Machado v Underwood (No 2)

[2016] SASCFC 123

SUPREME COURT OF SOUTH AUSTRALIA

(Full Court)

MACHADO & ANOR v UNDERWOOD & ANOR (No 2)

[2016] SASCFC 123

Judgment of The Full Court

(The Honourable Chief Justice Kourakis, The Honourable Justice Gray and The Honourable Justice Nicholson)

24 November 2016

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

MAGISTRATES - APPEAL AND REVIEW - SOUTH AUSTRALIA - APPEAL TO SUPREME COURT - COSTS

This judgment deals with issues of interest, costs and final orders as a consequence of the appellants’ (defendants at trial) partial success with respect to their appeal to the Full Court in Machado & Anor v Underwood & Anor [2016] SASCFC 65 from the decision of a Magistrate in defamation proceedings. The appeal was partially successful, notwithstanding that all of the many grounds of appeal relating to liability were dismissed, because the Magistrate’s damages award was reduced on appeal. As a consequence, the Magistrate’s order for pre-judgment interest had to be adjusted. Further, the costs of the trial had to be revisited together with the costs of the appeal.

Held: (Kourakis CJ and Nicholson J; Gray J dissenting)

1.  Judgment for the first respondent against the appellants in the amount of $25,500 inclusive of interest to the date of judgment, 3 June 2016.

2.  The appellants pay the first respondent’s costs of the action, including the trial, on an indemnity basis.

3.  The appellants pay the second respondent’s costs of the action, including the trial, calculated according to the applicable scale of the Third Schedule of the Magistrates Court Rules.

4.  The appellants pay 85 per cent of the first respondent’s costs of the appeal on a party and party basis.

5.  The appellants pay the second respondent’s costs of the appeal on a party and party basis.

6.  There be no order as to the costs of the first respondent’s application for security for the costs of the appeal.

Whistleblowers Protection Act 1993 (SA); Defamation Act 2005 (SA) s 20, s 28, s 38; Magistrates Court Act 1991 (SA) s 19, s35, s 37; District Court Civil Rules r 187, r 263; Magistrates Court (Civil) Rules 2013 r 58, r 106; Supreme Court Act 1935 s 40; Magistrates Court (Civil) Rules 1992 r 59, r 124, referred to.
Machado & Anor v Underwood & Anor [2016] SASCFC 65; Calderbank v Calderbank [1975] 3 All ER 333; Rayner v Pethick [2006] SASC 70; Gwinnett v Day (No 2) [2012] SASC 61; Dimitropoulos v Bridgestone Australia Ltd (1995) 180 LSJS 29; Hollier v Australian Maritime Safety Authority (No 2) [1998] FCA 975; Yilan v Minister for Immigration and Multicultural Affairs [1999] FCA 1212; Scott v Secretary, Department of Social Security (No 2) [2000] FCA 1450; Cornes v The Ten Group Pty Ltd & Ors (No 2) [2012] SASCFC 106, considered.

MACHADO & ANOR v UNDERWOOD & ANOR (No 2)
[2016] SASCFC 123

Full Court:  Kourakis CJ, Gray and Nicholson JJ

KOURAKIS CJ AND NICHOLSON J.

Introduction and background

1. These reasons concern questions of costs and interest arising as a consequence of the appellants’ (defendants at trial) partial success with respect to their appeal from the decision of a Magistrate in defamation proceedings.[1]  The appeal was partially successful, notwithstanding that all of the many grounds of appeal relating to liability were dismissed, because the Magistrate’s damages award of $55,000 (including aggravated damages) was reduced to $22,500, comprising general damages of $15,000 and aggravated damages of $7,500. 

   [1]    Underwood v Machado & Anor, Reasons for Judgment, 22 January 2015 (AMCCI-13-4463) and, on appeal, Machado & Anor v Underwood & Anor [2016] SASCFC 65. Following the delivery of judgment on appeal, the issues of interest and costs were deferred pending the provision by the parties of written submissions.

2. This partial success should be reflected, although only in a relatively minor way, in the costs order we otherwise would have made with respect to the appeal.  Further, the order with respect to the costs of the trial made by the Magistrate, insofar as the first respondent (plaintiff at trial) is concerned, will need to be revisited.  Finally, the amount of prejudgment interest awarded by the Magistrate will need to be varied. 

3. On 21 December 2011, the appellants[2] sent an email to the Minister for Sustainability, Environment and Conservation and in so doing published a number of defamatory imputations in respect of the first respondent, a senior project officer employed in the Department of Environment and Natural Resources (the Department).  They included: that the first respondent was dishonest and a liar in his communications with the first appellant about a koala; that he had concealed his dishonest activities from the Department; that he was involved in a cover-up over dealings with the koala; that he had no proper regard for the health or welfare of the koala; that he was incompetent in his job and unfit to hold his position as a project officer; that he acted so as to undermine the work and objectives of the Fauna Unit of the Department; and that he had an unreasonably aggressive and intimidating manner in the performance of his role as project officer when dealing with the first appellant.  All of these imputations were established at the trial and upheld on appeal. 

