Unreasonable rejection and indemnity costs: Lessons from a failed Calderbank offer

Settlement offers can play an important role in protecting a party’s costs position in litigation. A Calderbank offer is a 'without prejudice save as to costs' offer that may later be relied on to seek indemnity costs if the recipient unreasonably rejects it. Indemnity costs are more favourable than the usual costs order because they generally allow a successful party to recover a greater proportion of its legal costs. However, they are not awarded as of right. The Court retains a discretion as to costs, and the rejection of a Calderbank offer is only one factor in deciding whether that discretion should be exercised in favour of indemnity costs.

The Queensland Supreme Court’s decision in South Burnett Regional Council v Aquatec Maxcon Pty Ltd (No 2) [2026] QSC 97 provides a timely reminder of the limits of Calderbank offers as a pathway to an award of indemnity costs. While Calderbank offers remain a valuable strategic tool in litigation, the critical question is whether the rejection was unreasonable in the circumstances at the time.

Background

The case concerned the costs of an application made by South Burnett Regional Council (the Council) for leave to amend its statement of claim pursuant to rule 376(4) of the Uniform Civil Procedure Rules 1999 (Qld) (UCPR). The dispute centred on whether the Council was entitled to indemnity costs from 26 June 2025, based on Aquatec Maxcon Pty Ltd’s (Aquatec) rejection of the Council’s Calderbank offer.

The relevant offer, made on 19 June 2025, proposed that Aquatec consent to the Council’s application to amend its statement of claim, and in exchange, the Council would pay Aquatec’s reasonable costs of and incidental to the application. The offer remained open for acceptance until 4:00pm on 25 June 2025.

Aquatec rejected the offer and the application proceeded to a contested hearing, where the Council was ultimately successful. The Council subsequently argued that, in those circumstances, Aquatec’s refusal was unreasonable and justified an order for indemnity costs.

The governing principles

In considering the Council’s application, Justice Kelly reaffirmed the well-established principles governing costs and Calderbank offers, citing the Queensland Court of Appeal’s decision in McGee v Independent Assessor & Anor [No 2] [2024] QCA 7.

While costs are generally awarded on the basis that they follow the event, the Court retains a broad discretion to depart from that position where appropriate (rule 681(1) of the UCPR).

In the context of Calderbank offers, the existence of an offer and its rejection are relevant factors in the exercise of that discretion. However, they are only part of the overall assessment. There is no presumption that indemnity costs will follow simply because a party rejected an offer and later achieved a less favourable outcome. The key question is whether the offeree acted ‘unreasonably or imprudently’ in rejecting the offer.

In deciding whether a rejection was unreasonable or imprudent, courts commonly consider the following factors:

• the stage of the proceeding at which the offer was made
• the time allowed for the offeree to consider the offer
• the extent of the compromise offered
• the offeree’s prospects of success, assessed at the time of the offer
• the clarity of the offer’s terms
• whether the offer foreshadowed an application for indemnity costs in the event the offeree rejects it.

Ultimately, the exercise remains evaluative and grounded in the circumstances that existed when the offer was made.

The Council’s Calderbank offer

The circumstances in this case raised several compelling considerations in support of the Council’s claim for indemnity costs, which Aquatec did not dispute, including:

• the offer involved a genuine compromise
• the terms of the offer were clearly expressed and unambiguous
• the offer expressly foreshadowed an application for indemnity costs if it was rejected

In addition, the Court accepted that Aquatec’s continued opposition to the Council’s application resulted in additional costs being incurred, including the need for a contested hearing.

Despite those considerations, the Court declined to characterise Aquatec’s rejection of the offer as unreasonable.

Why the rejection was not unreasonable

In this case, the Court’s conclusion turned on a single overarching consideration: the timing of the offer and its practical effect on Aquatec’s ability to assess it.

The Calderbank offer was made at a late stage of the proceeding. The application to amend had been on foot since October 2024, and the offer was not made until 19 June 2025, only four business days before the adjourned hearing. By then, the matter was well advanced, the parties had incurred substantial costs and the hearing was imminent.

Given the circumstances, it was not unreasonable for Aquatec to proceed to determination. Where a matter is effectively at the door of the court, a party may reasonably consider that it is preferable to have the issues determined, particularly where significant time and resources have already been invested in preparing for the hearing.

The Court also considered whether Aquatec had been afforded an opportunity to evaluate the offer. Although Aquatec had access to the Council’s final written submissions and affidavit material, the short acceptance window did not allow for a proper and informed assessment of the offer considering the full evidentiary record.

Viewed together, these considerations meant that Aquatec’s decision to reject the offer could not be characterised as unreasonable.

The Court concluded that it was not satisfied that Aquatec had acted unreasonably or imprudently in rejecting the Council’s offer, and as a result, indemnity costs were not awarded.

Key takeaways

The decision reinforces some important practical points for litigants.

• A reasonable offer is not enough – even where a Calderbank offer involves a genuine and attractive compromise, that alone will not justify indemnity costs. The question is not whether the offer was reasonable, but whether it was unreasonable to reject it at the time.
• Timing is critical – offers made too late in proceedings are less likely to support an indemnity costs order, as it may be reasonable for a party to proceed to determination where a matter is close to hearing. However, timing cuts both ways. An offer made too early may also carry less weight where the evidence, positions and prospects are uncertain. Ultimately, the focus is on whether the offeree’s rejection was unreasonable at the time it was made.
• Adequate time must be provided – the Court will closely examine whether the recipient had a proper opportunity to consider the offer. This is particularly important where the issues are complex or the evidentiary material is extensive.

The decision illustrates that the threshold for establishing unreasonable rejection remains a meaningful one. Courts will not lightly penalise parties for pursuing a contested hearing, particularly where the offer is made shortly before that hearing and the time for consideration is limited. Even a well-framed offer that involves a real compromise may not achieve its intended costs consequences if it is made too late or without adequate time for evaluation.

Could the Council have made an offer under the UCPR instead?

It may be tempting to ask whether the same cost protection could have been achieved by making an offer under the UCPR. However, rule 353(1) is directed to offers to compromise substantive claims for relief in a proceeding.

An interlocutory application for leave to amend a pleading is ancillary and procedural in nature. It is not, in itself, a claim in the proceeding for the purposes of the rule. For that reason, a UCPR offer was unlikely to have been available in this context, leaving the Council to rely on the more discretionary Calderbank route.

Ultimately, the decision underscores the importance of strategy as well as substance. The effectiveness of a Calderbank offer depends not only on what is offered, but also on when and how it is communicated.

If you are considering making a Calderbank offer, have received one or need advice on your prospects of recovering indemnity costs, please contact us here.

Disclaimer
The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Kirsty Smith

Hannah Close

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