Understanding Special Costs Orders: When Are They Made?

In certain complex and important legal matters, special costs orders can be made to address the inadequacy of the costs allowable under the applicable costs determinations.

In this blog post, I discuss the legal principles surrounding special costs orders and the circumstances under which they may be granted, with reference to the case of BCBC Singapore Pte Ltd v PT Bayan Resources TBK (No 5) [2023] WASC 116.

Legal Principles

The power to make special costs orders is found in sub-section 141(3) of the Legal Profession Uniform Law Application Act 2022 (WA). This section replaced section 280(1) of the Legal Profession Act 2008 (WA) but is relevantly identical, meaning that authorities dealing with the previous section remain applicable.

As per the Court of Appeal decision in Sino Iron Pty Ltd v Mineralogy Pty Ltd (No 2) [2017] WASCA 76 (S), special costs orders may be made if a court or judicial officer is of the opinion that the amount of costs allowable in respect of a matter under a costs determination is inadequate because of the unusual difficulty, complexity, or importance of the matter. These orders are considered special and are only made if specified conditions are met.

Two Essential Components

To exercise the power to make a special costs order, the court must form an opinion that has two components:

1. The court must form the view that the maximum amount allowable under the relevant scale item is inadequate, in the sense that there is a fairly arguable case that the bill to be presented to the taxing officer may properly tax at an amount greater than the limit imposed by the relevant cost determination.

2. The court must also form the opinion that the inadequacy of the costs allowable under a costs determination arises because of the "unusual difficulty, complexity or importance of the matter."

Establishing a Fairly Arguable Case

A fairly arguable case will not be established merely because a party incurred greater costs than those allowable under the relevant determination.

However, if a party has applied significantly greater legal resources to each step in the litigation than those for which allowance is made under the relevant determinations, and this is viewed in the context of the difficulty, complexity, or importance of the matter, the conclusion that there is a fairly arguable case may be sustained.

The term "unusual" in this context qualifies only the "difficulty" of the matter, and not its "complexity" or "importance." It means unusual when compared to the usual run of civil cases determined in the court.

Case Example: BCBC Singapore Pte Ltd v PT Bayan Resources TBK (No 5) [2023] WASC 116

In this case, the court was satisfied that the Freezing Orders Proceedings were complex and important, justifying the special costs orders.

The nature and importance of the proceedings led the court to conclude that Bayan was justified in engaging counsel with greater experience and expertise in commercial litigation than in the usual run of civil cases, as well as solicitors who charged more than the scale rates.

Key Take-Aways

• Special costs orders are made in cases of unusual difficulty, complexity, or importance when the maximum amount allowable under the relevant scale item is inadequate.

• These orders are not made lightly, and the court must be satisfied that there is a fairly arguable case that the amount of costs allowable is inadequate because of the specific nature of the matter.

When Should Indemnity Costs Be Awarded in Relation to a Calderbank Offer?

In Western Australian litigation, indemnity costs may be awarded in certain circumstances when a Calderbank offer has not been accepted.

Calderbank offers are settlement offers made outside of court that, if rejected unreasonably, can lead to an order for indemnity costs.

This blog post explores the principles governing the exercise of the court's discretion to make such an award, drawing on the case of Middendorp v Lygina (No 2) [2021] WASC 431 (S).

Principles Governing Indemnity Costs in Relation to Calderbank Offers

As established in Ford Motor Company of Australia Ltd v Lo Presti [2009] WASCA 115 and summarized in Eccles v Koolan Iron Ore Pty Ltd (No 3) [2013] WASC 418 (S), there are several principles that apply when determining whether a Calderbank offer justifies an award of indemnity costs:

1. A Calderbank offer will not justify an award of indemnity costs unless its rejection was unreasonable.

2. All relevant facts and circumstances must be considered in determining whether a party's rejection of a Calderbank offer was unreasonable.

3. The mere fact that the recipient of a Calderbank offer is ultimately worse off than he or she would have been had the offer been accepted does not mean its rejection was unreasonable.

