Jones v Sutton (No 2) - [2005] NSWCA 203

NEW SOUTH WALES COURT OF APPEAL

CITATION: JONES v. SUTTON [No. 2] [2005] NSWCA 203

FILE NUMBER(S):
41206/02
40290/03

HEARING DATE(S): 25/02/2005

JUDGMENT DATE: 16/06/2005

PARTIES:
Darren Gregor Jones (Appellant)
Ruth Sutton (Respondent)

JUDGMENT OF: Beazley JA Santow JA Stein AJA

LOWER COURT JURISDICTION: District Court

LOWER COURT FILE NUMBER(S): DC 4496/01

LOWER COURT JUDICIAL OFFICER: Gibson DCJ

COUNSEL:
A. Leopold (Appellant)
B.M. McClintock SC/A.T.S. Dawson (Respondent)

SOLICITORS:
Allens Arthur Robinson (Appellant)
Freehills (Respondent)

CATCHWORDS:
COSTS - pre-trial offer of compromise - specific principal offer and costs offer made - Pt 19A District Court Rules - consequences of failing to accept compromise offer - Pt 39A District Court Rules - court's discretion as to costs - "an exceptional case" - "avoidance of substantial injustice"
APPEAL - indemnity costs - court's discretion as to costs - s.76 Supreme Court Act - relevance of parties' conduct of proceedings - s.48A Defamation Act

LEGISLATION CITED:
Defamation Act 1974 (NSW)
District Court Act 1973 (NSW)
District Court Rules 1973 (NSW)
Supreme Court Act 1979 (NSW)
Supreme Court Rules 1970 (NSW)

DECISION:
1. Rescind Order 7 made 26 November 2004.

Vacate the costs orders made by the trial judge.
4. Order that the respondent pay the appellant's costs of the hearing conducted before the jury pursuant to the provisions of s.7(3) of the Defamation Act 1974 (NSW) (the jury trial), limited to a hearing of 4 days together with the reasonable costs of preparation for the jury trial.
5. Order that each party otherwise pay his and her own costs of the proceedings at first instance.
6. Order that each party pay his and her own costs of the appeal.

JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 41206/02
CA 40290/03
BEAZLEY JA
SANTOW JA
STEIN AJA
16 June 2005

JONES v. SUTTON (No. 2)

Headnote

The appellant brought proceedings in the District Court claiming the respondent, a fellow member of Warringah Council, had defamed him. The trial judge held that the defence under s.13 of the Defamation Act 1974 (NSW) – that the appellant was not likely to suffer harm in the circumstances in which the defamatory matter was published – had been made out and a verdict was entered for the respondent. The appellant successfully appealed to this Court (Beazley and Santow JJA, Stein AJA). Damages in the sum of $5000.00 were awarded, there being no contest to the trial judge’s provisional assessment of damages in that amount.
The appellant, pursuant to Pt 39A r. 25(4) of the District Court Rules, sought special orders as to the costs both of the trial and of the appeal on the basis that he had made an offer to compromise proceedings prior to the trial proceedings in accordance with Pt 19A of the District Court Rules. The offer, as is permitted by Pt 19A r.2A was divided into a principal offer of $1000 and a costs offer in the sum of $88,500.
The respondent in turn sought an order that the parties pay their own costs of the trial and the appeal. The respondent claimed the appellant’s compromise offer was not a genuine attempt to resolve proceedings, and characterised the proceedings as motivated by political enmity rather than a sincere attempt to restore his reputation. The respondent relied upon the extreme disproportion between the damages awarded to the appellant and his massive legal costs, and the adverse credit findings made by the trial judge against the appellant and the appellant’s witnesses.

Held by the Court:

Costs of the trial proceedings

1.Where a pre-trial offer of compromise is made by a plaintiff in accordance with Pt 19A of the District Court Rules and the plaintiff ultimately receives a judgment no less favourable than the terms of the compromise offer, the plaintiff is entitled to costs on a solicitor and client basis under Pt 39A r.25(4) of the District Court Rules, save in an exceptional case and where another order is warranted for the avoidance of substantial injustice.

2.Part 39A r.25(4) of the District Court Rules binds the Court of Appeal.

3.(Obiter) Even if the Court of Appeal is not bound to apply the provisions of Pt 39A r.25(4), the Rule is relevant to the Court of Appeal’s exercise of its discretion as to costs under s.76 of the Supreme Court Act.

Exceptional case and the avoidance of substantial injustice

4.This was an exceptional case and for the avoidance of substantial injustice, the appellant should not have his costs of the trial on a solicitor and client basis for the reasons appearing hereunder.

5.The publication of the defamatory statements was extremely limited.
6.The entirety of evidence of the appellant and his witnesses at the hearing relating to damages and the s. 13 defence was disbelieved by the trial judge.
7.The trial judge found that the proceedings were politically motivated rather than being a genuine attempt by the appellant to assert his legal rights and vindicate his reputation. This was reflected in the appellant’s conduct towards the respondent as adversely commented upon by the trial judge.
8.Given the limited publication there were other ways in which the appellant could have vindicated his reputation, for example, by way of an appropriate apology.
9.Had there been no political motive tied to the appellant’s claim, the matter would have likely been resolved in a more simple fashion.

10.The costs were massively disproportionate to the damages and the court should not facilitate such practice by making an order that costs simply follow the event.

11.Although the offer of compromise was made within the time specified in the Rules to obtain the benefit of the special order for costs, the costs incurred at this time were already enormous and the offer could not, therefore, be seen as an attempt to resolve the proceedings in accordance with objects of the Rules, which are to encourage the making of early and reasonable compromise offers.

12.The respondent’s failure to respond to the appellant’s compromise offer does not alter the fact that this was an exceptional case and for the avoidance of substantial injustice the Court should not award the appellant costs on a solicitor and client basis.

