Szanto v Melville (Ruling)

[2011] VSC 618

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE
COMMERCIAL DIVISION

No. 04694 of 2010

PETER SZANTO	Plaintiff
v
ANTONY JOHN SHAW MELVILLE	Defendant

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JUDGE:	KAYE J
WHERE HELD:	Melbourne
DATE OF HEARING:	24 November 2011
DATE OF RULING:	24 November 2011
CASE MAY BE CITED AS:	Szanto v Melville (Ruling)
MEDIUM NEUTRAL CITATION:	[2011] VSC 618

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COSTS – Defamation proceedings – Calderbank offer and Offer of Compromise – Whether unreasonable for plaintiff not to have accepted offers – Defamation Act 2005 (Vic) s 40(2)(b).

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr M T Lapirow	Lewis Allen Janover
For the Defendant	Ms R B Sion	Millens

HIS HONOUR:

1. In this matter I delivered judgment on 15 November last.  See Szanto v. Melville.[1]  In that judgment, I concluded that the plaintiff’s claim for damages for defamation should be dismissed.  The defendant now applies for costs on an indemnity basis.  That application is based on an offer of settlement made by the defendant to the plaintiff in a letter of 5 November 2010.  Alternatively, it is based on an offer of compromise made by the defendant to the plaintiff on 19 September 2011.

   [1][2011] VSC 574.

1. It is not necessary for me to set out, in any detail, the nature of the plaintiff’s claim.  Basically, his claim was made in respect of a letter dated 13 August 2010, which the defendant sent to the plaintiff, and which the defendant also published to three other legal practitioners.  In my judgment, I found that the letter was defamatory to the plaintiff, and that it bore each of the five imputations pleaded on behalf of the plaintiff.  I was satisfied that the letter was published, to each of the recipients of it, on an occasion of qualified privilege.  On the evidence, which was adduced at trial, I was not satisfied that the plaintiff had proven that the defendant had published the letter with malice, in the sense that he was actuated by an ulterior purpose in publishing it.  For that reason alone, the claim brought by the plaintiff for damages failed. 

1. In my judgment, I also rejected defences, which had been put forward on behalf of the defendant, under s 18 and s 33 of the Defamation Act 2005, and I indicated that, had the plaintiff been successful, I would have awarded to him damages in the sum of $35,000.

1. I turn, then, to the two offers which have been made to the plaintiff, and on the basis of which Ms Sion, who appears on behalf of the defendant in this application, and who appeared as junior counsel trial, applies for orders for indemnity costs.

1. The letter of 5 November 2010 commenced by referring to an offer of amends, which had been made by the defendant to the plaintiff on 30 September 2010, and which I have set out in paragraph 42 of my previous judgment.  The letter of 5 November stated, “The offer of amends did offer to join in publishing a reasonable correction of the matter in question”.  It then enclosed copies of letters dated 4 November 2010, which the defendant had sent to each of the three legal practitioners, to whom the defendant had directly published the letter.  Those letters of 4 November 2010 are contained in paragraph 43 of my previous judgment.

1. The letter then proceeded to state, “The defendant has now not only apologised to Mr Szanto (which apology was contained in the offer of amends) but has published to each of the identified recipients a correct and apology.”  It offered to pay to the plaintiff $1000 together with costs and contained, and ended by retaining the usual warning, pursuant to the decision in Calderbank v Calderbank,[2] that the letter would be used on the question of costs, if the plaintiff did not obtain a judgment more favourable than terms stated in the letter.

   [2][1976] FAM 93.

1. The proceeding in this case will of course be dismissed, and accordingly, and the plaintiff will be ordered to pay the defendant’s costs.  Thus, the plaintiff has not obtained a judgment more favourable than the terms contained in the letter of 5 November 2010.

1. Turning, then, to the offer of compromise which in fact purported to be made under Rule 26 of the Supreme Court (General Civil Procedure) Rules 2005.  That contained an offer by the defendant to compromise the proceeding by paying to the plaintiff the sum of $5000, and the offer was stated to be open for acceptance until 3 November 2011.

