Federal Court of Australia

Cao v AWPF Management No. 2 Pty Ltd, in the matter of Cao [2025] FCA 892

ORDERS

THE COURT ORDERS THAT:

1.    No further order is made to extend the time for compliance with Bankruptcy Notice BN274843.

2.    The applicant’s Interim Application filed on 7 April 2025 be dismissed.

3.    The applicant pay the respondents’ costs of the proceeding as agreed or assessed by a Registrar of the Court.

4.    The costs ordered in Order 3 be on an indemnity basis for the costs incurred by the respondents after 7 May 2025.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

STELLIOS J:

1    By Interim Application, the applicant seeks to review and set aside the orders of a Registrar of the Court made on 18 March 2025. Those orders dismissed the applicant’s application to set aside a Bankruptcy Notice (BN274843) and timetabled submissions on costs to be dealt with “on the papers”. On 9 April 2025, the Registrar ordered that the applicant pay the respondents’ costs fixed in the amount of $18,839.34. The Interim Application also sought orders setting aside the Registrar’s order for costs, and orders for costs of the proceeding and the Interim Application.

2    For the reasons that follow, the Interim Application must be dismissed with an order that the applicant pay the respondents’ costs of the Interim Application, including costs on an indemnity basis after 7 May 2025.

Procedural history

3    Following a case management hearing on 7 May 2025, I made timetabling orders on 9 May 2025 by consent for the parties to file and serve evidence and written submissions, and listed the Interim Application for hearing on 27 June 2025. I also ordered that time for compliance with BN274843 be extended under s 41(6A) of the Bankruptcy Act 1966 (Cth) until 21 days after judgment is delivered or further order.

4    Two other matters were raised with the parties at the case management hearing held on 7 May 2025. First, a creditor’s petition had been filed against the applicant by another creditor in the Federal Circuit and Family Court of Australia (Division 2). Secondly, the applicant unsuccessfully sought, before a Registrar of this Court, to set aside the Bankruptcy Notice that supported that other creditor’s petition. Further, the applicant had applied to the Court for a review of the Registrar’s orders. It was noted on the orders of 9 May 2025 that the applicant would keep the docket judge’s associate informed of developments in those proceedings.

5    On 13 June 2025, the applicant requested that the hearing of the proceeding be stood over following the appointment of a controlling trustee, by the applicant, over the applicant’s affairs pursuant to s 188 of the Bankruptcy Act. That appointment was made by an authority executed by the applicant on 8 May 2025.

6    The controlling trustee sought and obtained orders from the Court to extend the time within which a creditors meeting was to be convened. On 12 June 2025, a Registrar of the Court extended the time to 5 September 2025. In view of that development, the applicant sought orders for the hearing of the Interim Application to be stood over until after 5 September 2025.

7    During a case management hearing on 18 June 2025, I raised with the parties’ legal representatives the question of whether there was any utility in the proceeding continuing in light of the controlling trustee’s appointment and, if not, why the proceeding should not be dismissed. Following that hearing, I ordered that the parties provide short written submissions on the utility of the proceeding continuing in light of the appointment under s 188 of the Bankruptcy Act and on the question of costs.

8    The applicant provided short submissions that accepted that there is no utility of continuing the proceeding in light of the authority provided by the applicant to a controlling trustee on 8 May 2025 under s 188 of the Bankruptcy Act. The applicant further stated that “the applicant makes no submissions in respect of any order for the dismissal of the proceeding or any consequential costs order, and leaves it to the Court to make such orders as the Court determines may be appropriate”.

9    The respondents submitted that the applicant’s acceptance of the lack of utility appeared to be because the applicant’s execution of an authority to appoint a controlling trustee constitutes an act of bankruptcy under s 40(1)(i) of the Bankruptcy Act. The respondents also submitted that the numerous outcomes in respect of such a meeting being called would also give rise to acts of bankruptcy: ss 40(1)(k) and (j). Consequently, it was submitted, the commission of acts of bankruptcy deprive the proceeding of any utility.

10    On the question of costs, the respondents made the following submissions:

(1)    At the time of the first case management hearing on 7 May 2025, the applicant was executing documents to effect the appointment of a controlling trustee. The “Personal Insolvency Agreement Proposal” prepared by the applicant and his solicitor was dated 7 May 2025. That proposal was annexed to the controlling trustee’s “Initial Information for Creditors” dated 12 May 2025.

(2)    On 7 May 2025, the Court sent to the parties proposed timetabling orders for their consideration. On 8 May 2025, the parties consented to the Court’s orders. The applicant said nothing about the appointment of the controlling trustee which was made on 8 May 2025. On 9 May 2025, the Court made those orders by consent, yet the applicant failed again to raise the controlling trustee’s appointment.

(3)    Given that the signing of the authority constituted an act of bankruptcy, it should have been brought to the Court’s attention on 8 May 2025 (when the controlling trustee was appointed and the parties consented to the timetabling orders), or on 9 May 2025 (when the Court made the timetabling orders). Had that occurred, the proceeding could have been determined at that time.

(4)    The proceeding has continued to this point in time with costs being incurred by the respondents having to prepare submissions for the final hearing listed for 27 June 2025 and the application to have the proceeding stood over.

(5)    In these circumstances, the applicant should be ordered to pay the respondents’ costs, including on an indemnity basis from 7 May 2025.

Disposition

Utility of the proceeding

11    Subsection 40(1) of the Bankruptcy Act sets out the circumstances where a debtor commits an act of bankruptcy. They include the following cases:

(g)    if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:

(i)    where the notice was served in Australia--within the time fixed for compliance with the notice;

…

(i)    if he or she signs an authority under section s 188;

12    As a consequence of my orders on 9 May 2025, extending the time for compliance with BN274843, an act of bankruptcy on the basis of non-compliance with BN274843 has not occurred under s 40(1)(g). However, an act of bankruptcy has now occurred under s 40(1)(i) because an authority has been signed under s 188 of the Bankruptcy Act. In those circumstances, I agree with the parties that there is no further utility in the proceeding.

