Manefield v Child Care NSW (No 2) [2011] NSWSC 104 (8 March 2011)

Supreme Court New South Wales

Case Title:	Manefield v Child Care NSW (No 2)
Medium Neutral Citation:	[2011] NSWSC 104
Hearing Date(s):	7 February 2011
Decision Date:	08 March 2011
Jurisdiction:
Before:	Kirby J
Decision:	Defendant to pay the plaintiff's costs on an indemnity basis from the commencement of the action
Catchwords:	COSTS - Indemnity costs application - Concerns notice under the Defamation Act before litigation, identifying imputations - Settlement offers - s 40 Defamation Act 2005 - Whether defendant unreasonably failed to make or accept offer
Legislation Cited:	Defamation Act 2005 Uniform Civil Procedure Rules 2005 Civil Procedure Act 2005 Defamation Act 1974
Cases Cited:	Manefield v Child Care NSW [2010] NSWSC 1420 Channel Seven Sydney Pty Ltd v Mahommed (No 2) [2011] NSWCA 6 Davis v Nationwide News Pty Ltd [2008] NSWSC 946 Timms v Clift [1997] QCA 61; [1998] 2 Qd R 100 Roache v News Group Newspapers Ltd [1992] TLR 551 Assaf v Skalkos [2000] NSWSC 935 Skalkos v Assaf (No 2) [2002] NSWCA 236 Carson v John Fairfax & Sons Limited [1993] HCA 31; (1993) 178 CLR 44 Roberts v Bass [2002] HCA 57; (2002) 212 CLR 1 Calderbank v Calderbank [1975] 3 All ER 333; [1975] 3 WLR 586 Justice M J Beazley, "Calderbank Offers" (2009) Summer 2008/2009 Bar News 65
Texts Cited:
Category:	Costs
Parties:	Bruce Manefield (Plaintiff) Association of Quality Child Care Centres of NSW Incorporated trading as Child Care NSW (Defendant)
Representation
- Counsel:	Counsel: Mr R de Meyrick (Plaintiff) Mr J S Wheelhouse SC (Defendant)
- Solicitors:	Solicitors: Paris J Carr & Associates (Plaintiff) Guild Legal Limited (Defendant)
File number(s):	2009/297613
Publication Restriction:

Judgment

1. On 15 December 2010 Mr Bruce Manefield (the plaintiff) was awarded $150,000 dollars damages plus costs in an action for defamation against Child Care NSW (the defendant) ( Manefield v Child Care NSW [2010] NSWSC 1420 ). On 7 February 2011 an application was made pursuant to s 40 of the Defamation Act 2005 that such costs be assessed on an indemnity basis. That section is in these terms:

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) ...

(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. (emphasis in original)

2. The application was opposed, although the defendant acknowledged that it was appropriate to award indemnity costs from the expiration of an offer of compromise under rule 20.26 of the Uniform Civil Procedure Rules 2005, which the defendant had not accepted. The offer expired on 10 November 2010. The hearing followed soon after on 22 and 23 November 2010.

3. Before going to the arguments, let me first describe the action and the course of settlement negotiations. In doing so, I will incorporate references to the judgment delivered on 15 December 2010.

The action

4. Between 7 February 2006 and May 2008, Mr Manefield was employed as the Executive Officer of Child Care NSW. On 16 May 2008 he was dismissed (paras 10 and 41). Having been dismissed, he and a number of colleagues established Early Learning Australia, a company limited by guarantee. The company planned to offer a number of services to child care centres throughout Australia. They began preparation for a media launch to announce the formation of the enterprise. As part of that preparation, Mr Manefield sought, on behalf of Early Learning Australia, the cooperation of Child Care NSW and other child care centres throughout Australia. His e-mail seeking such cooperation was dispatched on Friday 4 July 2008. He invited discussion (para 48) and included his telephone number.

5. The defendant did not contact Mr Manefield or Early Learning Australia. The following Monday, 7 July 2008, it sent a letter to "all, or almost all" of its 650 members (para 50). The letter was defamatory. It conveyed the following grave imputations in respect of Mr Manefield:

"(a) The plaintiff is an untrustworthy person prepared to use devious and underhand means to take members away from the defendant.

(b) The plaintiff is a dishonest person prepared to deceive the defendant's members.

(c) The plaintiff had attempted to deceive members of the defendant.

(d) The plaintiff had breached the obligation of confidentiality which he owed to the defendant.

(e) The plaintiff had breached his legal and contractual obligations to his former employer.

