ACN 168 479 614 Pty Ltd (formerly known as Steller Developments Pty Ltd (in liq) (Receivers & Managers appointed) v Smedley, in the matter of ACN 168 479 614 Pty Ltd (No 4)

This Federal Court decision is a costs judgment delivered after a large commercial claim failed. The applicant, formerly known as Steller Developments, had sued on a deed of guarantee and sought more than $101 million plus interest. The Court had already rejected that claim in an earlier judgment. The remaining issue was who should pay costs.

The Court ordered the applicant to pay Mr Smedley's costs of the principal claim on a party and party basis, and ordered the litigation funder, Atlas, to be jointly and severally liable for those costs. But the Court refused two further steps sought by Mr Smedley. It did not award indemnity costs, and it did not make the applicant pay Mr Smedley's own costs of defending a cross-claim brought by Mr Vines.

The principal dispute centred on a deed titled Deed of Guarantee executed as a deed poll on 7 March 2017. The respondents to the main proceeding included Mr Smedley, Mr Pitard, Mr Cirelli, Mr Vines and Steller Estate Pty Ltd. Each was described in the deed as a guarantor. Only Mr Smedley, Mr Cirelli and Mr Vines actively participated in the proceeding.

Steller Developments claimed that those described as guarantors were liable to it under the deed. It advanced two routes to that result. First, it argued for a particular construction of the deed. Secondly, it argued that if the deed did not already operate that way, it should be rectified. On that basis, it sought an order for $101,914,373.66 plus interest from 1 January 2019.

Mr Vines then brought a separate cross-claim. That cross-claim was not against Steller Developments. It was against Mr Smedley, Mr Cirelli and Mr Alastair Williams. The basis of the cross-claim was a Retirement Agreement. Mr Vines said that agreement required those parties to indemnify him against liabilities including any liability under any guarantee provided under the 7 March 2017 deed.

In the earlier merits judgment, the Court rejected Steller Developments' construction case and rectification case. That meant the principal claim failed. Once that happened, Mr Vines no longer needed indemnification because he was not liable under the deed. Even so, the Court said that if the principal claim had succeeded, the cross-claim would also have succeeded.

The later judgment did not reopen the merits. It dealt only with costs. By that stage, the real controversy was between Steller Developments and Mr Smedley. Mr Smedley wanted ordinary costs of the principal claim, indemnity costs instead of ordinary costs, his own costs of defending the cross-claim, and a broader costs order against the litigation funder Atlas.

The Court identified three issues. First, should Steller Developments pay the costs incurred by Mr Smedley on the cross-claim? This was an unusual request because Mr Smedley had not brought the cross-claim. He was a cross-respondent defending a claim brought by Mr Vines.

Secondly, should Steller Developments pay Mr Smedley's costs on an indemnity basis rather than a party and party basis? For non-lawyers, party and party costs are the ordinary costs usually awarded to a successful party. They generally cover costs reasonably incurred, but not every amount actually spent. Indemnity costs are more generous and are awarded only in more exceptional circumstances.

Thirdly, should Atlas Property Investment Management Pty Ltd, the litigation funder, be jointly and severally liable for costs payable by Steller Developments to Mr Smedley beyond the ordinary costs of the principal claim?

These questions mattered because the Court's costs discretion under section 43 of the Federal Court of Australia Act 1976 (Cth) is broad, but it still has to be exercised by reference to the actual procedural position of the parties. The fact that one dispute may have triggered another does not automatically mean all resulting costs are shifted to the party who started the main case.

The Court dismissed the originating application and ordered Steller Developments to pay Mr Smedley's costs incurred in relation to the originating application on a party and party basis. It also ordered Atlas to be jointly and severally liable with Steller Developments for those costs. Separate fixed costs orders were made in favour of Mr Cirelli and Mr Vines, and the Court made orders about release of security for costs, subject to a 42-day stay pending appeal.

But the Court refused the additional costs orders sought by Mr Smedley.