Should the appellant have any costs of the proceedings at first instance?

Hearing before the jury
13.The appellant was entitled to bring proceedings as his rights had been infringed. However, the portion of the trial conducted before the jury under s. 7A(3) of the Defamation Act was extenuated because of the overall conduct and motivation of the appellant in bringing the proceedings.

14.Further, the claim was a small one and could have been conducted at far less cost.

15.In all the circumstances, the appellant should have a portion of the costs of that part of the proceedings assessed on a party/party basis.

16.Senior council’s fees should not be certified as this case could have been conducted by experienced junior counsel.

Hearing before the trial judge
17.As the appellant and his witnesses gave discreditable evidence at the hearing conducted under s. 7A(4) of the Defamation Act, he was guilty of misconduct sufficient to deprive him of his costs of that portion of the proceedings: Oshlack v Richmond River Council (1998) 193 CLR 72

Costs of the appeal

18.The relatively small amount of damages in question is a relevant discretionary consideration in determining whether a successful appellant should have the costs of an appeal.

19.Given the immense disparity between the appellant’s costs and damages awarded, as well as the other factors relevant to the Court’s discretion as to costs of the trial, this is a matter where costs of the appeal should not follow the event.

ORDERS
1 Rescind Order 7 made 26 November 2004.
2. Vacate the costs orders made by the trial judge.

3.Order that the respondent pay the appellant’s costs of the hearing conducted before the jury pursuant to the provisions of s.7A(3) of the Defamation Act1974 (NSW) (the jury trial), limited to a hearing of 4 days together with the reasonable costs of preparation for the jury trial, such costs to be assessed on a party/party basis

4.Order that each party otherwise pay his and her own costs of the proceedings at first instance.

5. Order that each party pay his and her own costs of the appeal.
*****

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 41206/02
CA 40290/03
BEAZLEY JA
SANTOW JA
STEIN AJA
16 June 2005

JONES v. SUTTON (No. 2)

Judgment

THE COURT:
Introduction
The appellant was the plaintiff in defamation proceedings commenced in the District Court in 2001. The defamation involved oral publications in November 1999. The matter proceeded in the District Court in accordance with the provisions of s.7A of the Defamation Act 1974 (NSW) (the Defamation Act). Pursuant to s.7A(1) the matter was heard by a jury who found that two of the pleaded imputations had been conveyed by the publications and that the imputations were defamatory. These were referred to as the Dubbo bus publication and the Councillor’s Lounge publication in the principal proceedings. The jury also found that a republication of the Dubbo bus publication was a natural and probable consequence of the initial publication. We will refer to this portion of the proceedings as the jury trial.
In accordance with s.7A(4)(b) of the Defamation Act the trial judge, Gibson DCJ, proceeded to hear and determine the question of damages as well as a defence raised by the respondent under s.13 of the Defamation Act. The trial judge upheld the defence under s.13 and thus entered a verdict for the respondent and ordered the appellant to pay the respondent’s costs. Her Honour made a provisional assessment of damages on the three causes of action in a total amount of $5,000.00. This portion of the proceedings will be referred to as the s.13/damages hearing to reflect the issues litigated before her Honour.
The jury trial was conducted over 9 days although her Honour considered that, given time out from the trial due to her other Court commitments and the unavailability of a witness, a fair estimate of the hearing time of the jury trial was 7 days. Her Honour noted in her judgment on costs dated 20 March 2003 (and to which we refer more fully below), that that estimate appeared to be common ground. The s.13/damages hearing took another 4 days. Judgment was delivered shortly after the completion of that hearing, in which her Honour found a verdict for the respondent and ordered the appellant to pay the respondent’s costs.
Both parties were represented by counsel at the jury trial and on the s.13/damages hearing. The appellant was represented by senior and junior counsel at each hearing. The respondent was represented by two junior counsel at the jury trial and by senior and junior counsel at the s.13/damages hearing.
The costs judgment referred to above was given in respect of an application brought by the appellant to vary the costs order she made in favour of the respondent. The appellant sought an order that the respondent pay 75% of his costs of the jury trial or, in the alternative, an order that each party pay his and her own costs of that part of the proceedings. Gibson DCJ refused the application and held that as the respondent had, by reason of the s.13 defence, successfully defended the action, costs should follow the event. She accordingly dismissed the application.
The appellant sought and was granted leave to appeal. Both parties were represented by senior and junior counsel on the leave application.
The appeal was conducted over 2 days, with extensive written submissions being filed on behalf of the parties. The Court gave judgment in the matter on 26 November 2004 in which it allowed the appeal, set aside the verdict in favour of the respondent and entered a verdict for the appellant on each of the causes of action. The parties were again represented by senior and junior counsel on the appeal.
When making its orders on the appeal, the Court made an order that the respondent pay the costs both at first instance and of the appeal.
The appellant has made an application that the order for costs made by the Court on 26 November 2004 should be varied so as to provide that the costs at first instance be assessed on a solicitor and client basis, and that the costs of the appeal be assessed on an indemnity basis. The basis of the application was that the appellant had made an offer to compromise the proceedings in accordance with Part 19A of the District Court Rules (DCR).
11 It will be necessary to turn to the provisions of DCR Pt 19A as well as the offer that was made by the appellant under those provisions. Before doing so, we should refer to an application made orally on behalf of the respondent at the commencement of the hearing of this costs application. Senior counsel for the respondent applied for the Court to revoke its costs order made on 26 November 2004 and to substitute an order that each party pay his and her own costs of the trial and of the appeal. No prior notification had been given by the respondent that such an application would be made. Nonetheless, the Court heard the application and it will be dealt with in the course of these reasons.

