Introduction: McIntosh v Peterson

The recent Western Australian Supreme Court decision in McIntosh v Peterson [No 3] [2024] WASC 446 provides valuable insights into how courts apply the "interests of justice" exception when awarding costs in defamation matters. In this case, veterinary clinic owners Andrew and Kay McIntosh, along with their business For Paws and Feathers Pty Ltd, sued animal rights activist Natasha Peterson, Jack Higgs, and V-Gan Booty Pty Ltd over a defamatory Facebook post. While the McIntoshes succeeded against Peterson and Higgs (receiving damages totalling $280,000), the claim against V-Gan Booty was dismissed, as were claims for injurious falsehood and civil conspiracy. When it came to costs, Chief Justice Quinlan had to navigate the complex interplay between statutory provisions, litigation conduct, and competing interests to determine the appropriate costs order.

The Statutory Costs Regime in Defamation Law

Defamation law in Australia provides a specific costs regime that differs from the usual "costs follow the event" principle. Section 40 of the Defamation Act 2005 (WA) creates a presumption in favour of indemnity costs in certain circumstances but subjects this to the overriding "interests of justice" exception.

Under s 40(2)(a), if defamation proceedings are successfully brought and the court is satisfied that the defendant "unreasonably failed to make a settlement offer or agree to a settlement offer proposed by the plaintiff," the court must order costs to be assessed on an indemnity basis - "unless the interests of justice require otherwise."

This "interests of justice" exception gives courts significant discretion to consider broader factors when determining costs, even where the statutory trigger for indemnity costs has been activated.

When Do the "Interests of Justice" Override the Presumption?

In McIntosh v Peterson [No 3], Chief Justice Quinlan found that the defendants had unreasonably failed to make a reasonable settlement offer. The defendants' offers of just $2,000 were found to be unreasonable in the circumstances, given that the plaintiffs had already suffered adverse effects and incurred costs. This triggered the presumption in favour of indemnity costs under s 40(2)(a).

However, His Honour went on to find that "the interests of justice require otherwise" for several important reasons:

The way parties conducted their cases: Section 40(1)(a) expressly allows the court to consider "the way in which the parties to the proceedings conducted their cases." In this case, the plaintiffs' counsel conducted cross-examination of Ms. Peterson in a particularly problematic manner by making unfounded allegations about her tax affairs. The cross-examination suggested she had declared only $70,000 in receipts from OnlyFans when her actual receipt was $385,000, implying tax fraud. In reality, Ms. Peterson had properly declared all income across her personal and company tax returns. This unfair attack on Ms. Peterson's character was reported in the media, causing reputational harm beyond the proceedings themselves.
Mixed success: The plaintiffs were wholly unsuccessful against V-Gan Booty Pty Ltd and failed in two entire causes of action (injurious falsehood and civil conspiracy).
Focus of the litigation: The plaintiffs' case had significant focus on Ms. Peterson's financial affairs and V-Gan Booty Pty Ltd's OnlyFans business, which the court found "permeated the plaintiffs' case" but was ultimately unnecessary to establish their defamation claims.

Understanding "Conducting a Case" in Context

The concept of how a party "conducts their case" is particularly important in defamation proceedings, where litigation tactics can significantly affect both the course of the proceedings and reputational impacts beyond the courtroom.

In McIntosh, the plaintiffs' conduct of their case extended beyond merely presenting their claims. Their litigation approach included:

Pursuing multiple defendants and causes of action, including against a company not incorporated at the time of the original Facebook post
Making an "elaborate case" suggesting Ms. Peterson's animal rights activism was "a ploy for making money"
Conducting cross-examination in a way that made serious allegations about tax impropriety that were unfounded and misleading
Focusing significantly on Ms. Peterson's financial affairs, which Chief Justice Quinlan found unnecessary for vindicating the plaintiffs' reputations

Quinlan CJ stated that "a party that conducts proceedings in that way should expect that it has costs consequences." This demonstrates that how parties choose to litigate defamation claims—particularly their focus, tactics, and treatment of opposing parties—can directly impact costs outcomes despite the statutory presumption.

Practical Implications for Litigants

The McIntosh decision offers several practical lessons for litigants:

Early resolution is crucial: The court described the settlement offers as revealing "the anatomy of a lost opportunity at resolution and... the metastatic effect that legal costs have on the prospect that proceedings can sensibly be resolved." Chief Justice Quinlan observed that much of the harm suffered by the plaintiffs could have been avoided if the matter had been resolved early.
Make reasonable settlement offers: Defendants should make genuine attempts to resolve matters with reasonable offers. The sum of $2,000 was deemed "simply unreasonable" even at an early stage.
Consider proportionality: In McIntosh, the court noted that some claims (particularly the clinic's claim) were relatively minor in monetary terms and even fell within the monetary jurisdiction of the Magistrates Court jurisdiction.
Focus on reputation restoration: Defamation proceedings should focus primarily on vindicating reputation rather than attacking the defendant's character beyond what is necessary for the claim.
The "interests of justice" exception has meaningful application: Even when the statutory preconditions for indemnity costs are met, courts retain a genuine discretion to make different orders where the interests of justice require.

Distinguishing Indemnity Costs from Special Costs Orders

It's important to note that the judgment in McIntosh also addressed a separate costs issue: whether to make a "special costs order" under s 141(3) of the Legal Profession Uniform Law Application Act 2022 (WA) to remove limits imposed by the relevant costs determinations. This is distinct from the question of indemnity costs under the Defamation Act.

While the court declined to award indemnity costs under s 40(2) of the Defamation Act, it did make a limited special costs order allowing:

Removal of time limits for preparation of the case
An increased hourly rate for counsel (to match senior counsel rates)

This highlights that courts have multiple tools for addressing costs and will apply them proportionately based on the specific circumstances of each case.

Conclusion

The "interests of justice" exception in s 40(2) of the Defamation Act provides courts with important flexibility to ensure costs orders reflect the overall conduct of proceedings and achieve fairness between parties. As demonstrated in McIntosh v Peterson [No 3] [2024] WASC 446, even where a party has technically triggered the presumption in favour of indemnity costs, the court will look holistically at all relevant circumstances.

For defamation practitioners, this case serves as an important reminder that how you conduct litigation—from the framing of claims to cross-examination tactics—can significantly impact costs outcomes. The interests of justice require not just consideration of who won, but how they won, and whether their conduct throughout the proceedings merits the significant benefit of indemnity costs.