4. Whether conduct is reasonable or unreasonable always involves matters of judgment and impression.

5. It is not possible nor desirable to enumerate exhaustively all circumstances which must be taken into account in deciding whether the rejection of a Calderbank offer was unreasonable, but ordinarily, regard should be had to factors such as:

• the stage of the proceeding in which the offer was received,

• the time allowed to the offeree to consider the offer,

• the extent of the compromise offered,

• the offeree's prospects of success,

• the clarity with which the terms of the offer were expressed, and

• whether the offer foreshadowed an application for indemnity costs in the event of the offeree's rejecting it.

6. The party who makes a Calderbank offer that is rejected bears the onus of satisfying the court that it should make an award of indemnity costs in his or her favor.

7. The standard for awarding indemnity costs should not be allowed to diminish to the extent that an unsuccessful party will be at risk of an order for costs assessed on an indemnity basis absent some blameworthy conduct on its part - a test of unreasonableness should not be upheld on other than clear grounds. (Put another way, the standard for awarding indemnity costs should be maintained at a level where an unsuccessful party is not at risk of being ordered to pay costs assessed on an indemnity basis without engaging in some form of blameworthy conduct. A finding of unreasonableness should only be based on clear and compelling grounds, rather than being applied too easily or casually).

Assessment of Calderbank Offers

As reiterated in Strzelecki Holdings Pty Ltd v Jorgensen, Calderbank offers must be assessed without the benefit of hindsight and having regard to the strength of the parties' cases as they then stood.

A party's erroneous prediction about the prospects of litigation, on the basis of which they reject a Calderbank offer, may not be regarded as unreasonable if that party was not, at the time, and for good reason, in possession of sufficient information to make a proper assessment of its prospects, or if the circumstances upon which the assessment was based later changed.

Additionally, the terms of a Calderbank offer must be unambiguous, and it will not be unreasonable to reject an offer if there is some reasonable doubt about the nature and extent of what was being offered.

Case Example: Middendorp v Lygina (No 2) [2021] WASC 431 (S)

In this case, the court found that an order for indemnity costs (for a part of the costs) was justified due to the unreasonable rejection of a Calderbank offer.

The court considered factors such as the late stage of the proceeding, the defendant's prospects of success, the short timeframe for acceptance, the extent of the compromise offered, the clarity of the offer's terms, and the fact that the offer foreshadowed an application for indemnity costs in the event of rejection.

The court also noted that the unsuccessful party had not provided a reason for not accepting the offer beyond the usual prospects of being successful in litigation, which further justified the indemnity costs order.

Key Take-Aways

• Indemnity costs may be awarded in relation to a Calderbank offer if the rejection of the offer is found to be unreasonable.

• The court will consider various factors to determine whether the rejection was unreasonable, such as the stage of the proceeding, the time allowed for consideration, the extent of the compromise offered, the offeree's prospects of success, the clarity of the terms, and whether the offer foreshadowed an application for indemnity costs in the event of rejection.

• It is essential for legal practitioners to carefully consider the principles outlined above when advising clients on the potential consequences of rejecting a Calderbank offer, as an unreasonable rejection may lead to an indemnity costs order against their client.

Principles for Costs Appeals

As a costs lawyer in Western Australia, I often come across situations where clients wish to appeal costs orders.

While the right to appeal is an essential part of the legal process, it is important to understand the principles that govern costs appeals.

In this blog post, I explore these principles, drawing from the case of Strzelecki Holdings Pty Ltd v Jorgensen [2019] WASCA 96.

The Discretionary Nature of Costs Orders

Costs orders involve the exercise of discretion by the court. This means that the judge has the authority to decide on the appropriate costs order based on the specific circumstances of the case.

Consequently, the principles applicable to appeals against discretionary decisions also apply to costs appeals.

Limits of Appellate Intervention

An appellate court is not entitled to substitute its own decision for the decision under appeal simply because it would have reached a different conclusion, or because it considers that a different outcome would be more just and equitable.

Instead, an appellate court must be satisfied that the order made stands outside the limits of a sound discretionary judgment before intervening.

Establishing Errors in the Primary Decision

To demonstrate that a costs order is outside the limits of a sound discretionary judgment, an appellant must establish either an express error or demonstrate that an error can be inferred.

