Defamation: the serious costs of failing to establish "serious harm"

By Kym Fraser, Stuart Kovacs
25 Aug 2023
Time to read: 3 minutes

It is likely that many defamation claims will continue to be decided at an early pre-trial hearing on the question of serious harm – and failing to do so could be a catastrophic mistake for many plaintiffs.

Defamation litigation is a notoriously expensive affair, often beyond the financial reach of ordinary members of the community. Nonetheless, social media and online publications have, in recent years, given rise to an avalanche of "backyard defamation" claims in which ordinary members of the community threaten to sue each other for comments made on digital platforms. The "serious harm" threshold was designed to protect parties from the eye-watering costs of defamation proceedings. The additional requirement of proving serious harm to reputation sends a clear signal to would-be litigants: seek alternative ways to resolve claims instead of pursuing backyard disputes in the Courts that are likely to result, at most, in modest damages.

Early determination of the serious harm threshold is an important case management tool which may prevent further costs from being incurred at trial (including a swifter resolution). However, the recent decision in Scott v Bodley (No 3) [2023] NSWDC 47 is a warning of the financial consequences for a plaintiff in failing to clear even the first hurdle of a defamation claim.

Background: the defamatory online review and the lack of serious harm

The defendant posted a one-star review of the plaintiff's painting business on both Google and Facebook, and the plaintiff sued for defamation, claiming the review led to a loss of customers.

In response, the defendant brought an application under section 10A(5) of the Defamation Act 2005 (NSW) seeking an early (pre-trial) determination of whether the complained publications had caused, or were likely to cause, serious harm to reputation. The Court granted the defendant's application, and ordered the plaintiff to pay the defendant's costs of bringing the section 10A(5) application.

At the substantive "serious harm" hearing which followed, the Court held that the plaintiff failed to provide any evidence that established causative harm to his reputation, let alone serious harm, caused by the online reviews. Again, the plaintiff was ordered to pay the defendant's costs of and incidental to this hearing.

The eye-watering costs of defamation – and of not showing serious harm

The Court noted that postponing the issue of serious harm to a trial would have resulted in a "5-day-plus hearing on issues such as qualified privilege and damages, in 2024 at the earliest, instead of a one-day hearing six months after the proceedings were commenced".

Evidently, the hearing saved the parties from protracted litigation and incurring further costs, including the "the personal cost to all concerned".

That, however, did not mean the proceedings were cheap. Following the dismissal of the plaintiff's claims, the defendant asked that the plaintiff pay costs on an indemnity basis for the whole of the proceedings. The defendant pointed to multiple efforts to avoid litigation: three Calderbank offers, an offer to make amends, and an offer made by her counsel shortly before the first hearing commenced.

In granting the costs application (on a slightly narrower basis), the Court made the following observations about costs in defamation proceedings:

  • The long-recognised need for a different approach to defamation proceedings is reflected in the interaction between concerns notices (the process of giving a person an opportunity to make amends to avoid legal proceedings) and section 40 of the Act. The "pre-eminent mode of dispute resolution" is an early settlement, not an early hearing date, and the requirement to prove serious harm is intended to encourage parties to endeavour to respond to offers at an early stage and continue to do so.
  • Pursuing legal proceedings often renders a Pyrrhic victory; legal costs invariably dwarf the damages awarded, particularly if the claim is minor and the parties' financial resources are limited. This is only exacerbated where parties are combative and refuse to engage in the "spirit of negotiation".
  • The parties were aware at all relevant times that the plaintiff was required to prove serious harm. Moreover, the plaintiff was plainly on notice of the "real difficulties" he had in surmounting this threshold, due to his inability to particularise or provide evidence that anyone had ever read the publications complained of. Accordingly, it was "unwise" for the plaintiff to commence proceedings without at least some evidence of the extent of publication, as well as evidence of serious harm (such as an accountant's report indicating a drop in his business caused by the publications).

The plaintiff's failure to place settlement at the forefront of his mind caused her Honour to reflect:

"I am uncomfortably aware that the financial consequences of this litigation to him will be very serious. He has gained nothing even from the publications being taken down, in that the comments removed from his accounts are now to be found in newspaper reports of the proceedings, which in turn resulted in some posts about this litigation being placed on his social media accounts. I asked [the plaintiff] why he had gone on with the litigation after posts were removed in March 2022 and he replied, after giving it some thought, "I don't know"."

Key takeaway

  1. Prospective litigants are warned of the potentially "catastrophic costs" in pursuing "backyard" claims of a trivial nature, particularly where the serious harm threshold cannot be established from the outset.
  2. The hurdle of establishing serious harm is intended to encourage parties towards an early settlement, not an early hearing date. Nonetheless, the early determination of serious harm is an important case management tool which may prevent further exorbitant costs from being incurred at trial.
  3. It is likely that many defamation claims will continue to be decided at an early pre-trial hearing on the question of serious harm. The legislation makes clear that these hearings are presumed, rather the exception (unless special circumstances exist).
  4. Parties are reminded of the importance of engaging in the concerns notice process "in the spirit of negotiation". Critically, parties must carefully consider any deficiencies or "substantial gaps" in evidence when turning their mind to the existence of serious harm to reputation.

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