13    In light of that development, I accept the respondents’ submission that the appropriate order should be for the proceeding to be dismissed.

Costs

14    Costs should follow the event. The question is whether, as the respondents submit, the costs should be ordered on an indemnity basis from 7 May 2025.

15    Section 43 of the Federal Court of Australia Act 1976 (Cth) confers on the Court a broad power to award costs in a proceeding. As a matter of settled practice, where a party is entitled to costs, the Court awards costs on a party-party basis unless there is “some special or unusual feature” that justifies departure from the usual basis: Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225; [1993] FCA 801 at 233 (Sheppard J); Wills v Chief Executive Officer of the Australian Skills Quality Authority (Costs) [2022] FCAFC 43 at [20] (Logan, Griffiths and Perry JJ). As summarised by Perram, Bromwich and Colvin JJ in SunshineLoans Pty Ltd v Australian Securities and Investments Commission (No 2) [2025] FCAFC 60 at [6]:

Relevant principles concerning the circumstances in which costs may be awarded on an indemnity basis were summarised in Melbourne City Investments Pty Ltd v Treasury Wine Estates Limited (No 2) [2017] FCAFC 116 at [3]-[5] (Jagot, Yates and Murphy JJ). Broadly, there must be “some special or unusual feature” that means that costs were imposed unreasonably on the party who seeks the indemnity costs order. As with all costs orders, the purpose remains compensatory not punitive: King v Yurisich (No 2) [2007] FCAFC 51 at [19] (Sundberg, Weinberg and Rares JJ) citing Latoudis v Casey (1990) 170 CLR 534 at 543 (Mason CJ), 563 (Toohey J), 567 (McHugh J). Generally speaking, indemnity costs orders are only imposed where it is clear that there has been unreasonable conduct that has added to the cost burden of the proceedings: Australian Competition and Consumer Commission v Colgate-Palmolive Pty Ltd (No 5) [2021] FCA 246 at [11] (Wigney J).

16    One accepted example of such conduct is where a proceeding is “commenced or continued in circumstances where the applicant properly advised should have known there was no chance of success” (Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd (No 11) [2009] FCA 590 at [7] (Collier J)) or “persists in what should on proper consideration be seen to be a hopeless case”: Melbourne City at [5] (Jagot, Yates and Murphy JJ) citing J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (WA Branch) (No 2) (1993) 46 IR 301 at 303 (French J).

17    For the following reasons, I consider it to be appropriate to order costs on an indemnity basis for costs incurred after 7 May 2025:

(1)    There can be no doubt that the applicant and his solicitor were aware of the impending appointment of the controlling trustee. On the day of the case management hearing on 7 May 2025, the applicant signed the Agreement Proposal pursuant to Pt X of the Bankruptcy Act in the presence of his solicitor. As required by s 188A(2)(k) of the Bankruptcy Act, the Agreement Proposal makes provision for a person to be trustee of the agreement. Clause 8 of the Agreement Proposal nominates the controlling trustee (or person nominated by the creditors) to be the trustee.

(2)    At the case management hearing on 7 May 2025, other developments concerning the applicant were raised with the applicant’s solicitor. Neither the execution of the Agreement Proposal, nor the impending appointment of the controlling trustee, were raised with the Court.

(3)    On 8 May 2025, the controlling trustee was appointed, triggering an act of bankruptcy under s 40(1)(i) of the Bankruptcy Act. That development occurred at the same time that the Court sought and received the parties’ views on proposed consent orders timetabling evidence and submissions for the hearing of the Interim Application.

(4)    Pursuant to the timetabling orders, the respondents filed submissions on 4 June 2025 ahead of the hearing listed for 27 June 2025. The respondents were also put to the expense of appearing at the case management hearing on 18 June 2025 that was held to consider the applicant’s request to stand the hearing over.

(5)    At the subsequent case management hearing on 18 June 2025, the applicant’s solicitor apologised to the Court for the oversight, which was explained on the basis that the relevant consequences of the controlling trustee’s appointment had not been realised until it was raised during the 18 June hearing.

18    I note that the respondents had knowledge of the controlling trustee’s appointment which it raised in correspondence with the Court on 28 May 2025. The respondents did not bring concerns regarding the utility of the proceeding, following appointment of the controlling trustee, to the Court’s attention. However, having been prompted about the bearing it might have on the proceeding, the applicant failed to raise the utility of the proceeding with the Court.

19    Accordingly, I am satisfied that costs after 7 May 2025 should be paid on an indemnity basis. After that date, the applicant continued the proceeding in circumstances where properly advised they should have known there was no utility in continuing the proceeding to extend time for compliance with BN274843 and nonetheless persisted with a case which, on proper consideration, was a hopeless case. I am satisfied that the respondents have incurred costs unreasonably imposed on them as a consequence of the applicant’s failure to inform the Court of the appointment of the controlling trustee and its impact on the utility of the proceeding. This is “some special or unusual feature” that warrants departure from costs on the usual basis. The respondents should be compensated for the costs unreasonably imposed on them after 7 May 2025.

Conclusion

20    For the foregoing reasons, the Interim Application must be dismissed. No further order will be made to extend the time for compliance with BN274843.

21    The applicant is to pay the respondents’ costs of the proceeding as agreed or, failing agreement, as assessed by a Registrar, and the costs incurred after 7 May 2025 are to be paid on an indemnity basis.

Associate:

Dated:    6 August 2025