Yunghanns v Colquhoun-Denvers

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S EAPCI 2020 0015

PETER NICHOLAS YUNGHANNS	Applicant
v
NICHOLAS COLQUHOUN-DENVERS	Respondent

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JUDGES:	TATE, KYROU and NIALL JJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	17 September 2020
DATE OF JUDGMENT:	10 February 2021
MEDIUM NEUTRAL CITATION:	[2021] VSCA 15
JUDGMENT APPEALED FROM:	[2019] VSC 853 (T Forrest J)

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COSTS – Defamation proceeding – Claim and counterclaim dismissed – Application before primary judge by unsuccessful plaintiff for defendant to pay one-third of costs of claim – Plaintiff ordered to pay defendant’s costs of claim on standard basis – Defendant ordered to pay plaintiff’s incremental costs of counterclaim on standard basis – Whether judge erred in failing to give due consideration to defendant’s conduct in response to plaintiff’s attempts at settlement – Whether judge fettered his costs discretion by treating rule of taxation as a binding principle of law – Whether costs orders unreasonable and plainly unjust – Smith v Madden (1946) 73 CLR 129, Dimos v Willetts (2000) 2 VR 170, WorkCover Authority v Adventure Park Pty Ltd [2019] VSC 270, discussed – Defamation Act 2005 s 40 – Civil Procedure Act 2010 ss 9, 20, 22, 24 and 65C – Leave to appeal granted – Appeal dismissed.

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APPEARANCES:

Counsel

Solicitors

For the Applicant

Mr D Collins QC with

Mr I Percy

Strongman & Crouch

For the Respondent

Mr B Walker SC with
Dr S Baron Levi

Batten Sacks

TATE JA
KYROU JA
NAILL JA:

TABLE OF CONTENTS

Introduction and summary.......................................................................................

1

The defamation proceedings......................................................................................

3

Commencement of proceedings......................................................................................

3

The mediation.................................................................................................................

8

The principal judgment..................................................................................................

11

The Defamation Act — costs...................................................................................

16

The costs judgment.....................................................................................................

17

Grounds of appeal........................................................................................................

25

Did the judge err in failing to consider various statutory prescriptions in the context of the response failures?...............................................................................

27

Did the judge adopt the mistaken approach?.........................................................

37

Are the costs orders unreasonable or plainly unjust?...........................................

49

Conclusion ...............................................................................................................

52

Introduction and summary

Peter Yunghanns (‘PY’) and Nicholas Colquhoun-Denvers (‘NCD’) have both occupied senior positions in the Federation of International Polo (‘FIP’) over a long period of years. PY unsuccessfully brought a defamation proceeding against NCD on the basis of statements NCD had made which imputed that PY was dishonest and irresponsible, had made false allegations and was guilty of sufficient misconduct to warrant him being declared persona non grata. NCD was, however, unsuccessful in a counterclaim against PY in which he alleged that he had been defamed by statements made by PY that, amongst other things, carried the broad meaning that, as President of the FIP, he had engaged in gross financial mismanagement, approved reports he knew to be false, and engaged in duplicitous and misleading behaviour. The primary judge dismissed the claim and the counterclaim and there is no appeal from the principal judgment.[1] With respect to costs, the judge made orders that, on the claim, PY pay NCD’s costs on a standard basis, and, on the counterclaim, NCD pay PY’s incremental costs on a standard basis (‘the costs orders’).[2]
[1]Yunghanns v Colquhoun-Denvers [2019] VSC 433 (‘Principal judgment’).
[2]The costs orders were made on 20 December 2019, on the papers: Yunghanns v Colquhoun-Denvers (Costs) [2019] VSC 853 (‘Costs judgment’).

PY now seeks leave to appeal from the costs orders, and, if leave is granted, for the appeal to be allowed.[3] PY submits that the judge should have ordered that, on the claim, NCD pay one-third of PY’s costs[4] but, in the alternative,[5] that each party should bear their own costs of the claim due to the failure of NCD to respond to offers made by PY. PY also seeks leave to amend his grounds of appeal[6] by adding new grounds, principally on the basis that the judge fettered his discretion by applying the principle that a plaintiff is only entitled to the costs of defending the counterclaim which are additional to the costs of the claim, when there is no such binding principle (‘the mistaken approach’). Argument over whether the judge adopted the mistaken approach lies at the heart of the appeal. PY also submits that the costs orders are unreasonable or plainly unjust. NCD submits that PY has failed to show any House v The King error in the judge’s exercise of his discretion in making the costs orders.[7]
[3]In what follows, for convenience, where relevant, we refer simply to ‘the appeal’, ‘grounds of appeal’ and so on.
[4]With the exception of previous costs orders made in favour of one or other of the parties.
[5]This was clarified at the hearing of the appeal. It was conceded that the application for an order that NCD pay one-third of the costs of the claim was probably over-reaching.
[6]The Court reserved the question of leave to amend.
[7](1936) 55 CLR 499, 504–5; [1936] HCA 40.

For the reasons that follow, we consider that the judge’s costs discretion did not miscarry. We would grant leave to amend the application for leave to appeal to add the additional grounds of appeal. We would refuse leave to appeal on Grounds 1 to 4 and additional Ground 5. We consider that leave to appeal should be granted in respect of Ground 6 of the additional grounds of appeal but the appeal should be dismissed.

The defamation proceedings

There was an angry exchange between PY and NCD over a period of years leading up to the defamation proceeding brought by PY.

Commencement of proceedings

FIP is an international body that represents the sport of polo. Both PY and NCD play polo and are passionate about their involvement in the sport. They have both held senior positions in the FIP. PY was a member of the Executive Committee of the FIP in 2012. The judge found that PY ‘had served [the] FIP and the broader polo community for decades. He had contributed vast amounts of time and money to the sport’.[8]
[8]Principal judgment [151].

In 2012, PY was disparaging of the way in which officers of the FIP discharged their duties. NCD was also a member of the Executive Committee of the FIP in 2012 and became the President-elect. In 2014, NCD became President of the FIP and retained that position at the time of the trial.

PY is a former solicitor and a successful businessman. He was volubly critical of the efforts — or in his eyes, the lack of effort — of the FIP administration, particularly Dr Richard Caleel (‘Caleel’), NCD’s immediate predecessor as the FIP President, whom he regarded as incapable of governing the FIP in a proper manner. The judge found that PY engaged in ‘trenchant criticisms’ of the FIP’s administrative processes and governance over years, and while there ‘was usually some point to the criticisms to do with a failure of governance or administrative process, … by lacing those criticisms with insults and personal abuse, … [PY] did himself a significant disservice.’[9] This ‘verbal war’[10] on the administration of the FIP included sending ‘scores of insulting emails’.[11]
[9]Principal judgment [467].
[10]Principal judgment [467].
[11]Principal judgment [468].

The judge noted that ‘[f]or years, [the FIP] remained silent; no doubt in hope that PY, deprived of oxygen, would eventually lose interest’.[12] However, on 3 November 2015 NCD sent an email addressed to ‘FIP Members and friends’ outlining the issues with PY, the steps the FIP had taken on those issues, and responding to what NCD described as unfounded and false accusations being made by PY about the FIP and its officers, including allegations of financial mismanagement (‘the November 2015 email’). Both the November 2015 email and a later email NCD sent on 3 December 2015 (‘the December 2015 email’), contained statements that imputed, amongst other things, that PY had made false allegations, was dishonest and irresponsible in his dealings with the FIP, and was guilty of sufficient misconduct to warrant him being declared persona non grata.
[12]Principal judgment [470].

On 18 February 2016, the solicitors for PY sent an email to NCD asserting that he had recently made and published statements that were defamatory of PY, identified as the November 2015 and December 2015 emails, which caused him distress and damage. The email attached a ‘concerns notice’ pursuant to s 14 of the Defamation Act2005. The email concluded: ‘Please tell us which firm of solicitors you intend to retain in this matter.’ The concerns notice identified the imputations of concern in the November 2015 and December 2015 emails and informed NCD that he was ‘entitled to make an offer to make amends within 28 days’ with reference to s 15 of the Defamation Act which prescribes the form and possible content of an offer to make amends.

On 31 March 2016, PY filed a writ in the Supreme Court.[13] By 23 March 2017, NCD had filed an amended defence and counterclaim. The counterclaim alleged that he had been defamed by PY in three emails published on 6 November 2015, 22 December 2015 and 30 May 2016, respectively. The judge summarised the complaints made about these three emails in the following terms:

[NCD] claimed that various statements made in the first two emails carried the broad meanings that he failed to account for US$600,000 that was provided to FIP, engaged in gross financial mismanagement, may have made improper use of the US$600,000, and engaged in fiduciary mismanagement, including perhaps applying funds held by FIP to an improper purpose. The final email is said to repeat these broad allegations and to further allege that [NCD] approved reports knowing them to be false, and engaged in duplicitous and misleading behaviour.[14]

[13]There followed over the ensuing year various interlocutory disputes about whether service out of the jurisdiction had been authorised (NCD being a resident of the United Kingdom) and about the adequacy of the defence and counterclaim sought to be filed by NCD and the discovery made by him.

[14]Principal judgment [6].

Directions were made in preparation for the trial on 12 May 2017. These included a direction that the proceeding be referred to a mediator. In correspondence between the parties, NCD indicated that the earliest he would be available for a mediation in Australia would be 1 November 2017 but, if it was held in London, he would be available by the end of July 2017.

On 6 October 2017, PY sent an email to a number of recipients,[15] including Caleel but not including NCD, addressed to ‘Dear Members’ with the subject line ‘FIP’s Financial Resources’ that contained an ‘open’ offer. It said that PY had served a concerns notice after he considered NCD had accused him of making spurious and unfounded allegations and false accusations. This email noted that NCD had not responded to the concerns notice or to any of the requests from PY to identify which allegations made by PY were spurious or unfounded and which accusations were false. The email notes, referring to NCD: ‘He refused to apologise, or to discuss how my complaints might be resolved without legal proceedings. So I issued my Writ.’ PY said he assumed that the legal costs of NCD would be funded by the FIP’s Directors’ and Officers’ insurer and expressed concern that members of the FIP not be called upon to pay any costs that exceeded the cap in funding under the insurance policy. He asked for details of the insurance cover and how the legal costs of NCD were being funded. He also expressed apprehension that costs could well exceed any damages a jury might award and noted that he did not expect huge damages. He suggested that NCD’s ‘rash statements’ were ‘in no way concerned with FIP’s objectives of developing Polo throughout the world’.
[15]This email was annexed to PY’s submissions on costs before the judge.