(f) The plaintiff by his mismanagement and incompetence had damaged the standing of the defendant in the childcare community and created the difficulties which it had faced."

6. The letter was a pre-emptive strike. Early Learning Australia was still-born (para 183). Mr Manefield quickly recognised that members of Child Care NSW would have nothing to do with his company. The project was abandoned.

Settlement negotiations

7. On 30 October 2008, that is almost four months later, the solicitors for Mr Manefield wrote to the defendant complaining about his dismissal and the defamation. On the latter aspect, the letter said this (exhibit A):

"...we put you on Notice that we consider you have defamed our client in a publication understood to have been circulated by you to a vast number of Child Care Operators dated 7 July 2008. Please note that we consider this letter to be a "Concerns Notice" within the meaning of Section 14 of the Defamation Act 2005 (NSW). To assist you, we attach a copy of the offending circular which came to out client's attention via a Child Care Centre owner who received this document from you and chose to forward same to our client."

8. Part 3 of the Defamation Act 2005 is concerned with the "Resolution of civil disputes without litigation". Section 12 makes the following provision in respect of the application of that division:

12 Application of Division

(1) This Division applies if a person (the publisher) publishes matter (the matter in question) that is, or may be, defamatory of another person (the aggrieved person).

(2) The provisions of this Division 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.

(3) Nothing in this Division prevents a publisher or aggrieved person from making or accepting a settlement offer in relation to the publication of the matter in question otherwise than in accordance with the provisions of this Division.

9. Section 14(2) identifies the form of a " concerns notice ":

14 When offer to make amends may be made

(1) ...

(2) A notice is a concerns notice for the purposes of this section if the notice:

(a) is in writing, and

(b) informs the publisher of the defamatory imputations that the aggrieved person considers are or may be carried about the aggrieved person by the matter in question (the imputations of concern).

(3) ...

(4) ...

(5) ...

10. Returning to the letter sent by the plaintiff's solicitor, it continued in these terms (exhibit A):

"The said publication is highly defamatory of our client. We rely upon the words in the publication in their entirety. We are of the view that the publication contains in its ordinary and natural meaning at least, the following defamatory imputations about our client:

1. Bruce Manefield is in the process of contacting members with the use of an improperly obtained membership list.

2. Bruce Manefield has breached a contractual or other duty of confidentiality owed to Child Care New South Wales.

3. Manefield should not be trusted.

4. Bruce Manefield is acting in breach of his legal obligations, and needs to be reminded of those obligations.

These imputations are defamatory and false. Our client has a long history of working in the child care industry that pre-dates his employment with you. His reputation within that industry is of vital commercial and personal importance to him."

11. There followed an offer, introduced by the following paragraphs (exhibit A):

"We are of the view that a Court would be likely to award substantial damages for both economic and non-economic loss in favour of our client in respect to the said publication. We are also of the view that your client stands in jeopardy of an additional award of aggravated damages.

We have instructions to commence proceedings in respect to this defamatory publication. We reserve the right to also rely on oral publications to the same or similar effect to the attached - if details of same come to hand."

12. The offer that was made was in these terms (exhibit A):

"In an effort to avoid litigation, we advise that our client would accept the following by way of settlement of this defamation claim:

1. Publication of a withdrawal and apology to our client, and to each person or party to whom the attached publication was distributed.

2. Payment of Damages in the sum of $40 000:00.

3. Payment of our client's costs associated with this claim thus far, in the sum of $ 5 000:00.

Pursuant to the provisions of the Defamation Act 2005, our client is prepared to allow 28 days from the date hereon for your reply and any offer to make amends you wish to put forward. If we have not received a satisfactory response by that time, we have instructions to commence proceedings without further notice. The offer of settlement expressed herein is only open for acceptance up to the end of the said 28 day period."

13. Reference was then made to Mr Manefield's dismissal. The letter concluded with the following conciliatory words (exhibit A):

"If you would like to negotiate a resolution of one or other of these disputes without the need for litigation, we await your urgent reply to this letter. If we have not heard from you or your legal advisors within the 28 day period referred to in the formal Defamation Demand above, we will assume you wish to defend the foreshadowed claims, and will commence litigation without further delay."

14. The letter met with silence. No offer was made. The plaintiff, to vindicate his reputation, was left with no alternative than to commence proceedings. On 10 June 2009 a statement of claim was filed, which included the imputations, which had, to some extent, been refashioned.

