Federal Court of Australia

Michales v CharterLaw Legal Pty Limited (No 2) (Costs) [2026] FCA 946

ORDERS

THE COURT ORDERS THAT:

1.    The applicant pay the respondent’s costs after 3 October 2025, being the respondent’s costs of the proceedings before Justice Perry (and including the hearings before Registrar Segal) as agreed or assessed on a lump sum basis as follows:

(a)    up to 11.00 am on 21 November 2025, on the ordinary basis; and

(b)    after 11.00 am on 21 November 2025, on an indemnity basis.

THE COURT NOTES THAT:

A.    The respondent’s costs of the proceedings up to 3 October 2025, being the respondent’s costs of the proceedings before Registrar White, will be determined on the papers by a Registrar pursuant to orders made on 1 October 2025.

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

REASONS FOR JUDGMENT

PERRY J:

1.    THE ISSUES

1    On 6 March 2026, I dismissed the applicant’s application to set aside a bankruptcy notice issued by the respondent, together with three related interlocutory applications: Michales v CharterLaw Legal Pty Limited [2026] FCA 209. I made orders allowing the respondent, CharterLaw Legal Pty Limited (CLL), an opportunity to file submissions on the question of indemnity costs. In the event that CLL did not file submissions, my orders provided for the applicant to pay CLL’s costs on a party/party basis.

2    CLL now seeks its costs on an indemnity basis for the whole of the proceedings, including hearings before Registrars White and Segal. In the alternative, CLL seeks orders requiring Mr Michales to pay its costs:

(a)    up to 3 October 2025, being CLL’s costs of the proceedings before Registrar White on a lump sum ordinary basis pursuant to CLL’s Costs Summary filed on 9 October 2025 with interest at the prescribed post-judgment interest rate; and

(b)    after 3 October 2025, being CLL’s costs of the proceedings before Justice Perry (and including the hearings before Registrar Segal) as assessed on a lump sum basis:

(i)    up to 11am on 21 November 2025, on an ordinary basis; and

(ii)    after 11am on 21 November 2025, on an indemnity basis in accordance with rule 25.14 of the Federal Court Rules 2011 (Cth) on the basis of two offers to compromise, the first of which was made on 19 November 2025.

3    I note that the application for costs of the proceedings before Registrar White described at [(2)(a)] above and made to Registrar White were the subject of separate submissions and evidence from the application referred to at [(2)(b)] above.

4    For the reasons set out below, CLL should be awarded its costs on an indemnity basis from 11:00am on 21 November 2025. I note that this award of indemnity costs does not affect the costs of the hearings before Registrar White in the proceedings under review, which are yet to be determined by the Registrar.

2.    REASONS

5    CLL issued offers to compromise under rule 25.01 of the Rules on:

(a)    19 November 2025, in respect of the whole of the proceedings; and

(b)    16 December 2025, in respect of an application for review of a Registrar’s decision to set aside a Notice to Produce and decline leave to issue subpoenas.

6    Both offers were made on the terms that Mr Michales’ application would be dismissed with no order as to costs. Neither offer was accepted by him.

7    The first offer stated:

To the Applicant

The Respondent offers to compromise your application dated 3 October 2025, seeking inter alia a review of Registrar White's decision/s of 24 September 2025 (Application).

The offer is:

1. Your Application be dismissed, (with no right of reinstatement or appeal).

2. No order be entered with respect to the costs of the Application, (with the intention that each party bear their own costs of the Application).

3. The Orders of Registrar White entered on 24 September 2025 are affirmed and are unaffected by this offer.

8    The second offer stated:

To the Applicant

The Respondent offers to compromise your application filed on 15 December 2025, seeking inter alia that the decision of Registrar Segal of 28 November 2025 be set aside (NTP Review Application), and your Notice to Produce filed on 14 December 2025 (14/12 NTP).

The offer is:

1. Your NTP Review Application be dismissed, (with no right of reinstatement or appeal).

2. Your 14/12 NTP be unconditionally withdrawn.

3. No order be entered with respect to the costs of the NTP Review Application or your Notice to Produce dated 12 December 2025, (with the intention that each party bear their own costs).

