When litigation goes wrong – costs certificates

Legal costs of parties to an appeal may be met by the government, to a certain amount, if there was some unfortunate outcome or circumstance in the trial hearing. The purpose of the various state and federal costs laws is that litigants should not be financially disadvantaged by a wrong application of the law by a court, or by other circumstances over which they have no control.

Examples of State laws are the Appeal Costs Act 1998 (Vic) and the Appeal Costs Fund Act 1973 (Qld).

Under Commonwealth law, the Federal Proceedings (Costs) Act 1981 (‘Costs Act’) applies, administered by the Attorney-General’s Department.

The Act applies in various circumstances, including where the respondent to the appeal is unable to pay the costs ordered, or payment of costs would cause undue hardship, or the whereabouts of the respondent are unknown: s 6.  Section 7A applies where there is no respondent, s 8 to new trials and s 9 to family law appeals.  Section 10A applies to matters before the Administrative Appeals Tribunal. 

An initial decision to allow a “costs certificate” to issue is made by the reviewing court.  These monetary caps apply to costs certificates issued under all but s 10 of the Costs Act. 

  • Administrative Appeals Tribunal $2000
  • Federal Circuit Court $4000
  • Family Court $4000
  • Federal Court $6000
  • High Court $10 000.
  • the Attorney‑General to authorize payment.

Those capped amounts, inclusive of GST where applicable, are not all that significant. But a trustee or liquidator may well apply for such a certificate from an appeal court in relevant circumstances.

Errors by the trial judge

A recent example is Needham & Trustees of the Bankrupt Estate of Needham [2017] FamCAFC 94. Orders were made by the Full Family Court under s 6 of the Costs Act in favour of the bankruptcy trustees, and also for the wife under s 9, in circumstances where the trial judge had made errors in determining the percentage of matrimonial assets to which each of the bankrupt estate and the wife were entitled. The Full Court adjusted the percentages in favour of the wife.

“Incomplete proceedings” – s 10

No monetary cap applies to costs certificates issued under section 10 of the Costs Act. That section applies to proceedings that are not able to be completed – “rendered abortive” – because a judge dies, resigns, or becomes ill or “otherwise becomes unable to continue with, or to give judgment in, the proceedings”.  The court resolving the issue must certify that it is appropriate for a certificate to issue.

Wu v Li

An interesting example of a judge “otherwise becom[ing] unable to continue with” involved Mr Li, who had erroneously been made bankrupt on an expired creditor’s petition, the trial judge having had no power to extend, retrospectively, the allotted time under s 52(5) of the Bankruptcy Act. That time expired on 6 October 2016, and the purported sequestration order was made on 4 November 2016. Li was successful in his appeal before Justice Rares in having the sequestration order set aside: Wu v Li [2017] FCA 500.

Costs as between debtor and petitioning creditor

The decision of Rares J is innovative and instructive in how to address the competing financial demands for the unfortunate consequences of the parties in such a situation.  Giving detailed reasons – “instead of commencing afresh, the creditor chose to pursue a course that was obviously risky and failed on appeal. He has only himself to blame” – the Judge held that the creditor Wu was the one to bear the costs of Li on the appeal.

Costs certificates under the Costs Act

Both parties then sought orders under s 10 of the Costs Act for their costs incurred up to that date.

Justice Rares made orders that certificates be granted to both Wu and Li under s 10(2) of the Costs Act

“by reason of the trial judge being unable to continue with, or give judgment in, the proceedings below once the petition had lapsed on that date. … In the circumstances, the costs incurred up to that time by each party became wasted”.

The bankruptcy trustees

The Judge was concerned to protect the position of the trustees in bankruptcy, who had done valid work following the sequestration order being made, and whose remuneration and expenses exceeded $25,000.  They were not parties to the proceedings

The creditor Wu was therefore also ordered the pay the trustees’ fair and reasonable remuneration and expenses as if the trustees had validly acted as such, subject to any rights of review of the amounts claimed.

There was a proviso. If the trustees were to again become trustees in bankruptcy of the estate of Li in the future, their remuneration and expenses for which Wu was liable had to be reduced, or repaid to Wu if already paid, to the extent that the work which the trustees had already undertaken reduced or benefited any subsequent bankruptcy administration.

Further details of this other such commentary will appear in my publication, the Australian Insolvency Management Practice.


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