Federal Court of Australia

Deppeler, in the matter of Clearwater Logging & Transport Pty Ltd (in liquidation) [2026] FCA 576

ORDERS

THE COURT ORDERS THAT:

1.    MD & RE Fenn Pty Ltd (ACN 099 954 417) in its own capacity and as trustee for the Michael Fenn Family Trust (ABN 41 691 572 561) (MFFT) has leave to be heard at the hearing of the application by originating process dated 22 December 2025 brought by the first and second plaintiffs in their capacity as joint liquidators of Clearwater Logging & Transport Pty Ltd (in liquidation).

2.    MFFT be indemnified from the company’s assets for its reasonable legal costs, such costs to be capped at $67,850 (incl GST).

3.    The liquidators have liberty to apply, including in respect of the matters identified in sub-paragraphs 21(2) and (3) of the reasons below.

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

REASONS FOR JUDGMENT

O’CALLAGHAN J

1    This application by an interested party, MD & RE Fenn Pty Ltd as trustee of the Michael Fenn Family Trust (the trust) involves a narrow question that I told the parties I would decide on the papers.

2    The first and second plaintiffs, the liquidators, hold a fund of about $8.7 million in the liquidation of the third plaintiff (the company). In this proceeding, the liquidators sought judicial directions concerning the treatment of claims that they consider employees of the company have for the underpayment of wages for overtime hours worked (the liquidators’ application).

3    The liquidators proposed to engage a third party (called Yellow Canary) to quantify the claims, and upon being quantified, admit and pay the claims on the basis that they are claims for “wages” under s 556(1)(e) of the Corporations Act 2001 (Cth).

4    The trust is the family trust of the former director of the company, Mr Michael Fenn.

5    The trust claims to be a creditor of the company for loans totalling $2,336,261.

6    The trust sought two orders, namely that:

(1)    it has leave to be heard on the liquidators’ application; and

(2)    it be indemnified from the company’s assets for its reasonable legal costs, such costs to be capped at $67,850 (incl GST).

7    The liquidators have no difficulty with the first order, but they filed submissions which expressed “reservations” about the making of the second order.

8    Counsel for the trustee submitted that the court would be assisted by having an interested party agitate narrow issues that properly arose on the liquidators’ application, but that the trust did not intend to participate in the liquidators’ application unless its costs were met from the company’s assets. I was assured that it “w[ould] be represented by senior and junior counsel and a firm of solicitors experienced in applications of this kind” and that it “w[ould] not inappropriately treat this proceeding as a form of adversarial litigation”.

9    The liquidators proposed to admit claims on a common basis, individually quantified, and without the usual requirement that they prepare proofs of debt on their own behalf. The trust did not object to that course in principle, but said that it had the potential to adversely to affect the interests of creditors who are not employees (like it), because if the claims were admitted, and they bore the character of “wages”, then they would be payable in priority to the trust’s claim. The liquidators accepted as much.

10    On the costs question, the trust relied on what Colvin J said in Preston, in the matter of Sandalwood Properties Ltd (No 2) [2018] FCA 816:

[19] Where the application for directions concerns a subject matter that must be resolved as part of the administration of a receivership such that the costs may be viewed as costs of the receivership, then that is a matter that may warrant the costs of a party being fully indemnified out of the assets in the hands of the receivers. This is especially so where a party's participation has been, in effect, as a proper contradictor and the proceedings do not have the character of true adversarial litigation …

[20] Therefore, if a party's participation is adversarial in the sense that it goes beyond that which is necessary in order to present the facts and address the issues so as to enable the court to provide advice for the purposes of the administration being conducted (in this case the receivership) then the approach to costs that applies to adversarial litigation should be applied. This is all the more so where the intervener participates to agitate a claim or position that has arisen from steps taken by the intervener.

[21] On the other hand, if a party participates as a proper contradictor solely for the purpose of assisting the court in addressing the issues necessary to provide proper and appropriate judicial advice to the party seeking directions, then the approach to costs on applications concerning the administration of a trust, estate or fund should be applied. In such cases it is usual for all parties properly participating to be entitled to their costs on an indemnity basis paid out of the trust, estate or fund on the basis that they are costs of due administration.

(Emphasis added).

11    I was also referred to what Finkelstein J said in Australian Securities and Investments Commission v GDK Financial Solutions Pty Ltd (in liq) (No 4) (2008) 169 FCR 497.

12    In that case, a property subject to two registered mortgages had been sold and there was a dispute as to the amount owed to the first mortgagee. The mortgagor (a company in liquidation) brought an action to determine the amount owing, and it sought an order that its costs be paid from the proceeds irrespective of the outcome of the trial.