4. The Orders of Registrar Segal entered on 28 November 2025 to remain in effect, including the order to set aside your Notice to Produce dated 24 November 2025.

9    Both offers explained why Mr Michales would be unsuccessful in the applications the subject of the offers and that his applications were causing CLL to unreasonably incur legal costs, and set out the relevant terms of rule 25.14 of the Rules. Both offers were also signed by the offeror (r 25.02), stated that the offer was inclusive of costs (r 25.03), and were open for acceptance for 14 days, being the minimum period for acceptance specified by r 25.05(3) (see also r 25.08(1)). As such, the offers complied with the relevant rules in Part 25 for offers to compromise.

10    In addition, the covering letter accompanying each offer also stated, “CLL will rely on this letter and its enclosure on the question of costs, including in seeking an order of indemnity costs against you”. As such, Mr Michales was clearly advised of the potential consequences should he refuse the offers to compromise.

11    Mr Michales did not make any offers of payment or compromise to CLL. CLL also pointed to Mr Michales’ statement at the hearing on 28 November 2025 that “[y]ou will not be collecting any debt off me, uninsured and unlicenced. I can guarantee you if [sic] that, regardless of what order the Court makes to you today or any day.” These remarks showed a highly concerning disregard for Court orders which are binding upon, and enforceable against, parties. Compliance with Court orders is not a matter for a party’s discretion.

12    Rule 25.14(2) of the Rules provides:

If an offer is made by a respondent and an applicant unreasonably fails to accept the offer and the applicant’s proceeding is dismissed, the respondent is entitled to an order that the applicant pay the respondent’s costs:

(a)    before 11.00 am on the second business day after the offer was served—on a party and party basis; and

(b)    after the time mentioned in paragraph (a)—on an indemnity basis.

13    Despite being expressed in absolute terms, the Court may depart from the outcome for which rule 25.14(2) provides, if the person against whom the indemnity costs order is sought persuades the Court that some other order should be made.

14    In Anchorage Capital Partners Pty Ltd v ACPA Pty Ltd (No 2) [2018] FCAFC 112, the Full Court observed (at [6]-[8]):

A well-established circumstance justifying an award of indemnity costs is an imprudent refusal of an offer to compromise (Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 at 233 per Sheppard J). In such cases, a key question is whether the offeree’s refusal of the offer was “unreasonable” when viewed in light of the circumstances existing at the time the offer was rejected (Black v Lipovac & Ors (1998) 217 ALR 386 at 432 per Miles, Heerey and Madgwick JJ; CGU Insurance Ltd v Corrections Corporation of Australia Staff Superannuation Ltd [2008] FCAFC 173 at [75] per Moore, Finn and Jessup JJ).

The circumstances to be taken into account in determining whether rejection of an offer was “unreasonable” cannot be stated exhaustively but may include, for example:

(a)    the stage of the proceeding at which the offer was received;

(b)    the time allowed to the offeree to consider the offer;

(c)    the extent of the compromise offered;

(d)    the offeree’s prospects of success, assessed as at the date of the offer;

(e)    the clarity with which the terms of the offer were expressed; and

(f)    whether the offer foreshadowed an application for an indemnity costs in the event of the offeree rejecting it.

(Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435 at [25] per Warren CJ, Maxwell P and Harper AJA; Beling v Sixty International S.A. (No 2) [2015] FCA 355 at [25] per Mortimer J).

An unsuccessful party is not liable to pay indemnity costs merely because it received an offer to settle on terms more favourable than it achieved at trial and rejected that offer (CGU Insurance at [75]; Black at [217]-[218]). As we observed in the Appeal Reasons, albeit in the context of r 25.14(2) of the FCRs, assessment of the “unreasonableness” of an offeree’s refusal of a settlement offer is a broad-ranging inquiry that is not restricted to consideration of the extent or quantum of the compromise offered.