1. The plaintiff in fact did not obtain judgment in this case, and accordingly Rule 26.08(3) of the Supreme Court Rules does not apply to the offer, a matter which perhaps might be given some consideration by the Supreme Court Rules Committee. However, the offer of compromise is relied on in two respects, to which I shall now return. In the first place, Ms Sion relies on, as I understand it, each of the two offers, but particularly the latter offer of compromise, in support of an application that the plaintiff pay the defendant’s costs on an indemnity basis from the commencement of the proceeding, pursuant to s 40(2)(b) of the Defamation Act 2005.

1. That section provides that a court must, unless the interests of justice otherwise require, order costs of and incidental to proceedings to be assessed on an indemnity basis, if a plaintiff has been unsuccessful in those proceedings, and if the court is satisfied that the plaintiff unreasonably failed to accept a settlement offer made by the defendant.  In Haddon v Forsyth (No.2)[3] Justice Simpson held that, on its plain interpretation, that section provided that, if a plaintiff had unreasonably failed to accept a settlement offer made by a defendant, the plaintiff was obliged to pay indemnity costs from the outset of the proceeding.

   [3][2011] NSWSC 693, at paragraph [4].

1. Ms Sion relies on both of the two offers of compromise, but particularly the offer made on 19 September 2011, in support of an application for costs from the outset of the proceedings, pursuant to s 40(2)(b) of the Defamation Act.  Alternatively, Ms Sion seeks an order for indemnity costs from the date of service of either the first offer, or the day after the service of the first offer, that is 6 November 2010, or the day after the service of the second offer, that is 20 September 2011, pursuant to the Calderbank principles.

1. Those principles were given consideration by the Court of Appeal in Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2).[4]  In that case, the court held that there is no presumption that a party, rejecting a Calderbank offer, should pay the offeror’s costs on an indemnity basis, if the offeree achieved a less favourable result by verdict of the offer.  The court[5], stated that the critical test is whether the rejection of the offer by the offeree was unreasonable in the circumstances. In other words, the test to be applied is stated in very similar terms to that set out in s 40(2)(b) of the Defamation Act.

   [4](2005) 13 VR 435.

   [5]At paragraph [23].

1. At paragraph [25] of the decision, the court, helpfully, specified some six factors, to which the court ought to have regard, in determining whether the plaintiff acted not unreasonably in not accepting the offer made to him or her.

1. Thus, the critical question in respect of the Defamation Act, and certainly a central question in relation to the application of the Calderbank principles, in this case, is whether it was not unreasonable for the plaintiff to have rejected the offers made to him, and on which Ms Sion relies.

1. I have come to the conclusion, having given this matter some consideration, that it was not unreasonable for the plaintiff not to have accepted either of the two offers.  In relation to each of those two offers, in my view, at the date at which both of those offers were made, on the information which was then available to the plaintiff, I consider the plaintiff had a proper basis to expect that he had reasonable prospects of success in the claim for defamation brought by him.

1. In relation to the first offer, that is of 5 November 2010, in my view the reasonableness of the plaintiff’s non acceptance of that offer is reinforced by the nature and contents of the offer contained in it, a matter to which I shall shortly return.

1. In brief, I have come to the conclusion that it is not unreasonable that the plaintiff, on the information then available to him, not to have accepted the two offers for the following reason.

1. The starting point is, of course, the letter of 13 August 2010, on which the claim was based.  That letter was clearly defamatory, and indeed, seriously so, of the plaintiff.  There was no suggestion at all made by the defendant, in correspondence or in his defence, that the serious allegations made by him were true.  The defence, which had been pleaded by the time the first letter of 5 November 2010 was sent, did plead a defence of qualified privilege, which prima facie was available to the defendant.  It is, of course, trite that that defence could only be overcome by the plaintiff if the plaintiff were to establish malice.  In this context, the establishment of malice would require the plaintiff to prove that the defendant was actuated by an ulterior motive.  That is a matter which is essentially a fact to which the defendant alone would be privy.