13    While recognising such an order is “unusual” (at [1]), Finkelstein J granted the application because his Honour was satisfied that the mortgagor would be entitled to a costs order at the conclusion of the trial (at [7]).

14    The second basis upon which his Honour based that conclusion was that the liquidators of the mortgagor were entitled to their costs of “investigating and having determined in hostile litigation to whom the proceeds should be paid” (at [11]).

15    Justice Finkelstein said the following considerations were relevant (at [12]):

(a)    the merits of the claim;

(b)    whether the order would serve the justice of the case;

(c)    the existence of any special factors;

(d)    the impact on the other creditors of not allowing the application;

(e)    the impact on the proceeding if the application was denied; and

(f)    that an order for costs would be made for payment out of the fund.

16    The trust anticipated the submission made by the liquidators that this case is not on all fours with GDK because the trust has a direct commercial interest in the outcome; it did not commence the proceeding; and it would be determined regardless of whether the trust participated. It submitted as follows:

There [in GDK], unlike this case, the mortgagor had no interest in the subject-matter of the dispute (at [5]), but the principles have been applied in cases in favour of parties with an interest in the subject-matter (at [14]). In each of Wallersteiner v Moir (No 2) [1975] QB 373, Farrow v Registrar of Building Societies [1991] 2 VR 589 and Wood v Links Golf Tasmania Pty Ltd [2010] FCA 570 an order was made that a shareholder bringing a derivative action was entitled to an indemnity out of the company’s assets if their action failed. In Farrow, Marks J said it was open to the Court to exercise that power where the “relief sought is essentially for the benefit of the company” even though “the plaintiffs might obtain indirect benefit” (at 590). His Honour also observed that the power “is not exercised on a view of the ultimate result of the case but on a view that there are reasonable grounds for the proceeding being brought” (at 592) and it “is not dependent on proof that the applicants are without funds” (at 596). And, if the Court is of the view that the orders ought not have been made, then they may be recalled. As Finkelstein J said in Golf Links (at [11]):

If a costs order is made and at any later time it turns out the claim is unmeritorious, the costs order can be recalled. That is what happened in Farrow v Registrar of Building Societies. At the time the costs order was made, the plaintiff appeared to have a good claim, although, as Marks J said, he was not able to fully assess the strength of the claim. During the trial, however, things took a turn for the worse. Ultimately the plaintiff was forced to discontinue the suit. As a result, the judge was asked to, and he did, revoke the costs order.

(Emphasis added).

17    The trust identified the following issues in respect of which it will or may seek to be heard:

(1)    the liquidators have not yet identified the cause of action giving rise to the claims and there is a live question as to whether the claims are “claims” or “wages” within the meaning of ss 553 or 556 of the Corporations Act;

(2)    the liquidators propose to quantify the claims (as the sum of underpayments below the award for overtime) without deduction for payments made by the company for ordinary hours worked at a rate above the award rate; and

(3)    the process that the liquidators intend to adopt.

18    As to the third point, the trust’s written submission said:

[T]he Trust does not take issue with the process proposed by the Liquidators at a high-level: if there are claims that the Liquidators are required to deal with, then the Liquidators need to adopt a reliable yet efficient process to quantify them. The Trust will consider whether any modifications should be proposed, such as whether … it would be preferable that the calculation prepared by Yellow Canary be the subject of objections by the Trust, or further submissions before the Court.

19    The trust also submitted that:

(1)    its participation would be for the benefit of all ordinary (non-priority) unsecured creditors;

(2)    the issues that arise on the liquidators’ application are of sufficient importance to justify the orders it seeks;

(3)    no other party has sought to be heard in the liquidators’ application and it does not intend to participate unless it is indemnified;

(4)    the costs sought by it are insubstantial in comparison to the importance of the issues.

20    As I indicated above, the liquidators’ opposition to the limited costs order sought was far from strenuous.

21    In the end, it seems to me that the making of the costs order is appropriate in the particular circumstances of this case, not only for the reasons set out above, but because, as was submitted:

(1)    the trust limited the leave it sought to the issues set out above and only sought to be indemnified for the submissions that it made on those issues;

(2)    the liquidators have liberty to object to the costs where they considered the costs fell outside of the defined scope or were not reasonably incurred; and

(3)    the liquidators would have liberty to apply to seek to have the orders recalled if “things took a turn for the worse”: Links Golf Tasmania Pty Ltd v Sattler (No 2) (2012) 213 FCR 239 at [11] (Jessup J).

22    I will accordingly make the orders sought by the trust, and give the liquidators liberty to apply, consistently with [21(2)] and [21(3)] above.

Associate:

Dated:    12 May 2026