Indemnity Costs for Defamation Defendants: s 40(2)(b)

By Alex Tharby Mark Donaldson

4 April 2025

When it comes to costs in defamation, we defamation lawyers are acutely aware that successful plaintiffs often recover their costs on an indemnity basis.

However, a successful defamation defendant can also use the Defamation Act (NSW) and its counterparts in other jurisdictions (including Western Australia) to great advantage given the Act – in certain conditions – provides the defendant the opportunity to claim a mandatory indemnity costs order.

But, as the recent decision in Prouten v Buxton (No 2) [2024] NSWDC 445 (‘Prouten’) underlines, if a defendant hopes to open the door to this order – made available by s 40(2)(b) – the party is going to have to work for it. In Prouten, the defendant did not put the required punch into his offer.

While Prouten was heard in the District Court of NSW, Western Australian defamation defendants and those in other jurisdictions will find the ruling informative – although not authoritative – given s 40(2)(b) has equivalents across the country as part of the uniform law.¹

Section 40(2)(b) provides that if a defendant is successful in a defamation matter, and the plaintiff has unreasonably refused a settlement offer, then the court must assess costs on an indemnity basis unless the interests of justice require otherwise.

This means the plaintiff could potentially have to pay a much higher proportion of the defendant’s legal bill for the entirety of proceedings – thus, being a particularly lucrative ruling for the defendant and destructive result for the plaintiff.

There is also a significant advantage in relying on s 40 of the Defamation Act, as compared with an indemnity costs claim stemming, for example, from a Calderbank Offer in non-defamation proceedings. This is because a successful s 40 claim generally results in a costs order covering the entirety of proceedings while costs instigated by a Calderbank Offer are usually calculated from the date of the refusal of the offer.²

Section 40 also applies to more than just Calderbank Offers. The provision defines settlement offer ‘as 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.’³ This definition is broader than, but would also cover, offers of compromise made under applicable rules of Court. Prouten, however, involved a Calderbank Offer.

 

The case

The proceedings stemmed from a Facebook post written by the defendant, Mr Anthony Buxton, on his personal page, which another user then shared to a Warners Bay community page. The plaintiff, Ms Sandra Prouten, alleged Mr Buxton’s post, which contained a photo of Ms Prouten, defamed her by labelling her a “vigilante”. In the post, Mr Buxton alleged that Ms Prouten had been holding out a stick on a footpath to ensure social distancing during the COVID restrictions of 2020. Mr Buxton accused Ms Prouten of assaulting him and other cyclists who travelled within range of the stick.⁴ Police charged Ms Prouten with assault after a complaint from Mr Buxton, but the charges were dismissed.⁵

Mr Buxton attempted to settle the defamation matter after an unsuccessful mediation with Ms Prouten. Mr Buxton made a Calderbank Offer to Ms Prouten of $37,500.⁶ He also offered for the parties to cover their own costs meaning Ms Prouten could save on costs already ordered against her in interlocutory hearings, which were estimated to be more than $50,000.⁷ Ms Prouten refused the offer.

Ultimately, the court found Mr Buxton did not defame Ms Prouten.⁸ Ms Prouten applied for leave to appeal the decision but was refused in Prouten v Buxton [2025] NSWCA 36.⁹

In the costs proceedings, the court ordered Ms Prouten pay Mr Buxton’s costs of $178,223.50.¹⁰ Such a sum, while ‘devastating’ for an ‘ordinary member of the community’,¹¹ was still favourable for Ms Prouten compared with what she would have had to pay under an indemnity costs order if Mr Buxton’s claim under s 40(2)(b) was successful.

 

Refusal of indemnity costs

Mr Buxton argued the court should have awarded him indemnity costs on the basis it was unreasonable for Ms Prouten to have rejected his settlement offer because:¹²

(a) Ms Prouten had several costs orders made against her caused by adverse rulings. Mr Buxton estimated those costs, if awarded, as being over $50,000. This would have been a significant compromise on the costs position if this additional factor was taken into account.

(b) There were complicated issues of law in relation to publication, identification, defences and the range of damages. Given the very short period of publication before the matter was taken down, the extent of the harm, while severe, would have rapidly been reduced.

