Federal Court of Australia

Zong v Woodcroft (liquidator), in the matter of Sunshine Contracting Group Pty Ltd (in liquidation) (Costs) [2026] FCA 150

ORDERS

THE COURT ORDERS THAT:

1.    The plaintiffs’ costs of the proceeding be paid, on a party and party basis, out of the assets of the second defendant.

2.    The first defendant’s costs of the proceeding be paid, on the indemnity basis, out of the assets of the second defendant.

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

REASONS FOR JUDGMENT

MARKOVIC J:

1    On 4 December 2025 I made a declaration and orders pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations) being Sch 2 to the Corporations Act 2001 (Cth) in this proceeding, being an appeal by three creditors against certain decisions made by the first defendant, Cameron Woodcroft in his capacity as liquidator of the second defendant, Sunshine Contracting Group Pty Ltd (in liquidation), when presiding over a meeting of creditors of Sunshine Contracting: see Zong v Woodcroft (liquidator), in the matter of Sunshine Contracting Group Pty Ltd (in liquidation) [2025] FCA 1521.

2    The plaintiffs, Mr Shuxin Zong, DIHE Sandstone Ridge Pty Ltd and Unik Capital Pty Ltd, were successful in obtaining the relief they sought. Relevantly, the orders made included:

(1)    an order that the proofs of debt lodged by Mr Zong and DHIE be admitted for voting purposes for their full amounts and the proof of debt lodged by Unik be admitted for an amount just short of the full amount claimed; and

(2)    an order that Mr Woodcroft be removed as liquidator of Sunshine Contracting and Edwin Narayan and Domenic Calabretta be appointed as liquidators in his place.

3    The parties were directed to confer and, if agreement could be reached, to provide draft orders to my Chambers on the question of costs of the proceeding. Unfortunately, they were unable to reach agreement. Accordingly, the parties have provided me with their competing proposed orders and submissions in support on the question of costs of the proceeding.

4    It is not in dispute that the plaintiffs, who were successful in the proceeding, are entitled to their costs of the proceeding. However, the basis on which those costs should be paid and who should pay them is in issue:

(1)    the plaintiffs seek orders that the liquidator pay their costs of the proceeding on an indemnity basis and that he not be entitled to indemnify himself for his costs of the proceeding, or payment of the plaintiffs’ costs of the proceeding, out of the assets of Sunshine Contracting; and

(2)    the defendants seek orders that the plaintiffs’ costs of the proceeding be paid, on the standard basis, out of the assets of Sunshine Contracting and that the liquidator’s costs of the proceeding be paid, on the indemnity basis, out of the assets of Sunshine Contracting.

5    Two questions arise: first, are the plaintiffs entitled to their costs on the indemnity basis; and secondly, should the liquidator be personally liable for the plaintiffs’ costs and his own costs of the proceeding. I address each in turn.

are the plainitffs entitled to indemnity costs?

6    In support of their claim for indemnity costs the plaintiffs rely on a letter from their solicitors, Emerson Lewis Lawyers, to the defendants’ solicitors, Synkronos Legal, dated 4 August 2025 (Emerson Lewis Letter). The stated purpose of that letter was for Emerson Lewis to “briefly and succinctly explain the nature of [their] clients’ case and put a proposal to [Synkronos Legal’s] clients with a view to the early and consensual determination and disposal of the proceedings”. Emerson Lewis set out the nature of their clients’ case in the following five paragraphs concluding as follows:

10    In all of the circumstances, we have been instructed to invite your clients to confirm by no later than noon on Wednesday 6 August 2025 that they will consent to the orders that are sought in our clients’ Originating Process with a view to the orders being made at the upcoming case management hearing in this matter on 7 August 2025, in which case our clients will not seek orders against the defendants in relation to the costs of these proceedings.

11.    The offer set out above is made on an open basis. If your clients decline to accept the offer, then our clients will have no choice but to progress the matter to hearing and will in those circumstances seek payment of their costs.

    (Emphasis in original.)

7    It is apparent that the defendants did not accept the plaintiffs’ “offer” which was to consent to the relief sought.

8    The plaintiffs rely on Re Australia’s Residential Builder Pty Ltd (in liq) (No 2) [2019] VSC 389 as an example of a case where a liquidator was ordered to pay indemnity costs after he rejected an offer made in accordance with the requirements in Calderbank v Calderbank [1976] Fam 93. However, that case does not assist them. Putting to one side that the relief sought in Residential Builder and the questions to be resolved were different to those before me, the Emerson Lewis Letter does not amount to a Calderbank offer. In Residential Builder Robson J explained the nature of such an offer at [44]:

A further consideration relevant to the award of costs is the rejection of a ‘Calderbank offer’ — an offer of settlement expressed to be without prejudice save as to costs. The law is eager to encourage the private resolution of disputes. As such, where the offeree of a Calderbank offer rejects such an offer, but then receives a less favourable result from the proceedings, this will be a matter relevant to the Court in considering whether to award costs on an ‘indemnity basis’ against the offeree. The question for the Court is whether the rejection of the offer was unreasonable in the circumstances. For this purpose, it is unnecessary to establish any misconduct by the offeree.

