Federal Court of Australia

Income Asset Management Group Limited v Henry (No 2) [2026] FCA 1642

ORDERS

THE COURT ORDERS THAT:

1.    The applicant have leave to file a Notice of Discontinuance of its claim on the basis of the payment of costs as provided for in Order 2.

2.    With the exception of costs already the subject of prior costs orders, the applicant pay the respondent’s costs of the claim brought by the applicant (but not including the costs of the cross-claim) as agreed or assessed.

3.    The costs payable pursuant to Order 2 be payable upon the filing of the Notice of Discontinuance referred to in Order 1.

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

REASONS FOR JUDGMENT

MOORE J:

Introduction

1    The relevant interlocutory application in the present proceeding on its face raises an apparently simple issue as to the appropriate costs order to be made upon a proceeding being discontinued. However, the potential application of s 570 of the Fair Work Act 2009 (Cth) (FWA) has rendered the resolution of that application more complicated.

2    The nature of the present proceeding is described in Income Asset Management Group Limited v Henry [2026] FCA 326 (Henry No 1). The proceeding was commenced on 19 September 2025 by Income Asset Management Group Limited (IAM) against a former employee, Mr Kimberley Henry. IAM seeks remedies under the Corporations Act 2001 (Cth) (Corporations Act) and under the general law in respect of an alleged misappropriation of money by Mr Henry whilst he was an employee of IAM.

3    On 18 December 2025, Mr Henry filed a cross-claim against IAM. The cross-claim alleged that Mr Henry’s employment was terminated in breach of his employment contract, and alleged misleading or deceptive conduct by IAM. It did not at that stage bring any claim under the FWA.

4    On 1 May 2026, IAM filed an interlocutory application (the Interlocutory Application) seeking leave to discontinue its proceeding against Mr Henry. IAM has informed the Court that the primary reason for that discontinuance is that IAM has arrived at the view that Mr Henry does not hold assets of sufficient value to satisfy any judgment or other relief that IAM might obtain, making its claim commercially futile. The proposed discontinuance does not affect Mr Henry’s cross-claim, which will remain on foot.

5    The discontinuance of proceedings is regulated by r 26.12 of the Federal Court Rules 2011 (Cth) (FCR), which relevantly provides as follows:

Discontinuance

(1)    A party claiming relief may discontinue a proceeding in whole or in part by filing a notice of discontinuance, in accordance with Form 48.

(2)    The party may file the notice of discontinuance:

(a)    without the leave of the Court or the other party's consent:

(i)    at any time before the earlier of the first directions hearing and the hearing; or

(ii)    if the proceeding is continuing on pleadings--at any time before the pleadings have closed; or

(b)    with the opposing party's consent--before judgment has been entered in the proceeding; or

(c)    with the leave of the Court--at any time.

[…]

(7)    Unless the terms of a consent or an order of the Court provide otherwise, a party who files a notice of discontinuance under subrule (2) is liable to pay the costs of each other party to the proceeding in relation to the claim, or part of the claim, that is discontinued.

6    By the Interlocutory Application, IAM seeks:

(a)    leave to discontinue the proceedings pursuant to r 26.12(2)(c); and

(b)    an order for costs other than as provided for by r 26.12(7), being either that there be no order as to costs, or that costs be reserved until the determination of Mr Henry’s cross-claim.

7    On 7 May 2026, I conducted a case management hearing at which Mr Henry indicated that he consented to leave being granted for IAM to discontinue its claim. The parties identified the dispute between them as being what costs order should be made in relation to the discontinuance. Mr Henry resists the costs orders sought by IAM and contends that the applicant should be liable to pay his costs of defending IAM’s claim. He estimates those costs at $52,000, comprising a portion of legal fees he incurred when previously represented, and direct expenses such as filing fees and airfares incurred in the period since he has been self-represented.

8    IAM indicated at that case management hearing that its proposed discontinuance was not conditional upon the resolution of the costs issue in its favour, in the sense that whilst it sought an order other than the usual costs order on a discontinuance, if the Court decided that no such alternative order should be made then it would discontinue on the basis that it pay Mr Henry’s costs.

