Key Takeaways
- Queensland courts award costs on two scales: standard (party-party) and indemnity — the latter is significantly higher and can cover up to 100% of a party’s actual legal costs.
- Indemnity costs are not routine. Courts grant them as a sanction for conduct that is unreasonable, dishonest, or an abuse of process — not simply because you won.
- A Calderbank offer (settlement offer made without prejudice save as to costs) is the most powerful tool litigants have to shift cost risk onto the other side.
- If you make or receive a Calderbank offer and the matter proceeds to judgment, the court will assess whether rejection of the offer was unreasonable — and may award indemnity costs from the date of the offer.
- Under r 702 of the Uniform Civil Procedure Rules 1999 (Qld), courts have broad discretion on costs. Understanding how that discretion is exercised can change the economics of any dispute.
When your business ends up in litigation, everyone focuses on winning. But there is a second battle running in parallel that can cost — or save — just as much as the judgment itself: the question of costs. In Queensland, courts have the power to order not just that you pay the other side’s costs, but that you pay them on a higher, indemnity basis. That distinction matters enormously. An indemnity costs order Queensland court can make is not a consolation prize — it is a weapon, and knowing how it works can change how you approach every stage of a commercial dispute.
What Are Costs in Queensland Litigation?
The general rule in Queensland litigation is that costs follow the event — the losing party pays the winning party’s legal costs. This principle is set out under r 702 of the Uniform Civil Procedure Rules 1999 (Qld) (UCPR), which gives the court a broad discretion to make whatever costs order is just in the circumstances.
But “costs” is not a single concept. Queensland courts operate with two distinct costs scales:
- Standard costs (party-party costs): The default position. Assessed by reference to the scales in Schedule 1 of the UCPR. In practice, standard costs typically recover between 50% and 70% of a party’s actual legal costs. The winning party absorbs the shortfall.
- Indemnity costs: A higher award. The court orders the losing party to pay the winning party’s actual legal costs — assessed on the basis of what was reasonable for the winning party to spend, rather than a prescribed scale. In practice, an indemnity costs award can recover 80% to 100% of actual costs incurred.
The financial difference between the two is significant. On a $500,000 commercial dispute where the winning party spent $200,000 in legal costs, the gap between a standard costs order (~$110,000 recovered) and an indemnity costs order (~$180,000 recovered) is $70,000. That is not a rounding error.
When Will a Queensland Court Award Indemnity Costs?
Indemnity costs are not awarded simply because one party wins. Queensland courts require something more — conduct that crosses a line. The leading principles were established in cases including Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 and have been consistently applied in Queensland courts.
Circumstances where indemnity costs are commonly awarded include:
1. Unreasonable Rejection of a Settlement Offer (Calderbank Offer)
This is by far the most common basis for an indemnity costs application in commercial litigation. A Calderbank offer is a written settlement offer made “without prejudice save as to costs.” The letter is inadmissible during the proceeding, but if the matter goes to judgment and the outcome is no better than the offer that was rejected, the offeror can apply for indemnity costs from the date of rejection.
For a Calderbank offer to trigger an indemnity costs order, the court must be satisfied that:
- the offer was genuine and a real attempt to compromise the claim;
- the offeree’s rejection of the offer was unreasonable in all the circumstances; and
- it is just to make the indemnity costs order.
“Unreasonable” is assessed at the time of rejection — not with hindsight. If a party had a reasonable basis for rejecting the offer at the time, indemnity costs will not automatically follow. But if a party rejected an offer that was objectively reasonable and then achieved a worse result, the court will scrutinise that decision closely.
2. Conduct That Is an Abuse of Process
Courts will award indemnity costs where a party has commenced or maintained proceedings that amount to an abuse of process — including claims brought for an improper purpose, claims pursued without any proper foundation, or where a party has deliberately run a spurious case to force a settlement.
3. Fraudulent, Dishonest, or Misleading Conduct
Where a party has been found to have deceived the court, fabricated evidence, or conducted proceedings in a dishonest manner, indemnity costs follow as a matter of course. Courts treat fraud and dishonesty in litigation with the highest severity.
4. Wilful Disregard of Clear Obligations
Where a party has wilfully disregarded well-established legal rights or obligations — such as continuing to breach a clear contractual term despite being put on formal notice — courts have awarded indemnity costs as a sanction.
5. Vexatious or Oppressive Litigation Conduct
Tactical delays, excessive interlocutory applications made purely to drive up costs, and similar conduct designed to oppress the other side rather than advance a genuine case can attract indemnity costs orders.
How Calderbank Offers Work in Practice
The Calderbank offer is the most important costs tool in a Queensland litigant’s arsenal. Used correctly, it shifts the risk of an adverse costs award onto the other party. Used incorrectly, it can backfire.
The mechanics are straightforward:
- Timing: A Calderbank offer can be made at any stage of proceedings. The earlier it is made, the greater the potential period of indemnity costs exposure for the other party. However, the offer must be genuine — not so early that the other party cannot properly assess it.
- Terms: The offer must set out the terms of settlement clearly. An offer that is ambiguous or conditional in ways that make acceptance impractical will not support an indemnity costs application.
- The “without prejudice save as to costs” label: The letter must carry this designation clearly. It is this label that makes it inadmissible during the proceeding but admissible at the costs assessment stage.