   [2]    The first appellant was the directing mind of and, in all material respects, was authorised to represent the second appellant.

4. The appellants raised a number of defences but, whilst maintaining throughout the evidence of the first appellant and the trial generally that each of the defamatory imputations was true and accurate, they did not rely on the defence of justification.  They relied, primarily, on qualified privilege both at common law and under statute.[3]  This defence was defeated by the Magistrate’s finding of malice.  Her Honour rejected all of the appellants’ defences, allowed the first respondent’s claim and awarded damages of $55,000. 

   [3] Section 28(1) of the Defamation Act 2005 (SA).

5. In a separate judgment,[4] her Honour ordered that the first respondent was entitled to prejudgment interest on the award of damages, fixed in the sum of $4,245; that the appellants were to pay the first respondent’s costs of action on an indemnity basis; and that the appellants were to pay the costs of the second respondent (the State of South Australia, third party at trial) to be “calculated according to the applicable scale of the Third Schedule of the [Magistrates Court Rules], such costs to be agreed or otherwise taxed”.

   [4]    Underwood v Machado & Anor v State of SA, Reasons for Ruling, 5 February 2015 (AMCCI-13-4463).

6. At this point something needs to be said about the second respondent who was joined as a third party to the proceedings.  In short, the appellants, in reliance on the Whistleblowers Protection Act 1993 sought an indemnity from the State of South Australia in the event that they were found to be liable in defamation to the first respondent.  This claim was dismissed by the Magistrate and the appeal to this Court was dismissed.  In the Magistrate’s reasons for her costs ruling,[5] her Honour noted that counsel for the appellants (at trial[6]) did not oppose an order that the appellants pay the costs of the third party.  Accordingly, her Honour made the order noted above. 

   [5] At [15].

   [6]    Different counsel appeared for the appellants on the appeal.

7. As indicated, the appeal against the dismissal of the third party claim was itself dismissed.  No appeal against the order for costs in favour of the second respondent is expressly identified or referred to in the notice of appeal.  There would seem to be no reason to disturb her Honour’s order and, indeed, no reason not to make an order that the appellants are to pay the second respondent’s costs of the appeal to be adjudicated on a party and party basis if not agreed.  We do not understand the second respondent to contend that any more onerous order ought be made. 

8. The appellants contend that there should be no order as to the costs of the appeal in favour of the second respondent.  However, the reasons proffered by the appellants – that it was appropriate for the second respondent to be joined; that the third party claim was not vexatious or without merit; and that the mere fact that it was not successful does not detract from the fact that genuine issues arose in the case involving the third party’s response to the email letter – are not such as to persuade us to depart from the general approach which is that costs, ordinarily, should follow the event.  Further, we disagree with the contention that the third party claim was not “without merit”.  The reasons of the majority (Kourakis CJ and Nicholson J) in the principal judgment demonstrate that the claim against the third party was without merit and plainly so.

   Procedural history and history of the pre-trial negotiations

9. In order to resolve the questions of costs as between the appellants and the first respondent, consideration needs to be given to the history of pre-trial negotiations between them.

10. The first respondent made a number of attempts to resolve the matter in a manner that would have avoided the expense of litigation or continuing expense once the litigation had commenced.  In order to fully appreciate the weight to be given to these attempts to resolve the matter and to the appellants’ responses thereto something further should be said about the Magistrate’s and this Court’s factual findings. 

11. The defamatory imputations were serious and potentially very damaging to the first respondent’s reputation including by reference to his professional interests as a senior employee with the Department.  By the time of the trial he had had extensive experience in koala husbandry including having previously been the manager of Cleland Wildlife Park for three years and having been in charge of the koala exhibit at Healesville Sanctuary in Victoria for 19 years. 

12. The Magistrate found the first appellant to be an unimpressive witness.  He was evasive with respect to at least one important topic, he adopted a strangely casual and cavalier attitude to giving evidence and there was likely an element of reconstruction by him in giving his evidence.  Her Honour expressed a clear preference for the evidence of all other witnesses called at the trial where it conflicted with that of the first appellant.  More importantly, her Honour found that the first appellant had no basis in fact for making any of the defamatory statements complained of and that he did not have an honest belief in their truth.  Indeed, her Honour found that the first appellant was aware of the falsity of the defamatory material published. 

13. It was but a short step for her Honour to find that the first appellant had been actuated by malice so as to preclude reliance on the common law and statutory defences of qualified privilege.  Her Honour also found, and this is implicit in the earlier mentioned findings, that the first appellant made no reasonable enquiries to support the defamatory publications and that if such enquiries had been made they would have confirmed that the matters asserted by the first appellant were false.  The findings concerning the first appellant’s state of mind were not disturbed on appeal.

