Settlement offers – are they really protecting your costs position?
Jun 2021 | InsuranceIntroduction
In Murphy v Nationwide News Pty Ltd (No 2),1 the Federal Court recently ordered the respondents to pay the whole of an applicant’s costs of a defamation court proceeding despite the applicant failing to do better than the respondents’ pre-trial Calderbank offer.
Had the respondents framed their pre-trial offer differently to rely on the presumptive cost entitlements under the Court rules, the decision on costs would likely have been different.
The costs decision
The underlying proceeding by Mr Murphy2 concerned five defamatory imputations alleged to have been conveyed by an article authored and published by the respondents.
Prior to trial, the respondents made Mr Murphy an offer to settle the proceeding for $120,000 plus costs. The offer was conveyed by a letter marked 'without prejudice except as to costs’ and gave notice the respondents would rely on the letter to seek ‘costs on an indemnity basis from the date of the letter in accordance with the principles of Calderbank v Calderbank (1975) 3 All ER 333 and/or pursuant to section 40(2)(b) of the Defamation Act 2005 (NSW)'.
At trial, the Federal Court found one of the five alleged imputations was conveyed by the article. The Court awarded Mr Murphy $110,000 for general damages plus interest. The parties then agreed judgment should be entered for $111,726.
Although the judgment of $111,726 was less than the respondents’ pre-trial offer of $120,000, the Federal Court ordered that the respondents pay Mr Murphy’s costs of the entire proceeding. The Court did not order that the respondents were entitled to recover their costs from the date of the offer.
Discussion
The decision turned on the cost consequences of an informal or Calderbank offer as opposed to the cost consequences of a formal offer under the Court rules.
Each Australian state’s Defamation Act grants the courts a broad discretion to consider any relevant matter in awarding costs and provides that the court must order an unsuccessful defendant to pay the plaintiff’s costs of the proceeding on an indemnity basis if the defendant ‘unreasonably’ failed to make or agree to a settlement offer proposed by the plaintiff (unless the interests of justice require otherwise).3 This provision was not expressly relied upon by the Court.
Similarly, the cost consequences of a defendant’s Calderbank offer depend on whether the defendant offeror can show the plaintiff offeree ‘unreasonably’ failed to accept the offer. Whether the offer is more favourable than the judgment sum ultimately obtained is relevant, but will not automatically result in an indemnity costs order.4
The cost consequences of a defendant/respondent’s formal offer under the court rules require a comparison of the final order or judgment with the offer:
- Under the Federal Court rules, if the applicant obtains a judgment that is 'less favourable' than the respondent’s offer, the applicant’s entitlement to costs ceases at 11am on the second business day after the offer was served, and the respondent is entitled to its costs from that point forward on an indemnity5 basis (unless the court orders otherwise). South Australian6 courts have a similar rule based on whether the judgment is ‘less favourable’, but its rule triggers the respondent’s entitlement to indemnity costs after 14 days from the date of service of the offer.
- Under the Queensland court rules, if the plaintiff does ‘not’ obtain an outcome that is ‘more favourable’ than the defendant’s offer, the plaintiff is entitled to standard costs up to the date of the offer, but defendant is entitled standard costs thereafter (unless another order for costs is appropriate).7 The courts in New South Wales,8 Australian Capital Territory,9 Victoria,10 Western Australia11 and Tasmania12 have a similar rule based on whether the judgment is ‘no more favourable’, subject to variations in the timing and scale of the defendant’s costs entitlement.
In Mr Murphy’s case, to determine the cost consequences of the respondents’ Calderbank offer, the Federal Court was required to consider whether Mr Murphy had ‘unreasonably’ failed to accept it. As the offer was framed as a Calderbank offer and not a formal offer under the Court rules, whether the judgment sum was more or less favourable than the offered sum was not the determinative test.
The Federal Court found that Mr Murphy did not ‘unreasonably’ reject the offer. In making that finding, the Judge focussed on Mr Murphy’s overall success in his defamation action against the respondents and the importance of a judgment vindicating his reputation. The Court said:
‘I do not consider the making of the Offer is a compelling reason to depart from an order that [the respondents] pay Mr Murphy’s costs of the proceeding. Put another way (and in more familiar terms), it was not unreasonable … to reject the Offer …and, by doing so, he later obtained what objectively is a better result (given the importance of vindication and “nailing” the falsity of [the] Imputation [on which he succeeded])’.
The Court also commented that, had the respondents’ offer been made under the Court rules (rather than as a Calderbank offer), it would likely have ordered Mr Murphy pay the respondents’ costs from 11am on the second business day after the offer was served as provided for in the Federal Court rules.
Comment
Unsuccessful defendants in defamation actions will generally be ordered to bear the costs of a proceeding, pursuant to the usual rule that costs follow the event. For the best chance of a pre-trial offer resulting in favourable cost consequences, a defendant in a defamation action should make an offer that reasonably reflects a plaintiff’s potential entitlement to damages and frame it as a formal offer under the relevant court rules if possible.
Otherwise, an informal or Calderbank offer may fail to achieve the intended costs protection in circumstances where the court may find it not unreasonable to reject otherwise generous offers on the basis it is more important that a plaintiff vindicate their reputation through a published judgment (even if at the expense of a lesser award of damages at trial).
The decision is also important for defendants and insurers involved in all civil proceedings (beyond just defamation actions), given the need to carefully consider whether a Calderbank offer will give the intended costs protection if a formal offer can be made. This requires careful consideration in circumstances where the potential difficulties of making a successful Calderbank offer need to be balanced against the limitations of making formal offers under the applicable court rules, in which it is more difficult to impose additional terms (such as releases, indemnities, warranties, confidentiality, no admissions of liability etc).
As an aside, the Court also explained in its judgment that the authorised report citation of Calderbank v Calderbank [1976] Fam 93 ought to be used in place of the commercially produced report citation of Calderbank v Calderbank (1975) 3 All ER 333.
1 [2021] FCA 432 (costs judgment) <https://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/single/2021/2021fca0432>.
2 Murphy v Nationwide News Pty Ltd [2021] FCA 381 (primary judgment) <https://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/single/2021/2021fca0381>.
3 Defamation Act 2005 (No 77) (NSW) s 40; Defamation Act 2005 (Qld) s 40; Defamation Act 2005 (Vic) s 40; Defamation Act 2005 (SA) s 38; Defamation Act 2005 (WA) s 40; Defamation Act 2006 (NT) s 37; Civil Law (Wrongs) Act 2002 (ACT) s 139K.
4 Bellino v Queensland Newspapers Pty Ltd (No 2) [2019] FCA 1691.
5 Federal Court Rules 2011 (Cth) r 25.14.
6 Uniform Civil Rules 2020 (SA) r 132.10.
7 Uniform Civil Procedure Rules (Qld) r 361.
8 Uniform Civil Procedure Rules 2005 (NSW) r 42.15.
9 Court Procedure Rules 2006 (ACT) r 1011.
10 Supreme Court (General Civil Procedure) Rules 2015 VIC r 26.08.
11 Rules of the Supreme Court 1971 (WA) r 10.
12 Supreme Court Rules 2000 (Tas) r 289.
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The material contained in this publication is in the nature of general comment only, and neither purports nor is intended to be advice on any particular matter. No reader should act on the basis of any matter contained in this publication without considering, and if necessary, taking appropriate professional advice upon their own particular circumstances.