9    At the case management hearing on 7 May 2026, I made provision for the filing of written submissions by the parties on the question of costs, and I indicated that I would decide that question on the papers. Therefore, by that point:

(a)    IAM had indicated that it wished to discontinue, and had filed the Interlocutory Application seeking leave to discontinue;

(b)    Mr Henry had indicated that he consented to discontinuance;

(c)    IAM had indicated that its discontinuance was not conditional – i.e. it would discontinue come what may; and

(d)    I had determined to decide the matter on the papers, although I had not yet received the written submissions that the parties proposed to file.

10    By 18 May 2026, the written submissions of each party had been received by the Court. Had I immediately determined the matter, the proceeding brought by IAM may have concluded before the next step in the chronology.

11    On 21 May 2026 (i.e. three weeks after IAM filed its Interlocutory Application seeking leave to discontinue), Mr Henry filed and served an amended statement of cross-claim, which, among other claims, alleged for the first time that IAM has contravened ss 340 and 343 of the FWA, sought compensation under s 545 of the FWA, and sought pecuniary penalties under s 546 of the FWA (the FWA Claims).

12    This amendment has generated some complexity. After the amended statement of cross-claim was filed, IAM provided a supplementary written submission asserting that the potential effect of that amendment was to engage s 570 of the FWA. IAM’s brief submission refers to Melbourne Stadiums Ltd v Sautner (2015) 229 FCR 221; [2015] FCAFC 20 (Melbourne Stadiums). IAM submits that the introduction of the FWA Claims has the effect that the entire proceeding, including IAM’s pre-existing claims against Mr Henry, is now a proceeding involving a matter arising under the FWA, with the result that my usual discretion to award costs is affected by the operation of s 570 of the FWA (discussed further below). IAM submits that this prevents the making of an order that it pay Mr Henry’s costs. In response, Mr Henry also provided supplementary submissions, which are discussed below.

13    If IAM’s contention is correct, the bringing of the FWA Claims has had a somewhat odd effect. In a proceeding commenced by an employer against an employee, which the employer is discontinuing and where the usual consequence would be that the employer pays the costs of the proceeding, the bringing by the employee of a cross-claim including FWA claims causes a detriment to the employee, being the loss of his entitlement to costs in the non-FWA proceeding that is being discontinued. Further, on IAM’s case, this detriment is suffered after IAM announces that it is discontinuing. As discussed below, s 570 and its predecessor provisions were designed to facilitate the bringing of industrial claims without exposure to costs, thus reducing the risks and hurdles for employees. If IAM is correct, however, the bringing of an industrial claim by an employee deprives the employee of costs protection in a prior non-industrial action brought by the employer. It is difficult to imagine that this is what Parliament intended. However, on IAM’s approach, this is the effect of the unqualified language used in s 570 of the FWA.

14    As considered below, on current authority this may well be the effect of s 570 in certain circumstances.

Does s 570 of the FWA apply in the present case?

15    Section 570 of the FWA provides as follows:

570    Costs only if proceedings instituted vexatiously etc.

(1)    A party to proceedings (including an appeal) in a court (including a court of a State or Territory) in relation to a matter arising under this Act may be ordered by the court to pay costs incurred by another party to the proceedings only in accordance with subsection (2) or section 569 or 569A.

Note: The Commonwealth might be ordered to pay costs under section 569. A State or Territory might be ordered to pay costs under section 569A.

(2)    The party may be ordered to pay the costs only if:

(a)    the court is satisfied that the party instituted the proceedings vexatiously or without reasonable cause; or

(b)    the court is satisfied that the party's unreasonable act or omission caused the other party to incur the costs; or

(c)    the court is satisfied of both of the following:

(i)    the party unreasonably refused to participate in a matter before the FWC;

(ii)    the matter arose from the same facts as the proceedings.

16    Sections 569 and 569A of the FWA are not presently relevant. They concern costs orders against a State or Territory or the Commonwealth where a Minister of those respective governments elects to intervene in FWA proceedings. Therefore, the relevant effect of s 570, if it applies, is that I must be satisfied of one of the additional criteria in s 570(2) in order to make the usual costs order on a discontinuance as provided for in r 26.12(7) of the FCR. In this way, s 570 provides for an express limitation on the broad discretion of this Court to award costs under s 43 of the Federal Court of Australia Act 1976 (Cth): Melbourne Stadiums at [140].

17    Section 570 applies to “proceedings … in a court … in relation to a matter arising under” the FWA (emphasis added). The construction of this requirement by reference to the legislative history and explanatory memoranda was considered by White J in Stanley v Service to Youth Council Incorporated (No 3) (2014) 225 FCR 357; [2014] FCA 716 (Stanley) at 360–364 [16]–[34]. In light of that helpful analysis, I will not set out the full history in these reasons. However, I note the following matters.