1. The defendant alone knew what had actuated him in writing such a serious letter about a fellow practitioner.  However, at that time, in my view, the plaintiff had appropriate grounds to consider that he might be able to establish the existence of an improper ulterior motive, of the type which was in fact relied on at trial.

1. Firstly, the letters, in which the defendant had asserted rather vigorously an entitlement to the return of the ASIC releases, did not state or identify, at all, the basis on which the defendant maintained that right, notwithstanding the requests by the plaintiff, in his letters of 27 July and 4 August, that the defendant clearly state to him why he was seeking the return of the releases.  Thus, at that stage, and particularly at the stage at which Unit 113 was settled, the plaintiff was entitled to consider that the claim by the defendant to the ASIC releases was not made on any appropriate foundation. 

1. At the time at which the defendant first asserted a right to return the ASIC releases, the plaintiff had already served notices of rescission in respect of the sale of apartments in the Ascot Vale development to clients of the defendant and to a company of which the defendant was director.  The defendant responded to those notices in letters, which were expressed in particularly strong terms, vigorously contesting the validity of the notices, and alleging that the plaintiff had acted without instructions in serving the notices of rescission, an allegation which, I must say, is a rather serious allegation.

1. During that critical period, the letters which the defendant sent to the plaintiff concerning the term of the ASIC releases, and contesting the validity of the rescission notices, were written in especially truculent terms, containing allegations of wrongdoing against the plaintiff, and reciting rather strong threats of various legal consequences, if the plaintiff did not accede to the positions being asserted on behalf of the defendant.  In my view, the nature and tone of those letters by the defendant, the coincidence in point of time of, on the one hand, the demands made by the defendant for the return of the ASIC releases, with, on the other hand, his correspondence challenging the rescission notices, and the continued failure of the defendant to specify the basis on which he claimed to be entitled to the return of the ASIC releases, would have justified the plaintiff in considering that, before trial, he had a reasonable basis for establishing the existence of malice, namely, that the defendant was embarking on a pattern of intimidation towards him in order to try to overcome the effect of the rescission notices that had been served on the defendant’s clients and on a company of which the defendant was a director.

1. It is correct, as Ms Sion has pointed out, that the proof of malice in a defamation proceeding is quite difficult, and indeed does not often succeed.  In the end, on the evidence in this case, I was not satisfied, on the balance of probabilities, that the plaintiff had proven malice on behalf of the defendant, notwithstanding the matters to which I have just referred.  However, the conclusion which I drew in relation to that was formed with the benefit of having had the opportunity to have observed Mr Melville in evidence and in cross-examination, and to have observed also and heard from two of the solicitors, Ms Armstrong and Mr Brown, who gave some evidence which was relevant to the background commercial matters relating to the proceedings.

1. The important matter, from the point of today’s application, is the perspective of the plaintiff at the time at which he received and reviewed each of the two offers.  In my view, he not having had the opportunity then to hear from Mr Melville, see him in a curial setting or hear him cross-examined, the plaintiff at that time, on the matters to which I have just referred, had a reasonable basis for considering that he had at least a respectable prospect of proving malice on behalf of the defendant, of the type which it was alleged at the trial of this proceeding.  Thus, in my view, it was not unreasonable for the plaintiff, at the time at which he received those offers, to consider that he had a fair prospect of winning the proceeding.  It was not unreasonable for him not to have accepted either of those two offers.

1. I turn to the second matter, which I had previously foreshadowed, that is the nature of the offers, particularly the first offer.  The following matters in relation to the offer of 5 November can be noted.  Firstly, the offer made by the defendant’s solicitor of 5 November twice stated that the defendant had offered to make a correction, and had indeed published a correction, as well as an apology, to the plaintiff.  That was simply not correct.  The original offer of amend of 30 September did not contain any offer of a correction, and the letters which the defendant’s solicitor wrote to the three recipients of the letter of 13 August, those letters each being dated 4 November, did not contain any correction.  This is so, notwithstanding that, in correspondence before the proceeding was issued in this case, the plaintiff twice demanded of the defendant that he withdraw the serious allegations made against him. 