District Court Costs Rules
DCR Pt 19A r.2(1) provides that a party to proceedings may make an offer to compromise any claim in the proceedings on the terms specified in the offer. Pursuant to DCR Pt 19A r.2A, a party may divide an offer between a “principal offer” and a “costs offer”. The specific provisions of r.2A are important. They provide, relevantly:
“(1) A party may make an offer … (a ‘principal offer’) to compromise any claim in an action and, at the same or a subsequent time, an offer (a ‘costs offer’) to compromise any claim of the plaintiff for his costs incurred in the action up to the date of any acceptance of the principal offer by paying or accepting an amount specified in the costs offer.
(2) Where a principal offer and a costs offer are made under subrule (1) and the offeree accepts the principal offer, the offeree may accept or fail to accept the costs offer.
(3) A costs offer is of no effect for the purposes of this rule if the principal offer is not accepted.”
DCR Pt 39A r.25 provides for the consequences of accepting or not accepting an offer of compromise. Subrule (1A) states the objects of the rule in these terms:
“(1A) The objects of this rule are:
(a) to introduce an added element of risk in order to promote early settlement of actions without hearing or arbitration;
(b) to compel the parties to an action, under threat of possible penalties in costs, to arrive at an early assessment of the amount of damages, if any, recoverable by the plaintiff;
(c) to encourage the making and acceptance of reasonable offers of compromise by:
(i)providing for penalties in costs to be imposed on a party who rejects an offer of compromise and does not at the hearing or arbitration of the action achieve a position better than he would have held if he had accepted the offer of compromise; and
(ii)providing corresponding costs relief to the party making the offer;
…
(e) to provide a discretion in the Court to relieve a party from the imposition of a costs penalty, to be exercised only in an exceptional case and for the avoidance of substantial injustice.
(1B) A decision of the Court to make or refuse to make an order for costs under this rule must be made in pursuant of the objects of this rule.”
Appellant’s offer of compromise
On 15 March 2002, 37 days before the commencement of the jury trial, the appellant made an offer of compromise in the following terms:
“The Plaintiff offers to compromise all of his claims in the proceedings in the following manner:
1.Verdict and judgment for the Plaintiff against the Defendant in the sum of $1,000 in respect of all of the Plaintiff’s claims in the proceedings other than his claim for costs (the principal offer). (original emphasis)
2.The Defendant to pay the Plaintiff’s costs of the proceedings incurred up to the date of any acceptance of the principal offer, in the sum of $88,500 (the costs offer). (original emphasis)
3.Acceptance of the principal offer in paragraph 1 is not conditional on acceptance of the costs offer in paragraph 2.
4.Acceptance of the costs offer in paragraph 2 is conditional on acceptance of the principal offer in paragraph 1.
5.This offer shall be open until the end of the 28th day after service of this notice, not including the day of service.
This offer is made in accordance with Part 19A of the District Court Rules.”
The offer of compromise thus provided the respondent with four options. She could have accepted both the principal offer and the costs offer. She could have accepted the principal offer and rejected the costs offer. In that case, costs would have to have been assessed. Thirdly, the appellant could have expressly rejected the offer. Alternatively, she could have constructively rejected the offer by failing to respond to it. This was the course she adopted. Finally, the appellant could have made her own offer of compromise, which she did not do.
In the events that have transpired, the appellant has obtained a verdict in the amount of $5,000.00, which, although not large, considerably in excess of the principal offer contained in the offer of compromise.
The consequences flowing from the non-acceptance of an offer of compromise are clearly specified in DCR Pt 39A r.25(4). Provided that an offer is made 28 days or more before the hearing of the action, then, if the offer is not accepted and the plaintiff obtains an order or judgment “no less favourable” than the terms of the offer, the plaintiff is entitled to an order for costs in respect of the whole claim, assessed on a solicitor and client basis. The only exception is if the Court, “in an exceptional case and for the avoidance of substantial injustice”, makes a different order.
Appellant’s position as to why costs should be on a solicitor and client basis
As the offer of compromise was served 37 days before the commencement of the jury trial, the appellant claims he is entitled under DCR Pt 39A r.26(4) for an order under DCA Pt 39A r.25(4) of the costs of the proceedings on a solicitor and client basis. He pointed out that the offer of compromise had been made in accordance with the Rules and that the respondent had accepted the risk element referred to in DCR Pt 39A r.25(1A)(a) and that the risk had come home. According to the appellant, this was not an exceptional case and it was not necessary for any other order to be made so as to avoid substantial injustice. Indeed, the appellant argued that there was no evidence adduced by the respondent upon which the Court could act to make a finding on either of these two matters.
The principal offer, which the respondent could have accepted on its own, was in an extremely modest amount of $1,000.00. Although the costs offer was in a large sum (and in an amount which counsel for the appellant did not seek to justify), the respondent was entitled under the Rules to accept the principal offer only and to require the costs to be assessed in the normal course. In that event, she would have taken her own risk as to whether costs as assessed were likely to be more or less than the amount specified in the costs offer.
Respondent’s position as to why there should be no order for costs
The respondent submitted that the appellant was either not entitled to or should not have an order for costs of the proceedings at first instance on a solicitor and client basis for the following reasons:
(i)DCR Pt 39A r.25 has no application in the Court of Appeal. This submission was raised for the first time during oral argument, and would appear to be the first time this challenge has been made to the operation of DCR Pt 39A r.25.
(ii)That the proceedings were motivated by vindictiveness on the part of the appellant and were prosecuted in an attempt to “destroy” the respondent.
(iii)That the provisions of s.48A of the Defamation Act relating to costs, and which came into effect on the 17 February 2003, had retrospective operation and ought to be applied in the circumstances of the case, notwithstanding that an offer of compromise had been made in accordance with the provisions of DCR Pt 19A.
(iv)The respondent further submitted that the appellant should not be awarded costs of the appeal on an indemnity basis. The respondent relied on the above matters to resist any order for indemnity costs and also pointed out that although this Court granted leave to appeal, it had warned the appellant that he may be liable for costs even should he be successful.

