Key Takeaways
- A Calderbank offer can lead to an order for indemnity costs where a reasonable settlement proposal marked without prejudice save as to costs is rejected and the Court later finds that rejection was objectively unreasonable in the circumstances when the offer remained open.
- Victorian courts apply the Hazeldene factors to decide reasonableness — including the stage of the proceeding, the time allowed for acceptance, the clarity and completeness of terms, the extent of the compromise, the parties’ prospects of success, and the information available to the offeree.
- For an offer to support indemnity costs it should be a genuine commercial compromise, be drafted with precise, immediately-acceptable terms (payment, interest, releases, costs, non‑monetary relief), and allow a reasonable period and sufficient evidence for the recipient to assess it.
- Beating the offer at judgment is important but not determinative: indemnity costs are discretionary under the Supreme Court Act/Civil Procedure Act framework, and an improved judgment outcome does not automatically entitle the offeror to indemnity costs.
- Practical steps include making Calderbank offers as part of litigation strategy, recording service and contemporaneous assessment, explaining why the offer is a compromise and its costs consequences, using counter‑offers to show engagement, and obtaining early legal advice to manage costs risk.
When Can a Calderbank Offer Victoria Lead to Indemnity Costs?
A Calderbank offer Victoria strategy may support an order for indemnity costs where a reasonable settlement offer is rejected and the Court later finds that rejection was unreasonable in the circumstances.
Beating the offer at judgment is important, but it is not enough by itself. The Court considers the offer’s terms, timing, the information available to the recipient and whether the proposal involved a genuine compromise.
- The offer should be clear and capable of immediate acceptance.
- It should contain a genuine commercial compromise.
- The recipient must have reasonable time and sufficient information to assess it.
- The Court considers whether rejection was unreasonable when the offer remained open.
Indemnity costs remain discretionary, even where the offeror ultimately obtains a more favourable result.
In Victorian commercial litigation, a properly framed Calderbank offer can materially shift costs risk. If a party rejects a reasonable settlement proposal and later fails to obtain a more favourable result, the Court may order that party to pay indemnity costs. That outcome is not automatic. The central question is whether the rejection was unreasonable in the circumstances.
For business owners, directors, professionals and high-net-worth individuals, Calderbank offers and indemnity costs in Victoria require careful strategic judgment. An offer may create a realistic opportunity to resolve the proceeding while also establishing a basis for enhanced costs consequences if litigation continues unnecessarily. It is ordinarily marked without prejudice save as to costs, allowing the Court to consider it after deciding the substantive dispute.
An effective offer should represent a genuine compromise, state its terms precisely, and allow sufficient time for proper assessment. Whether there has been an unreasonable rejection is determined objectively by reference to the Hazeldene factors, including the strength of the parties’ positions, the information available when the offer was made, and the period allowed for acceptance.
What legal test determines whether rejecting a Calderbank offer attracts indemnity costs in Victoria?
In Victorian commercial litigation, the Court’s power to award costs is discretionary. Section 24 of the Supreme Court Act 1986 (Vic) gives the Supreme Court discretion over who pays costs and on what basis. Section 24 of the Civil Procedure Act 2010 (Vic) separately requires parties and their lawyers to use reasonable endeavours to resolve a civil dispute, unless doing so would be inappropriate. Rejection of an offer does not, by itself, establish a breach of that obligation.
A Calderbank offer derives from Calderbank v Calderbank [1975] 3 All ER 333. It is a settlement proposal usually marked without prejudice save as to costs. This means the offer is withheld from the judge deciding the merits but may be disclosed after judgment when costs are determined. Unlike a formal offer of compromise under Order 26 of the Supreme Court (General Civil Procedure) Rules 2025 (Vic), a Calderbank offer does not trigger prescribed costs consequences. It operates through the Court’s general costs discretion.
The leading Victorian authority is Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435. The Court of Appeal held that obtaining an outcome more favourable than the rejected offer does not automatically justify indemnity costs. The offeror must establish that rejection was unreasonable in the circumstances existing when the offer remained open.
In applying the Hazeldene factors, the Court may consider the stage of the proceeding, the time allowed for acceptance, the extent of the compromise offered, the parties’ prospects of success, the clarity of the terms and whether the offeree had enough information to assess the proposal. The Court may also consider whether the offer identified the potential costs consequences of refusal.