Ms Prouten argued it was reasonable for her to refuse the offer because:¹³

(a) The offer amounted to a capitulation as there would be no payment of damages to the plaintiff. Any money paid would be in respect of the legal costs, which at that stage exceeded $37,500.

(b) The offer did not involve Mr Buxton taking down “all of the alleged defamatory material”.

(c) There was no basis for making an order for indemnity costs on the usual principles.

The court sided with Ms Prouten’s argument,¹⁴ highlighting important points that defamation defendants should keep in mind when attempting to claim indemnity costs through s 40(2)(b) and its equivalents.

 

Why Ms Prouten’s refusal of Mr Buxton’s offer was reasonable

It is important to note that while Ms Prouten’s claim ultimately failed, this is not a relevant consideration in determining whether refusal of the offer was reasonable.¹⁵ The court must consider the circumstances at the time of the refusal. The court considered Ms Prouten’s refusal was reasonable at the time because:

– the case was not hopeless;¹⁶

– the $37,500 would have been ‘swallowed up’ in legal costs;¹⁷ and

– the offer did not contain an apology despite the fact Mr Buxton would have known some reports of his comments were still circulating online despite him having removed it from his personal page.¹⁸

 

Key takeaways

What to take from this? Aside from the need for a more generous monetary offer, the court’s emphasis on the lack of an apology speaks to the importance the courts place on such a gesture in defamation proceedings.

So, defamation defendants should keep in mind that any settlement offer made should include the likes of an apology, retraction and/or steps the defendant will take to remove the defamatory material from publication.

A lesser offer may suffice if the defendant is confident the plaintiff has a hopeless case at the time of the offer.

 

Other case examples

One can see the above principles reflected in the below sample of rulings on indemnity costs claims made by successful defendants through s 40(2)(b) between 2011 – 2020.

S 40(2)(a)

While the focus of this article is on defendants, it should be noted there is an equivalent provision in the various Defamation Acts that allows the plaintiff to claim indemnity costs if a defendant has unreasonably failed to make or has unreasonably refused a settlement offer and the plaintiff is successful.

For example, s 40(2)(a) of the WA Act provides:¹⁹

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.

So, defendants should keep this in mind if faced with an offer from a plaintiff.

 

Conclusion

Given the presence of s 40(2)(b) and its equivalents in Australian defamation law, a defamation defendant can use a settlement offer as a powerful part of its legal strategy. However, as Prouten reminds us, the offer must be carefully considered if the manoeuvre is to carry any weight. While, as Bellino highlights, the settlement needs to offer a sensible ‘commercial’ solution, it also needs to factor in remedies for the repair of reputation such as a correction and/or an apology. So – unless the plaintiff has a hopeless case – the defendant, while not having to offer the whole cake, should be prepared to offer a slice rather than a sliver.

 

1. Also s 40(2)(b) in WA, Victoria, Qld and Tasmania Defamation Acts. It is s 38(2)(b) in SA, s 37(2)(b) in the NT and s 139K(2)(b) in the ACT’s Civil Law (Wrongs) Act 2002.
2. Williams v Katis (Costs Ruling) [2014] VSC 471 [20].
3. Defamation Act 2005 (NSW) s 40(3).
4. Prouten v Buxton [2024] NSWDC 182 [4]-[5].
5. Ibid [22].
6. Prouten v Buxton (No 2) [2024] NSWDC 445 [48] (‘Prouten (No 2)’).
7. Ibid.
8. Ibid Orders.
9. Prouten v Buxton [2025] NSWCA 36 Orders.
10. Prouten (No 2) (n 4) Orders.
11. Ibid [4].
12. Ibid [49].
13. Ibid [50].
14. Ibid [65].
15. Szanto v Melville (Ruling) [2011] VSC 618 [24] cited in Ibid [61].
16. Prouten (No 2) (n 4) [61].
17. Ibid [64].
18. Ibid.
19. Also s 40(2)(a) in NSW, Victoria, Qld and Tasmania Defamation Acts. It is s 38(2)(a) in SA, s 37(2)(a) in the NT and s 139K(2)(a) in the ACT’s Civil Law (Wrongs) Act 2002.

Disclaimer: The information published in this article is of a general nature and should not be construed as legal advice. Whilst we aim to provide timely, relevant and accurate information, the law may change and circumstances may differ. You should not therefore act in reliance on it without first obtaining specific legal advice.