15. The defendant filed its defence on 10 July 2009. The defence included a denial that the imputations were capable of arising or in fact arose (para 3). It raised a defence of qualified privilege at common law (para 4). It did not raise a "Defence of qualified privilege for provision of certain information" under s 30 of the Act. Such a defence required proof that "the conduct of the defendant in publishing (the) matter is reasonable in the circumstances" (s 30(1)(c)).

16. On 6 August 2009 the plaintiff filed his Reply. The Reply did not admit that the publication was made in circumstances that attracted qualified privilege and alternatively alleged that such privilege, if it arose, was defeated by malice. Interrogatories were filed on 25 September 2009 and answered on 13 November 2009.

17. In late 2009 or thereabouts, Mr de Meyrick of counsel, for Mr Manefield, again raised with the defendant the possibility of settlement. The solicitor for the defendant responded by email to the plaintiff's solicitor on 8 February 2010 in these terms (exhibit 1):

"Sometime ago Mr de Meyrick raised the potential of having settlement discussions.

We indicated we were happy to do so, but on a reasonably limited basis in terms of quantum. We have not heard anything further. Our position has not changed and we would be happy to hear from you if your client is so minded."

18. There were discussions thereafter, although no offer by the defendant. On 8 July 2010 a date for trial was allocated (22 November 2010 with a four day estimate).

19. On 29 September 2010 the solicitor for the defendant wrote to the solicitor for the plaintiff in these terms (exhibit 1):

"We note that we have had no response from you in relation to several discussions that we have had with your office and Counsel in relation to potential settlement of the matter.

We advise that on a without admission basis, our client is prepared to resolve the issues with Mr Manefield by way of a payment to him in the amount of $20,000 inclusive of legal costs .

This offer is open for acceptance for a period of fourteen (14) days, concluding Thursday 14 October 2010.

The offer is made in accordance with the principals enunciated in the decision of Calderbank v Calderbank . We will rely on this offer in relation to costs, including seeking indemnity costs." (emphasis added)

20. The plaintiff responded on 13 October 2010 with a counter offer in these terms (exhibit A):

"We refer to your letter dated 29 September 2010 and are instructed to put a counter offer of $95 000:00 inclusive of costs .

This offer is open for (14) days from the date of this letter." (emphasis added)

21. On 18 October 2010 the defendant's solicitor wrote to the plaintiff's solicitor as follows (exhibit 1):

"The offer made under cover of our letter of 29 September 2010 was essentially not negotiable and a final offer.

It is our view that your client's claim is poor and has very limited prospects of success.

Notwithstanding, in the interests of resolving the matter prior to hearing, our client is prepared to increase the offer to $25,000 inclusive of legal costs .

As with the previous offer, any settlement would be on a without admission basis and subject to an agreed Deed of Release." (emphasis added)

22. The offer was expressed to be open for 7 days and was said to be made pursuant to the decision in Calderbank v Calderbank . In response, the plaintiff made the Offer of Compromise of 27 October 2010 pursuant to UCPR r20.26, which was expressed in these words (exhibit A):

"Pursuant to Part 20 Rule 26 of the Uniform Civil Procedure Rules, the Plaintiff offers to settle these proceedings on the following basis:

1. Verdict for the Plaintiff in the sum of $50,000.00 (fifty thousand dollars).

2. Defendant to pay the Plaintiff's costs as agreed or assessed.

Pursuant to UCPR 20.26 (7)(b), this offer is open for acceptance for 14 days from the date hereon."

23. Shortly before the trial, the defendant made application to amend its defence. It sought to add a defence of justification under s 25 of the Act in relation to the following imputations:

"4(d) the plaintiff had breached the obligation of confidentiality which he owed to the defendant

4(e) the plaintiff had breached his legal and contractual obligations to his former employer."

24. The defendant also sought to raise issues of contextual truth and honest opinion. The application was heard by Nicholas J on 15 November 2010, that is a week before the trial. In an ex tempore judgment, leave to amend was refused.

25. At approximately 12.30pm the same day (15 November 2010) the solicitor for the plaintiff made a further attempt to settle the action. It is not clear whether their faxed letter was sent before or after the judgment of Nicholas J. The letter was in these terms (exhibit A):

"We refer to the above-matter and note our two earlier offers of, firstly, $95 000:00 inclusive of costs (faxed 13 October 2010) and our Offer of Compromise of $50 000:00 plus costs (faxed 27 October 2010) - both of which have now expired.

On instructions our client might be prepared to put either of these two offers back on the table."