The 6 October 2017 email continued to the effect that PY was aggrieved by:

The fact that there was no response by the Defendant [NCD] to the Concern[s] Notice and that the Defendant has:
1. refused an early mediation;
2.three times had his defence either struck out or not approved by the Court;
3.challenged the jurisdiction of the Court which challenge failed;
4.had penalty Orders made against him for failing to comply with the discovery orders of the Court;
5.made claims that his failure to comply with the Orders was because his Counsel had to be in London to inspect the documents. (Surely, a fatuous and tendentious statement?)
6.had several costs orders made against him by reason of his various failures and defaults; and
7.specifically refused to authorise an offer by the Founder, Marcos Uranga, to intercede.
…

I have pointed out to both the President and Chief Executive that discussion often solves matters and it certainly can never do any harm. Such advice, unfortunately, fell on deaf ears.
This is where we are. Costs will continue to escalate. They should not be borne by FIP, as, if FIP was to bear these costs, it would surely test FIP’s resources. If FIP has paid any legal costs on behalf of [NCD], they should seek to recover them from him.
Of course, the proceedings are only uncommercial in money terms. My reputation is at stake, and I want an apology. If I have to spend big money to prove my point, so be it. Fortunately, I am in a position where the legal costs will not trouble me, but if FIP has improperly paid [NCD’s] legal costs and continues to do so, this should surely trouble FIP and in particular, its finance committee.
My Writ won’t go away. Defending my Writ, even if you were to succeed, will contribute nothing to the international world of polo. It is simply a case of hubris and ego incurring costs to the detriment of the polo community and in breach of its Mission Statement.
…
[NCD] has declined to go to early mediation. In fact, he has specifically refused to allow the Founder, Marcos Uranga, to intercede in an endeavour to resolve the situation. Instead, he has run up costs way out of proportion to an amount that may be awarded for damages. Had [NCD] approached me at the outset, and tried to sort out our differences, I would have responded in kind. He refused my written invitation to do so, and now we are where we are.
In an endeavour to resolve this matter, principally to preserve FIP’s resources and to ensure they recover any moneys improperly paid for [NCD’s] legal costs, I am prepared to make an open offer. If that offer is not accepted, and judgment is entered in the proceeding on terms equally or more favourable to me than the terms of this offer, I reserve the right to rely on this and related correspondence to seek an order that your client pay our client’s costs of the proceeding from the date of the offer on an indemnity basis. If FIP is paying [NCD’s] costs, you should understand that fact may expose FIP to an order that FIP also pay my costs when I win. Under Australian law, if the Plaintiff wins, the Defendant ordinarily pays the Plaintiff’s costs either on a taxed or indemnity basis.
…
I am not frightened to make the first move and to lift my skirt, so to speak. I want:
·     An unqualified apology.
·     $50,000 damages. [Please note: I regard this as a nominal sum, and much less than I will get from a Jury. However, I would be willing to accept this amount because what is really important to me is an apology.]
·     Costs on the standard basis.
·     Mutual releases.

This is an open letter and an open offer which will remain open for 21 days. Hereafter, I may seek to rely on it if I have to go to trial.
I will arrange for my solicitors to send a copy of this letter to [NCD’s] solicitors so that he is informed of it. However, I am writing to you because I think you are footing the bills. I always prefer to deal with the organ grinder rather than the monkey.[16]

[16]Emphasis added.

PY did not in this email, or otherwise, make an offer to NCD in response to the counterclaim to withdraw his statements, make an apology or pay any damages.

The parties exchanged correspondence in relation to the foreshadowed mediation during which concerns were expressed about the date and attendance of the parties.

PY’s solicitors referred to the open offer made in the 6 October 2017 email, which had been forwarded to NCD’s solicitors, and noted:

[N]o response has been received by your client to our client’s 6 October 2017 correspondence. Given your client’s apparent eagerness to proceed with a mediation on 1 and 2 November 2017, we do not understand why he has not responded to a bona fide and, in our view, very reasonable offer of settlement.
In any event, notwithstanding your client’s lack of response to these attempts to resolve the dispute, our client remains willing and desirous of attending mediation at a mutually convenient date in an attempt to resolve this matter.

Further terse correspondence ensued between the parties in relation to the likely date for mediation, the availability of PY and NCD, and whether it would take place in Melbourne or London or elsewhere. NCD proposed that the mediation take place in Buenos Aires as both NCD and PY would be attending there for FIP meetings. NCD indicated that the mediator’s airfare and accommodation would be paid for and that PY would not be responsible for those costs. However, PY rejected this proposal on the basis that his business commitments meant he was unable to be there at the relevant time.

The mediation

The mediation eventually took place on 6 March 2018 in Melbourne. Both PY and NCD attended with their legal representatives. Mr Harvey Bruce (‘Bruce’), the solicitor for NCD, filed an affidavit in the trial in response to PY’s submissions on costs, deposing to his recollection of what occurred at the mediation, noting that he could only say what the mediator undertook to convey to PY and not what was actually said. Both parties have granted a waiver of without prejudice privilege in respect of offers made and communications that occurred at the mediation.[17]
[17]See [80]–[81] below.

The mediation commenced at 9:00am with a joint session with the mediator, Mr Ruskin QC (‘the mediator’) starting at 10:10am. The mediator spoke, PY then declined to speak, and NCD spoke until the joint session concluded at 10:15am, when the parties went into separate rooms for private sessions with the mediator. At 10:50am the mediator conveyed an offer to NCD from PY in the following terms:

The terms of the settlement offer are as follows:
a.[NCD] will issue an apology which they [PY’s representatives] have drafted;
b.[NCD] will pay damages of $300,000;
c.[NCD] will pay costs of $500,000 on the basis that [PY’s] actual costs are presently $740,000; and

d.[NCD] will withdraw his counterclaim.
The apology they want is as follows:
On [NCD’s] Letterhead
To whom it may concern,
Apology to [PY]

On 3 November 2015 and 3 December 2015, I published emails to members, executives and associates of the Federation of International Polo (FIP) concerning issues raised by [PY] with respect to the administration and governance of FIP.
In those emails, I stated that the issues raised by [PY] with respect to FIP’s governance amounted to false, spurious, unfounded and vindictive accusations.
I now acknowledge that my statements were untrue, and I unreservedly withdraw them.

I now accept that [PY] was raising issues with respect to the administration and governance of the FIP for the benefit of members and the sport of polo generally. I now also accept that he was improperly declared persona non grata.
I sincerely and unreservedly apologise to [PY] for any hurt or distress my statements may have caused.

The mediator then discussed for an hour or so with NCD and his team what response he should convey and, according to Bruce, the mediator summarised that response as containing a counter-offer by NCD in the following terms (‘the counter-offer’):

I shall convey to [PY] the following which you have asked me to convey:
That you are very disappointed following the joint session that this is the offer they have made. It is 6 times the damages amount they previously said they wanted. That is not in the right spirit and is the sort of offer that would have to be reciprocated, but that would not be productive either.
It will be conveyed that [NCD] will agree to the withdrawal of the claim and counterclaim.
It will be conveyed that [NCD] would be willing to consider a joint statement with neither party accepting blame but both expressing general regret that it has come to this, the actual text to be negotiated.
It will also be conveyed that while [NCD] is open to discussing the possibility of payment of costs and damages, that would only make sense if the parties can agree on the other points first — and I shall indicate to [PY] that I do not believe realistically he would be offered any payment, either in damages or costs.

Bruce deposed that the mediator returned some 40 minutes later with a response to the following effect:

[PY] has conveyed that they will not be proceeding down the track you proposed. They said that [PY’s] first offer is the only offer he will be making. They re-put that offer:
It is not $300,000 in damages. That was a misunderstanding. They want:
1.Damages of at least ‘low 3 figures’ — that is, damages of at least $100,000;
2.$500,000 in costs, where their actual costs are $740,000.
3.An apology in the form I read to you.

They said this is their final offer — and it will remain open only until 1pm — which is in 20 minutes time, after which point they said they will be leaving.

After further discussions, the mediator said to NCD:

I will convey to [PY] your concern that they made an undertaking to mediate until 9pm. And point out that you came from overseas for this mediation. I will also put to them the question you have asked me to put — namely, whether there is any utility in the lawyers talking.

The mediator returned shortly thereafter and told NCD’s party:

I raised your concern that they undertook to mediate in good faith up until 9.00pm. Their response was that they will keep their offer open until 8pm this evening. The offer remains open on a take it or leave it basis only.
They said that they will still be leaving now, but the offer can be accepted by email.
They are not interested in the lawyers talking.

About 1:22 pm the mediator declared that he was ending the mediation.

On 23 March 2018, PY’s solicitors sent an email containing a further open offer, said to be open for 21 days:

This is an open letter.
We are instructed to submit the following open offer to your client, namely that the claim and counterclaim should be settled on the following basis:
1.An apology in the terms of the attached form to be given by [NCD] to [PY].
2.$50,000.00 in damages be paid by [NCD] to [PY]. (Please note that [PY] regards this as a nominal sum and much less than he would get in any judgment after trial).
3.Costs incurred by [PY] in prosecuting his claim and defending the counterclaim be paid by [NCD] to [PY] on the ‘standard’ basis and by reference to the Supreme Court scale.
4.Both claim and counterclaim to be struck out.
5.Mutual releases.
This offer is open for acceptance for 21 days from today.[18]

[18]Emphasis in original.

The form of the apology attached to the email was in the following form:

[On the letterhead of [NCD]]
Dear [PY],
I apologise to you for the derogatory statements I made about you in the emails I published about you and which are dated 3 November 2015 and 3 December 2015.
I withdraw those statements. I will not repeat them, and I regret that they were made.

The matter did not settle and it proceeded to trial.

The principal judgment

Some of the critical conclusions reached by the judge can be summarised as follows:

(a) The two relevant emails sent by NCD (the November 2015 email and December 2015 email) were published in Australia and the United Kingdom and republished;[19]
[19]Principal judgment [83], [89]–[91].

(b) As conceded by senior counsel for NCD at trial, the November 2015 email conveyed the imputations that PY: (1) makes, and persists in making, accusations that are not genuine, authentic or truthful; (2) makes false allegations; (3) is dishonest and irresponsible; and (4) is guilty of such misconduct that warrants him being declared persona non grata;[20]
[20]Principal judgment [92]–[94], [100].

(c) PY failed to establish that the November 2015 email conveyed that he had acted in such a way as to threaten or undermine major sponsors of the FIP;[21]
[21]Principal judgment [98].

(d) In relation to the December 2015 email, again without dispute by NCD, the imputations conveyed were that PY: (1) makes accusations that have no factual foundation; (2) makes irresponsible statements in his dealings with the FIP; (3) makes dishonest statements in his dealings with the FIP; (4) is vindictive; and (4) is guilty of such misconduct that warrants him being declared persona non grata;[22]
[22]Principal judgment [106].

(e) The imputations in the November 2015 and December 2015 emails were defamatory;[23]
[23]Principal judgment [108].

(f) NCD did not dispute that imputations in the November 2015 email and the December 2015 email were defamatory, but said he was justified in making them because they were substantially true;

(g) NCD relied on 10 separate instances to establish the truth of the defamatory imputation that PY made accusations that were not genuine, authentic or truthful, namely, accusations in respect of: the FIP’s by-laws; the FIP’s bank account; a report to the Council of Administration of the FIP; the failure to elect members from certain countries; inserting fake entries on the FIP’s website; the Super Nations Tournament; the election of a CEO; alleged commitments; the FIP’s accounts; and a Polo Development Fund;[24]
[24]Principal judgment [115].

(h) PY was ‘an honest witness who, by and large, accepted the content of the contemporaneous evidence and the inferences that flowed from it’, although he was ‘occasionally irritable, bordering on cantankerous’, with a tendency to be defensive and downplay the frank abuse in some of his more colourful emails;[25]
[25]Principal judgment [119].

(i) NCD was also ‘essentially an honest, decent person’ who impressed the judge ‘as a careful and conscientious witness, who was prepared to make sensible concessions when the occasion demanded’ despite giving his evidence while recuperating from a broken femur and while in some pain at times when ‘his concentration levels seemed to vary’;[26]
[26]Principal judgment [120].

(j) PY had been treated poorly after many years of service and contribution, and ‘deserved better than summary dismissal notified in an email.’[27]
[27]Principal judgment [151]. The removal of PY from the Executive Committee took place over a period of time from about April to June 2013.

(k) Although the judge found there was financial incompetence and inertia on the part of the FIP in opening new bank accounts, the allegations by PY in emails that this incompetence and financial ineptitude was the sole cause of the FIP being financially embarrassed in 2014 were factually incorrect as PY was jointly responsible after he refused to continue administering the FIP’s bank accounts following his removal from the Executive Committee. The judge concluded that NCD had established that PY acted vindictively and that his ‘prolific use of pejorative language evidences the conduct of a person who was seeking vengeance.’[28] However, these accusations were not made irresponsibly or dishonestly.[29]
[28]Principal judgment [208].
[29]Principal judgment [206]–[211].