18    A predecessor to s 570 was s 824 of the Workplace Relations Act 1996 (Cth), which relevantly provided:

(1)    A party to a proceeding (including an appeal) in a matter arising under this Act… must not be ordered to pay costs incurred by any other party to the proceeding unless the first-mentioned party instituted the proceeding vexatiously or without reasonable cause.

19    As White J observed in Stanley at [23]–[25], the phrase in s 570 (“in relation to a matter arising under this Act”) is broader than the phrase in s 824 (“in a matter arising under this Act”). Thus, as observed by White J at [25]:

Courts’ powers with respect to costs are limited not just in proceedings “in a matter” arising under the FW Act, but in proceedings “in relation to a matter” arising under that Act.

20    The reason for the adoption of this particular form of words in s 570 is unclear. In its original form, as enacted in 2009, s 570 was narrower. It applied to proceedings in a court “exercising jurisdiction under this Act”. Section 570 was amended in 2013 by the Fair Work Amendment Act 2013 (Cth). The Explanatory Memorandum for the amendments does not shed any light on why a broad form of language was adopted, and in particular why “in relation to” was used, rather than (for example) the wording in s 824 of the previous Act. The Explanatory Memorandum relevantly states as follows (emphasis added):

Part 1 of Schedule 10 to the Bill will amend section 570 of the FW Act so that it operates in relation to matters arising under the FW Act, rather than in relation to courts exercising jurisdiction under the FW Act. This amendment confirms that the FW Act is generally a “no costs” jurisdiction (including in appeal proceedings).

21    That explanation contains an inaccuracy, in that the original form of s 570 did not operate “in relation to courts exercising jurisdiction under the FW Act”, but rather applied to “proceedings… in a court… exercising jurisdiction under this Act”. Further, this explanation does not address the potentially broad impact of the choice to adopt the new words “in relation to”.

22    That broad impact was quickly revealed. There had been differing views expressed as to the application of s 824 of the Workplace Relations Act 1996 (Cth) to proceedings involving multiple different claims, some not under the relevant Act. In Melbourne Stadiums, the Full Court (sitting as a bench of five judges) considered, in obiter, the operation of the new version of s 570. In that case, Mr Sautner brought three claims. Two claims were brought under the FWA, and the third claim was a claim for breach of contract. The primary judge had concluded that s 570 did not apply to the contract claim. The Full Court disagreed. The joint judgment was given by Tracey, Gilmour, Jagot and Beach JJ, with whom White J agreed on this point. Their Honours concluded that the three claims amounted to a single proceeding, and the presence of any matter arising under the FWA was sufficient for the entire proceeding to be ‘in relation to’ such a matter, enlivening s 570. In particular, the majority noted the following in relation to the meaning of ‘proceeding’ (at 253–254 [155]–[157]) (some citations omitted):

[155]    Section 570, in its present form, came into force on 1 January 2013. Unlike s 824 which applied “to a proceeding… in a matter arising under this Act” it applied to a proceeding ‘in relation to’ a matter arising under this Act” (emphasis added).

[156]    The word “proceeding” is not defined in the Fair Work Act. In the context of s 570 it bears a different meaning from the word “matter”. “Matters”, in the sense of claims or causes of action or their underlying controversies, are raised in the “proceeding” or “proceedings” which is or are prosecuted in the court... As Gray J said in Geneff v Peterson (1986) 19 IR 40 at 90, in dealing with the construction of s 197A of the Conciliation and Arbitration Act 1904 (Cth) (a predecessor of s 570):

[T]he section operates in relation to a ‘proceeding’. There is only one proceeding before the Court, although that proceeding involves a number of separate claims, each of which might have been the subject of a separate proceeding … In my view, it is impossible to split the claims within a proceeding for the purpose of the application of s 197A.

[157]    There was a single proceeding which was commenced and prosecuted to judgment in the County Court. Mr Sautner made claims under the Fair Work Act and at common law. The claims under the Fair Work Act were “matters” within the meaning of s 570(1) of the Fair Work Act. The proceeding was, as a result, a proceeding in relation to a matter arising under that Act. Section 570(1) operated to preclude the court from ordering MSL (“another party to the proceedings”) to pay any costs incurred by Mr Sautner in prosecuting his claims unless he could satisfy the court that one of the exceptions, provided for in s 570(2), applied.

