Lam v Cheng, in the matter of Cheng

1. On 4 December 2025 the Court made orders by which the petitioning creditors' petition was adjourned to a date to be fixed. It was adjourned in the exercise of the Court's power under s 33(1) of the Bankruptcy Act 1966 (Cth). The debtor unsuccessfully sought to have the creditors' petition dismissed under s 52(2) on the ground that she was solvent or there was other sufficient cause for not making a sequestration order: see, Lam v Cheng, in the matter of Cheng [2025] FCA 1520 at [29]- [31]. The costs of the creditors' petition up to and including the date of the orders were reserved. The parties were ordered to each file and serve a minute of proposed orders regarding the costs reserved in terms consistent with para [50] of the reasons in Lam and written submissions and any affidavits in support of the proposed orders.
2. The parties filed written submissions by which the debtor seeks an order that the petitioning creditors pay 80% of her costs of the proceeding fixed in the lump-sum of $30,620 and the creditors seek an order that the debtor pay their wasted costs in a lump-sum of $30,000. Consequently, the following issues arise for determination on the question of costs.

(1) What, if any, costs order should be made in favour of the debtor or in favour of the petitioning creditors?

(2) Should any costs be fixed in a lump-sum and, if so, in what amount?

What, if any, costs order should be made in favour of the debtor or petitioning creditors?

1. Section 32 of the Bankruptcy Act provides that the 'Court may, in any proceeding before it, including a proceeding dismissed for want of jurisdiction, make such orders as to costs as it thinks fit'. Section 33(1)(a) provides that the Court may 'upon such terms as it thinks fit, at any time adjourn any proceedings before it, either to a fixed date or generally'. Section 32 confers a very wide discretionary power on the Court to award costs. However, like all discretions, it must be exercised judicially and is generally exercised in accordance with established principles: Principal Strategic Options Pty Ltd, in the matter of Coshott v Coshott [2001] FCA 664 at [18] (Branson J).
2. Section 51 of the Bankruptcy Act provides that '[s]ubject to section 109, the prosecution of a creditor's petition to and including the making of a sequestration order on the petition shall be at the expense of the creditor'. Section 109 sets out the priorities in which a trustee in bankruptcy must apply the proceeds of the property of the bankrupt. The first priority payment includes the 'taxed costs of the petitioning creditor'. Thus, the usual costs order made with a sequestration order is that the petitioning creditor's costs be paid out of the bankrupt's estate. In Lam at [50] the Court alluded to a possible tension between the general discretion to order costs in s 32 and the declaration in s 51 concerning the expenses of the creditor. It was primarily because of that possible tension that the Court reserved the question of costs and directed the parties to file submissions on that subject. The petitioning creditors' submissions address that question, but the debtor's submissions do not.
3. While there was not full compliance with orders for directions relating to costs made on 4 December 2025, it is evidently common ground that, in the circumstances of this case, the Court has power under s 32 of the Bankruptcy Act to make a costs order following exercise of the power to adjourn the petition under s 33(1). For the reasons that follow, it is accepted that the Court has a general discretion to award costs in favour of the debtor or the petitioning creditors under s 32 and s 33(1) in circumstances in which the Court has ordered the adjournment of the hearing of a petition and no order dismissing the petition or making a sequestration order has been or can be made.
4. In circumstances in which a sequestration order has not been made because the petition has been withdrawn or dismissed, s 51 has not been construed to place any constraint or fetter on the general discretion of the Court to award costs under s 32 of the Bankruptcy Act. When considering differently worded, but similar provisions of the Bankruptcy Act 1924-1959 (Cth) Paine J arrived at the conclusion that s 27(1) of that Act (the equivalent of s 32) gave the bankruptcy court an overriding discretion to award costs in circumstances in which the petition was withdrawn because the debtor paid the applicable debt. That conclusion was arrived at notwithstanding that s 58(1) of that Act (the equivalent of s 51) provided that the creditor on whose petition any sequestration order was made was to prosecute all expenses until after the first meeting of creditors and s 51(2) provided that the trustee was to reimburse the creditor those costs out of the bankrupt's estate: Re Vanechteld (1960) ABC 258 at 263. Similarly, without reference to s 58(1) of that Act, Mansfield CJ ordered the debtor pay the costs of a petitioning creditor who had withdrawn the petition after payment of the debt in accordance with the bankruptcy court's general discretion to award costs: Re Hammant; Ex parte Burke [1965] ALR 340. Further, without reference to s 51 of the Bankruptcy Act, the Full Court (Bowen CJ, C.A. Sweeney and Lockhart JJ) upheld the primary judge's order that a debtor pay a creditor's costs up to the date that the debtor first claimed in the proceeding that he was solvent even though the petition was dismissed because the debtor was solvent: Sarina v Wollondilly Shire Council [1980] FCA 138; 48 FLR 372 at 379. Likewise, although an order was made dismissing the creditor's petition in Principal Strategic Options, Branson J ordered the debtor to pay part of the creditor's costs under s 32 of the without reference to
5. In ordering the debtor to pay part of the creditor's costs, Branson J applied the following relevant well-established principles at [19].