An offer must therefore involve a genuine compromise, not merely demand complete capitulation. Even where the offer is bettered at judgment, an unreasonable rejection remains a matter for judicial evaluation. If established, indemnity costs may be ordered from the date the offer should have been accepted, but the Court retains discretion over both the order and its commencement.
How Do Victorian Courts Decide Whether Rejecting a Calderbank Offer was Unreasonable?
The Court assesses the circumstances confronting the recipient when the offer was made, not merely the eventual judgment. The Hazeldene factors provide a flexible framework, and the party seeking indemnity costs must establish that rejection was unreasonable.
Did the offer contain a genuine compromise?
A Calderbank offer should provide a real concession. The Court compares the proposal with the offeror’s pleaded position, the relief claimed, and the commercial value surrendered. An offer requiring the opponent to concede the entire claim and pay all costs may be a demand for capitulation rather than a genuine compromise.
The concession required depends on the context. A modest discount may be meaningful where liability is strong, or acceptance would remove substantial future costs and risk. Non-monetary terms, including releases, confidentiality obligations and payment conditions, are also relevant.
Could the recipient assess the offer?
The recipient must have sufficient information to evaluate liability, quantum, and litigation risk. An offer made before critical documents, expert evidence or adequate particulars are available may carry less weight. Rejection becomes harder to justify where the decisive evidence has been exchanged, and the principal issues are understood.
A reasoned without prejudice save as to costs letter can identify the evidence, legal issues or valuation assumptions supporting the proposal. This may later assist the Court in determining whether refusal was reasonable.
Was the offer clear and open for long enough?
The offer must be capable of acceptance without further negotiation over essential terms. Ambiguity about payment, releases, interest, costs, or the claims being resolved may prevent it from supporting enhanced costs.
There is no fixed acceptance period. What is reasonable depends on the dispute’s complexity, the material requiring review, the need for expert or client instructions, and the proximity of trial. An artificially short deadline may weaken an otherwise sound offer.
How strong were the parties’ positions at the time?
Under Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2), prospects are assessed as they appeared when the offer was rejected. A recipient need not predict every trial finding. However, persisting despite clear documents, adverse expert evidence or a weak legal position may support a finding of unreasonable rejection.
Does beating the offer automatically result in indemnity costs?
No. Obtaining an outcome more favourable than the offer is important but does not create an automatic entitlement. The Court retains discretion and considers the offer’s terms, timing, proportionality, and surrounding conduct. Defects in the offer, or reasonable uncertainty when it was rejected, may still justify costs on an ordinary basis.
What Disputes Commonly Arise Over Calderbank Offers and Indemnity Costs?
Disputes frequently arise where a party treats a Calderbank offer as a formality rather than a settlement instrument requiring careful commercial analysis. In payment claims following contract termination, a claimant may offer to accept less than the pleaded debt while preserving claims for interest and costs. The recipient later argues that the proposal was unclear because it did not specify the treatment of counterclaims, security interests, or related proceedings. These drafting gaps can prevent the offer from resolving the dispute and weaken an application for indemnity costs.
Shareholder disputes involving dividends and remuneration present additional difficulty because settlement often requires more than a payment. Offers may incorporate share transfers, resignations, releases, restraints, access to records or valuation mechanisms. A proposal expressed as a single monetary figure may conceal uncertainty about implementation. If essential terms remain open, the Court may find that the recipient could not accept the offer without further negotiation.
Timing is another recurring issue. Offers delivered shortly before trial may reflect the evidence accurately but leave insufficient time for directors, insurers, litigation funders, or other decision-makers to give instructions. Offers made early may allow ample time but precede discovery, expert valuation or testing of contested accounts. In both settings, the recipient may resist the alleged costs consequences by arguing that it lacked the information or time required for a rational assessment.
Disagreement also arises over whether the proposal involved a genuine compromise. A party with a strong case may regard a small concession as commercially significant, particularly where acceptance avoids substantial trial costs. The opponent may characterise the same proposal as effective capitulation. The Court examines the practical value surrendered rather than relying on percentages alone.
Finally, parties often dispute whether the judgment improved the offer. Comparisons become complicated where the result includes interest, partial success, multiple claims, non-monetary orders, or costs allocated across different issues. A successful party may still fail to establish unreasonable rejection if the eventual result depended on evidence or legal findings that were uncertain when the without prejudice save as to costs offer remained open. Effective costs strategy therefore requires a contemporaneous assessment of the offer, the available evidence, and the range of outcomes, not a conclusion formed only after judgment.