(l) An allegation made by PY that a report into the closure of the FIP’s bank accounts (‘the Taylor report’) contained fabricated and totally misleading material was not a genuine, authentic or truthful allegation; it was false. However, that allegation was not made dishonestly or irresponsibly.[30]
[30]Principal judgment [230]–[231].

(m) Accusations by PY that the FIP, as a result of Caleel ignoring the FIP’s Constitution, had failed to elect members of certain countries to the FIP’s Council of Administration and had placed fake entries on the FIP’s website were ‘strongly worded, particularly offensive and entirely incorrect’ and predicated on an incorrect understanding of the relevant article in the FIP’s by-laws. Although the judge found the accusations were not made dishonestly, he concluded PY made them irresponsibly and ‘a little more thought would have caused him to question the foundations of his criticism.’[31]

(n) Accusations made by PY ‘in intemperate language’[32] that Caleel had lied about the FIP delegating the running of a polo event to a non-existent entity in order to avoid his responsibilities as President of the FIP and that he had ‘a penchant for lying’ were ‘part of a larger campaign to discredit [Caleel] and the FIP administration in every conceivable manner.’[33] The judge found the accusations were incorrect and that the foundation of PY’s attacks was a ‘firmly held and mistaken’ belief, with the result that they were made irresponsibly.[34]

(o) Allegations by PY that the FIP’s new CEO appointed himself in 2014 without due process were factually incorrect and made irresponsibly given that there was no evidence that PY made any efforts to check the validity of his conclusion, but instead worked on an assumption which was incorrect.[35]

[31]Principal judgment [247].

[32]Principal judgment [265].

[33]Principal judgment [265].

[34]Principal judgment [267].

[35]Principal judgment [287].

Overall, the judge concluded that NCD had established that the defamatory imputations in the November 2015 email and the December 2015 email were made on an occasion of common law qualified privilege and on an occasion of statutory qualified privilege.[36] He considered that PY had not established malice.[37] A finding of malice would have defeated those defences. Accordingly, PY’s claim for defamation failed.
[36]Principal judgment [389].
[37]Principal judgment [406].

With respect to the counterclaim, the judge observed that many of the factual findings he made in PY’s claim ‘have a carry-over impact in the counterclaim, although of course, the burden of proof is reversed.’[38]
[38]Principal judgment [413].

As mentioned, the counterclaim was based upon three emails published by PY on 6 November 2015, 22 December 2015 and 30 May 2016. In relation to the email of 6 November 2015, the judge found that none of the material in it was defamatory of NCD in that it did not tend to diminish or disparage NCD’s reputation. The judge observed, in particular, that strong language is not of itself defamatory, nor are mere insults and vulgar abuse generally defamatory ‘as they do not have a capacity to diminish or disparage reputation.’[39]
[39]Principal judgment [416].

The judge also found that PY’s 22 December 2015 email was not defamatory.[40]
[40]Principal judgment [439].

He found, however, that PY’s 30 May 2016 email was defamatory, conveying the imputations that NCD: (1) was commercially incompetent in failing to control the FIP bank account; (2) knowingly approved a false report (the Taylor report); and (3) engaged in duplicitous behaviour by publishing the Taylor report, which was designed to protect himself, his predecessor Caleel, and the CEO of the FIP from disclosure of their ineptitude.[41] The judge found that the common law defence of truth and the statutory defence of justification were made out in relation to all three of these imputations.[42] The counterclaim therefore failed.
[41]Principal judgment [445]–[446].
[42]Principal judgment [453], [461], [465]–[466].

The judge went on to make general observations, adverse to PY, about his motivation in bringing the litigation, saying:

I consider that this case was never about the protection of PY’s reputation. Had he real concerns about his reputation, he would never have published the scores of insulting emails that went under his name. Should I have needed to assess his damages, these offensive emails would have adversely impacted his entitlement to damages. By his own hand, he had diminished a hard and well-earned reputation well before the publication of the two impugned emails.
PY’s defamation action was, I consider, a further step in his war on FIP and its personnel. Having goaded the FIP leadership group into defaming him, he set about punishing them with litigation.
FIP had no choice but to respond to PY’s war of words. For years it remained silent; no doubt in hope that PY, deprived of oxygen, would eventually lose interest. As I have said, I consider that FIP and its administration treated PY badly. He had been a loyal and productive servant to FIP over decades, and he deserved much more than summary dismissal and highly conditional partial reinstatement. FIP, through [NCD], was dragged into this litigation reluctantly and [NCD’s] counterclaim, issued for strategic purposes, had little merit.[43]

[43]Principal judgment [468]–[470] (emphasis added).

The judge reiterated, however, that he ‘considered both PY and [NCD] to be, insofar as I could judge, honourable and decent men’.[44]
[44]Principal judgment [471].

Before turning to the reasons of the judge in the costs judgment, it is convenient to consider briefly the statutory framework with respect to the making of offers and costs orders in defamation proceedings.

The Defamation Act — costs

Part 3 of the Defamation Act provides for the resolution of civil disputes without litigation and provides for a person who has published matter that is, or may be, defamatory (‘the publisher’) to make an ‘offer to make amends’ to the aggrieved person. The provisions under pt 3 div 1 (Offers to make amends) ‘may be used instead of the provisions of any rules of court or any other law in relation to payment into court or offers of compromise.’[45] However, nothing in div 1 prevents a publisher or an aggrieved person from making or accepting a settlement offer otherwise than in accordance with the provisions in that division.[46]
[45]Defamation Act s 12(2).
[46]Defamation Act s 12(3).

The matters that may be taken into account in awarding costs in a defamation proceeding are guided by s 40 of the Defamation Act, which provides, under s 40(1), for the court to have regard to the way in which the parties conducted their cases including any misuse of a superior financial position and ‘any other matters that the court considers relevant’. A court must, under s 40(2)(a), order indemnity costs where a defendant has unreasonably failed to make or agree to a settlement offer in circumstances where the plaintiff has been successful. Pursuant to s 40(2)(b), where a plaintiff has been unsuccessful, the court must order indemnity costs where it is satisfied that the plaintiff unreasonably failed to accept a settlement offer made by the defendant. The statutory prescription is to be followed ‘unless the interests of justice require otherwise’.

Section 40 provides:

40 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.

The costs judgment

In the costs judgment, the judge referred to s 40 of the Defamation Act.[47] He noted the costs orders sought by each party. Although PY failed in his claim, he submitted that NCD should not be entitled to an award of costs on the claim and that he ought to pay one-third of the costs of the proceeding (said to be $1.4 million) on the standard basis.[48] NCD sought to be be awarded the costs of the claim on an indemnity basis and an order that each party bear his own costs of the counterclaim.[49] In the alternative, NCD sought an order that he be awarded the costs of the claim and the counterclaim on an indemnity basis except for ‘the costs of drafting or settling the Counterclaim and the Reply to the Counterclaim as to which the parties are to bear their own costs’.[50]
[47]Costs judgment [6], [7], [12], [18], [19], [28].
[48]Costs judgment [5], [28].
[49]Costs judgment [14].
[50]Costs judgment [15]. NCD also sought a direction under r 63.34(4) of the Supreme Court (General Civil Procedure) Rules 2015 conferring authority on the Costs Court to allow an increase in fees claimed. This is not the subject of leave to appeal.

The judge noted that PY submitted that his legal costs would have been avoided had NCD ‘responded to [PY’s] invitations to negotiate a settlement on three separate occasions’.[51] The judge referred to PY’s submission that he had ‘served a concerns notice on [NCD] and invited [NCD] to make an offer prior to commencing proceedings, made a settlement offer on 6 October 2017 and made a further offer on 23 March 2018’.[52] He recorded PY’s submission that NCD ‘failed to make any offer or proposal to settle throughout the course of the proceedings, and thus failed to make reasonable attempts to resolve the dispute as he is required to do under s 40 of the Defamation Act … and s 22 of the Civil Procedure Act’(‘the CPA’).[53] The judge observed that, according to PY, the ‘blasé attitude’ taken by NCD was the result of the FIP bearing his legal costs, which PY asserted was a clear instance of NCD misusing his superior financial position and could be taken into account under s 40(1) of the Defamation Act. The judge further recorded four examples of the way in which NCD conducted his case that PY claimed provided for an adequate foundation for the costs orders he sought:

(a) taking unnecessarily technical points at various interlocutory stages (such as seeking to set aside service of the Writ on grounds held to be fanciful, which caused a 6 month delay);
(b)failing to acknowledge clear deficiencies in his Defence and Counterclaim, and opposing every argument raised by the plaintiff, which led to his pleading being struck out on two separate occasions, causing a further 6 month delay;
(c) failing to comply with Court orders for discovery and engaging in significant and unexplained delay in performing his discovery obligations;
(d) making a counterclaim for strategic purposes which had little if any prospect of success.[54]

[51]Costs judgment [6].

[52]Costs judgment n 8. See [9], [12], and [25] above, respectively.

[53]Costs judgment [6] (citation omitted).

[54]Costs judgment [8].

The judge noted that NCD sought orders that NCD be awarded the costs of the claim on an indemnity basis and that each party bear his own costs of the counterclaim. NCD claimed that it was PY who refused to settle the dispute because PY made it so difficult to arrange a mediation. The judge referred to the extensive material contained in the costs submissions filed by NCD setting out the efforts made by him to comply with the orders for mediation, including repeated attempts to fix a date and location in Australia or overseas which were either not responded to or rejected by PY.[55] In relation to the alleged abuse of his superior financial position, the judge noted that NCD disputed that the FIP covered his legal costs; he claimed that the costs he incurred that were not covered by the FIP or its insurer were $AU356,000 in fees for senior and junior counsel and $US404,000 in fees for overseas lawyers. Further, NCD submitted that the settlement offers made by PY were deployed to intimidate his opponent, wielding his wealth as a stick, and thus a misuse of his own superior financial position under s 40(1) of the Defamation Act.
[55]Costs judgment [11] n 14, referring to [15]–[40] of NCD’s costs submissions below.

The judge considered the principles governing costs. He noted the costs discretion conferred by s 24(1) of the Supreme Court Act 1986, exercised in accordance with r 63 of the Supreme Court (General Civil Procedure) Rules 2015, and that the ‘normal order for an award of costs is that a successful litigant should recover his or her costs’.[56] An unsuccessful litigant must demonstrate ‘special circumstances’ if they seek to deprive a successful opponent of their costs. He accepted that when considering whether circumstances exist which justify departure from ‘the normal rule’ the court may consider the conduct of the parties throughout the litigation in accordance with ss 9 and 22 of the CPA.[57]
[56]Costs judgment [17].
[57]Costs judgment [17] n 26. The terms of ss 9 and 22 are set out at [61] and [60] below, respectively.

He referred to the observations in Smith v Gould [No 2] (‘Gould’)[58] about the relevance of the parties’ conduct in the proceeding in deciding whether to deprive a successful party of their costs:

The successful party may be deprived of costs in myriad ways relating to the manner of conduct of the proceeding, including by contesting many issues on which it failed, by requiring the losing party to contest issues abandoned during trial, by taking unnecessarily technical points, by inappropriately prolonging the litigation, by pressing a substantially exaggerated claim, by causing the real issues to be obscured or unnecessary evidence to be led, or by facilitating the loss of the opportunity to expeditiously dispose of the case.[59]

[58][2012] VSC 541.

[59]Gould [2012] VSC 541, [11] (John Dixon J); Costs judgment [17], noting approval of this passage in Summers v Repatriation Commission [No 2] [2015] FCAFC 64, [30] (Kenny, Murphy and Beach JJ).