It is convenient to deal with each of the respondent’s arguments at this stage of the reasons.
Does DCR Pt 39A r.25 bind the Court of Appeal?
Appeals to the Court are governed, inter alia, by the provisions of s.75A of the Supreme Court Act 1979 (NSW) (SCA).
That section provides, relevantly:
“(6) The Court shall have the powers and duties of the court, body or other person from whom the appeal is brought, including powers and duties concerning:
(a)amendment;
(b)the drawing and inferences and the making of findings of fact; and
(c)the assessment of damages and other money sums.
…
(10) The Court may make any finding or assessment, give any judgment, make any order or give any direction which ought to have been given or made or which the nature of the case requires.”
SCA s.76 makes provision for costs. Its terms, upon which the respondent principally relies, are as follows:
“76. Costs
(1) Subject to this Act and the rules and subject to any other Act: (emphasis added):
(a)costs shall be in the discretion of the Court;
(b)the Court shall have full power to determine by whom and to what extent costs are to be paid; and
(c)the Court may order costs to be assessed on the basis set out in Division 6 of Part 11 of the Legal Profession Act 1987 or on an indemnity basis.
(2) In subsection (1) the expression ‘costs’ includes:
(a)costs of or incidental to proceedings in the Court, including the administration of estates and trusts;
(b)in the case of an appeal to the Court, the costs of or incidental to the proceedings give rise to the appeal, as well as the costs of or incidental to the appeal.”
Senior counsel for the respondent submitted that SCA s.76 governed all costs orders made by the Court and that this Court was not governed or constrained by the DCR. It was submitted that this was apparent, first, from the terms of s.76(1) whereby the section is expressly made subject to “this Act and the rules and to any other Act”, but not to the rules of another Court; and secondly, from the provisions of s.76(2)(b), set out above.
There is no definition in the Supreme Court Act of the phrase “any other Act”. Nor is there any provision whereby rules made under an Act are incorporated into the phrase “any other Act”.
In the District Court, costs are in the discretion of the Court subject to the District Court Act1973 (NSW) (DCA) and the DCR: see DCA s.148B. DCA s.161(2)(y) provides that rules may be made, “providing for any matters relating to the costs of the proceedings”. DCR Pts 19A and 39A are, as already indicated, the relevant Rules governing costs in this matter.
The respondent submitted that although DCR Pts 19A and 39A are clearly authorised by s.161 of the DCA, they were not thereby incorporated into the phrase “any other Act” within the meaning of that phrase in SCA s.76. As s.76 referred only to the DCA, it followed that the power of this Court to make an order for costs of the proceedings at first instance was not subject to the DCR.
In our opinion, the argument should be rejected. DCA s.148B, which provides for the District Court’s power to order costs, is expressly subject to the District Court Rules. In that sense, the Rules are incorporated into the provision that governs the District Court’s power to order costs. If the respondent’s argument was correct, it would mean that SCA s.76 would have to be read as subject to that part of DCA s.148B which provides that costs are in the discretion of the Court, but not to that part that provides “subject to this Act and rules”. There is no warrant in the terms of SCA s.76 to ignore part of the provision. It follows that SCA s.76 is subject to the District Court Act.

Even if the effect of SCA s.76 is that this Court is not bound by the provisions of the District Court Rules, those Rules would still have relevance to the Court’s exercise of discretion. As a matter of exercise of the Court’s discretion, we consider that the appellant ought to be put in the same position as if he had had the benefit of the Rules at first instance. In that circumstance, he is entitled to the favourable costs provisions specified in DCR Pt. 39A r.25(4), unless there are exceptional circumstances and it is necessary to make some other order so as to avoid substantial injustice.
31 This leads to the respondent’s next argument.