A poorly timed or unclear settlement offer can weaken costs protection, while rejecting a properly framed offer may expose a party to significant indemnity costs.
Pentana Stanton Lawyers can assess the offer, evidentiary position and commercial risk and help develop a settlement strategy aligned with the wider litigation.
Book a ConsultationWhat Should Parties Do Before Making or Rejecting a Calderbank Offer?
A Calderbank offer should be developed as part of the broader litigation strategy, not drafted after the commercial position has already been fixed. Before making an offer, the party should identify the outcome it is realistically prepared to accept, the concession being offered, and the evidence supporting its assessment of liability and quantum. The letter should define payment terms, interest, costs, releases, confidentiality obligations, and any non-monetary relief with sufficient precision to permit immediate acceptance.
The offer should also explain why it represents a genuine compromise and why rejection may carry costs consequences. A reasonable acceptance period must account for the complexity of the dispute, and the instructions or expert input the recipient may require. Where the evidentiary position changes, a revised offer may be more persuasive than relying on an earlier proposal made on incomplete information.
A recipient should not reject a without prejudice save as to costs offer reflexively. The assessment should be recorded contemporaneously and address the available evidence, legal risks, judgment range, accrued costs, future expenditure, and enforceability of any outcome. A counteroffer can demonstrate commercial engagement while preserving a different view of value.
Both parties should retain the offer, proof of service, relevant advice, calculations, and the material available during the acceptance period. Those records may become central if the Court later considers the Hazeldene factors and alleged unreasonable rejection.
Finally, indemnity costs do not necessarily reimburse every dollar spent. The proposed costs benefit should be weighed against the expense, disruption, reputational exposure, and enforcement risk of continuing the proceeding. For business owners and directors, the soundest decision may reflect commercial value rather than the maximum legally arguable claim.
Frequently Asked Questions
What is a Calderbank offer in Victorian commercial litigation?
A Calderbank offer is a written settlement proposal usually marked without prejudice save as to costs. It may be shown to the Court after the substantive dispute is decided when the parties argue about costs. The name comes from Calderbank v Calderbank [1975] 3 All ER 333.
Does rejecting a Calderbank offer automatically mean paying indemnity costs?
No. Even if the offeror obtains a better outcome at trial, indemnity costs do not follow automatically. The offeror must show that the rejection was unreasonable in the circumstances existing while the offer remained open, and the Court retains discretion over the final order.
What makes the rejection of a Calderbank offer unreasonable?
The Court considers the Hazeldene factors, including the strength of the parties’ positions, the stage of the proceeding, the information available, the time allowed for acceptance, and the extent of the compromise. Clear adverse evidence or an offer made after the issues have crystallised may make rejection harder to justify. Genuine uncertainty about liability, quantum, or essential terms may support the recipient’s decision.
How much compromise must a Calderbank offer include?
There is no fixed percentage or minimum discount. The proposal must contain a genuine compromise when assessed against the offeror’s pleaded position, litigation risk, and the value of avoiding further proceedings. An offer demanding complete capitulation may not support enhanced costs consequences, even if the offeror later succeeds.
How long should a Calderbank offer remain open?
There is no prescribed acceptance period for a Calderbank offer. The period must be reasonable having regard to the dispute’s complexity, the evidence requiring review, the need for legal or expert advice and the proximity of trial. A short period may be adequate in an urgent or familiar dispute, but an artificial deadline that prevents proper assessment can weaken a later claim of unreasonable rejection.
When Should You Seek Advice about a Calderbank Offer?
A Calderbank offer can materially affect settlement leverage and the allocation of legal costs in Victorian commercial litigation. Its effectiveness depends on more than obtaining a favourable judgment. The offer must contain a genuine compromise, provide clear and workable terms, allow reasonable time for assessment, and be supported by the evidentiary position when made. Recipients should evaluate the proposal carefully because an unreasonable rejection may expose them to indemnity costs.
Early advice can help align the offer with the merits, commercial objectives and costs consequences of the proceeding. If you are considering making, responding to, or relying on a Calderbank offer, speak with our commercial litigation team or book a consultation to obtain advice directed to your position.
This article is general information only and not legal advice. For advice specific to your circumstances, please contact our team.