26. No offer was made. The matter then went to trial.

The principles

27. The principles relating to the award of indemnity costs, in the context of a defamation action, have recently been restated by the Court of Appeal in Channel Seven Sydney Pty Ltd v Mahommed (No 2) [2011] NSWCA 6 (McColl JA, Spigelman CJ, Beazley JA, McClellan CJ at CL and Bergin CJ in Eq agreeing). The public policy in encouraging settlement finds statutory expression in the Civil Procedure Act 2005 (cf Justice M J Beazley, "Calderbank Offers" (2009) Summer 2008/2009 Bar News 65 ). The Act includes the following provisions:

56 Overriding purpose

(cf SCR Part 1, rule 3)

(1) The overriding purpose of this Act and of rules of court, in their application to civil proceedings, is to facilitate the just, quick and cheap resolution of the real issues in the proceedings.

(2) The court must seek to give effect to the overriding purpose when it exercises any power given to it by this Act or by rules of court and when it interprets any provision of this Act or of any such rule.

(3) ...

(4) ...

(5) ..."

28. In Channel Seven v Mahommed (No 2) (supra), the statutory provisions relevant to the issue of indemnity costs are set out, including UCPR r42.14, which is in these terms:

" 42.14 Where offer not accepted and judgment no less favourable to plaintiff

(cf SCR Part 52A, rule 22; DCR Part 39A, rule 25)

(1) This rule applies if the offer concerned is made by the plaintiff, but not accepted by the defendant, and the plaintiff obtains an order or judgment on the claim concerned no less favourable to the plaintiff than the terms of the offer.

(2) Unless the court orders otherwise, the plaintiff is entitled to an order against the defendant for the plaintiff's costs in respect of the claim:

(a) assessed on the ordinary basis up to the time from which those costs are to be assessed on an indemnity basis under paragraph (b), and

(b) assessed on an indemnity basis (...)"

29. In the context of defamation, s 40 of the Defamation Act 2005 makes provision for the award of indemnity costs (supra para 1). That section was preceded by s 48A of the Defamation Act 1974, which was in similar (although not identical) terms. Section 48A was introduced into the 1974 Act in 2003. At the time of its introduction, the Hon. Tony Stewart MP said this in the second reading speech (New South Wales, Hansard , Legislative Assembly, 12 November 2002 at 6558):

"The normal costs rule is that the successful party recovers costs on a party-party basis. Typically, this amounts to about 60 per cent to 80 per cent of their actual legal costs. Both the Supreme Court and the District Court have a general discretion as to the amount of costs to be paid by parties, including the award of indemnity costs. Indemnity costs are usually awarded where there has been a flagrant breach of procedural rules by the unsuccessful party and can amount to 80 per cent to 90 per cent of actual costs. In practice, indemnity costs are seldom awarded. The bill adds section 48A to the Defamation Act which requires the court to consider an order for costs on an indemnity basis where it forms the view that there has been an unreasonable failure on the part of either the plaintiff or the defendant to resolve the matter.

For example, a plaintiff would be at risk of an indemnity costs order if he or she were not to accept an offer of correction or apology where the offer was reasonable. A defendant would be at risk of an indemnity costs order were it not to make a settlement offer when it would have been appropriate to do so."

The Member added:

"While the addition of section 48A (2) into the Act will provide greater discretion to a judge than currently exists in awarding costs in instances where parties have been recalcitrant, section 48A (1) makes it abundantly clear that in awarding costs the court may take account of the way the parties have conducted their cases."

30. In Davis v Nationwide News Pty Ltd [2008] NSWSC 946, the actress, Judy Davis, complained that she had been defamed by articles in the Daily Telegraph and newspapers published interstate by Nationwide News. Shortly after publication her solicitors, in 2006, forwarded a concerns notice informing the publisher of the alleged defamatory imputations (para 4). The publisher acknowledged the letter and said it would investigate. However, it did not respond further (para 5). An action was thereafter commenced. The trial judge, McClellan CJ at CL described what happened shortly before the trial in these terms (para 6):

"[6] In late March 2008 Ms Davis' solicitors made an oral offer to settle her claim for $200,000 plus costs and also sought an apology. On 3 April 2008 the defendant responded with a counter-offer which provided that each party would "walk away" from the dispute and pay their own costs. The defendant did not concede that any defamatory imputation had been published and made no offer of an apology."

31. Shortly after the plaintiff made a formal offer of compromise of $150,000.00 plus costs. The offer was rejected by the defendant. In the trial that followed, the plaintiff succeeded before the jury on some only of her imputations. Damages were assessed by the trial judge at $140,000.00 plus interest. Judgment was ultimately entered for $150,736.00 (para 21).

