected by Dr Duffy. Google contends that an order should be made under general principles that Dr Duffy pay its costs of action on a party/party basis after the offer was made.

22. Google contends that, in the events that have occurred, Dr Duffy has not bettered its offer of a total of $190,000 for damages, interest and costs. Google effectively contends that Dr Duffy will not recover more than $75,000 for costs in addition to the $115,000 awarded for damages and interest.

23. It is clear that the November 2015 offer was indivisible in that Dr Duffy could not accept the offer as to damages without also accepting the offer as to costs. Whenever indivisible offers are made, it becomes very difficult to compare the actual result with the hypothetical result if the offer had been accepted because of the difficulty of ascertaining what costs would hypothetically have been adjudicated[22] as well as the potential for circularity.

    [22]   See Jackson & Anor v Abram & Anor [2015] SASCFC 175 at [118] and [121] per Stanley J (with whom Peek and Lovell JJ agreed).

24. In this case, Dr Duffy is entitled to an order that Google pay her costs of action on an indemnity basis up to delivery of my reasons for judgment on liability. Although two interlocutory costs orders had been made in favour of Google as at 10 November 2015, it is impossible to conclude that Dr Duffy’s costs of action on an indemnity basis would not have substantially exceeded the sum of those costs and $75,000.

25. The 10 November 2015 offer also contained a condition that Dr Duffy consent to a stay of payment pending an appeal by Google on liability. No offer was made by Google to pay the judgment sum into Court pending an appeal.

26. In all of the circumstances, the making of the 15 November 2015 offer is not a reason to deprive Dr Duffy of any costs entitlement that she would otherwise have.

27. For the same reasons as in respect of the period up to delivery of my reasons for judgment on liability, the interests of justice do not require that Dr Duffy’s costs of action since delivery of those reasons, insofar as they are awarded in her favour, not be on an indemnity basis.

    Conclusion

28. Google is to pay 50% of Dr Duffy’s costs of action insofar as they relate to damages and were incurred between 27 October and 22 December 2015 on an indemnity basis. Google is to pay the balance of Dr Duffy’s costs of action on an indemnity basis.