He set out s 40(1) of the Defamation Act and noted the range of costs orders that it envisaged, including many that depart from the standard rule that costs follow the event, such as issues-based costs orders. He cited a passage from Duffy v Google Inc [No 3][60] which illustrates the variety of costs orders that might be made in defamation proceedings, observing:

Under sub-s 40(1) of the Defamation Act, the court’s consideration as to costs:
… encompasses the questions which party (if any) should pay the opponent’s costs, whether different costs orders should be made by reference to different aspects of or issues in the proceeding, whether the amount of a party’s costs ordered to be paid by the opponent should be reduced and whether a costs order should be on a party/party, solicitor/client or indemnity basis. In exercising this discretion, the court may have regard, amongst other things, to the event (who has been successful overall), whether there was mixed success on separate issues, and the conduct of the parties in the litigation.[61]

[60][2016] SASC 1, [8] (Blue J).

[61]Costs judgment [19].

Directly after recognising the range of costs orders that may be made under s 40(1), he went on to say, at [20] of the costs judgment, that the principles governing costs he had identified (namely, that the successful party usually recovers its costs but those costs may be reduced depending on the party’s conduct, pursuant to either the CPA or s 40 of the Defamation Act) apply to both claims and counterclaims. This paragraph was the focus of PY’s attack on the costs judgment. The judge relied on a passage from Dixon J in Smith v Madden (‘Smith’).[62] The judge said:

The principles set out above apply where a proceeding consists of a claim and a counterclaim, including a situation such as the present where both the claim and counterclaim are dismissed. In the circumstances, the claim and counterclaim are treated as separate ‘events’, and costs follow each event. In Smith, Dixon J (as his Honour then was) held:
It often happens that one party is to pay the costs of the action and the opposite party is to pay the costs of the counterclaim. There may be, as in this case, judgment for the plaintiff upon the claim in the action with costs and for the defendant upon the counterclaim with costs ... In such cases the rule is that, in the absence of special order, there is no apportionment of costs.

Ordinarily, the costs of the counterclaim are limited to the incremental costs incurred beyond the costs of the claim. Therefore, where a counterclaim is dismissed, a plaintiff is only entitled to the costs of defending the counterclaim which were additional to the costs of the claim.[63]

[62](1946) 73 CLR 129, 132–33; [1946] HCA 19.

[63]Emphasis added. Citations omitted.

The focus of PY’s challenge to [20] of the costs judgment is on the italicised passage. In support of the first proposition of the impugned passage, the judge primarily cited Smith. He also cited Dimos v Willetts (‘Dimos’)[64] and Victorian WorkCover Authority v Adventure Park Pty Ltd (‘Adventure Park’).[65] In support of the second proposition, the judge cited Malabar RSL Sub-Branch Club Pty Ltd v RSL Custodians Pty Ltd (‘Malabar’).[66]
[64](2000) 2 VR 170 (Tadgell, Ormiston and Batt JJA); [2000] VSCA 154. PY notes that neither Dimos nor Adventure Park involved proceedings where an order was made in respect of the costs of a counterclaim and neither of them is authority for the principle the judge identifies. However, in both Dimos and Adventure Park obiter observations were made about awards of costs with respect to a counterclaim. See [100]–[101] and [102] below, respectively.
[65][2019] VSC 270.
[66][2014] NSWSC 1278, [21] (Rein J).

The judge found that the ‘internecine conflict’ which characterised the primary litigation was also apparent in the costs dispute. Each party accused the other of financial oppression, unreasonable conduct and insincerity during settlement negotiations. The judge reiterated his conclusions reached in the principal judgment that PY’s claim ‘had little to do with reputational damage and was brought as part of a larger campaign to discredit FIP at every opportunity’.[67] This reflected his finding in the principal judgment that the proceeding PY brought was ‘never about the protection of PY’s reputation’.[68] He repeated his view that the counterclaim ‘was a strategic device without much merit’.[69]
[67]Costs judgment [23].
[68]See [34] above.
[69]Costs judgment [23].

The judge further considered ‘the sorry history of negotiation, settlement, offers, mediation and similar’,[70] and was not satisfied that he ought to order that NCD should pay any of PY’s costs of the claim. He described every offer made by PY to ‘[involve] a financial settlement to the plaintiff, apology, costs on a standard basis and mutual releases’ and noted that PY ‘claimed a virtue out of the defendant’s failure to respond to any of these offers’,[71] saying that ‘[t]his contention seems to ignore the fact that the plaintiff lost his claim’.[72] The judge did not consider that there were any special circumstances that ought deprive NCD, as the successful litigant, of his costs of the claim in accordance with the normal rule that costs follow the event. He rejected PY’s submission that NCD ‘be liable for the costs for fighting and winning the cause’, holding that he was ‘not satisfied that this [was] that “most exceptional case” that would justify such an extraordinary course’.[73]
[70]Costs judgment [24].
[71]Costs judgment [24].
[72]Costs judgment [25].
[73]Costs judgment [25] (citation omitted).

The judge ‘reject[ed] the proposition that [PY] was the victim of a bully defendant in a superior financial position’.[74] He noted that, by contrast with NCD, it was PY who had written that ‘[i]f I have to spend big money to prove my point, so be it. Fortunately, I am in a position where the legal costs will not trouble me … my writ won’t go away.’[75] Nor did the ‘reversals in interlocutory applications’ suffered by NCD cause the judge to be satisfied that the presumption that costs follow the event had been overcome.[76] Indeed, the judge was unimpressed by PY’s argument that NCD’s general conduct of the claim should have disentitled him to his costs of the claim, noting he was a ‘reluctant litigant’ and ‘ought not be penalised for defending the claim’.[77] He referred to ss 22 and 9 of the CPA and observed again that he was not persuaded that he should depart from the normal rule that costs follow the event. He said:

I am unimpressed by the plaintiff’s argument that the defendant’s conduct of the claim generally ought disentitle the defendant to an award of costs on the claim and ought result in the defendant being liable to pay one third of the plaintiff's costs. The litigation was instigated by the plaintiff and was acrimonious from start to finish, with neither side ‘taking a backward step’. The defendant was a reluctant litigant brought into court by the plaintiff and he ought not be penalised for defending the claim. I have considered all matters raised in the plaintiff’s written submissions, including those that relate to s 40 of the Defamation Act, and ss 22 and 9(1)(b) of the CPA. I am not persuaded that I ought deviate from the generally accepted position that the successful party ought recover costs from the unsuccessful party.[78]

[74]Costs judgment [26].

[75]Costs judgment [26]. See [13] above.

[76]Costs judgment [27].

[77]Costs judgment [28].

[78]Costs judgment [28].

The judge also rejected the submission by NCD that PY pay his costs of the claim on an indemnity basis. The judge did not expressly mention the factors set out in s 40(2)(b) of the Defamation Act[79] but indicated that it was because NCD had contributed to the history of acrimony in the litigation, including failing in a number of interlocutory applications and bringing a counterclaim with little merit, that there was support for his conclusion that NCD ought not be awarded indemnity costs. He said:

Given the history of acrimony between the parties, and the defendant’s contribution to it, together with his chequered history of compliance with interlocutory obligations and his strategic counterclaim, I propose to award the costs of the action on a standard basis only.[80]

[79]See [39] above.

[80]Costs judgment [29].

In dealing specifically with the costs of the counterclaim, the judge reaffirmed that a successful party is ‘usually’[81] entitled to costs on the basis that the counterclaim is to be considered as a separate event and the successful defendant to a failed counterclaim ‘will be entitled to an award of costs that are uncommon to the claim. No costs incurred by reason of the claim can be costs of the counterclaim.’[82] Thus, the judge observed, PY ‘in the normal course, would be entitled to his uncommon or incremental costs to the counterclaim.’[83] That is, in the normal course, the costs that are common to the claim and counterclaim (‘the common costs’) are absorbed by the claim. Where a counterclaim is unsuccessful, a plaintiff, as defendant to the counterclaim, will receive those costs of the counterclaim that fall outside the scope of the common costs. In his view ‘there is no persuasive reason to depart from the normal rule’[84] or to order that each party would bear his own costs of the counterclaim especially as the counterclaim ‘had little merit and was brought for strategic purposes.’[85] He was also of the view that, in the exercise of his discretion, the costs of the counterclaim should be paid on the standard basis given the history of acrimony between the parties and PY’s contribution to it.[86]
[81]Costs judgment [30].
[82]Costs judgment [30], citing Smith (1946) 73 CLR 129, 133–4; [1946] HCA 19 and Dimos (2000) 2 VR 170, 179 [27]; [2000] VSCA 154.
[83]Costs judgment [31].
[84]Costs judgment [31].
[85]Costs judgment [31].
[86]Costs judgment [31].

The judge made the costs orders on 20 December 2019, namely:

1.On the claim, the plaintiff pay the defendant’s costs of that proceeding on a standard basis.
2.On the counterclaim, the defendant pay the plaintiff’s incremental costs of that proceeding on [the] standard basis.
3.Each party bear its own costs of this costs application.
4.The Costs Court, under r 63.34(4) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic), have authority to allow, should it think fit, an increase in the fees set out in Appendix A to the Supreme Court Rules.

Grounds of appeal

With respect to his original application for leave to appeal from the costs orders, PY seeks to rely on the following grounds of appeal (‘the original grounds of appeal’):

Although the learned Trial Judge awarded incremental costs to the plaintiff in successfully defending the defendant’s counterclaim, His Honour erred in law in the exercise of his discretion in not ordering the respondent (defendant) to pay one-third (or any other portion) of the applicant’s (plaintiff’s) costs of the claim. In not so ordering the further costs, the applicant relies on the following broad grounds of appeal whereby the applicant submits that His Honour:
1. Failed to give due consideration to the intent of s 40 of the Defamation Act 2005 (Vic) in the context of the defendant’s failure or refusal to respond to the plaintiff’s three offers, and to not make any offers in the proceedings (the response failures);
2. Failed to give due consideration to the intent of s 22 of the Civil Procedure Act 2010 (Vic) in the context of the defendant’s response

failures;
3. Failed to give due consideration to the intent of s 9(1)(b) and s 9(2)(b) of the Civil Procedure Act 2010 (Vic) in the context of the defendant’s response failures; and
4. Failed to give due consideration to the opportunity offered by s 65C of the Civil Procedure Act 2010 (Vic) in the context of the defendant’s response failures.

Immediately before the hearing of the appeal, PY indicated that he seeks leave to rely on an amended application for leave to appeal raising the following additional grounds (‘the additional grounds of appeal’):

5. The order is unreasonable and plainly unjust as its effect is to require the plaintiff to pay the vast majority of the defendant’s costs of the proceeding, notwithstanding that both parties failed to establish their claims.
6.His Honour erred in finding at [20] that, where a counterclaim is dismissed, a plaintiff is only entitled to the costs of defending the counterclaim which were additional to the costs of the claim.[87]

[87]After the appeal was heard, the parties were granted leave to file supplementary written cases addressing the additional grounds of appeal confined to the arguments made at the hearing of the appeal.

PY seeks the following orders, as identified in the original application for leave to appeal:

1. The orders made by the Honourable Justice T Forrest on 20 December 2019 be set aside.

2. In lieu thereof, the following orders be made:
(a) On the claim, the defendant pay to the plaintiff one-third of the plaintiff’s costs of the claim on the standard basis.
(b) On the counterclaim, the defendant pay the plaintiff’s incremental costs of that proceeding on the standard basis. (This order remains unchanged).
(c) On the costs application, the defendant pay the plaintiff’s costs on the standard basis.
(d) The costs court, under rule 63.34(4) of the Supreme Court (General Civil Procedure) Rules 2015, have authority to allow, should it think fit, an increase in the fees set out in Appendix A to the Rules. (This order remains unchanged).