32. In that context, an application was made by the plaintiff for indemnity costs. McClellan CJ at CL provided the following commentary upon the purpose of the costs requirements introduced by s 48A of the 1974 Act, and by s 40 of the 2005 Act (para 26):

"[26] The special costs provisions were introduced following a concern that the costs of defamation proceedings may prohibit persons who have a legitimate claim from pursuing relief. Unless in appropriate cases costs were awarded on an indemnity basis a plaintiff may be out of pocket to such an extent that the risks in bringing proceedings were unacceptable. Furthermore, the intention of the legislation was to promote a "speedy and non litigious method of resolving disputes and to avoid protracted litigation wherever possible" ..."

33. His Honour added (para 27):

"[27] Section 40(2) obliges parties to defamation proceedings to take a reasonable approach to negotiations for the settlement of those proceedings. A party who unreasonably fails to make or accept a settlement offer may be ordered to pay costs on an indemnity basis. The amount of the offer is relevant for the purpose of assessing the reasonableness of a party's conduct. The section contemplates that an order for costs on an indemnity basis may be made even if a party making an offer does not do better in the proceedings than the offer which he or she has made." (emphasis added)

34. The Chief Judge summarised the submissions of the plaintiff in these terms (para 28):

"[28] Ms Davis submitted that the behaviour of the defendant in relation to the settlement offers justified an order for indemnity costs irrespective of the offer which she herself made. It was submitted that by merely offering that each party should walk away the defendant failed to make a reasonable offer. The defendant gave no explanation for its failure to offer a monetary sum in settlement or even perhaps judgment for the plaintiff with an apology. Her counsel emphasised that the defendant merely adopted the attitude that it had a good defence and showed no preparedness to compromise or enter genuine negotiations."

35. The attitude of the defendant in that case was not unlike the attitude of the defendant in the present case. His Honour found that it should have been apparent to the defendant that the plaintiff had been defamed and would recover damages. At the very least a reasonable offer at that time would have included an apology (para 30). His Honour said this (paras 32-33):

"[32] ...The fact that Ms Davis ultimately failed in respect of some of the pleaded imputations is not in my opinion reason in the interests of justice to deprive her of an award of indemnity costs for the entire proceedings. Being left with only the alternative of walking away or pursuing her claim in my opinion she was justified in pursuing that claim including each of the alleged defamatory imputations which were pleaded.

[33] In these circumstances I am satisfied that the defendant unreasonably failed to make a settlement offer within the meaning of s 40 and accordingly Ms Davis is for that reason entitled to an order for costs on an indemnity basis."

36. McColl JA, in Channel Seven v Mahommed (No 2) (supra), commenting upon McClellan CJ at CL's remarks, said this (para 42):

"[42] McClellan CJ at CL (at [31]) was of the view that when determining the genuineness of an offer which provided for an award of compensatory damages, the reasonableness of that offer might be assessed having regard to the prospects of success in the entire proceedings as assessed at the time the offer was made..."

37. Her Honour added that the Chief Judge's observation clearly turned upon the inclusion of the words, in s 40(3) (referring to an offer to make amends), "that was a reasonable offer at the time it was made". Also relevant was the parties' ultimate success (para 43). McColl JA added, commenting upon s 48A(2) (which was in the same terms as s 40(2)), the following (para 43):

"[43] ... Section 48A clearly contemplated that the question whether a "settlement offer" had been made in terms which enabled the defendant to resist a s 48A(2) order would take into account the reasonableness of the defendant's approach. That must involve considering what has transpired at the trial after the offer presumably lapsed not merely to determine the s 48A(3) question, but also what the interests of justice require."

Submissions by the defendant

38. The defendant, in submissions, drew attention to two aspects that made an award of indemnity costs inappropriate. The first related to the inclusion, in the original offer, of a requirement that there be an apology. Such a requirement, according to the defendant, made it difficult to compare the offer with the damages ultimately awarded to the plaintiff. The second aspect drew attention to differences in the imputations identified in the concerns notice before litigation and those ultimately relied upon in the statement of claim.

39. Dealing with the first argument, similar arguments have been dealt with and rejected in a number of cases. In Timms v Clift [1997] QCA 61; [1998] 2 Qd R 100 the Court of Appeal (Pincus and Davies JJA and Mackenzie J) made the following statement in the context of a statutory rule framed in terms similar to UCPR r42.14 (at 107):

"The argument was that r. 118(1) had no application because it could not be shown that the judgment was "no less favourable" than the offers; that was said to be so because the offers included a requirement that an apology be published, an element not quantifiable in monetary terms."