(Footnotes omitted.)

9    The Emerson Lewis Letter was not expressed to be “without prejudice save as to costs” and the plaintiffs did not say in terms that, in the event the offer was rejected, they would seek their costs on an indemnity basis. They simply said that they would seek payment of their costs.

10    In any event there is nothing before me to suggest that the defendants unreasonably rejected the offer to settle on terms that they consent to the relief sought. Having regard to the factors identified in Residential Builder at [44], by that stage the plaintiffs had filed some but not all of their evidence, the “offer” did not involve any compromise although I accept that, given the nature of the proceeding, it may be difficult to achieve a compromise in the true sense and, as I have already observed, the Emerson Lewis Letter did not foreshadow an application for indemnity costs in the event the offer was rejected.

11    The plaintiffs are not entitled to their costs on an indemnity basis.

should the liquidator be personally liable for costs?

12    The plaintiffs contend that the liquidator should be personally liable for their costs, that he should pay those costs on an indemnity basis and that he should not have recourse to indemnify himself from Sunshine Contracting’s assets for those costs.

13    The principles in relation to making a costs order against a liquidator personally were helpfully summarised by Rees J in In the matter of Azmac Pty Limited (in liquidation) (No 2) (2020) 145 ACSR 443; [2020] NSWSC 363. In that case her Honour considered whether an order should be made that the first defendant, who was the liquidator of the second defendant, Azmac Pty Ltd (in liquidation), pay the plaintiff’s costs personally rather than from the remaining assets of the company. As is the case here, there was no dispute between the parties that the plaintiff was entitled to its costs.

14    Her Honour’s summary of the relevant principles commences at [3] of Azmac. At [4] her Honour observed that if a proceeding brought against a liquidator is successful, a costs order will ordinarily be made so that the liquidator does not incur any personal liability, referring to Silvia & Anor. v Brodyn Pty. Limited (2007) 25 ACLC 385; [2007] NSWCA 55 at [52]. Justice Rees noted that the rationale for that approach was explained in Silvia v Brodyn by reference to Re Wilson Lovatt & Sons Limited [1977] 1 All ER 274 at 285.

15    Commencing at [5] her Honour considered the position where a liquidator defends a proceeding on behalf of a company in liquidation noting that where that occurs, “a costs order may be made against the liquidator personally in ‘exceptional circumstances’, being where the liquidator’s opposition to the relief sought was, in the circumstances, unreasonable, unnecessary or dishonest”, citing Mead v Watson as Liquidator for Hypec Electronics (2005) 23 ACLC 718; [2005] NSWCA 133 at [16]. Her Honour relevantly continued at [5]-[7]:

[5]    … In reaching this conclusion, the Court of Appeal compared a liquidator’s entitlement to be paid his or her costs from the assets of the company to that of a trustee in bankruptcy, as explained by Bowen LJ in Re Beddoe; Downes v Cottam [1893] 1 Ch 547 at 562 (Beddoe): (emphasis that of the Court of Appeal in Mead v Watson)

A trustee can only be indemnified out of the pockets of his cestui que trust against costs, charges, and expenses properly incurred for the benefit of the trust — a proposition in which the word ‘properly’ means reasonably as well as honestly incurred. While I agree that trustees ought not to be visited with personal loss on account of mere errors in judgment which fall short of negligence or unreasonableness, it is on the other hand essential to recollect that mere bona fides is not the test, and that it is no answer in the mouth of a trustee who has embarked in idle litigation to say that he honestly believed what his solicitor told him, if his solicitor has been wrong-headed and perverse. Costs, charges and expenses which in fact have been unreasonably incurred, do not assume in the eye of the law the character of reasonableness simply because the solicitor is the person who was in fault. No more disastrous or delusive doctrine could be invented in a Court of Equity than the dangerous idea that a trustee himself might recover over from his own cestui que trust costs which his own solicitor had unreasonably and perversely incurred merely because he had acted as his solicitor told him.

[6]    The Court of Appeal also adopted the Full Court of the Federal Court of Australia’s summary of these analogous principles in Adsett v Berlouis (1992) 37 FCR 201 at 211–12; 109 ALR 100 at 110–11: (emphasis that of the Court of Appeal)

The critical question, in our view, is whether or not the conduct which gave rise to the burden of costs — whether costs ordered to be paid or costs incurred by the trustee in prosecution of the litigation — was proper in the sense explained in Beddoe; that is, whether the expenditure was reasonably, as well as honestly, incurred…[W]e issue the caution that the language in some authorities, many of which relate to gratuitous trustees, may mislead. Sometimes that language appears to require a degree of personal misconduct or wilful recklessness, as opposed to mere negligence, mistake or breach of the trustee’s duty as set out above. We do not think that such a limitation can stand with cases such as Beddoe, which in our opinion correctly express the law. If the expense is one prudently and reasonably incurred in the discharge of the trustee’s proper duties, there is a right under the general law to be indemnified out of the trust estate. If the expense is not so incurred or is unreasonable or unnecessary, there is no right under the general law to indemnity because the expense is not ‘properly incurred’. The position is no different with a trustee in bankruptcy. Where the line is drawn, between an expense properly incurred and one not properly incurred, is to be determined on the facts of the particular case and in the exercise of judgment.