- Time for acceptance: The offer should allow a reasonable time for the other party to consider and accept. A 14-day acceptance window is common.
- The outcome test: If the case proceeds to judgment and the outcome is no better (and in some cases, no worse) than the Calderbank offer, the offeror applies for indemnity costs from the date of the offer.
For business owners involved in commercial litigation in Brisbane, the decision of when and whether to make a Calderbank offer is one of the most consequential tactical decisions in any proceeding. It requires assessment of the merits, the likely costs trajectory, and the other party’s position.
Standard Costs vs Indemnity Costs: A Comparison
| Feature | Standard (Party-Party) Costs | Indemnity Costs |
|---|---|---|
| Basis of assessment | UCPR Schedule 1 scale | Actual costs reasonably incurred |
| Typical recovery rate | 50–70% of actual costs | 80–100% of actual costs |
| When awarded | Default costs order (winner) | Misconduct, abuse of process, Calderbank rejection |
| Must establish special circumstances? | No | Yes |
| Can apply at any stage? | Yes | Yes (from date of triggering event) |
The Role of Offers to Settle Under the UCPR
Alongside Calderbank offers, Queensland’s UCPR also provides for formal “offers to settle” under Part 5 of Chapter 9 (r 360 onwards). These statutory offers operate on a similar principle — if a party rejects an offer and achieves no better outcome at trial, the court may make a costs order in the offeror’s favour. The precise costs consequences depend on the terms of the offer and the eventual judgment.
The interaction between UCPR offers and Calderbank offers is nuanced. Experienced commercial litigators often advise on which mechanism is more appropriate at different stages of a proceeding — the UCPR offer carries more certainty of costs consequences, while a Calderbank offer provides greater flexibility in terms.
Practical Implications for Queensland Businesses
Understanding indemnity costs is not just a lawyer’s concern. Directors, shareholders, and business owners who are parties to commercial litigation need to understand the costs risk at every stage of a dispute:
- Before commencing proceedings: Consider whether the other side has made a settlement offer. If you reject it and do no better at trial, you face an indemnity costs application. The mathematics of litigation — judgment amount minus indemnity costs exposure — can change the calculus entirely.
- During proceedings: Litigation conduct matters. Unreasonable delays, tactical applications, and dishonest conduct can attract costs sanctions regardless of the ultimate outcome on the merits.
- When making offers: A well-timed and properly structured Calderbank offer can fundamentally shift the risk profile of a dispute. For creditors pursuing debt recovery or businesses defending commercial claims, this is an essential tactical consideration.
- When appealing: Costs orders on appeal follow the same principles. An indemnity costs order at first instance does not automatically flow through to appeal — separate costs orders are made at each stage.
Frequently Asked Questions About Indemnity Costs in Queensland
What is the difference between indemnity costs and standard costs in Queensland?
Standard costs (party-party costs) are assessed by reference to the UCPR scale and typically recover 50–70% of a party’s actual legal costs. Indemnity costs are assessed on the basis of the winning party’s actual costs reasonably incurred and typically recover 80–100% of those costs. Indemnity costs require the court to find conduct that goes beyond simply losing the case.
Does an indemnity costs order cover all legal expenses?
Not automatically. Indemnity costs cover legal costs that were reasonably incurred. Costs that were excessive or unnecessary may still be disallowed on assessment, even under an indemnity costs order. A costs assessor reviews the actual invoices and determines what is properly recoverable.
What happens if I reject a Calderbank offer and then win at trial?
If you reject a Calderbank offer and obtain a better outcome at trial, the offer has no costs consequences — it simply did not trigger the indemnity costs mechanism. The offeror may still receive a standard costs order if they succeed on some issues, but will not receive indemnity costs based on the rejected offer alone.
Can a court make an indemnity costs order against a party who won on the merits?
Yes. A party who wins on the merits but engaged in dishonest, abusive, or oppressive conduct during litigation can still be subject to an indemnity costs order for that conduct. Courts have discretion to make costs orders that reflect the totality of the parties’ conduct, not just the outcome on the main claim.
Is a Calderbank offer the same as an offer of compromise under the UCPR?
No. A Calderbank offer is a common law device — it operates outside the UCPR regime and gives the court greater discretion in fashioning a costs response. A formal offer of compromise under Part 5 of Chapter 9 of the UCPR has specific procedural requirements and more prescribed costs consequences. Both are valid tools; the appropriate mechanism depends on the circumstances of the particular dispute.
How Boss Lawyers Can Help
At Boss Lawyers, we act for directors, shareholders, and business owners in complex commercial litigation across Queensland. Costs strategy is integral to how we approach every dispute — not an afterthought at judgment. Whether you are weighing up whether to make a settlement offer, assessing an offer you have received, or defending an indemnity costs application, the decisions you make will affect the commercial outcome of your case.
If you are involved in Queensland commercial litigation and want to understand your costs exposure and options, contact Mark Harley, Principal Solicitor, on 1300 267 711 or through our commercial litigation page.
When cost disputes arise in the context of insolvency proceedings — including liquidator examinations, winding up applications, or DOCA disputes — the stakes multiply. Boss Lawyers’ insolvency team advises creditors and directors on costs risk in insolvency litigation.
This article provides general information only and is not legal advice. You should obtain professional advice specific to your circumstances before taking any action.