40. The Court then referred to Roache v News Group Newspapers Ltd [1992] TLR 551 where an analogous problem was considered. The successful plaintiff in a defamation suit was awarded the very sum paid into Court by the defendants. An argument arose as to costs. The plaintiff sought costs on the basis that, in addition to damages, he had been granted an injunction restraining republication. The Court determined, nonetheless, that the plaintiff was not entitled to costs. The judgment included, in part, the following:

"... The judge had to look closely at the facts of the particular case before him and ask: Who, as a matter of substance and reality, had won? Had the plaintiff won anything of value or anything he could not have won without fighting the action through to a finish? Had the defendant substantially denied the plaintiff the prize which the plaintiff fought the action to win?"

41. The Queensland Court of Appeal, commenting upon that decision, said this (at pages 107 and 108):

"Although the question considered in that case arose in a context different from the present, the line of reasoning is applicable here; the expression "a judgment no less favourable" in r. 118 does not in our opinion exclude from consideration relief sought other than money claims. For example, if an action was brought relating to the winding up of a partnership, various items of relief might be claimed, including declaratory relief; it would be a matter for the court's judgment as to whether, an offer to settle having been made, the effect of the judgment overall was "no less favourable" to the plaintiff than the offer.

In the present case there was, as it seems to us, no chance of an apology; however that may be, the respondent has not of course obtained one, under the judgment. But what he has is an award of damages very much higher than the sums sought in the offers to settle, namely $13,000 and $15,000. It seems to us that the result of the judgment, including ample vindication of the respondent's position, was more favourable to the respondent than either offer.

We therefore reject the submission that r. 118 was inapplicable."

42. In Assaf v Skalkos [2000] NSWSC 935 Carruthers AJ considered the question of indemnity costs in a defamation action, where the offer included a requirement that there be an apology. He awarded indemnity costs. The defendants appealed against the judgment by Carruthers AJ, but not against the order of indemnity costs. The Court of Appeal subsequently dismissed the appeal. The successful respondents sought indemnity costs on the appeal. In dealing with this application, in Skalkos v Assaf (No 2) [2002] NSWCA 236, the Court (Mason P, Giles JA and Fitzgerald AJA) said this:

"[4] Carruthers AJ considered the apology, costs and compensation sought to be reasonable: see esp at [82], [84], [85].

[5] There was no response to the plaintiffs' offer. The defendants dismissed their solicitors and effectively "walked away" from settlement negotiations (see at [79]).

[6] The verdicts obtained by the plaintiffs in the trial which ensued were clearly more favourable than the settlement offers which they had made. Carruthers AJ said:

(116) In my view, the deemed rejection by the defendants in the instant case of the plaintiffs' offer could almost be described as a forensic disaster. It involved a considerable compromise on the part of the plaintiffs who were, in the circumstances, bound to pursue the legal proceedings. On the other hand, it was an olive branch tendered to the defendants which would have relieved them at minimal cost from significant costs and damages at the hands of the jury in what was a serious defamation.

(117) ...

(118) In my view, the plaintiffs are entitled to an order for indemnity costs, I think, dating from 17 August 1994 when the defendants walked away from the settlement negotiations and may be deemed to have rejected the plaintiffs' offer.

(119) ...

43. The Court of Appeal added:

"[8] We would respectfully agree with the order and reasons of Carruthers AJ and, for the reasons which follow, apply them in the present application."

44. Beazley JA, in the article on Calderbank Offers to which reference has been made, included the following comment, which is apposite in the present context (at page 68):

"Where the offer is subject to a non-monetary condition, such as requirements for an apology or release, proper exercise of the direction will involve the court considering the reasonableness of the condition, and whether or not the judgment result was, in substance, more favourable than the offer: Magenta Nominees Pty Ltd v Richard Ellis (WA) Pty Ltd; Timms v Clift; Assaf v Skalkos; and Skalkos v Assaf (No 2)..."

45. Here, as in Timms v Clift (supra 39), the award of damages was very much higher than the sums sought in the offers to settle. The condition the plaintiff imposed, as to an apology, was certainly reasonable. To adopt the words of the Queensland Court of Appeal, the result of the judgment, including the ample vindication of the plaintiff's position, was significantly more favourable than any alternative, including his own offers to settle the claim.