14. Counsel for the appellants maintained at trial and on appeal that the first appellant had a genuine concern that the Department was not conducting or applying its policies relating to the care of koalas appropriately and that he was justified in drawing, or at least was entitled to draw, these concerns to the attention of the Minister.  That may have been so.  Nevertheless, that is not a sufficient justification for the inclusion of what was plainly and indefensibly defamatory material in the relevant email.  As the majority judgment observed:[7]

    The appellants complain that the Magistrate failed to give consideration to [the first appellant’s] unquestioned commitment to the health and wellbeing of the koala community.  As earlier indicated, the fact that [the first appellant] may have had a completely proper or appropriate motive behind publication of the email insofar as it complained about departmental policy, interim or otherwise, and any failure by the Department to enforce the law, does not preclude a finding of malice with respect to the publication of defamatory statements that are extraneous or not germane to that purpose or motivation.  As [the first respondent] submitted, whilst some aspects of the email might be consistent with a commitment to animal welfare and call for an investigation, that does not, of itself, undermine a finding of malice with reference to extraneous defamatory statements which were false and known to be untrue. 

    [7]    Machado & Anor v Underwood & Anor [2016] SASCFC 65 at [145].

15. With this by way of background, we now set out a brief summary of the various settlement negotiations prior to trial.

    (i)By letter of 17 January 2012, the first respondent wrote directly to the first appellant.  That letter sought from the first appellant a written reply containing an apology and retraction of the allegations made and an assurance that the first appellant would cease making false and unsubstantiated allegations against the first respondent in the future.  The first respondent noted that he had received legal advice to the effect that the written remarks made in the email about the first respondent were defamatory and reserved the right to take the matter further should the first appellant not agree to provide the apology and assurances as to the future sought.  A written response was “demanded” within 14 days and the first appellant was advised that should the matter “not be settled in accordance with this demand, I will take the matter further in accordance with the legal advice I have received and will seek to have associated costs obtained from you”. 

    It can be seen that the first respondent provided the first appellant with a very early opportunity to apologise and to bring the dispute to an end without the incurring of any legal costs. It should be noted that by section 20 of the Defamation Act, an apology made by or on behalf of a person in connection with any defamatory matter alleged to have been published by the person does not constitute an express or implied admission of fault or liability in connection with that matter and evidence of such an apology is not admissible in civil proceedings as evidence of the fault or liability of that person.

    No response was received to this letter and at no time has any apology been forthcoming from the first appellant.  It was revealed during cross-examination of the first appellant during the trial that he “laughed” when he received a copy of the letter. 

    (ii)On 17 July 2012, the first respondent’s lawyers wrote to the appellants seeking a written apology and retraction of the allegations.  This letter also sought: the provision of a list of persons to whom the appellants may have transmitted or copied the email; that a copy of the apology and retraction be forwarded to the Minister; and an undertaking from the appellants that they would not repeat any of the allegations or make any false or defamatory allegations concerning the first respondent in the future.

    The solicitor’s letter set out, in quite some detail, the alleged defamatory imputations conveyed by the email and the basis for the first respondent’s assertion that the imputations were false and that reasonable enquiries, had they been made, would have demonstrated to the first appellant that they were false. 

    The solicitors advised that, in the absence of a satisfactory response (within 14 days) their client would have little choice but to take further steps to safeguard his rights.  All rights including with respect to costs were reserved.  It was not expressly stated that upon complying with the demands set out in the letter the matter would come to an end.  Nevertheless, it is reasonably to be inferred that this was another opportunity for the appellants to resolve the matter early and without putting the first respondent to further costs and without the appellants incurring costs.

    (iii)In a letter dated 26 July 2012 from the solicitors for the appellants, the demands in the letter of 17 July 2012 were “declined”, the defamatory characterisation of any of the imputations was denied and the defences that, in any event, would be available to the appellants (justification and qualified privilege) were outlined. 

    (iv)In a letter dated 8 August 2012, the first respondent’s solicitors again wrote to the solicitors for the appellants reiterating the previous demands.

    (v)In a letter dated 30 August 2012, the solicitors for the appellants replied, again rejecting the demands and indicating that they had instructions to accept service of any proceedings.

    (vi)In a letter dated 12 September 2012, the solicitors for the first respondent reiterated previous demands and advised that they anticipated instructions to seek indemnity costs in relation to any proceedings that may ensue. 

    It is to be noted that, in their letters of 17 July 2012, 8 August 2012 and 12 September 2012, the solicitors for the first respondent set out in detail the basis of their client’s case as to the defamatory nature of the imputations relied upon; the basis for the unavailability, in the circumstances, of any defences including qualified privilege; and the basis upon which, in their view, a court would find that the first appellant had been actuated by malice.  The arguments put by the first respondent in these respects were substantially, if not entirely, vindicated by the findings of the Magistrate and in the majority judgment in this Court on appeal. 