On the cross-claim costs issue, the Court said the authorities relied on by Mr Smedley did not fit the actual procedural position. Those authorities commonly deal with a successful defendant who brought a third-party claim or cross-claim and then seeks to recover related costs. Here, Mr Smedley was different. He was a successful respondent on the principal claim, but he did not bring the cross-claim. He was defending a cross-claim brought by Mr Vines. He also had not been ordered to pay anyone else's costs on that cross-claim.

The Court accepted that the principal claim was the catalyst for the cross-claim. But it said causation alone was not enough to shift the burden of costs. It also rejected the suggestion that it was obvious the cross-claim would simply stand or fall with the principal claim. If the principal claim had succeeded, the cross-claim still required determination of issues unique to the Retirement Agreement. The Court also noted there was no reason to believe Steller Developments knew of the Retirement Agreement when it commenced the principal claim. For those reasons, the Court was not persuaded that Steller Developments should pay Mr Smedley's own costs of defending the cross-claim.

On indemnity costs, the Court rejected Mr Smedley's argument that the construction case had been brought in wilful disregard of the law. The Court accepted that, with hindsight, some aspects of the construction case were weak, but said mere weakness does not justify indemnity costs. The Court also rejected the argument that the rectification case had been brought in wilful disregard of the facts. It described that case as weak, and considerably weaker than the construction case, but still held that indemnity costs were not warranted. The Court also noted that Mr Smedley had not tendered correspondence showing that these alleged defects had been clearly put to Steller Developments before or during the proceeding.

On the funder issue, Atlas had indicated it would submit to an order making it jointly and severally liable for Mr Smedley's costs of the principal claim on a party and party basis, but objected to any broader order. Because the Court refused cross-claim costs and indemnity costs, the narrower order was sufficient. So Atlas was liable only for the ordinary costs of the principal claim, not for indemnity costs and not for cross-claim costs.

For business owners, this case is mainly about litigation risk management rather than the detailed law of guarantees. The first lesson is straightforward. If your company brings a large commercial claim and loses, the Court will usually order you to pay the successful respondent's ordinary costs. That can be a major financial exposure on top of your own legal spend.

The second lesson is about funded litigation. If a third-party funder is backing the case, the funder may also be exposed to an adverse costs order. Here, the funder was made jointly and severally liable with the applicant for Mr Smedley's ordinary costs of the principal claim. That means the successful party could recover those costs from either or both of them.

The third lesson is that courts separate different layers of a dispute. A business might think that if its claim triggered a cross-claim between other parties, it should not be surprising to pay all the costs that followed. This judgment shows the Court will not approach the issue that broadly. It will ask who actually brought the cross-claim, whether the applicant could reasonably foresee it, whether the cross-claim depended on separate documents or issues, and whether there is a principled basis to shift those costs.

The fourth lesson is about indemnity costs. Businesses sometimes assume that if the other side's case was weak, they should recover costs on a more generous basis. That is not how the Court approached it here. Even where the Court considered parts of the losing case weak, and one part considerably weaker than another, that still did not justify indemnity costs without something more.

The final lesson is documentary discipline. The principal claim turned on a deed of guarantee, while the cross-claim turned on a separate Retirement Agreement. In practice, commercial disputes often involve a main transaction document plus side agreements, indemnities, novations, funding arrangements and security for costs. Before starting proceedings, businesses should identify all related documents and ask how each one could affect liability, defences, cross-claims and costs exposure.

The costs judgment was delivered on 26 June 2025 by Goodman J in the Federal Court of Australia. It followed the earlier substantive judgment delivered on 27 February 2025 in ACN 168 479 614 Pty Ltd v Smedley (No 3) [2025] FCA 132.

The Court noted that the applicant had entered into a funding agreement on 19 July 2021 with Atlas Advisors Australia Pty Ltd and others, and that a deed of novation dated 8 November 2022 substituted Atlas Property Investment Management Pty Ltd as funder. The Court also ordered a 42-day stay of execution of part of the security for costs release orders pending appeal, with liberty to apply on 7 days' notice to vary or extend that stay.