(1) The Court has an unfettered discretion as to its costs order under s 32.

(2) Because of the usual practice of the Court that 'costs follow the event', a successful respondent has a reasonable expectation of recovering costs, in the absence of special circumstances.

(3) In considering the matter of costs, the Court is entitled to look beyond the actual conduct of the case and have regard to the circumstances out of which it arose.

(4) However, there must be a limitation on the weight to be put on pre-litigation conduct, lest the exception overwhelm the rule. If too much emphasis is placed upon the circumstance that the litigation would not have arisen but for an action of the respondent, few successful respondents would recover their costs.

(5) The Court may take into account the conduct of the litigation by the successful party. Where a successful party has put the opposing party to significant expense in connection with an issue on which that party failed, it may be reasonable to take that matter into account by awarding something less than full party-party costs.

(6) There is no difference in principle between the case of a successful applicant and that of a successful respondent.

1. Also, in accordance with relevant established principles, there may be circumstances in which the 'event' is contestable or where it may be appropriate to adopt an issues-based approach to identification of the successful party or event resulting in a departure from the 'usual practice'. Further, where there has been no adjudication on the merits, depending on the circumstances, it may be appropriate to make no order as to costs: Mann v Condon (No 2) [2016] FCA 1288 at [14] (Moshinsky J). Additionally, in general, where a party seeks the indulgence of the Court, that party will be required to pay the costs of the application, including the costs thrown away, and will not normally receive the costs of the application: Stanley v Layne Christensen Company [2006] WASCA 56 at [52] (Wheeler JA, Steytler P and Pullin JA agreeing).
2. In circumstances in which the petitioning creditors were prima facie entitled to a sequestration order and the debtor's opposition to the petition failed because she failed to prove that she was solvent or that there was other sufficient cause for not making a sequestration order, it is a stretch, to say the least, to characterise the debtor as the successful party and inaccurate to describe the petitioning creditors as unsuccessful. In Lam it was observed that the adjournment of the hearing of the petition had the practical effect of dismissing the creditors' petition because the petition had lapsed in accordance with s 52(4) of the Bankruptcy Act as a result of the time taken to resolve the debtor's opposition to the petition and the absence of any application to extend the period during which the creditors could obtain a sequestration order under s 52(5). Therefore, it would also be wrong to characterise the 'practical effect' of dismissal as an 'event' in favour of the debtor.
3. The 'event' in respect of which the debtor was successful was a last-minute application made on the eve of the hearing of the petition that, in the alternative to all other arguments, the Court should exercise its power to adjourn the petition under s 33(1) of the Bankruptcy Act. In substance, that was an application by which the debtor sought an indulgence from the Court of an adjournment to afford her the opportunity of prosecuting a reasonably arguable claim that might result in the discharge of the relevant debt. As already mentioned, in general, a party seeking an indulgence of the Court is required to pay the opposing party's wasted costs. Having regard to the debtor's failure to prove her solvency or other sufficient cause for dismissing the petition and pressing that opposition to the hearing, the creditors' 'wasted costs' may be substantial and it is appropriate that the debtor, as the party seeking the adjournment and indulgence of the Court, should pay the creditors' wasted costs. As to all other costs reserved, there should be no order as to those costs because there has been no final determination of the merits of the petition.