[7]    The Court of Appeal held in Mead v Watson, consistent with these authorities, that a personal costs order should not be made unless the liquidator’s conduct was improper in the sense explained by Bowen LJ in Beddoe, which depended on whether the liquidator’s conduct of the litigation was negligent or unreasonable. At [14]:

A degree of personal misconduct or wilful recklessness on the part of the liquidator was not required: mere negligence or mistake or the incurring of costs unreasonably or unnecessarily was sufficient to constitute the relevant degree of impropriety to justify an order that the costs be paid by the liquidator personally.

…

(Emphasis in original.)

16    At [8] Rees J noted that there may be cases where the liquidator is a defendant or not a party to the proceeding but provoked the litigation and should be regarded as a plaintiff and thus not entitled to the protection afforded by the need to show exceptional circumstances. In such a case the Court will order costs against him or her, although such an order, without more, may not preclude the liquidator from being indemnified from the assets of the company in liquidation.

17    At [15]-[20] Rees J set out examples of cases where a court has ordered liquidators to pay costs personally, without recourse to an indemnity from the assets of the company in liquidation. Her Honour observed that those cases roughly fell into two groups: those where liquidators took “an irremissible stance in litigation”; and those where liquidators “[dealt] with proofs of debt in a cavalier fashion”, noting that those categories were not mutually exclusive.

18    Here, the plaintiffs submit that the liquidator did not act in the interests of the creditors. The plaintiffs contend that the relevant resolution proposed at the meeting of creditors sought merely to replace the existing liquidator and the cases in which the “usual rule” is applied are, for the most part, cases in which a liquidator has sought to protect the assets of the company to which he or she is appointed as liquidator. The plaintiffs submit that, at most, the liquidator should have taken a neutral position rather than defending the proceeding, given that the creditors would derive no benefit from his active defence.

19    The plaintiffs submit that this is a case where the liquidator provoked the litigation by rejecting their proofs of debt and requiring them to correct the incorrect decisions he made via the commencement, and ultimately resolution, of the proceeding.

20    In my view this is not a case where the liquidator provoked the litigation such that he should not be afforded the protection of the need on the part of the plaintiffs to show “exceptional circumstances” before there is a departure from the usual rule. The liquidator made his initial decision on the plaintiffs’ proofs of debt based on the material that was before him at the time. The resolution as to his removal and replacement did not pass at the meeting. That is, other creditors did not vote in favour of the resolution.

21    The plaintiffs then commenced this proceeding. They filed more complete evidence in support of their claim to that first relied on before the liquidator. In those circumstances it cannot be said that the liquidator provoked the proceeding. The fact that the liquidator did not call for additional material at the time of the meeting to support the claims made in the proofs of debt does not change my view. It was for the plaintiffs to provide sufficient material to support the debts claimed in their proofs of debt.

22    Nor am I satisfied that there are exceptional circumstances present such that the liquidator should be ordered to pay costs personally. The liquidator did not deal with the plaintiffs’ proofs of debt in a cavalier fashion. He considered them for the purposes of the meeting based on the available material.

23    Similarly, the liquidator’s defence of the proceeding was not unreasonable:

(1)    one of the questions to be determined was the standard of review to be applied, a question which occupied much of the Court’s time, and which required resolution. The liquidator acted appropriately in assisting the Court to determine that question;

(2)    at least on the alternative approach to resolution of the question referred to above, the liquidator was successful in defending his decision in relation one of the three proofs of debt in issue: see Zong v Woodcroft at [139]; and

(3)    on the primary basis on which the plaintiffs’ claim was resolved, that is as a hearing de novo, the plaintiffs’ success depended on material which was never put before the liquidator.

24    As the defendants submit, that the plaintiffs succeeded overall, does not mean that the liquidator should be required to pay their costs. There was no additional element in this case which makes it an exceptional one. For example, there was no allegation that the liquidator failed to discharge his duties as liquidator. He has simply been unsuccessful in his defence of the proceeding.

25    I am also satisfied that the liquidator is entitled, in exercise of his right of indemnity, to have his costs paid from the assets of Sunshine Contracting, with the liquidator being afforded priority under subs 556(1)(a) and (dd) of the Corporations Act. I am satisfied that those costs were reasonably and honestly incurred, having regard to the matters set out at [23]-[24] above.

26    Any suggestion by the plaintiffs that the liquidator defended the proceeding in his own interests, rather than those of the creditors is rejected. There is no evidence to bear out that suggestion or submission. As the liquidator submits, he took the position he did because he considered his decision was correct. In addition, there was, as I have observed, an issue of principle involved that was the subject of detailed submissions and consideration by the Court.

conclusion

27    For those reasons I will make the orders proposed by the defendants, namely that:

(1)    the plaintiffs’ costs of the proceeding be paid, on a party and party basis, out of the assets of the Sunshine Contracting; and

(2)    the liquidator’s costs of the proceeding be paid, on the indemnity basis, out of the assets of Sunshine Contracting.

Associate:

Dated:    25 February 2026