    (vii)On 8 October 2012, the solicitors for the first respondent wrote again to the solicitors for the appellants advising that instructions had been received to commence proceedings if the matter could not be settled but that the first respondent offered to resolve the whole matter on the basis of the earlier made demands and payment of costs to date. The letter was expressed to be an open letter to be relied upon in support of applications for aggravated damages and indemnity costs pursuant to section 38 of the Defamation Act 2005 (SA).

16. No response to this letter was received. 

    (viii)Proceedings were issued by the first respondent in the District Court on 6 December 2012. 

    (ix)On 4 April 2013 and whilst the matter was still in the District Court, another attempt was made by the first respondent to resolve the matter, this time by way of what has been described as a “Calderbank letter”.[8]  The offer to settle was on the basis that the appellants pay the sum of $25,000 inclusive of all damages, costs and interest and provide an apology and an undertaking not to republish or make further false, misleading or defamatory allegations concerning the first respondent.

    (x)One day later on 5 April 2013, the first respondent filed and served an offer purportedly in compliance with rule 187 of the District Court Civil Rules in the terms “the plaintiff offers to accept the sum of $20,000 plus costs to be agreed or taxed in settlement of this action”. 

    No response or counteroffer to either the Calderbank letter or the rules offer was provided by the appellants.  At no stage did the appellants make any attempt to resolve the matter or take any steps towards the negotiation of a settlement of the matter. 

    (xi)On 30 September 2013, a Master of the District Court ordered that the proceedings be transferred to the Magistrates Court pursuant to section 19(1)(b) of the Magistrates Court Act 1991.  The order for transfer appears to have been made by consent and at the suggestion of the Master in order to ensure that the matter would be listed for trial on a date earlier than otherwise might have been available in the District Court.  It was not the case that the matter was inappropriately filed, originally, in the District Court.[9]

    (xii)The matter went to trial in November 2014 and the judgment of the Magistrate was delivered on 22 January 2015.

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

    [9]    By rule 263(2) of the District Court Civil Rules there is no restriction on costs being awarded with respect to defamation proceedings in the District Court where the award of damages is $25,000 or more for proceedings commenced after 1 April 2015.  However, for proceedings commenced prior thereto the limit was $20,000 and prior to 1 July 2013 (that is, as at December 2012 when these proceedings were filed) $7,500.

    The Magistrate’s Reasons

1. In the Magistrate’s reasons for ruling with respect to costs, delivered on 5 February 2015, her Honour noted the general discretion available under section 37(1) of the Magistrates Court Act 1991 which provides:

   Subject to the Act and the rules, costs in any civil proceedings will be in the discretion of the Court and may be awarded against any person (whether a party to or a witness in the proceedings or not).

   Her Honour also noted that the general discretion thereby conferred is not fettered by any specific provisions contained in the Magistrates Court Rules, citing Gwinnett v Day (No 2).[10]

   [10] [2012] SASC 61 at [14].

2. Her Honour held that the first respondent having succeeded with his claim was entitled to an order for costs and noted that there was no challenge, on the part of the appellants, to the proposition that the first respondent was entitled to an order for costs on a solicitor client basis for the period after 19 April 2013, being 14 days from the service of the filed offer on 5 April 2013.  By the filed offer, the first respondent offered to settle the matter upon a payment of $20,000 plus costs to be agreed or taxed whereas the first respondent was entitled to judgment in the amount of $55,000 plus pre-judgment interest.  Her Honour relied on rule 58(2)(a) of the Magistrates Court Rules as providing an appropriate justification for the appellants’ concession.  Rule 58(2)(a) provides:

   Unless the Court for special reasons orders otherwise:

   (a)a plaintiff who obtains final judgment for a sum of money that is 10 per cent more than the amount of its offer plus the costs and interests due at the time of the offer is entitled to costs on a solicitor client basis after the expiration of 14 days from the date the notice of the offer was served.

3. This form of rule 58 is to be found in the 2013 Magistrates Court Rules which apply to actions commenced on and after 1 July 2013.  For actions commenced prior to 1 July 2013 the cognate rule 59(2)(b) in the 1992 Magistrates Court Rules is, for present purposes, in materially the same terms.[11]  We refer to rule 59(2)(b) again later in these reasons.

   [11]   Although a plaintiff only needed to obtain a final judgment for a sum of money that exceeded the filed offer, unlike with respect to the 2013 rule which requires it to exceed by 10 per cent or more.

4. In any event, the Magistrate went on to consider whether the first respondent should be entitled to an order for indemnity costs for the whole of the proceedings, pursuant to section 38 of the Defamation Act. Section 38 provides as follows:

   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.