23    Melbourne Stadiums was therefore a case illustrating that the amendment to s 570 had the effect, in some circumstances, of diminishing the ability of employees to recover their costs in connection with non-FWA claims.

24    The legislative history and the width of s 570 was also discussed by the Victorian Court of Appeal in Tucker v Victoria [2021] VSCA 120 at [379]–[406].

25    In the present case, Mr Henry seeks to distinguish Melbourne Stadiums on the basis that that proceeding involved multiple claims made by the same party at the same time. In contrast, Mr Henry’s claims are made by way of cross-claim by the respondent in the existing proceedings and once IAM’s claims were already on foot. As a result, Mr Henry contends that his cross-claim and IAM’s claims should be treated as separate proceedings, of which only his cross-claim is ‘in relation to a matter arising under the FWA’. On that construction, s 570 has no operation in relation to the separate proceedings brought by IAM which it now seeks to discontinue.

26    The position in that regard is not as simple as Mr Henry’s submissions suggest. In Joseph v Parnell Corporate Services Pty Ltd (2021) 284 FCR 546; [2021] FCAFC 67 (Logan, Katzmann and Snaden JJ) (Parnell), the Full Court considered a situation where Mr Joseph had brought an action in this Court alleging that his employment had been wrongfully terminated and sought relief under the FWA. The respondents filed a cross-claim in the proceedings alleging that Mr Joseph had breached contractual and statutory duties owed to the respondents. The primary judge found for the respondents, and ordered that Mr Joseph pay the costs of the respondents in respect of both claims. It appears that his Honour overlooked s 570 of the FWA. The respondents conceded on appeal that they could not recover their costs of Mr Joseph’s claim. However, there was debate about the costs of the cross-claim. The Full Court considered two questions:

(a)    whether the cross-claim was a separate proceeding; and

(b)    whether the cross-claim was “in relation to a matter arising under” the FWA.

27    In relation to the first issue, their Honours concluded (at [103]) that the better view was that the claim and cross-claim were separate proceedings. However, their Honours also observed that this did not resolve the second question, and went on to conclude that the cross-claim was a proceeding “in relation to a matter arising under” the FWA. The Full Court observed (at [110]) that the phrase “in relation to” is one of “wide and general import”. At [111], their Honours cited O’Grady v Northern Queensland Company Ltd (1990) 169 CLR 356; [1990] HCA 16 at 376, where McHugh J observed that:

The prepositional phrase “in relation to” is indefinite. But, subject to any contrary indication derived from its context or drafting history, it requires no more than a relationship, whether direct or indirect, between two subject matters.

28    At [114], their Honours noted, in relation to the legislative history, that in 1973 at the time of introduction of a predecessor provision to s 570 in the Conciliation and Arbitration Act 1904 (Cth), the Minister, the Hon Clyde Cameron MHR, said that the abolition of the power to order costs was part of the government’s policy of:

bringing the courts to the people, of overcoming the deterrent which often prevents a person from seeking to right a wrong because of the burden of costs he might incur where his argument has failed to carry the day.

29    The Full Court observed that: “On any view, s 570 is remedial and beneficial and should therefore be interpreted beneficially”. In describing the legislation as “beneficial”, it is not clear whether their Honours were considering the consequences of a liberal interpretation of “in relation to” in the context of circumstances such as the present, i.e. the potential for depriving employees of the ability to recover their costs from employers who would otherwise be liable to pay those costs.

30    The Full Court concluded that the cross-claim was “in relation to” Mr Joseph’s claim, including because the conduct pleaded in the cross-claim was relied upon by the respondents to defeat Mr Joseph’s claim that his termination was wrongful and that he was entitled to either redundancy pay or payment in lieu of notice.

31    Therefore, applying Parnell, a cross-claim can be subject to the limitation in s 570(1) of the FWA where it can be said to be “in relation to” a matter comprising the claim under the FWA. Likewise, a claim can be subject to the limitation in s 570(1) where it can be said to be “in relation to” a matter comprising a cross-claim under the FWA.

32    I observe that, having determined that the claim and the cross-claim were two different “proceedings”, the reasoning of the Full Court in Parnell would appear potentially to apply to separate proceedings that do not have the same proceeding number, provided that they have the necessary relationship. That implication was not considered by the Full Court in Parnell. There is no need to discuss this further, given that this is not the situation in the present case.