An express error occurs when the primary judge:

1. Acted upon a wrong principle,

2. Mistook the facts,

3. Took into account an irrelevant consideration, or

4. Failed to take into account a relevant consideration.

An error may be inferred if the order under appeal is shown to be unreasonable or plainly unjust.

Understanding the Apportionment of Costs in Western Australian Legal Cases

This blog post provides a general overview of the apportionment of costs, based on the Western Australian case of Strzelecki Holdings Pty Ltd v Jorgensen [2019] WASCA 96.

1. The Importance of Success in Determining Costs

Success in legal proceedings is determined based on the reality of the circumstances involved in the case ([50]).

The court examines the overall outcome of the proceedings and the parties' success on individual issues.

The determination of success is not a mere mathematical calculation but rather an assessment of the parties' achievements on the substantive aspects of the case.

The court may depart from the general rule that costs follow the event and modify a costs order to take into account specific factors.

These factors can include unreasonable conduct by the successful party or the failure of that party on one or more particular issues ([50]).

The court's discretion in modifying costs orders is guided by the Rules of the Supreme Court, the established practice of the court, and legal authorities.

If the court is of the opinion that the successful party's conduct has resulted in costs being unnecessarily or unreasonably incurred, the court may deprive that party of costs, either wholly or in part ([50]).

The court may even order the successful party to pay the costs of the unsuccessful party, either wholly or in part, depending on the circumstances. This highlights the importance of maintaining reasonable conduct throughout the litigation process.

In cases where the successful party fails on specific issues, the court may exercise its discretion to apportion costs accordingly. This may involve ordering the successful party to pay the costs of those issues on which they have failed ([50]). However, it is essential to recognize that the court will only exercise this power when there are discrete and severable issues that have significantly added to the cost of the proceedings.

2. Discretion to Apportion Costs

The court has a wide discretion to apportion costs, which must be exercised judicially (Strzelecki Holdings Pty Ltd v Jorgensen [2019] WASCA 96, [48]).

Apportionment of costs should only be made where there are discrete and severable issues on which the successful party failed, and which added to the cost of the proceedings in a significant and readily discernible way (Strzelecki Holdings Pty Ltd v Jorgensen [2019] WASCA 96, [51]).

3. Modifying the Usual Costs Orders

When the court decides to modify the usual costs orders to reflect the limited success of the successful party, this power should be exercised broadly, as a matter of impression, without any attempt at mathematical precision (Strzelecki Holdings Pty Ltd v Jorgensen [2019] WASCA 96, [52]).

This approach acknowledges the complexities of separating different issues and the varying importance of different issues within a case.

4. Apportionment of Costs in Strzelecki Holdings Pty Ltd v Jorgensen [2019] WASCA 96

In this case, the court ultimately determined that a just apportionment of costs would require Strzelecki to pay two-thirds of the Jorgensens' costs of the action.

This conclusion was reached based on a broad analysis of the case, taking into account the various components of the action and their relative significance, and acknowledging the common factual substratum and legal issues in some components of the case (Strzelecki Holdings Pty Ltd v Jorgensen [2019] WASCA 96, [97]-[100]).

Can an Incorporated Legal Practice Recover Costs for Work Done by Its Solicitors When Acting for Itself?

In light of the Pentelow decision, there has been a growing interest in the question of whether an incorporated legal practice acting for itself can recover costs for work done by its solicitors. In this blog, I explore the current state of the law on this topic.

The General Rule: Self-Represented Litigants Cannot Recover Costs

As a general rule, self-represented litigants are not entitled to recover any recompense for the value of their time spent in litigation. This rule is based on the principle that a party should not be compensated for their own time and effort spent in pursuing or defending a legal claim.

In Bell Lawyers Pty Ltd v Pentelow, the High Court of Australia determined that the Chorley exception, which previously allowed self-represented solicitors to recover their professional costs, should not be recognized as part of Australian common law.

Incorporated Legal Practices and the Employed Solicitor Rule

The question of whether an incorporated legal practice can recover costs for work done by its solicitors when acting for itself was left open in Bell Lawyers. The court noted that it might be queried whether a solicitor employed by an incorporated legal practice of which he or she is the sole director has sufficient professional detachment to be characterized as acting in a professional legal capacity.