Vindictive prosecution of the claim
Senior counsel for the respondent submitted that “[t]his was a case brought for the purpose of shutting my client up and destroying her”. Senior counsel re-emphasised his point towards the conclusion of his submission when he described the appellant’s case as a “dishonest” one “brought by dishonest people and found [by the trial judge] to be dishonest people”. This characterisation was the principal foundation for the respondent’s contention that there were exceptional circumstances and that the Court should make an order otherwise than as specified in DCR Pt 39A r.25(4) so as to avoid substantial injustice. The respondent submitted that the appropriate order for costs in this case was that each party should pay its own costs.
The submission needs to be considered in some detail. Some of the points made will speak for themselves; others will require some elaboration. Essentially, however, the respondent made three points. First, these were very limited publications to a total of five people. Secondly, the appellant had been found by the trial judge to be a person of no or limited credit, whose conduct towards the respondent had been appalling and whose motive in bringing the proceedings was suspect. Thirdly, the costs were wholly disproportionate to the amount of damages involved.
Limited extent of publication
The nature and extent of the publications and republication are fully canvassed in both the trial judge’s reasons and this Court’s judgment on the appeal. It is not necessary to repeat them. Although the appellant had contended that the Dubbo bus publication and the councillor’s lounge publication had been more widely heard, the ultimate finding was that these were oral utterances made or repeated to a total of 5 persons only. The limited nature of the publication does not call for further discussion.
Adverse finding on appellant’s conduct
At the s.13/damages hearing, the appellant gave evidence and called witnesses in support of his claim for injury to reputation and hurt feelings. In addition to the credit findings with which we deal more fully below, her Honour made a number of adverse findings in respect of the appellant and his witnesses on this issue. For example, her Honour observed (at trial judgment [18]) that the appellant had refused to speak to the respondent who had only been elected to the Council in 1999 and had excluded her and a number of other “minority councillors” from social functions. In formal Council sessions, the appellant was extraordinarily rude to the respondent (see trial judgment [20]).
Senior counsel for the respondent further relied upon the appellant having personally served the respondent with his solicitor’s letter of demand during a recess of a Council meeting as typifying the appellant’s aggression towards the respondent and his wish for retribution and his attempts to humiliate her.
Adverse credit findings against appellant and his witnesses
The trial judge made a number of adverse findings against the appellant. The trial judge was “not impressed by the [appellant] as a witness”: [trial judgment at [110]]. In subsequent portions of the judgment her Honour made specific findings in respect of the appellant’s inconsistent and untrue evidence: see by way of example trial judgment [237] and [238]. In the latter paragraph her Honour found that the appellant’s “claim of hurt feelings is not merely exaggerated but feigned”. Her Honour had earlier observed (at trial judgment [186]):
“The plaintiff was anxious to denigrate political opponents but in response was prepared to use the defamation laws to stifle even minor criticism.”
The trial judge further found at trial judgment [188] that the appellant was “incapable of hurt feelings by statements by a political opponent such as the [respondent] whom he regards with contempt and disdain”. In the same paragraph, the trial judge referred to the appellant’s “inconsistent evidence” concerning the circumstances in which he learned of the third publication.
The trial judge rejected significant portions of the evidence of Councillor Moxham and that of the General Manager, who had given evidence in support of the appellant both in the jury trial but relevantly also in the s13/damages hearing: see, by way of example trial judgment [151], [155], [170], [179] and [194]. Her Honour also found Councillor Julie Sutton’s evidence to be inconsistent and belligerent: trial judgment [170].
The respondent submitted that it was offensive to notions of justice that a party who lied in the witness box should get his costs. A proposition stated in such general terms cannot, of course, have universal application. Regard must always be had to all the relevant circumstances. At this point we are only dealing with the question whether any “other order” should be made under DCR Pt 39A r.25.
In this case, the entirety of the evidence in the s13/damages hearing was taken up with witnesses whom the trial judge disbelieved. The trial judge’s credit findings in respect of these witnesses were not challenged by the appellant on the appeal. We are of the opinion that these circumstances make this an exceptional case and that some order other than the penalty costs provision in DCR Pt 39A r.25(4) is necessary for the avoidance of substantial injustice at least in respect of the s.13/damages hearing.

Other features of the case, in particular, the actions of the appellant and his witnesses relating to the so-called general manager’s investigation of the appellant’s conduct and the circumstances relating to an apology, reinforce this conclusion.
General Manager’s investigation
The trial judge found, at trial judgment [158], that the investigation that the General Manager conducted following the Councillor’s Lounge publication was not a genuine attempt to ascertain the facts, but instead was:
“… no more than a political exercise by the recipients of this publication to capitalise on a foolish assertion made late at night by a newly elected councillor after her fourth Council meeting. They all knew the plaintiff well enough to know he would never do anything so stupid as to use his own trucks to dump rocks. The defendant’s silly statement late at night after a Council meeting was a valuable mistake by a political opponent which was seized upon by the majority faction to be put to immediate political advantage.”
Although this was not a finding directed to the credit of the appellant’s witnesses, it demonstrates the point upon which the respondent relies, namely, that this appellant’s action was not a genuine assertion of his legal rights, but was politically motivated. It followed, on her Honour’s finding, the investigation was unnecessary. Had there been no political motive involved, it is likely that this matter would have been resolved in a more simple fashion and it would have made the likelihood of an appropriate apology having been requested and given a more likely result. We deal with the apology in fact requested in the next section.
Apology
The appellant through his solicitors, wrote to the respondent on 22 November 1999 as follows:
“We have advised our client that proceedings should be initiated without further notice to you to restrain further defamatory comments and seek damages for the harm which has already been occasioned to him. Orders for costs will also be sought.
We strongly recommend that you immediately seek independent legal advice in relation to the matter. We would ask you to arrange for your legal representatives to contact us. Arrangements can be made if you instruct your solicitors to this effect for processed [sic] to be served through your legal representatives.”
No apology was sought by the appellant. Rather, the letter indicated that litigation was imminent but it did so without providing any clue let alone particulars of the alleged defamatory statements.

