It is not that common that Judge A will find that an earlier decision of Judge B of the same court was “plainly wrong” and explain it away because relevant case law of Judge C was not brought to Judge B’s attention, but with Judge A then making that decision without relevant other caselaw of Judge D coming to their attention.
The issue here was whether a costs order made in favour of a petitioning creditor in circumstances where the petition was dismissed because the debtor in the meantime voluntarily became bankrupt is provable in the debtor’s bankrupt estate?
The answer is yes, such a costs order, even if made after bankruptcy, is provable.
But read on.
Decisions of four judges
Rares J
Rares J in Kimber v Clark [2022] FCA 177 held it was not a provable debt, overturning a trial judge decision dismissing a pending creditor’s petition and then ordering that the petitioning creditor’s costs
“be paid from the estate of the respondent debtor … with the same priority as if a sequestration order had been made pursuant to the petition presented by the applicant creditor”.
Justice Rares relied upon Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56; 234 CLR 52 at [67] that an order for costs made after bankruptcy is not a provable debt. In the case before him, the costs order purported, retrospectively, to impose a liability on the bankrupt estate.
Stewart J
However, in Deputy Commissioner of Taxation v Fayad [2025] FCA 888 of 1 August 2025, Stewart J disagreed, referring to long running court practice to make such orders, usually based on the courts’ general power to award costs under s 32: see Re Hankey; Ex parte Kratzmann 11 FCR 512; [1986] FCA 209.
Also, Bankruptcy Reg 25(2) provides that a reference to an applicant or a person presenting a petition is taken to include a reference to a person whose application or petition has not been proceeded with because a debtor’s petition presented by the bankrupt has been accepted by the Official Receiver …
This regulation, and its predecessor, were apparently intended to deal with this situation and there is nothing in s 109 to suggest otherwise.
Justice Stewart said that Foots did not have any bearing on this analysis as it did not deal with a costs order in favour of the petitioning creditor.
“With respect, I consider that Kimber v Clark is plainly wrong or per incuriam on this issue and I decline to follow it. In my view, the situation is governed by reg 25”.
As Judges often do, Justice Stewart said that
“it would appear that although s 109 was brought to Rares J’s attention, the previous authorities that I have referred to and reg 25 were not. Had had they been, the result and reasoning in that case may have been quite different”.
Judge Laing
As well, it seems that Stewart J was not aware of Darmali v Chu [2025] FedCFamC2G 1081 of 11 July 2025, some weeks earlier, in which Judge Laing came to the same conclusion, rejecting the application of Foots, and based on the same case law, and on reg 25(2).
Judge Jarrett
But then neither Rares J nor Stewart J nor Laing J seem to have been aware of the 2020 decision of Judge Jarrett in ACN 116 746 859 Pty Ltd (formerly Palermo Seafoods Pty Ltd ACN 116 746 859) v Menniti [2020] FCCA 24, at Bankrupt’s continued liability for costs – Murrays Legal, saying
“Nothing in the petitioning creditor’s submissions satisfies me the “retrospective” orders for costs sought by the petitioning creditor are appropriate”.
Annotated Bankruptcy Act 1966, 10th ed – the answer
The answer is given in my Annotated Bankruptcy Act 1966, at [80.765.25] referring to Hankey v Kratzmann.
Foots
But then the High Court decision in Foots itself may be problematic. English and New Zealand Courts have held that such costs are a provable debt, Foots not being mentioned, perhaps because it was not brought to their attention: re Nortel GmbH (in administration); In re Lehman Brothers International (Europe) (in admin) [2014] AC 209; and BPE Solicitors & Anor v Gabriel [2015] UKSC 39; Bradbury v Commissioner of Inland Revenue [2015] NZSC 80; [2015] 1 NZLR 739. See International insolvency case law from New Zealand and the UK – Murrays Legal
Foots does at least provide a clear “bright line” Seven Network v Harrison – costs orders and bankruptcy – Murrays Legal and allows a trustee or liquidator to avoid having to make a difficult assessment of costs. While it may be found to be plainly wrong, in due course, it is binding authority in Australia now.
All this over capped costs of $3,000+.
Corporate
As to corporate insolvency, can we leave that to another day? Bankruptcy law was more complicated than I have time for. The sections are different and while an inanimate company ceases to exist after it is wound up and deregistered, an individual lives on after their bankruptcy. Bankruptcy law is therefore more ready to exclude certain liabilities from its coverage, for reasons of practicality: see Seven Network v Harrison – costs orders and bankruptcy – Murrays Legal.
Case search
Access to Murrays Legal – Reporting on insolvency law and related fields is free, as is AustLII, both readily searchable.