1. The second matter which is relevant in relation to the letter is this.  The letters which were sent to each of the three recipients, dated 4 November, simply acknowledged that the defendant’s letter of 13 August, “Was or may have been defamatory.”  On its face, that characterisation of the letter of 13 August was, with respect to it, a nonsense.  The letter of 13 August, written by the defendant about the plaintiff, was plainly and unarguably defamatory of him. 

1. It was argued on behalf of the defendant that the letters of 4 November simply followed the verbal formula relating to an offer of amends contained in s 15(1)(e).  I do not agree that a party, wishing to make an offer of amends, must slavishly follow the language set out in that subparagraph.  If, in fact, a defamatory publication is clearly defamatory, then it would seem to me that that ought to be acknowledged in a letter of amends.  The alternative, that it may be defamatory, is left open in the statutory provision to a defendant wishing to make an offer of amends, in a case in which it is arguable whether or not the original publication was defamatory.  However, that observation is not directly relevant.  The simple point is that the letters to the recipients did not contain, as it ought to have, a plain acknowledgement that the defendant had defamed the plaintiff, and it is understandable that the plaintiff might have taken some exception to the way in which those letters were expressed, as indeed he stated in his evidence that he did so.

1. The third matter in relation to the letter of 5 November is this.  The offer was of the sum of $1000 damages.  In my view, that offer could be properly characterised as derisory.  If the plaintiff succeeded, it was clear that he would be entitled to an award of damages substantially in excess of such an amount.  As I noted in my original judgment, and also in these reasons, the allegation made by the defendant about the plaintiff was particularly serious.  The amount of damages, which I would have awarded were, however, affected by the fact that it was published to a limited audience.  However, the fact remains that it was published to three fellow legal practitioners, each of whom were members of established and respected law firms who conduct practice in this State.  As such, it is fully understandable that the letter deeply hurt the plaintiff, as I observed it to have done.  In those circumstances, in my view, the offer of $1000 could properly be characterised as nominal or derisory, and one can understand the plaintiff acted reasonably considering it to be so.

1. Based on those matters, in my view, it was clearly not unreasonable for the plaintiff to have rejected or not accepted the offer of 5 November.  In respect of the offer of 19 September 2011, the principles relating to the plaintiff’s expectations in relation to the trial are identical, as I have already stated.  I consider that the plaintiff at that time was entitled to have a not unreasonable expectation that he had good prospects of success, based on the matters to which I have already referred. 

1. The offer of compromise was in a different form because it purported to be made under the rules.  It offered an amount, which would have fallen well short of the amount of damages available to the plaintiff and which indeed I consider would have been payable to the plaintiff.  In those circumstances, I consider it was not unreasonable for the plaintiff to have not accepted that offer.

1. Based on those conclusions, it follows that I would not award the defendant indemnity costs pursuant to s 40(2)(b) of the Defamation Act.  Nor am I minded or nor would I award the defendant indemnity costs either from the date of the first offer or the second offer pursuant to the principles stated in Calderbank.  As I have stated, in my view, whilst the discretion is broader pursuant to the Calderbank principles, nevertheless, as the Court of Appeal has stated in Hazeldene Chicken Farm, the important test is whether the plaintiff, at the particular time, at which he received the offer, acted unreasonably in not accepting it.  For the reasons, I have stated, I do not consider the plaintiff acted so unreasonably.  In my view, to the contrary, I would be positively persuaded that his non-acceptance at that time was quite reasonable.  The fact that the plaintiff, ultimately, was unsuccessful in the case is not the point.  The critical viewpoint is at the time at which the offers were made.

1. For those reasons, I reject the application made to me this day that the plaintiff pay the defendant’s costs on an indemnity basis.  Rather, the costs which will be paid by the defendant to the plaintiff will be on the usual party/party basis.