Later, on 7 March 2000, before the commencement of proceedings, the appellant indicated he would accept an apology. However, her Honour at trial judgment [229] and [231] made this finding in respect of the requested apology:
“The terms of the proposed apology go beyond the three matters complained of. … The plaintiff was seeking to distribute this apology far beyond the field of any publication or grapevine effect. There is also reference in this letter … to other disputes between the parties … What was being sought was an all-purpose apology for a series of publications (some unspecified) allegedly made over a five year period.
…
… I find that the circumstances and wording of the apology … relate more to political manoeuvring by the plaintiff than to any actual hurt to feelings. The apology was sought four months after the slanders and is contradictory of earlier correspondence flatly ruling out any apology.”
The effect of her Honour’s finding was that the request was not a genuine approach by the appellant to resolve the matters complained of. Rather, a wide ranging apology was sought about matters that were not the subject of the proposed litigation. This placed the respondent in an invidious position. At the most simple level, the question might be asked why a person should make an apology about matters that were not the subject of any dispute. More insidiously, had the respondent given an apology in the terms requested, she may have been making admissions about matters not the subject of any threatened action against her. On the other hand, had she proffered an apology confined to the matters complained of she was not guaranteed a response from the appellant that would result in proceedings not being brought against her.
Lack of proportion between damages and costs
There has been considerable emphasis in the courts in recent years on litigation being conducted justly, quickly and cheaply. In the Supreme Court, the overriding purpose of the Supreme Court Rules (SCR) is to provide procedures that will promote the “just, quick and cheap resolution of the real issues in …proceedings”: SCR Pt1 r.3. The District Court has promulgated a practice note to the same effect: Practice Note No 57. (The Practice Note has the status of a Statutory Rule: DCA s 171(7)). In both jurisdictions the intention is that timely compliance with the procedures under the Rules will promote the efficiency of litigation and thus achieve the stated object.
In this case, there is no charge that the appellant failed to comply with the rules in a timely manner. However, the objective of the justice system to resolve disputes in a “just, quick and cheap” manner is not confined to ensuring there has been compliance with the Rules of Court. The concern extends to the manner in which proceedings are conducted and the extent to which small claims ought to be permitted to luxuriate in the justice system. This concern was succinctly articulated in Afzal v Ford Motor Company Limited [1994] 4 All ER 720 where the Court of Appeal said at 747:
“For many people a small claim for damages for an injury sustained at work will be their only experience of the working of the system of justice. If those who advise employers and employees in such claims disregard the objects of the small claims arbitration procedure, the law as a whole is likely to be brought into disrepute. If it is seen that in a significant class of claims procedural battledore and shuttlecock is costing far more than the amount of damages recovered, the reputation of justice must suffer.”
The High Court has expressed concern about the cost of litigation in the context of the immunity of barristers from claims in negligence: see Giannarelli v Wraith: (1988) 165 CLR 543 at 557. This concern has also found expression in judgments in this Court and in the Divisions of the Supreme Court in respect of a variety of issues. For example in Linfox Transport (Aust) Pty Ltd v Arthur Yates & Co Ltd [2004] NSWSC 943 Brownie AJ (at [1197]) took into consideration, when determining the appropriate costs orders to make, the fact that there had been “undue prolongation of the trial, the incurring of unnecessary or inappropriate costs, the drafting of affidavits, or the making of submissions not justified by the evidence or by the other circumstances”
In England, the Right Honourable Lord Woolf was appointed by the Lord Chancellor to review the rules and procedures of the Courts in England and Wales with the aim, inter alia, of improving access to justice and reducing the cost of litigation. Lord Woolf’s Access to Justice Report was delivered in July 1996. The unacceptability of costs being disproportionally high to the quantum of a claim was emphasised throughout the Report.

Even though the trial judge found that this was a serious defamation, the reality of this matter is that the appellant was awarded $5,000.00 after 17 days in court (including on the application for leave to appeal and the appeal). The appellant sought to compromise the proceedings by seeking damages in the sum of $1,000.00 and claiming costs 37 days before trial in a sum of almost $90,000.00. There was no evidence as to what items of costs were included in this amount. However, the offer having been made more than 5 weeks before trial, and the Court having a general understanding of the costs of counsel, the amount specified in the offer must be taken, at least in large part, as being attributable to pre-trial costs.
The costs of 17 days in court, plus any additional costs associated with the hearing not incurred as at the date of the offer, for example, in respect of written submissions, must have greatly exceeded the $90,000.00 specified in the costs offer.In this regard it matters little what the exact amount of the costs were. The point remains the same. The costs specified in the offer of compromise were disproportionate to the claim. Likewise the costs of the proceedings as a whole, given the length of the trial and the engagement of senior and junior counsel, will have been disproportionate to the claim. Massively so. In our opinion, the Court should not facilitate such disproportion by making an order for costs that simply follows the event.

Other circumstances

Another relevant factor relates to the offer of compromise. The offer was made strictly in accordance with the rules and within a time frame sufficient to take advantage of DCR Pt 39A r.25(4). However, by the time the offer was made, the costs incurred to that point were, on the appellant’s own assessment, enormous.
The making of the offer of compromise at that late stage in the proceedings, or to put it another way, at a stage when the costs were overwhelming, cannot, in our opinion, be seen as an attempt to resolve the proceedings in accordance with the objects of Pt 39A r.25(1A), and in particular, sub-rule (b) which refers to “an early assessment of damages” and sub-rule (c) which refers to “the making of reasonable offers of compromise” (emphasis added).
In this regard, it is not to the point to argue that as the offer was made in accordance with the District Court Rules, the respondent could have had the costs assessed rather than accept the costs offer. The appellant’s costs offer placed the respondent in an invidious position. The very large amount claimed could not be seen, in our opinion, as a genuine offer of compromise for the simple reason that costs in that amount, for a claim of this nature, at the pre-trial stage, assuming that was all that was included in the sum offered, were unreasonable. However, the effect of their being unreasonable, would in our opinion, have made it difficult for the respondent to be properly advised as to what a reasonable assessment of costs was likely to be. The procedure under the District Court Rules does not provide for particulars of the offer to be sought. She had no way therefore of assessing whether the amount included any costs of trial incurred by the appellant because, for example, counsel had already been engaged or whether the amount specified related to pre-trial costs.

If the costs offer related to pre-trial costs only, then the large amount specified in the offer indicates that the appellant had allowed a huge amount of costs to accumulate before he made his offer. It must be remembered that at this point the respondent would also have incurred substantial legal costs herself. For that reason, we do not consider that the offer was made at an appropriate time in accordance with the objects of the DCR Pt 19A.