5. The Magistrate, in her reasons for ruling, set out the history of the negotiations that we have already summarised.  Her Honour then expressed the following conclusion.[12] 

   Having set out the chronology of events prior to the issuing of proceedings, in my view, the defendants have “unreasonably failed to make a settlement offer or agree to a settlement offer proposed by the plaintiff”.  No offer whatsoever was made by the defendants nor did they ever indicate a willingness to enter into any form of settlement discussions.  The award of damages significantly exceeded the Calderbank offer and the filed offer.  I do not propose to detail my findings other than to repeat that they included findings of express malice and an entitlement to aggravated damages following from the defendants’ failure to apologise, the conduct of the first defendant during the trial including the fact that he “laughed” when he received the initial letter from the plaintiff dated 17 January 2012 and importantly, the fact that he maintained the truth of the defamatory statements in the email despite the complete absence of any objective evidence to support this position.  In all the circumstances, I consider that the plaintiff should be entitled to an order for indemnity costs against the defendants.

   [12]   Reasons for ruling at [13]-[14].

   The first respondent’s claim for indemnity costs notwithstanding the reduction in damages

6. The notice of appeal in this matter purports to appeal against the whole of the Magistrate’s judgment and order that the appellants pay the first respondent’s costs of action on an indemnity basis.  However, there is no ground of appeal relating to the Magistrate’s costs order in favour of the first respondent and no argument was put in either written or oral submissions. 

7. Indeed, the position apparently agreed to by the parties at the end of the appeal hearing was that there was no independent appeal as against the Magistrate’s costs decision and the question of the costs of the trial would only need to be revisited in the event that the appeal were to be successful.  Having said that, the exchange between the bench and counsel for both the first respondent and the appellant on this issue[13] was left in an ambiguous state.  In the circumstances, and given that there has been a relatively substantial reduction in the damages awarded following the appeal, we have taken the view that the Magistrate’s order that the appellants are to pay the first respondent’s costs of the proceedings on an indemnity basis should be set aside and the discretion exercised afresh.

   [13]   Appeal hearing t/s 124.

8. However, the essential landscape that was before the Magistrate has not changed, indeed, it has been confirmed following the judgment on appeal, apart from the reduction in damages from $55,000 to $22,500.  This amount still exceeds the filed rules offer.  Furthermore, the reduction in damages has no impact on the weight to be given to the multiple unaccepted opportunities that were available to the appellants to resolve the matter at no or little expense prior to the receipt of the Calderbank letter and the filing of the rules offer. 

9. Further, the reduction in damages can have no effect on the Magistrate’s finding, with which we agree, that at no time was any offer made by the appellants to attempt to resolve the matter nor did they ever indicate a willingness to enter into any form of settlement discussions. 

10. Section 37 of the Magistrates Court Act 1991 (set out earlier) provides for a general discretion as to the awarding of costs.  This general discretion is at large and is not fettered by rules of court, although it must be exercised judicially and not, for example, capriciously.[14]

    [14]   Rayner v Pethick [2006] SASC 70 (Bleby J) and see also the discussion concerning the analogous section 40(1) of the Supreme Court Act 1935 in Gwinnett v Day (No 2) [2012] SASC 61 at [9]-[15] (Stanley J).

11. When exercising a discretion as to costs judicially, one starts with the proposition that a successful party has a reasonable expectation of obtaining its costs.[15]  Here the first respondent succeeded comprehensively at trial and with respect to quite complex litigation.  The fact that, ultimately, he was awarded damages of $22,500 does not detract from this as a starting consideration.

    [15]   Rayner v Pethick [2006] SASC 70 at [14].

12. However, the appellants submit that they should receive their costs of the proceedings to trial.  In this respect, they rely on rule 106(1)(a) of the Magistrates Court (Civil) Rules 2013.  Rule 106(1)(a) provides for a formula whereby the “successful party” for costs purposes is identified and the costs due to the “successful party” are calculated by multiplying the total “shared costs” (a defined term) by the result of the following formula:

2 x the judgment sum – amount claimed

the amount claimed

The calculated amount where a positive sum results is to be awarded to the plaintiff (as the “successful party”) and where a negative sum results, to the defendant (as the “successful party”).

1. On the appellants’ calculation, using the Magistrates Court current jurisdictional limit of $100,000 as the “amount claimed” in both the numerator and the denominator of the formula and using $22,500 as the judgment sum, a negative is arrived at – thus grounding the appellants’ submission.  There are a number of difficulties with this submission and it is rejected. 

2. The formula applies where judgment is in respect of an action for “a sum of money”.  There is an authority to the effect that the phrase “a sum of money” where used in an earlier, analogous, form of the rule includes an unliquidated claim for damages as well as a liquidated claim.[16]  However, in the case of a claim for unliquidated damages (as, for example, in the present case) it will be necessary in order to apply the formula to identify the “amount claimed”. 