3. The Respondent pay the Applicant’s costs of this appeal on the standard basis.

4. Any other orders that the Court deems appropriate.[88]

[88]Emphasis in original.

In his amended application for leave to appeal, PY also seeks, in the alternative, the following order:

2A. As an alternative to [2], the following order be made in lieu of the orders made by the Honourable Justice T Forrest on 20 December 2019:
(a) There be no order as to costs.

In substance, the original grounds of appeal raise a single issue as to whether the judge erred in failing to give due consideration to various statutory prescriptions in the context of the response failures. The additional grounds of appeal raise the issue of whether the judge adopted the mistaken approach[89] and thereby impermissibly fettered his discretion in making the costs orders as well as the further issue of whether the costs orders are, in their effect, unreasonable or plainly unjust. We will deal with the three issues in that order.

Did the judge err in failing to consider various statutory prescriptions in the context of the response failures?

[89]See [2] above.

PY submits that the response failures forced him to pursue his claim and caused a loss of opportunity for the parties to dispose expeditiously of the proceeding. He submits that the judge did not deal at all with the response failures which he ought to have considered in light of s 40 of the Defamation Act and ss 9, 20, 22, 24 and 65C of the CPA. He maintains that consideration of those statutory requirements should have prompted the judge to make an adverse costs order against NCD by way of condemning NCD for hindering the opportunity for an early resolution of the proceeding by reason of the response failures.

The terms of s 40 are set out above.[90] Section 22 of the CPA, which requires parties to use reasonable endeavours to resolve a dispute, reads as follows:

22Overarching obligation to use reasonable endeavours to resolve dispute
A person to whom the overarching obligations apply must use reasonable endeavours to resolve a dispute by agreement between the persons in dispute, including, if appropriate, by appropriate dispute resolution, unless—
(a) it is not in the interests of justice to do so; or
(b) the dispute is of such a nature that only judicial determination is appropriate.
[90]See [39] above.

Example
A proceeding where a civil penalty is sought may be of such a nature that only judicial determination is appropriate.

Section 7 identifies the overarching purpose to which orders are to be directed as being ‘to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute’. Section 9 provides that, in making orders, a court shall further the overarching purpose by taking into account the reasonable endeavours of the parties to settle the proceeding:

9 Court’s powers to further the overarching purpose
(1) In making any order or giving any direction in a civil proceeding, a court shall further the overarching purpose by having regard to the following objects—
…
(b) the public interest in the early settlement of disputes by agreement between parties;

…
(2) For the purposes of subsection (1), the court may have regard to the following matters—
…
(b) the extent to which the parties have used reasonable endeavours to resolve the dispute by agreement or to limit the issues in dispute; …

Section 20 imposes an obligation of co-operation in connection with the conduct of a proceeding and s 24 imposes an obligation to use reasonable endeavours to ensure that legal costs, and other costs incurred in connection with the civil proceeding, are reasonable and proportionate to the complexity or importance of the issues in dispute and the amount in dispute.

Section 65C(1) enables a court to ‘make any order as to costs it considers appropriate to further the overarching purpose’.

In his original written case,[91] PY repeats the submission he made before the judge that he had made three attempts to negotiate a settlement with NCD: (1) the concerns notice which invited NCD to make amends;[92] (2) the open offer made in the email on 6 October 2017;[93] and (3) the offer made on 23 March 2018.[94] PY submits that the high costs of the parties would have been avoided had NCD responded to these three attempts at settlement. PY also submits that NCD failed to comply with the obligations under the CPA, and under s 40 of the Defamation Act, because he did not make any offer or other proposal to settle the dispute at any stage of the proceeding despite:
[91]At the hearing of the appeal the concession was made that it could not be said that NCD had not responded to PY’s offers. See [74] below.
[92]See [9] above.
[93]See [12] above.
[94]See [25] above.

(1) the likelihood (and eventually the fact) that legal costs would be out of proportion to any amount that may be awarded as damages; and

(2) the obligations of the parties to defamation proceedings to take a reasonable approach to negotiations for the settlement of those proceedings, as required by s 40 of the Defamation Act;

(3) s 22 of the CPA requiring that all parties to civil proceedings use reasonable endeavours to resolve a dispute by agreement.

PY also submits that NCD was indemnified by an insurer in respect of all his legal costs and NCD’s conduct was a clear example of a defendant misusing his superior financial position to hinder or delay an early resolution of the proceeding. He submits that the judge failed to consider whether NCD misused his financial position to frustrate an early resolution and whether the response failures required a departure from the usual costs order. PY submits that the judge instead focused on what was described as the ‘internecine conflict’[95] between the parties and the judge thereby misdirected himself.
[95]See [48] above.

In response, NCD submits that PY’s submissions are based on contentions of fact that were either not found or were inconsistent with the evidence. In particular, NCD submits that there was no finding by the judge of what PY describes as ‘the response failures’. There is no finding that NCD made no offers in the proceeding nor that the absence of any offer amounted to a ‘response failure’. Further, NCD submits that any such finding would have been contrary to the evidence of the counter-offer that was made by NCD at the mediation, of which Bruce gave evidence in his affidavit, after the parties agreed to waive privilege. The counter-offer, as recorded above,[96] was that both the claim and counterclaim be withdrawn and that NCD would be willing to consider a joint statement expressing general regret.
[96]See [20] above.

NCD also points to the evidence of general endeavours he made to settle the proceeding including his multiple attempts to arrange mediation[97] to which the judge referred.[98]
[97]See [17] above.
[98]See [42] above.

NCD further submits that there was no finding that PY made three real attempts to resolve the dispute. On the contrary, far from genuine attempts at compromise, NCD points to PY’s uncooperative behaviour in asking at the mediation for considerable damages and conveying that this was the only offer he would make and walking out of the mediation early, which thereby brought the mediation to an end, when the mediation had been fixed for a full day.[99] This was recognised by the judge when he observed that ‘every offer made by [PY] involved a financial settlement to [PY], apology, costs on a standard basis and mutual releases’.[100] NCD submits that this observation is tantamount to a finding that PY only ever offered to settle the dispute on terms that would have amounted to a complete capitulation. The unqualified apology alone would have amounted, unreasonably, to an implied admission that PY’s allegations were true. The judge could not have accepted that this proposal was reasonable when he acknowledged, in the principal judgment, that ‘FIP had no choice but to respond to PY’s war of words’.[101]
[99]See [21]–[24] above.
[100]Costs judgment [24]. See [48] above.
[101]Principal judgment [470]. See [34] above.

NCD also submits that there was no finding that he was in a superior financial position, or that he was fully insured, or that he misused any alleged superior financial position, or that he hindered an early opportunity to resolve the proceeding by reason of any insurance coverage. To the contrary, the judge said he ‘reject[ed] the proposition that [PY] was the victim of a bully defendant in a superior financial position’.[102]
[102]Costs judgment [26]. See [50] above.

In our view, the judge did not fail to give due consideration to s 40 of the Defamation Act, or to ss 22, 9, and 65C of the CPA in the context of the alleged response failures. The original grounds of appeal must be rejected.

PY’s reliance upon the alleged response failures was based on the premise that PY had engaged in three genuine attempts at settlement and that these attempts ought to have prompted a response in kind as part of the performance of the various statutory responsibilities to use reasonable endeavours to achieve an early resolution of the proceedings. We accept that there was no finding by the judge of that premise and that the evidence would not support such a finding. The invitation in the concerns notice[103] was to ‘make amends’; this must include, pursuant to s 15 of the Defamation Act, an offer to publish ‘a reasonable correction of the [defamatory] matter in question’.[104]
[103]See [9] above.
[104]Defamation Act s 15(1)(d).

The offers subsequently made by PY were tantamount to a demand by PY for NCD to accept the validity of PY’s claim; in effect it was, as the judge implicitly recognised, a demand for capitulation by a plaintiff who was ultimately unsuccessful. The open offer of 6 October 2017 demanded an ‘unqualified apology’[105] and the offer made on 23 March 2018 demanded an apology from NCD which was to read, in respect of the defamatory statements NCD had made: ’I withdraw those statements. I will not repeat them, and I regret that they were made’.[106] In our view, these demands that NCD publicly acknowledge the validity of PY’s claim cannot be treated as reasonable attempts to resolve the dispute. Moreover, it would be inconsistent to treat them as such in circumstances in which the judge found that the FIP, through NCD, had ‘no choice but to respond’, having been ‘goaded … into defaming [PY]’, and thus ‘dragged into this litigation reluctantly’, after years of silence.[107]
[105]See [13] above.
[106]See [26] above.
[107]Principal judgment [469]–[470]. See [34] above.

In assessing the conduct of NCD on which PY relied, it is also necessary to take into account three other relevant findings by the judge, namely: (1) that PY did not initiate the proceedings to protect his reputation but to punish;[108] (2) that PY was not preyed upon by NCD’s superior financial position;[109] and (3) it was PY (and not NCD) who declared that any expenditure on ‘legal costs will not trouble me’ and accepted that he might have to spend ‘big money’ to prove his point.[110] Those findings assist in establishing the context in which PY’s attempts at settlement were made and reinforce the conclusion that those attempts amounted to a demand for capitulation. Any failure to respond to such a demand would not amount to a breach of an obligation to seek an early resolution of the proceeding.
[108]See [34] above.
[109]See [50] above.
[110]See [13] and [50] above.

We accept that PY’s reliance on the alleged response failures ignores the fact that there was no finding by the judge of such failures. Indeed, at the hearing of the appeal, senior counsel for PY candidly, and quite properly, conceded that the submission that there were no offers made by NCD was inconsistent with the evidence and that submission was not maintained on appeal. Indeed, more generally, the original grounds of appeal were only faintly pressed at the hearing of the appeal. Senior counsel assumed that the original grounds of appeal, and original written case, must have been drafted by counsel who was unaware of the counter-offer made by NCD at mediation.

If it is permissible to take into account offers made at mediation under s 40(1) of the Defamation Act, we consider that, in the circumstances of a complex, protracted and heated dispute, the counter-offer made by NCD for the withdrawal of the claim and the counterclaim and the consideration of a joint statement expressing general regret, indicates that NCD did not fail in his obligations to use reasonable endeavours to resolve the dispute, or to use reasonable endeavours to ensure that the costs were proportionate to the complexity or importance of the issues in dispute and the amount in dispute. Furthermore, we accept that the counter-offer is another illustration of more general attempts made by NCD to settle the proceeding.

However, there is support for the view that confidential offers made at mediation are not permitted to be taken into account in the context of s 40 of the Defamation Act. In Trkulja v Yahoo! Inc LLC [No 2] (‘Yahoo’)[111] Kaye J concluded that the offers to which the Defamation Act is directed are offers that might be referred to in evidence, and not offers made at mediation under protection of without prejudice privilege. His comments were directed to the interpretation of ‘a settlement offer’ in s 40(2) which, as explained above,[112] is concerned with indemnity costs and which has no direct relevance here.[113] PY, in his submissions, relies upon s 40(1) which is more generally concerned with a party’s conduct of their case and, in particular, any misuse of a party’s superior financial position to prevent an early resolution of the dispute. Nevertheless, the observations of Kaye J in respect of s 40(2) may have implications for the application of s 40(1).
[111][2012] VSC 217.
[112]See [38]–[39] above.
[113]As an unsuccessful plaintiff, PY could not avail himself of s 40(2)(a) and there is no cross-appeal from NCD, as the successful defendant, from the judge’s refusal to award indemnity costs on the basis of s 40(2)(b) (or at all).

