The principles of when indemnity costs should be considered were helpfully reviewed by Allsop P; Handley AJA; Hoeben J:
This Court has held on a number of occasions that a Calderbank offer does not trigger an automatic order for indemnity of costs. The correct approach to such offers is:
“The making of an offer of compromise in the form of a Calderbank letter … where the offeree does not accept the offer but ends up worse off than if the offer had been accepted, is a matter to which the Court may have regard when deciding whether to otherwise order, but it does not automatically bring a different order as to costs. All the circumstances must be considered, and while the policy informing the regard had to a Calderbank letter is promotion of settlement of disputes an offeree can reasonably fail to accept an offer without suffering in costs. In the end the question is whether the offeree’s failure to accept the offer, in all the circumstances, warrants departure from the ordinary rule as to costs, and that the offeree ends up worse off than if the offer had been accepted does not of itself warrant departure. (SMEC Testing Services Pty Limited v Campbelltown City Council  NSWCA 323 Giles JA at ).
This statement of principle was unanimously approved in Jones v Bradley (No 2)  NSWCA 258 at [8 – 9].
The question for the Court is whether in the particular circumstances of this appeal, it was unreasonable for the appellant to refuse the offer. We have concluded that it was not unreasonable. The offer required the appellant to withdraw the whole of the appeal. The appeal raised an important practice issue in relation to amendments made under the Uniform Civil Procedure Act 2005 and under the Uniform Civil Procedure Rules. The particular issue had not previously been decided. There were persuasive arguments which supported the submissions of both parties on the issue.
Moreover, as the appellant submitted, the final form of the Second Further Amended Notice of Appeal was significantly different to that referred to in the letter of 24 June 2009 and in the offer. The final form of the Notice of Appeal was not susceptible to the criticisms made by the respondent of the first Notice.
In the exercise of its general discretion the Court can award costs on an indemnity basis if it appears that proceedings have been commenced or continued in circumstances where a party should have known that there was no real prospect of success (Fountain Selected Meats (Sales) Pty Limited v International Produce Merchants Pty Limited (1988) 81 ALR 397 at 400 – 1; Re: Bond Corp Holdings Limited (1990) 1 WAR 465 at 478; (1990) 1 ACSR 350 at 363-4). This applies to a party pursuing an appeal.
However, as was said in Dean v Stockland Property Management Limited & Anor (No 2)  NSWCA 141 at :
“Care must be taken, however, lest parties be unduly deterred from bringing or defending proceedings for fear that they will retrospectively be found to have not been justified in doing so. Uncertainty in outcome is not enough, and what appears certain at the time of judgment does not necessarily have that character at an earlier time.”
Brisbane Barrister – David Cormack