Subsequent cases have sought to address this question.

In United Petroleum Australia Pty Ltd v Herbert Smith Freehills, the Court of Appeal held that a claim by a firm of solicitors (operating as a partnership) to recover costs for the work of its employees fit within the general rule for self-represented litigants, and not within the "well-established understanding" relating to employed solicitors.

The "employed solicitor rule" refers to a well-established understanding in Australian law that allows non-lawyer parties, such as government entities or corporations, to recover costs for legal services provided by their in-house or employed lawyers. This rule operates within the indemnity principle, as even though there is no liability to pay a third party (such as an external law practice), there is still a clear distinction between the client and the lawyer, as well as a functional equivalence between paying external lawyers and offsetting the overhead costs incurred by employing lawyers to act on behalf of their employer.

However, this understanding does not extend to parties that are lawyers representing themselves. According to the United Petroleum Australia Pty Ltd v Freehills case, the only exception that previously allowed lawyers to recover costs for self-representation was the Chorley exception, which has since been overruled in Bell Lawyers. Allowing law firms to recover costs on the basis that the legal work was undertaken by employed solicitors, rather than the firm's owners, would potentially undermine the outcome of the Bell Lawyers decision.

In Guneser v Aitken Partners, the court considered whether an incorporated legal practice acting for itself could recover costs in respect of work done by its employee solicitors. The court followed a similar approach to the Court of Appeal in United Petroleum, asking whether the incorporated legal practice fit within the general exclusionary rule for self-represented litigants and whether the claim fell within the "employed solicitor rule" so that its costs were recoverable. Ultimately, the court determined that the general exclusionary rule applied, and the "employed solicitor rule" (or the "well-established understanding") did not apply.

Key take-aways

• An incorporated legal practice acting for itself cannot recover costs in respect of work done by its solicitors.

• This conclusion is consistent with the general rule that self-represented litigants cannot recover costs and the court's reluctance to recognise exceptions to this rule.

Cases mentioned in this blog:

• Bell Lawyers Pty Ltd v Pentelow [2019] HCA 29; (2019) 93 ALJR 1007

• United Petroleum Australia Pty Ltd v Herbert Smith Freehills [2020] VSCA 15

• Guneser v Aitken Partners (Cross Appeal On Costs) [2020] VSC 329

Indemnity Costs and the Consequences of Unwarranted Allegations in Legal Proceedings

In the legal world, we often come across situations where allegations are made that should never have been made, and personal attacks are directed at lawyers. Such actions can have serious consequences, not only for the parties involved but also for the legal system as a whole.

In this blog post, I discuss the importance of indemnity costs and the potential consequences of lawyers making personal attacks, with a focus on a recent Supreme Court of the Australian Capital Territory (Court of Appeal) decision, Michael Wilson & Partners Ltd v Nicholls (No 10) [2023] ACTCA 13.

Indemnity costs are awarded in cases where a party has acted unreasonably or in bad faith, thereby causing the other party to incur additional costs. These costs are ordered in circumstances where allegations are made "which ought never to have been made," the case is "unduly prolonged by groundless contentions," or where "the applicant, properly advised, should have known that he had no chance of success" or "persists in what should on proper consideration be seen to be a hopeless case" (Melbourne City Investments Pty Ltd v Treasury Wine Estates Ltd (No 2) [2017] FCAFC 116 at [5]).

In the case of Michael Wilson & Partners Ltd v Nicholls (No 10) [2023] ACTCA 13, the Court ordered indemnity costs against the applicant for reagitating issues that had previously been determined adversely by the Court. The applicant, properly advised, must have been aware that he had no prospects of success in the application. The sixth respondent, in this case, was entitled to indemnity costs for the unwarranted allegations and groundless contentions made by the applicant.

Moreover, the applicant in this case had a propensity to advance personal attacks directed at counsel for the sixth respondent and the instructing solicitor. Allegations of this kind should not be made by admitted practitioners against other admitted practitioners without clear and compelling evidence. As no such evidence was advanced before the Court, the sixth respondent should not be put to any cost in respect of agitating those allegations. This matter formed an independent basis for ordering indemnity costs.