Kaye J considered that to allow offers made at mediation to be considered in the context of applying the costs principles prescribed under s 40(2) of the Defamation Act would not align with its clear legislative intention of promoting early dispute resolution. He said:

At common law, any ‘without prejudice’ offers were subject to a privilege, which could only be waived by both parties to the offer, namely, the offeree and the offeror. … That position has been altered by s 131(2) of the Evidence Act 2008, and in particular, by s 131(2)(h), which permits evidence to be adduced as to offers made to settle the proceeding when determining the liability of a party for costs. On the other hand, s 24A of the Supreme Court Act 1986 prohibits the admission into evidence ‘at the hearing of the proceeding’ of anything said or done by a person at a mediation. It is now well established that s 131(2)(h) of the Evidence Act, as a general statutory provision, is subject to, and thus does not affect, s 24A of the Supreme Court Act, which is a specific statutory provision. Accordingly, s 131(2)(h) has been construed to apply to ‘without prejudice’ communications other than those which are made in the course of a mediation, to which s 24A of the Supreme Court Act applies.
Section 40(2) of the [Defamation] Act must be construed and understood in the context of the legal framework which defines the nature of the offers of settlement that might be admissibly proven in a legal proceeding. In any application for indemnity costs under s 40(2) of the Act, it would be necessary for the plaintiff to establish that the defendant had failed to make a settlement offer. Section 40(2) is thus premised on the proof, if necessary by admissible evidence, of that fact. It is now commonplace for civil proceedings, and particularly defamation proceedings, to be the subject of mediation. Indeed, the clear intention of s 40 … is to promote early dispute resolution between the parties, including by way of mediation. It follows, that in order that s 40(2) be given a sensible meaning, it must be construed as referring to the making, or failing to make, of offers, which might be admissibly proven in court. By contrast, [if not so construed] s 40(2) would be deprived of any worthwhile effect, in any case in which a mediation had taken place. Accordingly, in my view, s 40(2) must be construed as referring to the making, or failing to make, of settlement offers outside any mediation process in the proceeding.[114]

[114]Yahoo [2012] VSC 217, [18]–[19] (emphasis added) (citations omitted). He held that the defendants did not make an offer of settlement but that, in the circumstances, they had not acted unreasonably in not making such an offer.

In support of his view, Kaye J also referred to the judgment of Harrison J in Mundine v Brown [No 7] (‘Mundine’),[115] where his Honour identified the rationale behind the prohibition on the disclosure of offers made at mediation:

The rationale behind maintaining the sanctity of what occurs at a mediation is clear: parties must feel free to negotiate in the confident expectation that nothing that is said or done within a mediation can be used at a later time to their disadvantage in the proceedings if they are not resolved. No part of that reasoning applies to the right or the entitlement of any party at any time outside the context of the mediation to communicate settlement offers and responses on without prejudice terms save as to the question of costs. This applies equally to offers of compromise in accordance with the rules or Calderbank offers as generally understood. Reference to such offers is not embargoed by legislation or in any other way at all. … Section 40(2) clearly contemplates parties relying upon offers of settlement that are not excluded from view by s 30(4) of the Civil [Procedure] Act.[116]

[115][2011] NSWSC 170.

[116]Mundine [2011] NSWSC 170, [53]. Section 30(4) of the Civil Procedure Act 2005 (NSW) provides that: ‘[S]ubject to section 29(2) … (a) evidence of anything said or of any admission made in a mediation session is not admissible in any proceedings before any court or other body’. Section 29 provides: ‘(1) The court may make orders to give effect to any agreement or arrangement arising out of a mediation session. (2) On any application for an order under this section, any party may call evidence, including evidence from the mediator and any other person engaged in the mediation, as to the fact that an agreement or arrangement has been reached and as to the substance of the agreement or arrangement’.

Of course, the rationale behind the protection of confidence attached to proposals for settlement made in the course of a mediation remains intact if disclosure is only permitted where both parties agree that what was said or done at mediation can be adduced in evidence. Section 24A of the Supreme Court Act is not a blanket prohibition on disclosure. The significance of releasing each party from their obligations is apparent from the requirement under s 24A that the parties must agree upon disclosure in writing. Section 24A provides:

24A Mediation
Where the Court refers a proceeding or any part of a proceeding to mediation, other than judicial resolution conference, unless all the parties who attend the mediation otherwise agree in writing, no evidence shall be admitted at the hearing of the proceeding of anything said or done by any person at the mediation.[117]

[117]Emphasis added.

Here, the agreement in writing was evident from PY’s written submissions in reply on costs, before the judge, in which PY said:

[T]hese issues concerning mediation are only relevant to the extent that the defendant [NCD] seeks to waive the without prejudice privilege which applies to the content of any offers made at mediation. The plaintiff [PY] consents to the defendant doing so … .

To this, NCD, in his submissions in response on costs, stated:

For the sake of clarity, the defendant [NCD] waives without prejudice privilege which applies to the content of any offers made at mediation.

It was on this basis that Bruce, in his affidavit, disclosed the counter-offer NCD made at the mediation.

In Yahoo there had been no agreement between the parties for offers made at mediation to be adduced in evidence and the defendant relied on the prohibition on disclosure under s 24A of the Supreme Court Act. It may be that Kaye J’s interpretation of s 40(2) should be read in that context. This would allow s 40(2) to be read as permitting reference only to those offers that may be adduced in evidence but these will include offers made at mediation, where the parties have agreed in writing that evidence of those offers can be admitted in the proceeding. These are offers that ‘might be admissibly proven in court’.[118] In our view, this is an appropriate interpretation of s 40(2) which does not frustrate the legislative purpose of s 40(2) or deprive it of any worthwhile effect and nor is it inconsistent with s 24A of the Supreme Court Act.
[118]See [77] above.

On this construction, if s 40(2) had been relevant here, the counter-offer made by NCD at the mediation would be a proper factor to be taken into account under that provision. Furthermore, an implication of this construction of s 40(2) would be that the counter-offer is a relevant consideration under s 40(1). This is especially so as s 40(1) is concerned more generally with the overall conduct of a party’s case, and not specifically with whether a party unreasonably failed to make, or to agree to, ‘a settlement offer’. Under the umbrella of s 40(1) will be a range of considerations relating to the degree of co-operation (or lack of it) engaged in by a party, especially in respect of a preparedness to reach a compromise or to take steps that might lead to a compromise. Here, the existence of the counter-offer contradicts PY’s submission, quite properly not maintained on the hearing of the appeal, that there had been a failure by NCD to respond to PY’s attempts at settlement or to endeavour to resolve the dispute. On that basis, the original grounds of appeal must be rejected. In any event, as discussed above, those grounds rest on the false premise that PY’s so-called attempts at settlement were genuinely aimed at an early compromise of the dispute when in substance they sought nothing less than a complete vindication of PY’s position.

The original grounds of appeal are without merit and we would refuse leave to appeal with respect to them.

Did the judge adopt the mistaken approach?

Ground 6 of the additional grounds of appeal raises the issue of whether the judge erred in [20] of the costs judgment.

It is convenient to reproduce [20] in its entirety. In our view, it is wrong and misleading to focus only on the impugned passage in [20], which is italicised below. To understand the meaning of the impugned passage it is necessary to read it in its context:

The principles set out above apply where a proceeding consists of a claim and a counterclaim, including a situation such as the present where both the claim and counterclaim are dismissed. In the circumstances, the claim and counterclaim are treated as separate ‘events’, and costs follow each event. In Smith, Dixon J (as his Honour then was) held:
It often happens that one party is to pay the costs of the action and the opposite party is to pay the costs of the counterclaim. There may be, as in this case, judgment for the plaintiff upon the claim in the action with costs and for the defendant upon the counterclaim with costs ... In such cases the rule is that, in the absence of special order, there is no apportionment of costs.

Ordinarily, the costs of the counterclaim are limited to the incremental costs incurred beyond the costs of the claim. Therefore, where a counterclaim is dismissed, a plaintiff is only entitled to the costs of defending the counterclaim which were additional to the costs of the claim.[119]

[119]Emphasis added. Citations omitted.

PY submits that the judge erred in finding that where a counterclaim is dismissed, a plaintiff is only entitled to the costs of defending the counterclaim which were additional to the costs of the claim. This is the second proposition identified in the impugned passage [20]. PY submits that in arriving at this finding the judge relied on the first proposition in the impugned passage in [20] which he derived principally from Smith.

Smith was a review of taxation in which it was determined that, on the taxation of the costs of a proceeding in which judgment had been given for the plaintiff on the claim with costs, and for the defendant on the counterclaim with costs, the claim ought be treated as if it stood alone so that the costs of the counterclaim should be only the amount by which the costs of the proceeding had been increased by it. PY submits that Smith reflects a rule of taxation but it is not authority for any principle governing the exercise of the costs discretion, including those circumstances where a claim and counterclaim have been dismissed. He submits that the well-established rule on taxation of costs, as stated in Smith, says nothing as to how the discretion to award costs is to be exercised.

Moreover, PY submits that the judge, in setting out the passage from Smith, omitted an important qualification made by Dixon J that immediately preceded the statement of the rule, namely, that ‘no doubt, there may be other orders disposing in one way of the costs of the action and in some other way of the costs of the counterclaim’.[120] PY also emphasises that the rule Dixon J identified was not intended to be universally applicable; this is apparent from the qualification noted in Smith, namely, ‘in the absence of special order’, which the judge quotes in the extract from Smith in [20], but which is not reflected in the judge’s statement of general principle.
[120]Smith (1946) 73 CLR 129, 133; [1946] HCA 19.

The second proposition of the impugned passage, namely, that, ‘where a counterclaim is dismissed, a plaintiff is only entitled to the costs of defending the counterclaim which were additional to the costs of the claim’, directly comes under challenge. The judge referred to Malabar in support of the second proposition in which the judgment of Rein J states:

The Custodian [as defendant] abandoned its cross-claim during the hearing. The general rule in relation to cross-claims is that if the plaintiff fails on its claim and the defendant fails on its cross-claim the plaintiff is entitled only to the costs of resisting the cross-claim that were additional to the costs of the claim: see Medway Oil and Storage Ltd v Continental Contractors followed in Smith v Madden … The Club [as plaintiff] did not contend that it incurred any costs in defending the cross-claim that were not incurred in prosecuting its claim, the cross-claim appearing to be wholly defensive in nature.[121]

[121][2014] NSWSC 1278, [21] (citations omitted).

Rein J made orders granting judgment for the plaintiff against the defendant and awarded only nominal damages of $100 in respect of the breach of a lease. He accepted that the plaintiff comprehensively failed in its claim for several million dollars for which there was no discernible basis. He also accepted that the nominal damages award he was prepared to make did not protect any right that the plaintiff was seeking to protect in the proceeding. He considered that there should be no departure from the general rule that the successful party, the defendant, should be awarded all of its costs. He ordered that the cross-claim should be dismissed and that each party should bear its own costs of the defendant’s cross-claim.

PY submits that there is no such general rule in respect of cross-claims as referred to by Rein J and the ‘rule’ referred to in Smith and in Medway Oil & Storage Co Ltd v Continental Contractors Ltd (‘Medway’),[122] to which Rein J referred is, he argues, a rule about the taxation of costs.
[122][1929] AC 88. In Medway the plaintiff’s claim and the defendant’s cross-claim failed and were dismissed with costs. In construing the order made, for the purposes of taxation, the House of Lords determined that the costs awarded on the cross-claim were the costs solely referable to the bringing of the cross-claim.