33    I note that in Ekera Dental Pty Ltd v Creative Smiles Pty Ltd [2025] VSCA 149 at [178] (Ekera Dental) the Victorian Court of Appeal (Lyons, Orr and Kenny JJA) concluded, perhaps inconsistently with Parnell, that two separate proceedings in the County Court of Victoria that for administrative purposes had been consolidated into a single proceeding with a single proceeding number were a single “proceeding” for the purposes of s 570. The decision in Ekera Dental is otherwise consistent with Parnell. In Ekera Dental, the two originally separate proceedings involved:

(a)    a claim by Dr Goodman against Ekera Dental Pty Ltd seeking relief under the FWA; and

(b)    a claim by Creative Smiles Pty Ltd against Ekera Dental Pty Ltd for breach of contract and for misleading or deceptive conduct in contravention of s 18 of the Australian Consumer Law.

34    The Court of Appeal made the following observations (at [179]–[181]):

179    In the consolidated proceeding, Dr Goodman sought relief under the FWA in respect of alleged contraventions of the FWA by Ekera. The duties of Ekera that Dr Goodman sought to enforce owed their existence to provisions of the FWA. The controversy between Dr Goodman and Ekera about whether Ekera had breached those duties, entitling him to relief under the FWA, was a ‘matter arising under’ the FWA.

180    As to whether the consolidated proceeding was ‘in relation to’ that matter, the phrase ‘in relation to’ has been described as one of ‘wide and general import’ [citing Parnell]. It has been said that, ‘subject to any contrary indication derived from its context or drafting history, it requires no more than a relationship, whether direct or indirect, between two subject matters’ [citing McHugh J in O’Grady]. In Parnell, the Full Federal Court found that neither the context nor the drafting history suggested that the relationship between the ‘proceeding’ and the ‘matter’ that is required by s 570(1) should be a narrow one. The Court emphasised that s 570 was remedial and beneficial in nature, and therefore should be interpreted beneficially.

181    The consolidated proceeding was the vehicle in which Dr Goodman sought to have the controversy about whether Ekera had contravened provisions of the FWA (on the basis that he was an employee of Ekera), entitling him to relief under the FWA, resolved. It was the vehicle through which he sought orders from the County Court under the FWA. There was therefore a direct relationship between the matter arising under the FWA and the proceeding. The consolidated proceeding was a proceeding ‘in relation to’ that matter.

35    Other decisions have followed the broad approach of Parnell to the words “in relation to”: for example, BSA Ltd v Bradshaw, BSA Ltd (No 2) [2022] FCA 1182 (Goodman J); Transverse Alpine Operations Pty Ltd v Simpson [2022] FCA 1365 (McElwaine J).

36    In the present case, following the approach in Parnell, it could be said that the subject matter of the claim by IAM is related to the subject matter of the cross-claim. The question of whether Mr Henry has misappropriated funds of IAM will almost inevitably be a central issue in his claim for wrongful termination.

37    However, there is also a temporal issue. Mr Henry’s alternative contention is that s 570 of the FWA has no application to costs incurred by actions or decisions that precede the proceeding having the requisite character to engage s 570. Specifically, Mr Henry notes that IAM’s Interlocutory Application for leave to discontinue its proceeding was filed on 29 April 2026 (more accurately, lodged on 29 April 2026 and accepted for filing on 1 May 2026), prior to the FWA Claims first being made on 21 May 2026. He observes that, even if the FWA Claims bring the proceedings within the meaning of s 570, this had not yet occurred when the costs in question were incurred and IAM’s decision to discontinue the proceedings was made.

38    I accept this submission. At the time that the claim was commenced, there was no FWA claim in the proceeding. That remained the case up to the point that IAM sought leave to discontinue the proceedings. It would be straining the language of s 570 too far to say that IAM’s proceeding was “in relation to” a matter arising under the FWA when there was no matter arising under the FWA at any time prior to the filing of an application to discontinue that proceeding. If I had determined the application for leave to discontinue (which was really a dispute about costs) at the case management hearing on 7 May 2026, there would have been no occasion for any application of s 570 of the FWA. Likewise, if I had determined the application immediately after the receipt of written submissions, there would have been no occasion for any application of s 570 of the FWA. The timing of the Court’s consideration of the dispute cannot sensibly convert a proceeding that has no relationship with a matter arising under the FWA to a proceeding that does have that relationship.