It is important to note that lawyers who make personal attacks or unwarranted allegations may face consequences beyond costs orders. In Michael Wilson & Partners Ltd v Nicholls (No 10) [2023] ACTCA 13, the Court considered whether it was appropriate to restrain the applicant's representative, Mr. Wilson, from continuing to act for the applicant. This decision was based on the potential finding that Mr. Wilson was not in a position to give impartial and independent advice to the applicant and was acting as a mere mouthpiece for his personal interest and grievance against the sixth respondent and their legal advisors.

The Court has inherent powers and powers under the Legal Profession (Solicitors) Conduct Rules 2015 (ACT) (rr 17.1 and 27.2) to make such orders. However, in this case, the Court decided not to make such an order due to the exceptional nature of the remedy and the lack of submissions on the issue by the parties.

In conclusion, it is crucial for legal practitioners to maintain professionalism and avoid making unwarranted allegations or personal attacks. Such actions may result in indemnity costs being ordered against their clients and potential consequences for the practitioners themselves. The case of Michael Wilson & Partners Ltd v Nicholls (No 10) [2023] ACTCA 13 serves as a reminder of the importance of upholding high standards of conduct in the legal profession.

When Security for Costs May Be Ordered in an Appeal

In a recent decision of the Western Australia Supreme Court, Cheng v Lam [2023] WASCA 65, the Court provided a useful summary of the factors to consider when deciding whether to order security for costs in an appeal.

This blog post will discuss these principles and examine how they were applied in the Cheng v Lam case.

The Principles

According to the Court in Cheng v Lam, the power to order security for costs is exercised to serve the interests of justice.

While the discretion to order security is unfettered, it must be exercised judicially, and 'special circumstances' do not need to be shown before an order for security for costs is made against an appellant [29].

An appellant's inability to satisfy a costs order should the appeal fail is generally a significant factor in favor of an order for security for costs. However, if the respondent has caused the appellant's impecuniosity, that may be a relevant countervailing factor [30].

Impecuniosity alone is not generally the sole ground for making an order for security. Even where the appellant is impecunious, the interests of justice may properly be served by not making such an order. Where security is ordered against an impecunious appellant, the amount ordered should not be greater than necessary [30].

Other relevant factors generally include the appellant's prospects of success, whether the appellant would be shut out of the appeal if security for costs were ordered, and whether there has been any delay in the respondent filing the application for security for costs [31].

Additionally, an appellant's non-compliance with earlier costs orders in favor of the respondent, at least to the extent that the non-compliance is not adequately explained, is also a relevant consideration [32].

Cheng v Lam

In Cheng v Lam, the Court found that it was in the interests of justice to grant the application for security for costs, considering several factors.

Some of these factors included the appeal's preliminary prospects of success, the fact that ordering security would not shut out the appellant from the appeal, and the appellant's consistent failure to pay costs orders against her in related litigation [32-35].

Furthermore, the Court considered the appellant's lack of material assets apart from her share in partnership assets, the disputed entitlement to certain funds, and the late filing of the application for security for costs [36-38].

Finally, the Court found that the amount sought for security was reasonable in the circumstances, although they rounded it down to $13,000 and did not provide a liberty to apply to increase the amount of security during the appeal [39].

Key take-aways

• The principles outlined in Cheng v Lam provide a useful starting point for lawyers to understand when security for costs may be ordered in an appeal.

• It is crucial to keep in mind that the interests of justice must always be the guiding principle when exercising discretion to order security for costs.

The Fundamental Obligation to Present Only Necessary Evidence to the Court

In the practice of law, it is essential for legal practitioners to present only the necessary evidence to the Court, allowing the issue(s) at hand to be determined efficiently and effectively. However, some cases demonstrate a failure to adhere to this fundamental obligation, resulting in the Court being burdened with excessive and irrelevant material.

This blog post discusses the importance of presenting only the necessary evidence and highlights the consequences of failing to do so, drawing on the recent decision in Bevan v Bingham & Ors [2023] NSWSC 19.

The Importance of Presenting Necessary Evidence

As established in Bevan v Bingham, there is a fundamental obligation upon all legal practitioners to carefully consider and identify the evidence necessary to put before the Court to allow the issue(s) to be determined.