PY submits that it was wrong of the judge to treat the claim as if it were a discrete proceeding, subsuming all the costs (including common costs between the claim and counterclaim) that follow from the ‘event’ of the failure of the claim, save for those costs that were specifically additional to the costs of the claim, without engaging in an apportionment of costs. He submits that the judge’s approach to the counterclaim was wrong because he erroneously considered that, in the exercise of his discretion, the costs of the counterclaim to be taken into account could not include any common costs.

PY submits that where a claim and counterclaim are both dismissed, it remains permissible for a judge to consider costs referable to particular issues, claims or defences, as part of the obligation to do substantial justice between the parties. The general rule that costs follow the event, and that a claim and counterclaim are treated as separate events, does not mean that the relevant ‘events’ are limited to the failure of the claim and the failure of the counterclaim respectively; rather, account can be taken of the degree to which issues are interlocked and whether a special costs order should be made to achieve a just result.[123]
[123]See Chell Engineering Ltd v Unit Tool & Engineering Co Ltd [1950] 1 All ER 378, 383 (Denning LJ); Polwood Pty Ltd v Foxworth Pty Ltd [No 2] [2008] FCAFC 168, [12]–[13] (Finn, Bennett and Greenwood JJ).

PY emphasises that although neither he nor NCD succeeded in his respective claims, each had some measure of success on the issues arising from the claims and the defences to the claims. The outcome was not as simple on either the claim or the counterclaim as one party having succeeded and the other failed; rather, it was a case of ‘[b]oth parties lost and both parties won’.[124] Furthermore, the background facts were common to the claim and counterclaim; many of the factual findings on the claim had an impact on the judge’s determination of the counterclaim. The overlap was extensive and, in those circumstances, it was wrong of the judge to exclude all common costs from the costs of the counterclaim and wrong of him to purport to apply a general rule, mistakenly sourced from taxation, to govern his discretion rather than examining the realities of the case and framing his costs orders to achieve substantial justice between the parties.
[124]Boss Constructions (NSW) Pty Ltd v Rohrig (NSW) Pty Ltd [No 2] [2019] NSWSC 436, [9] (Hammerschlag J).

In response, NCD attacks the premise of PY’s argument. He submits, and we agree, that the judge made no finding that a plaintiff is only ever entitled to the costs of successfully defending the counterclaim that were additional to the costs of the claim.

We consider that the judge, in identifying the first proposition in the impugned passage in [20], was expressing no more than the practical effect of the order that is usually made in a proceeding involving a claim and a counterclaim. The judge said that the ‘normal order for an award of costs is that a successful litigant should recover his or her costs’.[125] He then makes clear, at the commencement of [20], that the normal order applies both to a claim and to a counterclaim because ‘the claim and counterclaim are treated as separate “events”, and costs follow each event’.[126] That is, the successful party on the counterclaim is awarded the costs of the counterclaim. After the quotation from Smith the judge then identifies what is, ‘ordinarily’, the effect of the usual or normal order, namely, that the successful party on the counterclaim will recover only ‘the incremental costs incurred beyond the costs of the claim’.[127] Understood as a statement of the effect of the usual or normal order, an order reflecting the rule that ordinarily costs follow the event and the counterclaim is treated as a separate event, PY conceded on the appeal that this was an accurate statement involving no error.
[125]Costs judgment [17]. See [43] above.
[126]See [87] above.
[127]See [46] and [52] above. See also Costs judgment [31].

That the first proposition in the impugned passage in [20] accurately identifies the effect of the usual order is supported by the observations of Ormiston JA in Dimos.

Dimos concerned the interpretation to be placed on a costs order that had been made in respect of a proceeding involving multiple defendants. The Court held that an order ‘for costs of the proceeding’ made against an unsuccessful defendant should be construed upon the basis that the court was dealing only with the costs incurred by the plaintiff in respect of prosecuting claims made against that defendant and not with the costs incurred by the plaintiff in respect of claims made against other defendants, in the absence of any contrary order. In the course of his reasons Ormiston JA emphasised that, while an award of costs is in the discretion of the court, costs usually follow the event and the outcome of a counterclaim is to be treated as a separate ‘event’. He said:

[T]he common law practice of ordinarily ordering costs to follow the event underlies the exercise of the [costs] discretion in most cases. All orders of this court should be read accordingly. Of course, in any proceeding the ‘event’ may not be confined to a single event, for the rules now permit joinder of defendants and of causes of action and the making of claims between parties other than the plaintiff. Thus the outcome of a counterclaim is a separate ‘event’.[128]

[128]Dimos (2000) 2 VR 170, 186–7 [44] (Tadgell JA agreeing at 172 [1], Batt JA agreeing at 211 [113]); [2000] VSCA 154 (emphasis added).

Ormiston JA went on to observe: ‘See the careful explanation of how the principle works out in practice in the judgment of Dixon J in Smith v Madden’.[129]
[129]Dimos (2000) 2 VR 170, 187 n 76; [2000] VSCA 154 (citation omitted).

The principle that costs follow the event together with the recognition that the outcome of a counterclaim is a separate event from the outcome of a claim, underlie the usual order that the successful party on the counterclaim is awarded the costs of the counterclaim. In Smith, Dixon J identified the meaning and effect of the usual order; that is, as Ormiston JA observed, how the usual order is ‘work[ed] out in practice’. As Macaulay J observed in Adventure Park:

In Smith, Dixon J … was called upon to determine how costs should be applied when a plaintiff succeeded on a claim and the defendant succeeded on a counterclaim, and each was ordered to pay the other’s costs of the counterclaim and claim respectively.[130]

[130][2019] VSC 270, [25] (emphasis added).

In explaining how in practice costs should be applied, Dixon J made clear what would occur in a taxation upon the usual order being made. As NCD submits, this could hardly have been an irrelevant consideration for the judge.

In Smith, Dixon J recognised that where there is a claim and counterclaim it is almost inevitable that there will be common or ‘general’ costs. Where work, in respect of which costs are incurred, is referable to both the claim and the counterclaim, and success differs between the parties, it will be necessary to address where the common costs should fall. The issue is not necessarily straightforward nor does it admit of a single fair answer. After all, it is a necessary premise that the costs are reasonably and properly incurred in respect of both the claim and the counterclaim. There is usually no issue that, had there been no counterclaim, all of the costs would, in the ordinary course, be recoverable by the party that succeeds on the claim. Equally, were one to look at the matter solely from the perspective of the counterclaim all of the relevant costs would be recoverable by the party that succeeds on the counterclaim.

Dixon J explained that equity and the common law courts adopted different principles in respect of costs of a proceeding and this had implications for the approach to costs where there was a counterclaim. Equity adopted a principle of apportionment of the general costs of a proceeding after the costs had been dealt with that were exclusively attributable to separate issues on which the parties had had respective success. Dixon J said:

Apportionment of costs was a principle followed in the Courts of Equity before the Judicature Act. If a decree or order of the Court of Chancery discriminated for the purposes of costs between different portions of a suit or proceeding and made an award of costs in respect of one subject or object different from that made in respect of another, then, subject to any express direction in the decree, the taxation proceeded according to the principle that, after the costs exclusively referable to the respective parts of the cause or matter had been ascertained, an apportionment should be made between them of the general costs of the suit. The ground assigned for the rule was that, as each of the respective parts had received the full benefit of the suit or proceeding, the general costs had been occasioned as much by one as by the other and each such part, therefore, ought to bear a proportionate part of the general costs.[131]

[131]Smith (1946) 73 CLR 129, 133; [1946] HCA 19.

On the other hand, the common law adopted an approach in which the successful party was usually awarded all the general costs of the action, without apportionment. In practice this meant that success on any specific issue by the losing party entitled them only to incremental costs referable to that issue and none of the general costs:

[A]t common law apportionment was not practised. If issues were found, some for one party, some for the other, then that party who was considered to have succeeded in the result became entitled to the general costs of the action and the costs of the issues upon which he had nevertheless failed went to his adversary. In the common law courts in such circumstances, upon a taxation, the party entitled to the general costs of the action received all the costs necessarily or reasonably incurred in order to enable him to achieve the success in result and the party entitled to the costs of the issues on which the former had failed received only the extra costs caused to him by the inclusion of those issues.[132]

[132]Smith (1946) 73 CLR 129, 133; [1946] HCA 19.

The introduction of counterclaims by the Judicature Act led, at common law, to the adoption of an analogous practice to that which the common law adopted in respect of the general costs of an action; namely, common or general costs would be awarded to the party who was successful on the result with the losing party being entitled only to the incremental costs incurred in respect of any particular issue on which they had been successful. Dixon J held in Smith that it was the approach applied in the common law courts that should be adopted. He continued:

Counterclaims were a product of the Judicature Act and, at first, there seems to have been some uncertainty as to the manner in which costs were to be taxed under orders disposing of the costs of the action or claim in one way and of the costs of the counterclaim in another. But the analogy was soon adopted of the common law practice in dealing with the general costs of an action and the costs of issues found against the party succeeding in the action. In such a case the taxation of the costs of the action and of the counterclaim is governed by the principle that the party receiving the costs of the claim should recover the general costs and whatever was reasonably incurred in bringing and maintaining or defending the action, as the case may be, considered as if there had been no counterclaim, and that the party receiving the costs of the counterclaim should recover the further or increased costs reasonably incurred in bringing and maintaining or defending the counterclaim.[133]

[133]Smith (1946) 73 CLR 129, 133–4; [1946] HCA 19 (emphasis added). Dixon J also observed, in response to a question from counsel, that ‘defendants who counterclaim seldom get the costs which they think they should on the counterclaim and that taxation usually reduces the costs of the counterclaim very much, because you begin with the costs of the action’: Smith (1946) 73 CLR 129, 131; [1946] HCA 19 (emphasis added).

In other words, at common law the working out in practice of an order for ‘costs of the counterclaim’, to a party who has been successful on the counterclaim but failed on the claim, means that that party is limited to the amount by which the costs of the proceeding have been increased by the counterclaim. That is, the effect of the usual order made on a counterclaim is that the costs recoverable on the counterclaim are limited to the incremental costs incurred beyond the costs of the claim. This is precisely how the judge identified the effect of the usual order in the first proposition in [20] of the costs judgment.

In our view, the judge’s reliance on Smith in support of the first proposition does not indicate that he adopted the mistaken approach, fettered his discretion, or treated a rule of taxation as though it were a binding principle governing the costs discretion. The costs principles that the judge applied were the accepted principles that ordinarily costs follow the event and the outcome of a counterclaim is a separate ‘event’. The observations made at [20] of the costs judgment are no more than a drawing out of the practical consequences of an application of those principles and not the identification of some other binding principle. The first proposition is an explicit statement of the working out in practice of the usual order in respect of a counterclaim where the counterclaim is treated, as Ormiston JA recognised in Dimos, as a separate event, namely, in practice, the successful party recovers its incremental costs of the counterclaim. It is clear that the judge considered that he was not obliged to make the usual order given the way he prefaced his remarks with ‘[o]rdinarily’ and referred to orders made ‘in the normal course’; such formulations plainly do not describe a binding rule.

Furthermore, PY did not make the submission he now advances in this Court to the judge. He did not submit that the judge should make a special order on the counterclaim to address the fact that there were common costs referable to both the claim and the counterclaim and that it would be unjust for him to bear all of the common costs.

In this respect it is important to recall that, before the judge, PY sought an order that NCD pay a proportion of the costs of his claim (one-third) on the basis of the defendant’s conduct (including the alleged response failures (discussed above)) and not on the basis of any potential overlap in common costs.[134] Furthermore, in his original application for leave to appeal PY did not seek to disturb order 2, which was the costs order on the counterclaim.[135] It was not until the hearing of the application for leave to appeal that PY provided a proposed amended application for leave to appeal that sought to challenge the costs order on the counterclaim.[136] There is no reason to consider that the judge regarded himself as bound by principle to a particular outcome in respect of the costs of the counterclaim. Rather, his reasons respond to the arguments that were made to him. Moreover, they amply demonstrate that the judge was persuaded that the usual order would work no injustice in this case.
[134]See [40] above.
[135]See [56] above.
[136]See [55] above.