   [16]   Dimitropoulos v Bridgestone Australia Ltd (1995) 180 LSJS 29 (Olsson J).

3. As we understand the position, the rule has been formulated on the assumption that, even though a claim might be for unliquidated damages, the form of claim required to be filed in the Magistrates Court provides for the amount of those damages to be specified.  In other words, and for the purpose of any future application of rule 106, a plaintiff is obliged to “nail their colours to the mast”.  The effect of the formula is that if the damages awarded are less than 50 per cent of the amount nominated as claimed, an application of rule 106 will lead to the plaintiff paying costs rather than receiving costs. 

4. In this case, the matter started in the District Court where there is no requirement to specify (and there is no jurisdictional limit as to) the amount of unliquidated damages claimed.  Indeed, the statement of claim as filed sought only “damages including aggravated damages” together with interest and costs.  When the matter was transferred to the Magistrates Court it does not appear that, as we understand to be the usual case, steps were taken to identify the amount of liquidated damages in fact claimed.  It is unclear how, in these circumstances, the formula in rule 106(1)(a) could be made to work.  It would seem to be for this reason that the appellants submit that the first respondent must be regarded as having sought damages, following the transfer of the proceedings to the Magistrates Court, to the full extent of that court’s jurisdictional limit of $100,000, as it presently stands.

5. It is unnecessary that we resolve this issue for two reasons.  First, rule 106(1)(a) in the form relied on by the appellants came into effect with respect to proceedings commenced after 1 July 2013.  The present proceedings were commenced when originally filed in the District Court on 6 December 2012.  That remains the commencement date notwithstanding the transfer to the Magistrates Court on 30 September 2013.[17]  The 1992 form of rule 106, was in materially different terms.  It did not contain a formula that had the potential to characterise a (conventionally) successful party as the “unsuccessful party”.  Rule 106(1)(a)(i) was in these terms:

   (1)Subject to these Rules or to an order of the Courts, the successful party in an action ... is entitled on judgment to costs against an unsuccessful party ... in accordance with the following principles:

   (a)     where judgment is in respect of an action for a sum of money:

   (i)a successful plaintiff is entitled to costs on the relevant scale in the Third Schedule applicable to the sum actually recovered;

   The earlier form of rule 106(4) provided:

   Where proper cause exists, the Court may order that a successful party is entitled to costs on a solicitor and client basis.

   [17] So much is to be inferred from section 19(3) of the Magistrates Court Act 1991: “When proceedings have been transferred under this section, they may be continued and completed as if steps taking in the proceedings prior to the transfer had been taken in the court to which they are transferred”.

6. Of more importance, is the fact that rule 106, whether the 2013 version with its formula for the allocation of costs or the 1992 version, is in a sense a default position.  It is to give way in cases where the circumstances contemplated by rule 58 of the Magistrates Court (Civil) Rules 2013 or Rule 59 of the Magistrates Court (Civil) Rules 1992 arises.  Rule 58(2)(a) was relied on by the Magistrate and has been set out earlier in these reasons.  It is convenient to set out rule 58 in full.

   58.(1)     In making an order as to costs at the trial of an action, the Court must take into account any offer to consent to judgment, or any payment of a sum of money to the Registrar, and any refusal or failure to accept such offer or payment.

   (2)     Unless the Court for special reasons orders otherwise –

   (a)A plaintiff who obtains final judgment for a sum of money that is more than the amount of its offer plus the costs and interest due at the time of the offer is entitled to costs on a solicitor and client basis after the expiration of 14 days from the date the notice of the offer was served.

   (b)A plaintiff who obtains final judgment for a sum of money that is equal to or less than the amount of any such offer or payment by the defendant plus costs and interest due at the time of payment, is not entitled to costs after the expiration of 14 days from the date the notice of offer or the notice of payment was served and thereafter the defendant is entitled to costs on a solicitor client basis. 

7. The cognate rule 59 of the Magistrates Court (Civil) Rules 1992, applicable at the time the proceedings were initially filed in the District Court, was in these terms.

   59.(1)     In making an order as to costs at the trial of an action, the Court will take into account any offer to consent to judgment, or any payment of a sum of money to the Registrar, and any refusal or failure to accept such offer or payment.

   (2)     Unless the Court for special reasons orders otherwise –

   (a)A plaintiff who obtains final judgment for a sum of money equal to or less than the amount of any such offer or payment by the defendant, if the offer has not been withdrawn before the time of judgment, is not entitled to costs after the expiration of 14 days from the date the notice of the offer was served or the payment was made and thereafter the defendant is entitled to costs on the scale applicable to the amount claimed by the plaintiff; and

   (b)A plaintiff who obtains final judgment for a sum of money equal to or more than the amount of any such offer by the plaintiff, if the offer has not been withdrawn before the time of the judgment, is entitled to costs on a solicitor and client basis after the expiration of 14 days from the date the notice of the offer was served.