Opposing Factors

There are other factors, however, which are relevant to the question whether the appellant should have the benefit of DCR Pt 39A r.25(4).The respondent could have made an early apology. However, as it is somewhat speculative whether the appellant would have accepted an apology relating to the matters complained of, little regard should be given to that possibility. More relevantly, the respondent could have made an early offer of compromise.
However ultimately, given the appellant’s conduct and the circumstances to which we have referred, the respondent’s failure to make her own offer of compromise to the appellant is not sufficient to alter our view that this is an exceptional case and for the avoidance of substantial injustice the Court should in its discretion make costs orders other than those ordinarily provided for in DCR Pt 39A r.25(4). The question is: what order ought to be made?
Should the appellant be deprived of his costs?
The respondent submitted that not only should the appellant be deprived of costs on a solicitor and client basis, but he should also be deprived of his costs altogether.
The principles as to the circumstances in which a successful party should be deprived of costs are clear.
In Oshlack v. Richmond River Council (1998) 193 CLR 72, McHugh J said at 97-98:
“The traditional exceptions to the usual order as to costs focus on the conduct of the successful party which disentitles it to the beneficial exercise of the discretion. In Anglo-Cyprian Trade Agencies Ltd. v. Paphos Wine Industries Ltd, Devlin J formulated the relevant principle as follows:
‘No doubt, the ordinary rule is that, where a plaintiff has been successful, he ought not be deprived of his costs, or, at any rate, made to pay the costs of the other side, unless he has been guilty of some sort of misconduct.’
‘Misconduct’ in this context means misconduct relating to the litigation, or the circumstances leading up to the litigation. Thus, the court may properly depart from the usual order as to costs when the successful party by its lax conduct effectively invites the litigation; unnecessarily protracts the proceedings; succeeds on a point not argued before a lower court; prosecutes the matter solely for the purpose of increasing the costs recoverable; or obtains relief which the unsuccessful party had already offered in settlement of the dispute.” (emphasis added)
The relevance of the conduct of the party claiming costs had been considered in the earlier decision of Latoudis v. Casey (1990) 170 CLR 534, where Mason CJ said at 544 :
“…there will be cases in which, when regard is had to the particular circumstances, it would not be just and reasonable to order costs against the prosecutor or to order payment of all the defendant’s costs. …
… Likewise, if a defendant conducts his or her defence in such a way as to prolong the proceedings unreasonably, it would be just and reasonable to make an award for a proportion of the defendant’s costs.”
See also Toohey J at 565 and McHugh J at 569.

We have discussed above the findings of the trial judge in relation to the credit and conduct of the appellant and his witnesses. Those findings were made in the context of the s13/damages hearing. They were not challenged on the appeal. There is considerable force in the respondent’s submission that it offends all proper notions of justice that a party can be the recipient of a costs orders in circumstances where the entire case advanced by that party is disbelieved. In our opinion, relying on the same matters that satisfied me that the appellant should not have costs on a solicitor and client basis pursuant to DCR Pt 39A r.25(4), we are satisfied that this case falls into that category, rare though it be, that the appellant should not have his costs, at least of the s13/damages hearing.
The costs of the jury trial raise different considerations. At that hearing the respondent gave evidence denying that she had made any of the defamatory utterances. The jury disbelieved her. They believed the appellant and his witnesses. The question whether the appellant should be deprived of his costs in such circumstances depends, in our opinion, upon whether, given that this was a limited publication and that damages were always going to be in a small amount, the appellant should bear his own costs.
The question is not an easy one to determine. The proceedings were brought in the correct court and, by dint of statute, bore the inherent complexity presented by a jury trial. Even though this Court considered that her Honour’s provisional award was modest, damages in this case were always going to be in a small amount.Nonetheless, litigation that is conducted in such a way that costs will inevitably far exceed damages ought not be encouraged. This case fell into that category. Even though the appellant’s rights had been infringed, the case, could have been conducted at far less cost. As events have turned out, the costs will exceed the damages in an exponential amount. Even at the pre-trial stage the differential was in a ratio of 90:1.
As already indicated, the range of damages that might have been awarded in this matter was such that the claim was always a small one. There were other means by which the appellant could have sought to defend his reputation other than by commencing litigation. Requesting an apology was the logical means of doing so, particularly having regard to the nature of the defamatory utterances and the audience to which they were made. The appellant’s conduct relating to an apology, which has been discussed above, was unreasonable and the apology in fact sought was not likely to promote a simple resolution of the proceedings.
Another possible means of resolving the matter was by mediation. There was no indication whether that that had been attempted.
It is also relevant in determining the appropriate costs orders that, on her Honour’s findings, not challenged on the appeal, the appellant pursued expensive litigious proceedings in circumstances where he was motivated by a political agenda which did not have a great deal, indeed if it had anything, to do with upholding his reputation. Further, in seeking redress, the appellant contended that the Dubbo bus publication was heard by Councillors Forrest and Colman. He also alleged that two additional Councillors were present at the Councillors’ Lounge publication. Those Councillors gave evidence in the respondent’s case to say they had not heard any statement to the effect of the matter complained of. Although the matter went to the jury on the basis that there was a publication to Councillor Dee only, nonetheless, the broader allegations all lengthened the hearing. However, it cannot be said that the appellant’s approach in making the wider allegations was misconduct in the sense explained in Oshlack so as to deprive him entirely of his costs.
Although the extent of publication was extremely limited, the appellant had been the object of serious defamations, which the respondent had denied. That denial was disbelieved by the jury. Had she not denied she had made the statements that constituted the matters complained of, the jury trial would have been shorter.
Ultimately, in all of the circumstances, we have reached the conclusion that the appellant should have a portion only of his costs of the jury trial. The trial judge estimated that the time taken for the trial was 7 days. Addresses took 2 days and the evidence of Councillors Forrest, Smith and Colman effectively took up one day. It is also apparent that much of the cross-examination of the appellant and his witnesses was directed at exposing the appellant’s political agenda in bringing the proceedings. The respondent was successful in doing so.
In our opinion, much of this was unnecessary and the case was, in reality, a relatively straightforward one. It involved 3 short conversations or comments with or heard by a total of 5 people. Given the limited extent of the publication, the jury trial could have and should have been conducted in a much leaner fashion. The evidence and cross examination could have been more constrained were it not for the general animosity that surrounded the proceedings. Addresses could and should have been relatively short. In all the circumstances we consider that the appellant should have costs of the jury trial for 4 days. We would not certify senior counsel’s fees as we consider that a defamation proceeding involving a limited publication could have been conducted by experienced junior counsel: see DCR Pt 39 r.17. The appellant should also have his costs of reasonable pre-trial preparation in relation to the jury trial.
Section 48A of the Defamation Act
Section 48A of the Defamation Act provides:
“(1) In awarding costs in respect of proceedings for defamation, the Court may have regard to the following matters:
(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),
(b)whether the costs in the proceedings may exceed the quantum of damages to be awarded in the proceedings,
(c)…
Section 48A was inserted into the Defamation Act by Act No. 136 and took effect as and from 17 February 2003. The trial proceedings concluded with the delivery of judgment on 6 December 2002. Senior counsel for the respondent initially submitted that the provision was retrospective and applied to the appellant’s claim. After hearing the appellant’s argument he did not press the retrospective operation of the section but argued that the section merely reflected the common law. As we have already dealt with the factors relevant to the exercise of the court’s discretion in relation to both aspects of the proceedings, including the disproportion between the verdict and the costs, it is not necessary to consider this issue further.
Costs of the appeal