39    I conclude that s 570 is not engaged in the circumstances of the present case.

40    I observe, however, that the construction of s 570 may need further consideration in subsequent cases. Its application may produce somewhat surprising results. In the present case, Mr Henry has, in effect, been saved by the bell. If he had filed his amended statement of cross-claim on 21 April 2026 instead of 21 May 2026, the result might well have been different.

Should I otherwise exercise my discretion to depart from the usual costs order?

41    As s 570 of the FWA does not apply, the “default” position for the costs of IAM’s discontinuance is that provided in r 26.12(7) of the FCR, set out earlier.

42    This default position is subject to the Court’s general discretion to award costs pursuant to s 43 of the Federal Court of Australia Act 1976 (Cth), which relevantly provides:

43 Costs

[…]

(2)    Except as provided by any other Act, the award of costs is in the discretion of the Court or Judge.

(3)    Without limiting the discretion of the Court or a Judge in relation to costs, the Court or Judge may do any of the following:

(a)    make an award of costs at any stage in a proceeding, whether before, during or after any hearing or trial;

(b)    make different awards of costs in relation to different parts of the proceeding;

(c)    order the parties to bear costs in specified proportions;

(d)    award a party costs in a specified sum;

(e)    award costs in favour of or against a party whether or not the party is successful in the proceeding;

(f)    order a party’s lawyer to bear costs personally;

(g)    order that costs awarded against a party are to be assessed on an indemnity basis or otherwise;

[…]

43    Some “good reason” is required for me to exercise this discretion to depart from the default position of r 26.12(7). In VDCL v Purcell [2024] FCA 107 (VDCL), Horan J summarised the relevant principles as follows (at [14]–[19]):

14    Rule 26.12(7) is not necessarily founded on a premise that, when a proceeding is discontinued by an applicant, the respondent is the successful party. There may be a range of circumstances leading to the discontinuance of a proceeding, not all of which may be equated to success on the part of either the applicant or the respondent in the sense of a vindication of that party’s position in relation to the claims forming the subject matter of the proceeding. For example, there might be circumstances in which the relief sought in the proceeding has been overtaken or rendered inutile by supervening events or circumstances beyond the control of any of the parties, or where (as was the case in Lai Qin at 624) the applicant “has achieved the relief sought in the action either by settlement or by extra-curial means”.

15    Nevertheless, previous decisions of this Court have generally accepted that r 26.12(7) prescribes a starting point or a default position that, in the absence of any agreement between the parties, a party who files a notice of discontinuance should pay the costs of each other party unless “good reason” is shown for exercising the discretion to order otherwise: see, for example, Armstrong v Australian Community Pharmacy Authority [2012] FCA 577 at [9], [13]–[14] (Rares J); El-Debel v Secretary, Department of Immigration and Border Protection [2014] FCA 474 at [17]; 141 ALD 611 (Foster J); Diploma Group Limited (No 3) at [2]. While some decisions have described this as creating a “presumption” that the discontinuing party ought pay the costs of the other side unless good reason is shown (see Dalian Huarui Heavy Industry International Co Ltd v Duro Felguera Australia Pty Ltd [2018] FCA 905 at [7] (Barker J), cited in Zhao at [15] and Taylor at [8], [22]), it is unnecessary to determine whether such a description is apposite: cf. Lo v Australian Community Pharmacy Authority [2013] FCA 639 at [60] (Katzmann J), cited in Francis at [20].

16    The general policy embodied in r 26.12(7) is that, where a party elects to discontinue a proceeding, the other party has a prima facie entitlement to an award of costs: see Travaglini v Raccuia [2012] FCA 620 at [36] (McKerracher J). The Court retains a discretion to displace or depart from that position under r 26.12(7) in the circumstances of the particular case. Like any discretion as to costs, the discretion under r 26.12(7) must be exercised judicially by reference to facts connected with or leading up to the litigation. The need for good reason to be shown for any departure from the default position under r 26.12(7) should not unduly constrain or fetter the judicial discretion to make a different costs order in appropriate circumstances. Nevertheless, the onus is on the party who seeks to depart from the costs consequences under r 26.12(7), other than by the terms of a consent, to make an application to the Court and to explain and establish the basis on which a different costs order should be made: Francis at [20]; Taylor at [9]–[10]; Zhao at [16].