8. According to the earlier rule 59, when making an order as to costs at the trial of an action, the court is to take into account any offer to consent to judgment and any refusal of or failure to accept any such offer.  The damages awarded in favour of the first respondent of $22,500 exceed the first respondent’s filed offer of $20,000.  Ordinarily and unless “special reasons” exist such that the court might order otherwise, the first respondent should be entitled, as found by the Magistrate, to an order for costs at least to the extent of costs on a solicitor client basis from the expiration of 14 days from the date the notice of offer was served.  If the circumstances are such that rule 59 applies, rule 106 will have no application.

9. In any event, neither rule 106 nor rule 59 will apply where section 38 of the Defamation Act applies. Section 38 has been set out earlier in these reasons. Subsection (2)(a) provides, in essence, that where costs are to be awarded to the plaintiff, they must 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”.  The only exception to this is where the court is satisfied that the “interests of justice require otherwise”.  In this respect, the definition of “settlement offer” is a broad one.  It will include the Calderbank offer and the filed offer in this case.  However it also, arguably, embraces one or more of the written attempts to resolve the matter made by the solicitors for the first respondent in correspondence prior to proceedings being commenced, provided any of such offers was reasonable at the time it was made.

10. The proceedings could have been avoided entirely and without payment of any damages had the appellants, at a relatively early stage, acted reasonably and accepted the settlement offer proposed in the letter of 8 October 2012 ((vii) above).

11. It remains the case, given the first appellant’s state of understanding of the true facts as found by the Magistrate, that he should have realised, if properly advised, that he most likely would be unsuccessful in establishing at trial that he was unaware of the falsity of the imputations and that he was not actuated by malice. 

12. Nevertheless, the appellants chose to contest all factual issues and a number of legal issues thereby increasing the costs of the dispute.  A rational and practical assessment by the appellants of the first respondent’s prospects of success and as to the risks and the costs of the litigation that was to take place, should have caused the appellants to be willing to explore, from a very early time, a resolution of the matter.  It is not as if the first respondent did not present numerous opportunities for them to do so.  What started out as a relatively straightforward claim in defamation developed into very complex and expensive litigation both at trial and on appeal largely because of the intransigence of the appellants.  At the least, the appellants acted unreasonably in failing to accept the offer of settlement proposed in the letter of 8 October 2012 and/or the filed rules offer.  Further, they acted unreasonably in failing to make any settlement offer of their own.

13. For these reasons we agree with the Magistrate’s decision.

14. Further, and notwithstanding the reduction in damages awarded, we are satisfied that the pre-conditions for the application of section 38 of the Defamation Act have been established in this case.  An order that the appellants pay the first respondent’s costs of the proceedings on an indemnity basis remains appropriate.

15. The appellants contend that, even if the requirements of section 38 are made out, the Court retains a discretion not to apply section 38 where the interests of justice require otherwise. Further, when considering this question and the exercise of the discretion under section 38 generally, the Court may have regard to any other matters the Court thinks relevant.

16. Counsel for the appellant submits that the Court should have regard to the very significant amount of the costs said to have been incurred by the first respondent (in the order of $125,000) the first appellant’s apparent parlous financial circumstances and the fact that the first appellant was at all times acting in what he believed to be the public interest.  In short, it is contended that indemnity costs at trial together with the damages award of $22,500, without even taking into account the appellants’ own costs and those of both parties on appeal, will be ruinous of the first appellant.

1. The Courts regularly find themselves having to make orders concerning the costs of very expensive litigation where an unsuccessful non-professional litigant has been swept along a litigation path that, if unsuccessful, might prove financially ruinous to the litigant.  Ordinarily, impecuniosity will not justify failing to exercise a costs discretion adversely to such a litigant where the judicial exercise of the discretion requires the making of an adverse costs order.[18]  In this case, for the reasons we have set out concerning the appellant’s conduct throughout, it would be manifestly unfair to the first respondent to rely on the first appellant’s impecuniosity to refuse to make what is, according to the relevant principles, the proper costs order.  Finally, given the findings as to the first appellant’s state of knowledge and mind, little, if any, weight can be placed on the continued assertion that he was acting in what he believed to be in the public interest.  He had every opportunity to settle the first respondent’s claim very early, to withdraw the defamatory material yet still press his more generic concerns about the Department’s koala policy and failure to enforce it to the letter.

   [18]   See for example, Hollier v Australian Maritime Safety Authority (No 2) [1998] FCA 975, Yilan v Minister for Immigration and Multicultural Affairs [1999] FCA 1212 at [5], Scott v Secretary, Department of Social Security (No 2) [2000] FCA 1450 at [4].