15    In respect of the six factors identified in Anchorage Capital Partners, CLL submitted, and I agree, that Mr Michales unreasonably failed to accept the offers made on 19 November 2025 and 16 December 2025:

(1)    The offer to compromise in respect of the applicant’s substantive application filed on 3 October 2025 was made on 19 November 2025, at a relatively early stage of that proceeding. The offer in respect of the applicant’s 15 December 2025 application (in relation to subpoenas and a Notice to Produce) was made the day after that application was filed.

(2)    Given the simplicity of compromises proposed, 14 days was an entirely reasonable period of time for the applicant to evaluate and accept the respective offers.

(3)    Having regard to the circumstances, both offers by CCL should have been regarded by Mr Michales as more than satisfactory. There was no genuine claim for a money judgment open in either of the applications the subject of the offers. The proceedings involved the validity of the bankruptcy notice. Further, Mr Michales had no legal costs, being self-represented. CLL made the one compromise it could make (in each instance), being to forego its costs if Mr Michales agreed.

(4)    The offers were expressed in clear, simple terms, and were accompanied by covering letters that explained the applicable principles and set out the relevant aspects of rule 25.14 of the Rules.

(5)    As at the date of each offer, it should have been apparent to the applicant that his prospects of success on each application were poor (if not fanciful). In each instance his application had already been dismissed after careful consideration by the respective Registrars.

16    With respect to the last of these considerations, I held in the primary judgment that the applicant’s application was “completely misconceived” and “completely unmeritorious” (at [57]-[58]). Moreover, as Mr Willson deposed in his affidavit of 24 March 2026 at [12]ff:

(1)    since the commencement of the proceedings, CLL’s solicitors have received over 110 emails from the applicant (including ex parte emails sent to the Court and forwarded to CLL);

(2)    the applicant has filed 4 interlocutory and interim applications, each of which was dismissed;

(3)    the applicant has served 4 Notices to Produce and 9 requests for leave to issue subpoenas, each of which was set aside or refused;

(4)    the applicant has filed approximately 40 documents with the Online Registry; and

(5)    the applicant was warned by CLL as early as August 2025 that his conduct was increasing the legal costs incurred by CLL, and that CLL would seek an indemnity costs order against him.

17    As to the further consideration at [16(5)] above, Mr Michales made allegations that were scandalous which should not have been made (as I accepted in the primary judgment at [31]), and by his conduct increased CLL’s costs of the proceedings. In this regard, the fact that Mr Michales is a litigant in person does not absolve him from complying with his obligations under the overarching purpose in section 37M of the Federal Court of Australia Act 1976 (Cth).

18    The applicant resists an order for indemnity costs and submits that his liability to pay CLL was extinguished by orders made by Richmond J at the conclusion of NSW Supreme Court proceedings (2020/00362733) brought by the applicant and his company against his former franchisor, which were dismissed on 21 November 2023. Those orders provide:

1.    Judgment for the Defendants.

2.    Vacate all costs orders in these proceedings.

3.    No order as to costs.

19    The applicant misunderstands the effect of orders 2 and 3. The effect of a “no order as to costs” order is that each party must bear their own costs of the proceedings: see, eg, Donnelly v Maxwell-Smith [2010] FCAFC 154 at [23] (the Court). While the orders of Richmond J did not require the plaintiffs in the NSW Supreme Court proceedings to pay the defendants’ legal costs, they did not relieve the applicant from the obligation to pay the fees of his own lawyers (relevantly, CLL).

20    The applicant also refers to various events in the NSW Supreme Court proceedings, including CLL’s refusal to act for him in November 2023, the applicant’s communications with a litigation funder, and a payment made by the applicant to other lawyers he retained. The conduct of the NSW Supreme Court proceedings explains the circumstances in which the underlying debt was incurred. However, it is not relevant to the question of costs in these proceedings, on the applicant’s unsuccessful application to set aside a bankruptcy notice in this Court.

21    It follows for these reasons that Mr Michales’ refusal of the offers was unreasonable when viewed in light of the circumstances existing at the time the offers were rejected. As such, it is appropriate to make an order requiring Mr Michales to pay the costs of the proceedings on an indemnity basis from 11:00am on 21 November 2025.

Associate:

Dated:    20 July 2026