17    In exercising the discretion under r 26.12(7), it remains relevant to consider the conduct of the parties and the reasons for discontinuance: cf. O’Neill at [13]. However, the fact that the discontinuing party has acted reasonably is not necessarily sufficient of itself to warrant a departure from the costs consequences under r 26.12(7). As McKerracher J observed in Diploma Group Limited (No 3) at [18], even if an applicant acted reasonably in bringing and conducting the proceeding, “unless the litigation is rendered futile by external events, such as a settlement, or the objective of the litigation being achieved in other ways, the discontinuing party is almost always liable for costs”.

18    In this regard, it may be necessary to distinguish cases that were brought under rules in different terms to r 26.12(7), including where there was no express provision for the costs consequences of a discontinuance that was granted by leave, and the matter was left to the general discretion of the Court. This includes the oft-cited statement made by McHugh J in Lai Qin at 625:

If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings.

19    That statement was made in the course of a discussion of “the principles which govern an application for costs when a party elects not to pursue an action because he or she has achieved the relief sought in the action either by settlement or by extra-curial means”, and in terms addressed a situation in which “the litigation was settled or its further prosecution became futile”. Further, the applicable rule of the Court considered by McHugh J in Lai Quin dealt with circumstances “[w]hen for any reason the further prosecution of a proceeding [became] unnecessary”, except for the purpose of determining costs, and conferred a discretion on the Court in such circumstances to hear an application to determine the question by whom the costs of the proceeding should be paid and to make such order as was just: see former O 71, r 39 of the High Court Rules 1952 (Cth).

44    Mr Henry’s position that he is entitled to his costs in relation to IAM’s now-discontinued claim is consistent with the “starting point” or “default position” provided for in r 26.12(7) of the FCR. The onus is on IAM to demonstrate “good reason” that I should exercise my discretion to order otherwise.

45    In that regard, IAM submits that it initiated proceedings on a reasonable basis and promptly discontinued the proceedings at an early stage upon forming the view that the proceedings were commercially futile due to Mr Henry’s financial position. It places emphasis on the fact that the information leading to the discontinuance (i.e. Mr Henry’s financial disclosures) came to light after the proceedings were commenced. IAM also contends that Mr Henry’s defence and evidence in the proceedings have not adequately addressed the factual allegations made in the proceedings. Implicit in this submission also appears to be a contention that there has been no adverse finding or conclusion against IAM.

46    In response, Mr Henry disputes IAM’s suggestion that his financial position only became apparent later in the proceedings. He claims that his financial position was disclosed to IAM in the financial disclosures he provided by way of affidavit evidence on 19 September 2025, 26 September 2025, 19 December 2025 and 2 January 2026. He notes that IAM continued to take steps to maintain the proceedings following those disclosures, including by resisting his interlocutory applications to set aside or vary the freezing orders (see Henry No 1 at [25]). He also rejects IAM’s characterisation of its discontinuance as ‘early’ in light of the same matters.

47    I consider that the matters raised by IAM are not sufficient to depart from the usual position. As IAM accepts, the mere fact that it may have acted reasonably is insufficient for present purposes: see VDCL at [17]. This is not a case where IAM has obtained the relief sought through some extra-curial means such as a commercial settlement, or where the relief sought has been rendered inutile as a result of some supervening event beyond the control of the parties. There is nothing rendering the proceedings “futile” in the relevant sense. Rather, having brought proceedings against Mr Henry, IAM is now discontinuing those proceedings for pragmatic commercial considerations. That may be sensible from a commercial standpoint, but it comes with a costs consequence. Nor should the determination of costs await the determination of the cross-claim, on the basis that IAM’s position might somehow be vindicated in the cross-claim. That involves considerable speculation, and does not properly engage with the fact that IAM has brought proceedings against Mr Henry which it is not now pursuing for its own reasons. In the present circumstances, the usual costs position upon a discontinuance should apply.

48    The appropriate costs order is therefore an order that, with the exception of costs already the subject of previous costs orders, IAM pay Mr Henry’s costs of defending the proceedings commenced by IAM. Those costs should be payable now, and not await the determination of Mr Henry’s cross-claim. I emphasise that I make no comment on Mr Henry’s statement about the quantum of those costs. That is not a matter for determination on this application.

Associate:

Dated:    3 November 2026