2. The appellants also submit, in the alternative that there should be no order as to costs, on the basis that the damages award of $22,500 suggests or is consistent with a claim in the nature of or falling within the present limit of the Magistrates Court minor civil action jurisdiction ($25,000). This submission is to be rejected. It pays no regard to the conduct of the appellants as set out earlier or the potential application of rule 59 and section 38. In any event, the claim, as originally filed and therefore as transferred, did not fall within the definition of or the (then applicable) jurisdictional limits for a minor civil action.[19]  The parties did not from the outset or at any time thereafter treat the matter as a minor civil action.  It was hard fought complex litigation with solicitors and experienced counsel from the independent bar on both sides.  Any analogy with a minor civil action, for costs or any other purpose, is significantly less than imperfect.

   [19]   At all material times prior to 1 July 2013 the limit of a small claim (the potentially relevant part of the definition of Minor Civil action) was $6,000.  For matters commenced on or after 1 July 2013, the limit was increased to $25,000.  The limit for a small claim has been recently reduced, for actions filed on or after 29 July 2016, to $12,000. 

3. The appellants submitted, in the further alternative, that the first respondent should only be allowed his costs to be adjudicated in accordance with the Magistrates Court (Civil) Rules.  Our reasons to this point are sufficient to show why this alternative is rejected.

   The application for security for the costs of the appeal

4. The first respondent brought an application for security for the costs of the appeal.  The application came before a Justice of this Court.  After submissions were made, the appellants consented to the application and agreed to provide $20,000 by way of security for costs.  The costs of the application were reserved to the Full Court.  The first respondent seeks an order that the costs form part of the costs of appeal to be payable on an indemnity basis.  In the circumstances, we would make no order as to the costs of this application.

   The costs of the appeal

5. The appellants failed on appeal comprehensively but for the reduction in damages.  There was no economic loss case.  It was simply a matter of the majority on appeal taking a view different from that of the Magistrate as to the extent to which the damage to the first respondent’s reputation should be reflected in a damages award.  The majority also identified the component relating to aggravation whereas the Magistrate provided a global figure.

6. The time and work devoted to the assessment of damages at the appeal stage (and at the trial, for that matter) formed an extremely small component of the overall time and effort involved which was substantial, as a review of the Magistrate’s reasons and the judgments on appeal will demonstrate.  In our view, the first respondent was the successful party on appeal and notwithstanding that the damages award was halved.  Further, there is no suggestion that the appeal would not have proceeded had the Magistrate only awarded $22,500.  We are confident, given the first appellant’s attitude to the dispute which has not changed throughout and the amount of costs incurred as at the end of the trial that the appeal would have proceeded in any event.

7. The first respondent made a further settlement offer to the appellants after the delivery of the Magistrates Court judgment and in an effort to resolve the appeal.  The terms of that offer included: a reduced damages component of $30,000 and payment of costs of $125,000. It is to be noted that section 38 of the Defamation Act does not apply with respect to appellate proceedings.[20]  In the circumstances, we are not satisfied that the appellants acted unreasonably in refusing to settle on this basis.  In the exercise of our general discretion with respect to the costs of the appeal, we take the view that adjudication on a party and party basis is appropriate.

   [20]   Cornes v The Ten Group Pty Ltd & Ors (No 2) [2012] SASCFC 106.

8. Bearing in mind the appellants’ success in having the damages reduced, we would order that the appellants are to pay 85 per cent of the first respondent’s costs of the appeal, if not agreed, adjudicated on a party and party basis.

   Pre-judgment interest

9. Pre-judgment interest is payable for the period from the date of publication (21 December 2011) until the date of the Full Court’s judgment (3 June 2016) approximately four and a half years. The appellants have made submissions in support of an interest rate of 2 per cent resulting in a total amount of approximately $2,000. The first respondent has provided submissions in support of an interest rate of 4 per cent resulting in a total amount of approximately $4,000. Using a broad (albeit small) axe we would order a lump sum of $3,000 in lieu of a precise interest calculation. Post-judgment interest will run at the rate prescribed in accordance with section 35 of the Magistrates Court Act and rule 124 of the Magistrates Court (Civil) Rules 1992, 5 per cent.

   Orders

10. We would make the following orders:

    1.judgment for the first respondent against the appellants in the amount of $25,500 inclusive of interest to the date of judgment, 3 June 2016;

    2.the appellants pay the first respondent’s costs of the action, including the trial, on an indemnity basis;

    3.the appellants pay the second respondent’s costs of the action, including the trial, calculated according to the applicable scale of the Third Schedule of the Magistrates Court Rules;

    4.the appellants pay 85 per cent of the first respondent’s costs of the appeal on a party and party basis;

    5.the appellants pay the second respondent’s costs of the appeal on a party and party basis; and

    6.there be no order as to the costs of the first respondent’s application for security for the costs of the appeal.

11. GRAY J:    Having regard to my view that the appeal should be allowed, I would order the appellants’ costs of the appeal be paid by the respondents.