Failure to do so not only burdens the Court with unnecessary material, but also increases the costs incurred by all parties involved, as legal representatives are obliged to read through all the material presented.

In the case of Bevan v Bingham, the plaintiff's solicitor failed to discharge this obligation, resulting in the Court being presented with an excessive amount of material, much of which was ultimately deemed irrelevant.

The costs incurred in preparing and reviewing such material were significant, and, ironically, this occurred in a case concerning costs owed to a legal practitioner.

The Consequences of Failing to Present Only Necessary Evidence

The practice of presenting excessive and irrelevant material to the Court is not only unacceptable but can also lead to significant consequences for those involved.

As noted in Bevan v Bingham, one appropriate sanction in cases of excess is an order that no costs be recoverable from the losing party in respect of the excess and that no costs be recoverable by the solicitor from the client for the excessive copying.

In order to avoid such consequences, it is essential for legal practitioners to exercise clinical legal judgment and take responsibility for selecting the material to be presented to the Court.

This will not only ensure a more efficient and effective determination of the issues at hand but also help control the costs incurred by all parties.

Key take-aways

• It is crucial for legal practitioners to adhere to the fundamental obligation of presenting only the necessary evidence to the Court.

• Failing to do so can result in significant consequences, such as increased costs and potential sanctions.

• By exercising clinical legal judgment and taking responsibility for selecting the material presented to the Court, legal practitioners can contribute to a more efficient and effective determination of the issues at hand, ultimately benefiting all parties involved.

The Importance of Providing Costs Updates: A Lesson for Lawyers

As a costs lawyer in Western Australia, I have observed numerous instances where lawyers have failed to provide their clients with updated costs estimates.

This failure can lead to a lack of transparency, frustration, and disputes between lawyers and their clients.

One recent case from New South Wales, Bevan v Bingham & Ors [2023] NSWSC 19, provides a useful illustration of the importance of providing costs updates.

In this case, a barrister (the plaintiff) was retained by a solicitor (the first defendant) to represent the second defendant in proceedings related to the Bankruptcy Act 1966 (Cth).

The plaintiff entered into a costs agreement with the first defendant, in accordance with section 180(1)(c) of the Legal Profession Uniform Law (NSW) (LPUL).

The plaintiff provided an initial costs estimate of $60,000 (although the agreement's breakdown actually totalled $56,000) for the anticipated work.

However, the plaintiff ultimately billed the first defendant a total of $349,360, without providing any ongoing updates of his estimated costs.

The court found that the plaintiff's failure to provide these updates constituted a contravention of the prescribed disclosure obligations under the LPUL.

According to section 178(a) of the LPUL, a costs agreement is void if a law practice contravenes the prescribed disclosure obligations.

The court determined that the plaintiff's agreement was void due to the failure to provide updated costs estimates.

This conclusion was consistent with the objectives of the LPUL, which include empowering clients to make informed choices about the legal services they access and the costs involved.

The Bevan case highlights the importance of lawyers providing regular costs updates to their clients.

Failing to do so not only contravenes the LPUL but also undermines the ability of clients to make informed decisions about their legal representation.

As this case demonstrates, the consequences of not providing costs updates can be severe, including the voiding of a costs agreement and potential disputes with clients.

In light of this case, it is essential for lawyers to ensure that they maintain open and transparent communication with their clients regarding costs.

This includes providing regular updates on costs estimates and promptly informing clients of any changes that may affect the overall costs of their legal representation.

By doing so, lawyers can help to foster trust, avoid disputes, and ensure that their clients are well-informed and confident in their decision-making.

A Closer Look at Section 40 of the Defamation Act 2005 (WA): Costs in Defamation Cases

In this blog post, I examine Section 40 of the Defamation Act 2005 (WA), which deals with the awarding of costs in defamation cases in Western Australia.

I discuss the specific provisions of Section 40 and illustrate how it interacts with general costs principles, as highlighted in the decision of Rayney v Reynolds [No 4] [2022] WASC 360 (S).

Section 40 of the Defamation Act 2005 (WA)

Section 40 of the Defamation Act 2005 (WA) outlines the considerations for courts when awarding costs in defamation proceedings.