On the leave application, the appellant sought leave to appeal not only against the trial judge’s finding on s.13, but also in respect of damages. Leave was granted on both aspects. During the course of the hearing of the appeal, the appellant withdrew the appeal in respect of damages.
An appeal to the Court of Appeal is only allowed as of right where the amount involved exceeds $100,000.00, otherwise the leave of the Court is required: s.101(2)(r). The respondent submitted that the Court, when granting leave, was clearly troubled by the small quantum of damages involved, but it was persuaded to grant leave because, on the appellant’s argument, there was a question of principle involved, particularly regarding the inter-relationship of s.13 of the Act and the “grapevine effect”. It was said this was apparent from the judgment on the leave application, in particular at [1], [3], [4] and [8]. At [8] the Court said:
“The costs of the appeal(s) will be decided by the Court hearing it/them. Without seeking in any way to circumscribe the Court’s discretion as to those costs, the claimant/appellant should understand that he is at risk as to the costs of the appeal if the verdict for the defendant were overturned but not the contingent assessment of damages.”
On this Court’s reasoning on the appeal, however, there was no significant issue of principle to be resolved. In coming to that view, the Court was required to hear and resolve the arguments advanced by the appellant in which it was argued that there was a point of principle. The respondent’s case was directed to resisting the appellant’s argument, although during the course of his address, senior counsel for the respondent conceded that the trial judge had wrongly interpreted the judgment of Mahoney JA in King and Mergen Holdings Pty. Limited v. McKenzie (1991) 24 NSWLR 305. The respondent also abandoned the order sought in her Notice of Contention that the Court overrule its decisions in King and Mergen v. McKenzie and in Chappell v. Mirror Newspapers Ltd. (1984) Aust Torts Reports 80-691. Once the respondent’s case was redirected in this way, she thereafter sought to maintain the verdict in her favour on the alternative test propounded by her Honour, as she was entitled to do.
There were also allegations made on the appeal that the appellant had “persuaded” her Honour to apply a wrong principle. That was denied by senior counsel for the appellant. It was unnecessary for the Court to resolve that matter. At this point we would observe that there was a sense in her Honour’s judgment that the question whether Mahoney JA had applied an inconsistent test in King and Mergen v. McKenzie was something that had troubled her Honour and perhaps members of the ‘defamation bar’ for some time. For example, Mr. McClintock had sought `but been refused leave to argue the point in King and Mergen v. McKenzie.
It is unfortunate that the s. 13 issue developed in the way it did. Having said that, the appellant chose to bring the appeal in circumstances where the costs were already massively out of proportion to the damages, where the amount in issue was small and where he was warned of the possibility of costs consequences even if he was successful on the appeal. As some emphasis was placed upon the remarks of the Court on the leave application, we should point out that those remarks, in our opinion did no more than reflect the fact that the small amount of damages involved is a relevant discretionary consideration to which the Court hearing the appeal was entitled to have regard.
The essential question is whether the appellant should be required to bear the costs of the appeal. Before answering that question, we would point out that in so far as the costs of the appeal are concerned, the offer of compromise does not bind this Court. Offers of compromise made under the District Court Rules cease to have effect once the particular matter to which they relate leaves the jurisdiction of the District Court. Such an offer is however a relevant discretionary factor in this Court: see South Sydney Council v Morris (No. 3) [2001] NSWCA 200 at [10].
In our opinion, as the costs were already so out of proportion to the damages and the damages were so small, this is a matter where costs should not follow the event and the appellant should pay his own costs of the appeal. Our view is reinforced by the other discretionary matters to which we have already referred in considering the appropriate order to be made in relation to the costs at first instance. The respondent is also to bear her own costs of the appeal. It follows in our opinion that the court should make the following orders:
1 Rescind Order 7 made 26 November 2004.
2. Vacate the costs orders made by the trial judge.

3.Order that the respondent pay the appellant’s costs of the hearing conducted before the jury pursuant to the provisions of s.7A(3) of the Defamation Act1974 (NSW) (the jury trial), limited to a hearing of 4 days together with the reasonable costs of preparation for the jury trial, such costs to be assessed on a party/party basis

4.Order that each party otherwise pay his and her own costs of the proceedings at first instance.

5. Order that each party pay his and her own costs of the appeal.

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LAST UPDATED: 17/06/2005