Tse v Evans as trustee in bankruptcy for Ngo (No 2)

Tse v Evans as trustee in bankruptcy for Ngo (No 2) [2024] FCA 1020 is a Federal Court decision about a non-party costs application in a bankruptcy context. It is not a franchising decision. The applicants had already succeeded in getting leave to continue a separate Supreme Court of New South Wales proceeding against Mr Ngo after he became bankrupt. They then asked the Court to order that Mr Ngo personally pay the costs of that Federal Court leave application, even though he was not a party to the Federal Court proceeding.

Perry J refused the application. The Court accepted that it had power to make a costs order against a non-party and accepted that Mr Ngo's bankruptcy caused the applicants to incur the costs of seeking leave. But the Court held that this was not enough. The applicants did not prove that Mr Ngo entered bankruptcy to thwart the Supreme Court case, did not establish a sufficient connection between him and the Federal Court proceeding, and had not put him on notice of the costs application. The application was dismissed and there was no order as to costs.

The applicants, Gordon Kar Ming Tse and Tiehong Chen, were already involved in a Supreme Court of New South Wales proceeding against Mr Viet Trung Ngo. The Federal Court reasons describe that Supreme Court matter as a partnership suit. The judgment also records that one issue in that proceeding concerned a property called the Chester Hill Warehouse, in relation to which a declaration was sought that the property was partnership property.

Before the costs dispute in this case arose, Mr Ngo became bankrupt. That changed the procedural position. Under the Bankruptcy Act, once a debtor becomes bankrupt, a creditor may need leave from a bankruptcy court before taking a fresh step in litigation concerning a provable debt. Because of that, the applicants had to apply to the Federal Court for leave to continue the Supreme Court proceeding against Mr Ngo. They succeeded in that earlier application.

The respondent to the Federal Court proceeding was not Mr Ngo personally. It was Fleur Evans and David Sampson as trustees in bankruptcy for Mr Ngo. The trustees did not fight the leave application. The judgment records that they neither consented to nor opposed it, and the Court considered it appropriate that no costs were sought against them.

After obtaining leave, the applicants turned to costs. They did not ask for costs against the trustees. Instead, they asked the Court to order that Mr Ngo himself pay their costs on a party-party basis, even though he was a non-party to the Federal Court proceeding. Their case was built around timing and motive. They pointed to the fact that on 9 February 2024 Mr Ngo gave an undertaking in the Supreme Court not to dispose of the Chester Hill Warehouse, that between 21 February and 6 March 2024 he was in contact with the trustees about entering bankruptcy and related steps, and that on 7 March 2024 he filed a voluntary petition for bankruptcy.

The applicants said this sequence showed that Mr Ngo had engineered the timing of his bankruptcy to interfere with or derail the Supreme Court proceeding. They argued that his bankruptcy triggered s 58 of the Bankruptcy Act, took the matter out of the Supreme Court's control, and forced them to incur extra costs in the Federal Court to obtain leave. They also submitted that the trustees effectively stood in his shoes, so the difference between the trustees being the respondent and Mr Ngo being the real person behind the matter was said to be one of form rather than substance.

That set up the real issue for the Court. The question was not whether leave should have been granted. That had already been decided. The question was whether the Court should use its power to make a non-party costs order against Mr Ngo personally.

The Court started from the accepted position that it had power to award costs against a non-party. The judgment refers to s 43(1) of the Federal Court of Australia Act 1976 (Cth) and s 32 of the Bankruptcy Act 1966 (Cth). But the Court also emphasised the ordinary starting point that costs are usually ordered against parties to the litigation, not outsiders. So the real task was to decide whether Mr Ngo's connection to this Federal Court proceeding was strong enough to justify departing from that usual position.

The judgment explains that the power to order costs against a non-party will only be exercised where the non-party has a connection to the litigation sufficient to warrant it. One way of asking that question is whether the non-party was the real party to, or the real instigator of, the litigation. The Court also treated causal connection as relevant. If a non-party's conduct caused the costs to be incurred, that may support an order. But it is still only one factor in the overall discretion.

In practical terms, the Court had to work through four linked questions. First, could the trustees in bankruptcy be treated as standing in Mr Ngo's shoes so that his connection to the proceeding was effectively established through them? Secondly, had the applicants proved their central allegation that Mr Ngo timed his bankruptcy to thwart the Supreme Court proceeding? Thirdly, even if his bankruptcy caused the applicants to incur the costs of the leave application, was that causal link enough? Fourthly, what weight should be given to the fact that Mr Ngo had not been put on notice that the applicants were seeking a personal costs order against him?

The second question was especially important because the applicants' case depended heavily on an inference about motive. They did not have direct evidence of why Mr Ngo entered bankruptcy when he did. Instead, they asked the Court to infer from the timing of events that he did so to subvert the Supreme Court proceeding. The Court therefore had to apply the ordinary civil approach to circumstantial proof and also take into account the seriousness of the allegation.

Perry J dismissed the application for costs against Mr Ngo personally and made no order as to costs. The Court gave several reasons, each of which mattered to the result.