Should costs be fixed in a lump-sum and, if so, in what amount?

1. The Chief Justice has issued the Central Practice Note: National Court Framework and Case Management (CPN-1) and the Costs Practice Note (GPN-COSTS). These powers and practice notes were considered in Paciocco v Australia and New Zealand Banking Group Ltd (No 2) [2017] FCAFC 146; 253 FCR 403 at [13]- [20] (Allsop CJ, Besanko and Middleton JJ). The Court's preference, in general, wherever it is practicable and appropriate to do so, is to make a lump-sum costs order so as to finalise costs and avoid potentially expensive and lengthy taxation hearings. The Court should now proceed on the basis that taxation 'should be the exception' and confined to matters which are unable to be determined otherwise. The guiding principles are to reduce delay and cost when quantifying costs. The costs in this proceeding are suited to a lump-sum costs order. That sum will be capable of determination relatively quickly upon the provision of submissions and supporting materials to the Court.
2. GPN-COSTS sets out a procedure for the costs applicant to file an affidavit in support of the lump-sum claim (costs summary). A costs summary should succinctly address the relevant matters set out in Annexure A to GPN-COSTS and it should not resemble a bill of costs in taxable form: GPN-COSTS at [4.10]-[4.11]. The costs respondent may file an affidavit responding to the matters raised in the costs summary (costs response). It should not resemble a formal costs objection of the kind prepared for a taxation of costs: GPN-COSTS at [4.13]-[4.14]. The orders made on 4 December 2025 reflect the procedure in GPN-COSTS for making a lump-sum costs order.
3. The petitioning creditors filed a bill of costs dated 30 December 2025. In that bill they claim costs of $10,764 and disbursements of $23,020. No minute of proposed orders was filed and no affidavit in support was filed. The petitioning creditors' written submissions do not identify the order sought except that they advocate for an order that the debtor pay their costs thrown away and contend that $30,000 is an appropriate lump-sum. The debtor filed an affidavit, but it is not responsive to any affidavit the petitioning creditors have filed. It follows that the materials the parties have filed neither comply with the orders made on 4 December 2025 nor meet the requirements of a costs summary and costs response for the purposes of GPN-COSTS. As a consequence, there is insufficient evidence before the Court to make a determination of an appropriate amount in which to fix the petitioning creditors' costs in a lump-sum. Further, for the reasons that follow, the petitioning creditors make a submission that may have an effect on the amount of their wasted costs.
4. Separately to their submissions on costs, the petitioning creditors submit that the Court should now exercise its power under s 52(5) and extend the period before which the creditors' petition will lapse to 14 November 2026. The power under s 52(5) cannot be exercised after the petition has lapsed in accordance with s 52(4) of the Bankruptcy Act. However, where the failure to include an order extending a petition in an earlier order of the Court does not reflect the intention of the Court or is an error arising from an accidental slip or omission the earlier order may be varied to include such an extending order: r 39.05(e), r 39.05(h) of the Federal Court Rules 2011 (Cth); Endresz v Commonwealth [2019] FCAFC 197; 273 FCR 286 at [81]- [82] (Rares and Markovic JJ).
5. The order referring the hearing of the petition to a judge and directing that it be listed on a date after 26 February 2025 was made by a Registrar on 3 December 2024. Thus, if the orders made at that time do not reflect the intention of the Registrar or contain an error arising from an accidental slip or omission, the petitioning creditors may apply to have the Registrar's orders varied in accordance with r 39.05. Accordingly, I am prepared to treat the petitioning creditors' submission as an application to vary the Registrar's orders and to refer that application to the Registrar for determination. The extent to which the outcome of that application preserves the ability of the petitioning creditors to obtain a sequestration order may affect the magnitude of the creditors' wasted costs. That is a factor that the Registrar determining the lump-sum amount may then take into account.
6. For the foregoing reasons, it is appropriate that a lump-sum costs order be made fixing the petitioning creditors' costs thrown away. Further orders will be made requiring compliance with the procedure in GPN-COSTS and, otherwise, determination of the appropriate lump-sum amount will be referred to a Registrar.

I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Feutrill.