Margaret Wilson J helpfully summarised in this decision the criteria for consideration of “unreasonableness” when determining when indemnity costs should be ordered:
 The defendant has submitted that the plaintiff’s rejection of the Calderbank offer was unreasonable and that in consequence the plaintiff should be ordered to pay indemnity costs.
 A Calderbank offer is a “without prejudice” offer in which the offeror reserves the right to waive the confidential nature of the offer to rely on it for the purposes of making an application for indemnity costs.…
 The costs of litigation are in the discretion of the Court but follow the event unless the Court orders otherwise or the rules provide otherwise. Unless the rules or an order of the Court provides otherwise, the costs are to be assessed on the standard basis. Where the costs of an application in a proceeding are reserved, the reserved costs follow the event unless the Court otherwise orders.
 In Colgate Palmolive Company v Cussons Pty Ltd Sheppard J listed a number of circumstances which may warrant the exercise of the discretion to award indemnity costs. He included “an imprudent refusal of an offer to compromise”. It is well accepted that a party who unreasonably refuses to accept a Calderbank offer on terms more favourable than the Court’s subsequent order may be ordered to pay indemnity costs. In Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) the Victorian Court of Appeal considered the relevant principles and authorities. Their Honours said:-
21. In Grbavac v Hart, Hayne, J.A. cited with approval what the New South Wales Court of Appeal had said in Maitland Hospital v Fisher (No. 2) about the policy rationale underlying the availability of special orders for costs where offers of compromise are rejected. Like his Honour, we think that what was there said is equally relevant to the exercise of the costs discretion where a Calderbank offer has been made. The policy objectives were said to be:
‘(1) To encourage the saving of private costs and the avoidance of the inherent risks, delays and uncertainties of litigation by promoting early offers of compromise by defendants which amount to a realistic assessment of the plaintiff’s real claim which can be placed before its opponent without risk that its ‘bottom line’ will be revealed to the court;
(2) To save the public costs which are necessarily incurred in litigation which events demonstrate to have been unnecessary, having regard to an earlier (and, as found, reasonable) offer of compromise made by a plaintiff to a defendant; and
(3) To indemnify the plaintiff who has made the offer of compromise, later found to have been reasonable, against the costs thereafter incurred. This is deemed appropriate because, from the time of the rejection or deemed rejection of the compromise offer, notionally the real cause and occasion of the litigation is the attitude adopted by the defendant which has rejected the compromise. In such circumstances that party should ordinarily bear the costs of litigation.’
22. At the same time, as Redlich, J. said in Aljade, there are other competing objectives of equal importance.
‘Potential litigants should not be discouraged from bringing their disputes to the Courts. It is such considerations which underlie the general rule that an order for special costs should only be made in special circumstances.’
The test of unreasonable rejection
23. In our view, these competing considerations can be sufficiently accommodated by applying a test of (un)reasonableness. The critical question is whether the rejection of the offer was unreasonable in the circumstances. We see no justification for a more stringent test such as “manifestly” or “plainly” unreasonable.
24. Of course, deciding whether conduct is ‘reasonable’ or ‘unreasonable’ will always involve matters of judgment and impression. These are questions about which different judges might properly arrive at different conclusions. As Gleeson, C.J. said recently, ‘unreasonableness is a protean concept’. But a test of reasonableness is, we think, entirely appropriate to the exercise of a discretion such as this.
Factors relevant to assessing reasonableness
25. The discretion with respect to costs must, like every other discretion, be exercised taking into account all relevant considerations and ignoring all irrelevant considerations. It is neither possible nor desirable to give an exhaustive list of relevant circumstances. At the same time, a court considering a submission that the rejection of a Calderbank offer was unreasonable should ordinarily have regard at least to the following matters:
(a) the stage of the proceeding at which the offer was received;
(b) the time allowed to the offeree to consider the offer;
(c) the extent of the compromise offered;
(d) the offeree’s prospects of success, assessed as at the date of the offer;
(e) the clarity with which the terms of the offer were expressed;
(f) whether the offer foreshadowed an application for an indemnity costs in the event of the offeree’s rejecting it.”
See also the comprehensive discussion of Calderbank offers by Beazley JA in an address given to the Australian Lawyers Alliance in 2008 and the decision of Martin J in St Clair v Timtalla Pty Ltd (No 2).
Brisbane Barrister – David Cormack