First, the Court rejected the applicants' submission that the trustees could simply be treated as standing in Mr Ngo's shoes for the purpose of connecting him to the Federal Court proceeding. There was no evidence that Mr Ngo instructed the trustees in the proceeding as his proxy, and the trustees submitted that this was not the case. The Court also noted an important insolvency point: trustees are not empowered to deal with debts that are not provable in the bankrupt estate, and any costs order made against Mr Ngo personally in this proceeding would not be a debt provable in his bankruptcy.

Secondly, the Court held that the applicants had not discharged their burden of proving that Mr Ngo's motivation for entering bankruptcy was to thwart the Supreme Court proceeding. The Court accepted that the applicants may understandably suspect that this was his motivation. But suspicion was not enough. There was no direct evidence of motive. The case depended on circumstantial reasoning from timing alone.

The Court then applied orthodox principles about inference and proof. It said that where a case is circumstantial, the evidence must do more than support competing inferences of equal probability. The Court also stressed that the allegation was a serious one, so the gravity of the allegation had to be taken into account when deciding whether the civil standard of proof had been met. On the documentary evidence, one possible inference was that Mr Ngo entered bankruptcy when the Supreme Court proceeding was well advanced in order to subvert that court's jurisdiction. But another inference was at least equally open, namely that he entered bankruptcy because he genuinely believed he could not repay his debts to creditors. Because the evidence did not move beyond suspicion, the applicants failed on proof.

Thirdly, the Court accepted that there was a causal connection between Mr Ngo's conduct and the applicants' costs in the Federal Court. Once he became bankrupt, the applicants needed leave from a bankruptcy court to continue the Supreme Court proceeding. So if he had not entered bankruptcy, they would not have needed to incur the costs of bringing the leave application. Even so, the Court said this factor was not determinative. In circumstances where the Court had not accepted that Mr Ngo entered bankruptcy to subvert the Supreme Court's jurisdiction, causation by itself did not justify a non-party costs order.

The Court also pointed out a broader practical problem with the applicants' argument. If causation alone were enough, then in a case of voluntary bankruptcy it might always determine a non-party costs application against a bankrupt in relation to an application for leave to proceed. The Court was not prepared to adopt that approach.

Fourthly, the Court treated the lack of notice to Mr Ngo as a factor weighing against the order. The applicants argued that prior notice is not a strict prerequisite to a non-party costs order and suggested that notice could still be given if the Court considered it necessary. The Court accepted that notice is not always mandatory, but said its absence can weigh against the exercise of discretion. Here, once it became apparent that the applicants intended to seek costs against Mr Ngo personally, it was open to them to seek to join him to the costs application or otherwise put him on notice. They had not done so.

The Court was also not willing to reopen the process at that late stage. The matter had already been fully argued in writing and was reserved. The judgment notes that the only possible explanation for the lack of earlier notice was that the applicants may not have had a physical address for service for Mr Ngo, but it was unclear whether they had other means of contacting him, such as email, and no explanation had been given as to why they had not earlier asked the trustees for his contact details. Taking into account the overarching purpose of civil practice and procedure, the Court did not consider it appropriate to allow a further opportunity to provide notice. The result was that the application for costs against Mr Ngo was dismissed and there was no order as to costs in the proceeding.

For business owners, the practical value of this case is in how it separates three ideas that are often run together in commercial disputes: who caused the problem, who is formally a party to the proceeding, and who can fairly be made to pay costs. The applicants were able to show that Mr Ngo's bankruptcy caused them to incur extra legal costs because they had to seek leave to continue their Supreme Court case. But that did not automatically make him liable for those costs. The Court still required a sufficient connection between him and the Federal Court proceeding itself, and it still required proper proof of the allegation that he had used bankruptcy to derail the other case.

That matters whenever a business wants to pursue costs against someone who is not formally on the record. In commercial litigation, businesses sometimes look beyond the named party and consider whether a director, controller, funder, related entity or bankrupt individual should bear costs. This case shows that courts do not make those orders simply because the person was involved in the background or because their conduct set events in motion. The connection must be legally sufficient, and the evidence must support the particular theory being advanced.

The case also shows the risk of overreaching on motive. If your argument is that the other side timed a bankruptcy, restructuring or other procedural event to frustrate your claim, the Court will expect evidence that positively supports that inference. Timing may raise suspicion, but suspicion is not proof. Where the allegation is serious, the Court will be cautious about drawing adverse inferences from indirect material alone.

Another practical point is procedural fairness. Even where the Court has power to make a non-party costs order without prior notice, the absence of notice can still count heavily against the application. If you are considering a personal costs order against someone who is not already a party, think early about service, notice and whether joinder is needed. Leaving that issue until after the substantive application has been argued may make the Court reluctant to entertain the request.

The judgment was delivered by Perry J in the Federal Court of Australia on 4 September 2024. The matter was determined on the papers. The orders recorded that the applicants' submissions filed on 9 July 2024 were to be taken as an application for costs against Mr Ngo personally, that the application be dismissed, and that there be no order as to costs.

The reasons also refer to an earlier decision, Tse v Evans as trustee in bankruptcy for Ngo [2024] FCA 787, which dealt with the applicants' successful application for leave under s 58(3)(b) of the Bankruptcy Act to continue the Supreme Court proceeding. This page should therefore be read as a note on the later costs decision rather than a complete account of the underlying commercial dispute.