It consists of 3 subsections:

1. Subsection (1) requires the court to consider:

(a) the way in which the parties 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. Subsection (2) states that, 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, the court must 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.

3. Subsection (3) defines "settlement offer" as any offer to settle the proceedings made before the proceedings are determined, including 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.

This section is meant to promote a "speedy and non-litigious method of resolving disputes and to avoid protracted litigation wherever possible" as identified by McClellan CJ at CL in Davis, which was later cited in Jensen v Nationwide News Pty Ltd [No 13].

Interaction with General Costs Principles

Section 40 operates alongside general costs principles found in s 37 of the Supreme Court Act 1935 (WA), which provides the court with a wide discretion when making orders for costs in proceedings.

This discretion must be exercised judicially and in accordance with established principles to achieve a fair and just outcome for the parties.

While the general rule is that costs should follow the event (meaning the successful party should recover their costs from the opposing party), s 40 of the Defamation Act provides specific guidance for defamation cases, thereby taking priority over the general rules.

Reasonableness of Settlement Offers

As per Section 40(2)(a) of the Defamation Act, the court must assess whether a defendant unreasonably failed to make or agree to a settlement offer proposed by the plaintiff. To determine the reasonableness of a settlement offer, courts may consider factors such as:

1. Whether the offer was a reasonable one at the time it was made.

2. The reasonable predictions about the plaintiff’s prospects of success and quantum.

3. The avoidance of hindsight bias in relation to liability or quantum.

4. Whether the offer reflected a reasonable and realistic assessment of the plaintiff’s prospects of success on liability and the probable quantum of an award in the event of success (Wagner v Nine Network Australia Pty Ltd (No 2)).

Furthermore, the principles of Calderbank v Calderbank may also apply to the assessment of the reasonableness of an offer.

Factors to consider include the stage of the proceeding at which the offer was received, the time allowed to the offeree to consider the offer, the extent of the compromise offered, the offeree’s prospects of success (assessed as at the date of the offer), the clarity with which the terms of the offer were expressed, and whether the offer foreshadowed an application for indemnity costs in the event that the offeree rejected it.

Rayney v Reynolds [No 4] [2022] WASC 360 (S)

In the case of Rayney v Reynolds [No 4] [2022] WASC 360 (S), the Western Australian Supreme Court considered the issue of costs in a defamation proceeding. The court applied Section 40 of the Defamation Act 2005 (WA) and the general costs principles outlined in s 37 of the Supreme Court Act 1935 (WA) to determine the appropriate costs order to be made.

In this case, the plaintiff, Rayney, was successful in his defamation claim and sought an order for costs to be assessed on an indemnity basis. The court, applying the provisions of Section 40(2) of the Defamation Act, was required to consider whether the defendant, Reynolds, unreasonably failed to make a settlement offer or agree to a settlement offer proposed by the plaintiff.

In doing so, the court examined the reasonableness of the settlement offer relied upon by the plaintiff, which was dated 14 February 2019, and assessed it in accordance with the principles of Calderbank v Calderbank. The court took into account several factors, such as the stage of the proceeding at which the offer was received, the time allowed to the offeree to consider the offer, the extent of the compromise offered, and the offeree's prospects of success, as assessed at the date of the offer.

Ultimately, the court found that the defendant had unreasonably failed to make a settlement offer or agree to the plaintiff's settlement offer. As a result, the court ordered that the costs of the proceedings be assessed on an indemnity basis, in accordance with Section 40(2)(a) of the Defamation Act 2005 (WA). This decision demonstrates the importance of parties in defamation cases taking a reasonable approach to settlement negotiations, as an unreasonable refusal to engage in settlement discussions can lead to significant financial consequences in the form of indemnity costs orders.

Key take-aways

• Section 40 of the Defamation Act 2005 (WA) plays a crucial role in guiding the awarding of costs in defamation cases in Western Australia.

• By considering factors such as the conduct of the parties, the reasonableness of settlement offers, and the interests of justice, the court aims to achieve a fair and just outcome for all parties involved.

• This section is specifically tailored to defamation proceedings and takes priority over general costs principles found in the Supreme Court Act 1935 (WA).