46. Dealing with the second argument, the defendant asserted that the imputations in the concerns notice served pursuant to s 14(2) of the Defamation Act 2005 (supra para 10) were different from the imputations ultimately relied upon (supra para 5). The suggestion was that there was therefore some unfairness in awarding indemnity costs. Certainly, there are differences in the way in which the imputations are expressed. However, the concepts identified in each are similar, although the statement of claim goes further and adds to those concepts. Comparing the two:

Imputations 1 and 2 (breach of confidentiality and contract through improper use of membership list) in the concerns notice are taken up in imputations (d) and (e) in the statement of claim.
Imputation 3 in the concerns notice (lack of trustworthiness) reappears in imputation (a) in the statement of claim.
Imputation 4 in the concerns notice (breach of legal obligations) reappears as part of imputation (e).

47. Against that background let me turn to the issue of whether indemnity costs should be awarded for the period before 10 November 2010, that being the date when the offer of compromise expired.

Should indemnity costs be awarded?

48. Before dealing with s 40 of the Defamation Act 2005, it is instructive to examine the issue in terms of conventional principles relating to indemnity costs, whether in respect of offers of compromise (UCPR r42.14) or Calderbank letters.

49. Here the award of $150,000.00 plus interest was calculated in part to serve as vindication of the plaintiff's reputation ( Carson v John Fairfax & Sons Limited [1993] HCA 31; (1993) 178 CLR 44 at 60/61). Although the defendant refused to give Mr Manefield an apology, Mr Manefield can point to the damages as a demonstration of the falsity of the imputations. As stated, the award, in substance, was significantly more favourable than both the offers that Mr Manefield signified that he was prepared to accept and the offers made by the defendant. Whilst it may be an exaggeration to describe the result as a "forensic disaster" for the defendant (cf Skalkos v Assaf (No 2) supra para 42), the verdict and combined costs of the plaintiff and defendant exceed by a significant margin the offers made before the litigation began.

50. Turning to s 40 of the Defamation Act 2005, the Court is enjoined (s 40(1)(a)) to consider the way in which the parties conducted their cases. The course of the litigation has been described (paras 7-26). Shortly after the defamatory letter, the solicitors for the plaintiff sent a concerns notice to the defendant, identifying a number of imputations (paras 7-10). The letter asserted that the imputations were false. A modest offer was made by the plaintiff to avoid litigation ($40,000.00 damages, $5000.00 costs plus an apology). The final paragraph signaled that a lower figure may be agreed ("if you would like to negotiate a resolution..."). It was a sensible and reasonable letter which the defendant chose to ignore.

51. In these circumstances the plaintiff was left with no real alternative than to commence an action. A statement of claim was filed on 10 June 2009. Still no offer was made. After pleadings had closed and various interlocutory steps had been taken, the plaintiff again raised the possibility of settlement in late 2009 or thereabouts (para 17). In the following year there were some discussions. However, no offer was made by the defendant until more than two months after the matter had been set down for trial. When the offer finally came on 29 September 2010, it was for $20,000.00 inclusive of costs (para 19), a sum significantly less than the costs that would have been incurred by the plaintiff to that point. The defendant, in the letter of offer, pointedly added that the offer was made in accordance with the principles in Calderbank v Calderbank .

52. The plaintiff responded to that offer on 13 October 2010. A counter offer of $95,000.00 inclusive of costs was made, without insisting upon an apology (supra para 20). The defendant brushed that offer aside, saying that its previous offer was "essentially not negotiable", although it increased its previous offer by $5000.00 to $25,000.00 inclusive of costs. Again, it added that the offer was made in accordance with Calderbank v Calderbank .

53. The picture therefore is clear. The plaintiff, adopting the procedure in the Defamation Act 2005, which is designed to provide a remedy to an aggrieved person and avoid litigation, made a reasonable offer that was ignored. Once litigation began, the plaintiff again sought to encourage the defendant to settle on a compromise basis. Finally, after the matter had been set down for trial, and significant costs incurred, the defendant made what can only be described as a derisory offer. I infer that the defendant well knew that an inclusive costs offer of $20,000.00 was for an amount much less than the costs that had already been incurred by the plaintiff. It was, I believe, an offer designed to intimidate, rather than attract the plaintiff. It is unsurprising that it was rejected and that the matter went to trial.

54. I turn, then, to the issues that arise under s 40(2) and (3). The plaintiff ultimately succeeded in obtaining a verdict of $150,000.00 plus interest. The damage to his reputation was significant. The verdict, no doubt, would have been greater had the letter been disseminated to a larger audience. Three issues arise under s 40:

First, did the defendant unreasonably fail to make a settlement offer?
Second, did the defendant unreasonably fail to agree to a settlement offer proposed by the plaintiff?
Third, if either question is answered in the affirmative, do the interests of justice require otherwise than that the costs be awarded against the defendant on an indemnity basis?