With respect to the second proposition of the impugned passage, NCD submits, and we agree, that it should be read as expressing a logical consequence of the usual order (namely, that the successful party is awarded their costs) in the specific instance where the counterclaim has been dismissed. It is significant that the second proposition begins with: ‘Therefore’. The use of ‘[t]herefore’ signals that what follows is to be read on the basis that the usual order has been made and that its effect in practice has been that the costs of the counterclaim have been limited to the incremental costs incurred beyond the costs of the claim. The judge then considers what follows in the specific circumstances where the counterclaim has been dismissed. In other words, where the usual order has been made and ‘a counterclaim is dismissed, a plaintiff is only entitled to the costs of defending the counterclaim which were additional to the costs of the claim’. PY also conceded on the appeal[137] that if the usual order was made in a proceeding, it would indeed follow that if the counterclaim was dismissed, the plaintiff, as the successful defendant to the counterclaim, would only be entitled to the additional costs incurred by reason of the counterclaim, that is, not the costs that were common to the claim and counterclaim. In our view, the second proposition in [20] of the costs judgment does no more than spell out what is the consequence of the usual order where a counterclaim is dismissed. In making an order on the counterclaim that reflects the second proposition in [20] of the costs judgment, the judge pre-empted any contest as to how the order was to be construed in practice.
[137]PY submits that the second proposition in [20] should not be read this way but as erroneously expressing a general rule governing the discretion to award costs. However, he concedes that, if it is read in the way described, there is no error.

Construed in this way, the impugned passage at [20] of the costs judgment is unexceptionable. It is most unlikely that the judge would have purported to make a ‘finding’ of general application, as alleged, or to have intended the second proposition to have universal application, and therefore govern his discretion on costs, when he expressly notes that the discretion on costs can be exercised in a range of ways. He does this, as set out above,[138] when considering the Court’s general discretion on costs, pursuant to s 24 of the Supreme Court Act, where he identified the myriad circumstances that may justify a departure from the rule that costs follow the event, by reference to Gould. He also does so by considering the type of orders that may be made taking into account the considerations in s 40 of the Defamation Act, including issues-based orders and orders for a reduced entitlement. In our view, it is not tenable to read the impugned passage at [20] of the costs judgment, in the context of the costs judgment as a whole, as demonstrating that, on the counterclaim, the judge regarded himself as bound to order that NCD pay only PY’s incremental costs of that proceeding or that his discretion was governed by a principle of necessary application.
[138]See [44]–[45] above.

The judge’s reasons show that he considered, and rejected, the possibility of ordering that NCD pay some, or all, of PY’s costs of the claim. It was the ‘sorry history of negotiation, settlement, offers, mediation and similar’ — including the nature of PY’s offers — that persuaded him not to make such an order.[139] The circumstances did not amount to the ‘most exceptional case’[140] where a successful defendant would be liable for the plaintiff’s costs. The fact that the judge entertained the possibility of making these orders, although he rejected them, demonstrates that he was well aware that there is scope in certain circumstances for a defendant that is successful nevertheless to be ordered to pay a proportion of a plaintiff’s costs. Had he pursued this path, it would have been necessary for him to make different orders to those he pronounced. He could not have limited NCD’s liability to the incremental costs incurred by the counterclaim given that some of the costs of PY on the claim, in respect of which NCD would pay a proportion, would have been incurred in work on the counterclaim, given the overlapping nature of the issues. The orders would have rendered NCD liable for some of the common costs. The judge thus considered himself free, in the exercise of his discretion, to make orders that would have had the ultimate consequence of rendering NCD liable for some of the common costs.
[139]See [48]–[50] above.
[140]See [49] above.

Moreover, as described above,[141] in exercising his discretion, the judge did not ignore various factors adverse to NCD. He was well aware of NCD’s contribution to the history of acrimony between the parties, his chequered history of compliance with interlocutory obligations and his strategic motivation in bringing the counterclaim. Indeed, these were the various factors he relied upon to reject NCD’s application for indemnity costs on the claim.[142] Equally, he did not ignore various factors adverse to PY. As mentioned, the judge took a dim view of PY’s motivation in bringing the claim, and he recognised that PY had also contributed to the history of acrimony between the parties.[143] These factors supported the judge’s exercise of discretion in respect of the measure applicable to the costs of the counterclaim, namely, that PY would be entitled to costs of the counterclaim ‘on a standard basis only’.[144] In our view, this reflected an even-handed approach to two parties whom the judge accepted were honest and honourable but who were both actively responsible for the dispute between them that led to the acrimonious emails being exchanged. This observation also has implications for the final issue to be discussed below.
[141]See [51] above.
[142]See [51] above.
[143]See [34] and [52] above.
[144]Costs judgment [31]. See [52] above.

We would grant leave to appeal in respect of Ground 6 of the additional grounds of appeal but we reject it.

Are the costs orders unreasonable or plainly unjust?

PY submits that the costs orders made are unreasonable or plainly unjust because they fail to reflect the judge’s finding that NCD significantly contributed to the history of acrimony between the parties that led to the exchange of acrimonious emails and ultimately to the proceeding. He further submits that the costs of the trial, which occupied 20 sitting days, were attributable to a significant extent to issues on which NCD failed, including his failure to establish the defences of common law truth or statutory justification in respect of many of the defamatory imputations, particularly the imputation that PY had made accusations dishonestly. As mentioned, the judge found that PY was an honest man.[145]
[145]See [28] above.

With respect to the counterclaim, the judge found that the counterclaim had little merit and was brought for strategic purposes.[146] PY submits that the strategic nature of the counterclaim ought to have been taken into account in the exercise of the costs discretion, adversely to NCD, especially as it meant that NCD contravened s 19 of the CPA which restricts a party to litigation from taking any step in a civil proceeding unless the party reasonably believes that the step is necessary to facilitate the resolution or determination of the proceeding.
[146]See [34] above.

Furthermore, NCD established that only one of the three emails relied upon for the counterclaim contained defamatory imputations, and in respect of those imputations PY succeeded in establishing the defences of common law truth and statutory justification. As mentioned,[147] this success involved PY establishing that NCD had acted deceptively, in the context of the dispute between he and PY, in that NCD had engaged in duplicitous behaviour by publishing the Taylor report which was designed to protect himself, Caleel and the CEO of the FIP from disclosure of their ineptitude.
[147]See [33] above.

Moreover, there had also been a number of interlocutory disputes decided adversely to NCD and adverse costs orders made against him, further demonstrating, PY submits, the reprehensible manner in which NCD had conducted himself in the course of the proceeding.

PY submits that the effect of the costs orders is that NCD will recover almost all of his costs, and pay very little in respect of PY’s costs of the proceeding, despite the significant overlap of factual issues between the claim and the counterclaim, despite NCD being unable to establish that the imputation that PY was dishonest was true or justified, and despite NCD bringing a counterclaim of little merit on which he failed. The orders are submitted to be unreasonable and plainly unjust and the costs discretion has thus miscarried in accordance with House v The King.

NCD responds by submitting that the costs orders are neither unreasonable nor unjust given the many findings against PY and the finding that NCD was a reluctant litigant brought to court by PY.[148] The findings against PY include those, as mentioned, that PY commenced and maintained the proceeding, not for the protection of his reputation but as a ‘further step in his war on FIP’,[149] that he made multiple accusations ‘irresponsibly’,[150] and that he made allegations that were not genuine, authentic or truthful but were false.[151]
[148]See [34] above.
[149]See [34] above.
[150]Principal judgment [267], [287]. See [28] above.
[151]Principal judgment [230]–[231]. See [28] above.

NCD emphasises that, as was conceded by PY on the appeal, the costs orders will mean that PY will pay no more than the amount of costs which NCD reasonably incurred in meeting PY’s claim and which would have been incurred in any event had the counterclaim not been brought.

In our view, the costs orders faithfully, and fairly, reflect that PY’s claim failed and that, had that claim not been brought, there would have been no proceeding before the judge. Although NCD contributed to the underlying dispute, having been ‘goaded … into defaming’ PY,[152] it was PY who brought the claim and thereby placed himself in jeopardy of a costs order against him if he was unsuccessful. This observation, although by no means decisive, has particular significance here given the judge’s adverse finding about PY’s motivation in bringing the proceeding; a proceeding for defamation that was not brought to protect PY’s reputation but to ‘[punish] … [FIP] with litigation’.[153] In effect, the proceeding was brought by PY not to resolve the dispute but as a further step in the dispute. It carried the risk of failure and of costs orders premised on that failure. That PY failed in the claim he chose to bring is the fundamental fact underlying the costs orders.
[152]See [34] above.
[153]See [34] above.

NCD’s defence to the claim was ultimately successful and that success cannot be gainsaid by the fact that NCD prevailed on some bases and not on others. The judge showed that he was well aware that NCD had contributed to the history of acrimony (and had a chequered history of compliance with interlocutory orders) by his rejection of NCD’s application for indemnity costs on the claim. The order that PY pay NCD’s costs of the claim on the standard basis, was, in the circumstances, an even-handed approach to both parties given the range of adverse findings the judge made about both of them, their conduct in the proceeding, and in the dispute that led to the proceeding.

With respect to the costs orders on the counterclaim, there is nothing unreasonable or unjust in making an order that excludes common costs from those which the party responsible for bringing the counterclaim is ordered to pay. As discussed above in respect of Ground 6, such a consequence is the effect of the usual order made where a counterclaim fails. An important consideration in support of the order made here is that the judge observed that the counterclaim was ‘a strategic device’.[154] This observation, understood to mean an artefact or arising in response to the circumstances, coupled with the finding that NCD ‘was a reluctant litigant brought into court by [PY]’,[155] in effect recognised that NCD would not have brought the counterclaim other than responsively to the claim. In other words, had PY not chosen to bring his claim, there would have been no counterclaim brought by NCD. In those circumstances, it would be difficult to conclude that it was unreasonable or unjust to limit NCD’s liability for costs of the counterclaim to those that were incurred over and above the costs incurred in respect of the claim. The degree of overlap between the issues on the claim and the counterclaim, and the common costs incurred as a result, are of little assistance to PY if there would have been no litigation commenced by NCD had PY not chosen to bring the claim.
[154]See [48] above.
[155]See [50] above.

As the judge emphasised, NCD was a reluctant litigant brought into court by PY and he ought not be penalised for defending the claim.

We would refuse leave to appeal in respect of Ground 5 of the additional grounds of appeal.

Conclusion

Leave should be granted to PY to add the additional grounds of appeal. We would refuse leave to appeal on Grounds 1 to 4 of the original grounds of appeal and Ground 5 of the additional grounds of appeal. Leave to appeal should be granted in respect of Ground 6 of the additional grounds of appeal but the appeal should be dismissed.

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*Introduction and summary*.......................................................................................	1
*The defamation proceedings*......................................................................................	3
Commencement of proceedings......................................................................................	3
The mediation.................................................................................................................	8
The principal judgment..................................................................................................	11
The Defamation Act — *costs*...................................................................................	16
*The costs judgment*.....................................................................................................	17
*Grounds of appeal*........................................................................................................	25
*Did the judge err in failing to consider various statutory prescriptions in the context of the response failures?*...............................................................................	27
*Did the judge adopt the mistaken approach?*.........................................................	37
*Are the costs orders unreasonable or plainly unjust?*...........................................	49
*Conclusion* ...............................................................................................................	52

[2021] VSCA 15

10 February 2021