55. I repeat, for convenience, the definition of settlement offer in s 40(3):

"40(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."

56. Here, dealing with the concerns notice of October 2008, each imputation (though less ornate than the imputations ultimately pleaded) (supra para 10) was clearly conveyed by the publication and others besides. Each was disparaging of the plaintiff and plainly defamatory. I would have expected the defendant to have recognised that the plaintiff had been defamed at the time of publication. It would certainly have known once it had been pointed out in the concerns notice .

57. Was the plaintiff's offer in the concerns notice reasonable? By the measure of damages awarded in the action ($150,000.00 plus interest) unquestionably it was. From the perspective of the plaintiff, it was plainly reasonable at the time the offer was made. However, the offer was clearly not the last word. There was an invitation to negotiate. One infers the plaintiff was hoping to salvage at least some of his reputation by an apology. The amount included for costs was modest ($5,000.00). The offer clearly involved an element of compromise, since the plaintiff's reputation had been seriously damaged within the child care community of NSW, which had been his consuming interest. Yet the defendant neither accepted the offer nor made an offer in response. Ultimately, it made what I have described as a derisory offer shortly before the trial.

58. Was the failure on the part of the defendant to make an offer, or agree to the plaintiff's settlement proposal, unreasonable? I believe it was. As stated, the defendant would have recognised that its publication had defamed the plaintiff. I infer that it also recognised that it had caused him significant anguish and had damaged his reputation. The only defence relied upon was qualified privilege at common law. One assumes that, when weighing up the plaintiff's offer and whether to make a counter offer, the defendant had that defence in mind. Significantly, the defendant did not rely upon statutory qualified privilege (s 30 Defamation Act 2005), where it would have been obliged to prove that its conduct in publishing the letter was reasonable in the circumstances (s 30(1)(c)). Qualified privilege at common law, in contrast, protected a communication made on a privileged occasion whether reasonable or unreasonable ( Roberts v Bass [2002] HCA 57; (2002) 212 CLR 1 per Gleeson CJ at 13 (para 14).

59. However, you would also have expected the defendant (and its advisors), when assessing the plaintiff's offer, and giving thought to a counter offer, to be mindful of two things. First, it may be assumed they knew that the privilege would be defeated were the plaintiff to establish express malice. Here, the plaintiff and the defendant had a relationship extending over several years. The relationship ended when the defendant dismissed the plaintiff as Executive Officer of the association. Their relationship and his dismissal were likely to provide fertile ground for suggestions of malice.

60. Further, the plaintiff, perhaps naively, had written to the defendant in advance of the launch of Early Learning Australia. He sought the defendant's cooperation. He invited discussion on the issues he raised in his letter. He provided his mobile telephone number. The defendant chose to ignore that invitation and the text of the letter. It did not speak to him before writing directly to its members. One would have expected the defendant (and its advisors) to have recognised that such circumstances may conceivably give rise to allegations of malice, which, if established, would defeat the privilege. As mentioned, the defendant did not assert (and, under common law qualified privilege, was not obliged to assert) that it had acted reasonably. Nonetheless, you would have expected the association (and its advisors) to have recognised that there is a fine line between conduct in publishing defamatory material which is unreasonable and conduct which may support an inference of malice. In short, the defendant was not bound to win. Compromise should have been in their contemplation.

61. The second matter, which ought to have given the defendant pause, is one of some notoriety. Litigation, by its nature, is hazardous. Things may occur unexpectedly, such that a good case is lost or a doubtful case, won. The hazards of litigation are perhaps greater in defamation than in most other areas. But quite apart from that, litigation is expensive, even for those who ultimately win. With these things in mind, as a matter of enlightened self interest, it was important for the parties to consider compromise and commercial reality.

62. Here, the defendant chose to ignore these hazards. It refused to negotiate. At the heel of the hunt, once the matter had been set down for trial, it made an offer that was manifestly inadequate.

63. The defendant in the circumstances unreasonably failed to make a settlement offer. Whilst the offer of the plaintiff in the concerns notice was modest and reasonable, it was, by its terms an invitation to treat, such that I would not find it unreasonable for the defendant to refuse to accept it. But a counter offer was called for as well as earnest endeavors to reach a compromise agreement. The requirements of s 40 are satisfied. The defendant should pay indemnity costs. The interests of justice do not require otherwise.

Order

64. I therefore order the defendant pay the plaintiff's costs on an indemnity basis from the commencement of the action.

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