Zong v Woodcroft (liquidator), in the matter of Sunshine Contracting Group Pty Ltd (in liquidation) (Costs)

This decision is about costs after the main dispute had already been decided. Three creditors challenged decisions made by the liquidator of Sunshine Contracting Group Pty Ltd when he presided over a creditors' meeting. In the earlier proceeding, the creditors succeeded in having their proofs of debt admitted for voting purposes, either in full or almost in full, and they also obtained orders removing the liquidator and replacing him.

That earlier result did not end the matter. The parties then disagreed about who should bear the legal costs of the proceeding and on what basis. In insolvency matters, that question can be commercially significant because legal costs may come out of the company's asset pool, which affects what remains for creditors.

The successful creditors wanted a strong costs order. They argued that the liquidator should personally pay their costs on an indemnity basis and should not be able to reimburse himself from company assets. The defendants argued for a more conventional outcome: the creditors' costs should be paid out of company assets on a party and party basis, and the liquidator's own costs should also be paid from company assets, but on an indemnity basis.

The Court identified two main questions. First, were the creditors entitled to indemnity costs rather than ordinary party and party costs? Secondly, should the liquidator be personally liable for the creditors' costs and for his own costs of the proceeding?

Those questions required the Court to look at different issues. On indemnity costs, the focus was on a 4 August 2025 letter sent by the creditors' solicitors. The letter invited the defendants to consent to the orders sought and said that if they did so, the creditors would not seek costs. If they did not, the creditors said they would continue the case and seek payment of their costs. The creditors argued that the rejection of that proposal supported an indemnity costs order.

On personal liability, the Court had to consider the principles that apply when a liquidator unsuccessfully defends proceedings. The judgment explains that the ordinary position is protective of liquidators. A liquidator is not usually made personally liable just because they lose. The Court instead asks whether there are exceptional circumstances, including whether the liquidator's conduct was unreasonable, unnecessary or dishonest, or whether the liquidator effectively provoked the litigation and should not receive the usual protection.

The creditors relied on the 4 August 2025 letter as the basis for seeking indemnity costs. The Court rejected that argument. It held that the letter did not amount to a Calderbank offer.

The Court gave several reasons. The letter was not expressed to be without prejudice save as to costs. It also did not say in terms that indemnity costs would be sought if the offer was rejected. Instead, it simply said the creditors would seek payment of their costs. The Court also considered substance, not just wording. It found there was nothing before it to show that the defendants had unreasonably rejected the proposal. By that stage, the creditors had filed some but not all of their evidence. The proposal also did not involve any real compromise, although the Court accepted that true compromise can be difficult in a proceeding of this kind.

That part of the judgment is useful for businesses because it shows that not every pre-hearing letter can later be used to support indemnity costs. If a party wants to rely on a settlement proposal in a later costs fight, both the form and the content matter. The Court will look at whether the proposal was framed in the recognised way, whether it clearly foreshadowed the costs consequence said to follow from rejection, and whether rejection was unreasonable in the circumstances at the time.

The judgment summarised the principles for making a costs order against a liquidator personally. The ordinary position is that if a proceeding against a liquidator succeeds, a costs order will usually be made in a way that avoids personal liability for the liquidator. Where a liquidator defends proceedings on behalf of a company in liquidation, a personal costs order may be made in exceptional circumstances. The Court described those circumstances by reference to whether the liquidator's opposition was unreasonable, unnecessary or dishonest.

The Court also noted that a personal costs order does not require wilful misconduct or recklessness. Mere negligence, mistake, or the unreasonable or unnecessary incurring of costs can be enough in an appropriate case. The key question is whether the costs were properly incurred, meaning reasonably as well as honestly incurred.

There is another category of case where the analysis changes. If a liquidator, although a defendant or even not formally a party, has effectively provoked the litigation and should be regarded as standing in the position of a plaintiff, the usual protection may not apply in the same way. Even then, whether the liquidator can still be indemnified from company assets is a separate question.

The judgment also referred to examples where courts have ordered liquidators to pay costs personally without recourse to company assets. Broadly, those cases tend to involve either an irremissible stance in litigation or a cavalier approach to proofs of debt. The Court did not find either feature here.

The creditors argued that the liquidator had not acted in the interests of creditors, that he should have taken a neutral position rather than actively defending the proceeding, and that he had effectively provoked the litigation by rejecting their proofs of debt. The Court rejected those arguments.

First, the Court held this was not a case where the liquidator had provoked the litigation in the relevant sense. The liquidator made his initial decisions on the proofs of debt based on the material before him at the time. The Court also noted that the resolution to remove and replace him did not pass at the meeting because other creditors did not vote in favour of it. After the proceeding was commenced, the creditors filed more complete evidence in support of their claims than had been put before the liquidator earlier. In those circumstances, the Court said it could not be said that the liquidator had provoked the proceeding. The fact that he did not call for additional material at the meeting did not change that conclusion, because it was for the creditors to provide sufficient material to support the debts claimed in their proofs of debt.

Secondly, the Court found there were no exceptional circumstances justifying a personal costs order. It was not satisfied that the liquidator had dealt with the proofs of debt in a cavalier fashion. He had considered them for the purposes of the meeting based on the available material. Nor was his defence of the proceeding unreasonable. The Court pointed to three matters in particular. There was an important issue about the standard of review that required determination and occupied much of the Court's time. On one alternative approach to the case, the liquidator had some success in defending one of the three proof-of-debt decisions. And on the primary basis on which the creditors ultimately succeeded, their success depended on material that had never been put before the liquidator.

The Court also rejected any suggestion that the liquidator defended the proceeding in his own interests rather than those of creditors. It said there was no evidence to support that suggestion. The liquidator had taken the position he did because he considered his decision was correct, and there was also an issue of principle involved that required detailed submissions and judicial consideration.

The Court dismissed the creditors' application for indemnity costs. It held that the 4 August 2025 letter was not a Calderbank offer and that there was no basis for concluding the defendants had unreasonably rejected it.

The Court also refused to make the liquidator personally liable for costs. It found that he had not provoked the litigation in the relevant sense and that there were no exceptional circumstances. He had considered the proofs of debt on the material available to him, had not dealt with them in a cavalier fashion, and had not acted unreasonably in defending the proceeding.

The final orders were that the creditors' costs of the proceeding be paid, on a party and party basis, out of the assets of Sunshine Contracting, and that the liquidator's own costs of the proceeding be paid, on the indemnity basis, out of those assets. The Court was satisfied that the liquidator's costs had been reasonably and honestly incurred and said he was entitled, through his right of indemnity, to have those costs paid from company assets.

For business owners, one of the strongest practical messages in this judgment is about documents and conduct at the earliest stage of the dispute. The Court expressly said it was for the creditors to provide sufficient material to support the debts claimed in their proofs of debt. That means a creditor should not assume the liquidator will ask for more information or fill gaps in the claim.

The judgment also shows how later evidence can affect the costs analysis. The creditors filed more complete evidence in the court proceeding than had been before the liquidator at the meeting. That helped explain why the liquidator could lose the merits but still avoid personal costs liability. In other words, a later court win does not necessarily prove that the earlier decision-maker acted unreasonably at the time.

Conduct in the litigation also matters. The Court accepted that there was a genuine issue about the standard of review and that the liquidator acted appropriately in assisting the Court on that issue. A party who advances a reasonably arguable position on an important legal question may still lose without being treated as having acted improperly for costs purposes.

If your business is a creditor, this case is a reminder to prepare thoroughly before a creditors' meeting and before lodging a proof of debt. If your supporting material is incomplete, you may still be able to fix the problem later in court, but that may not help you obtain a stronger costs order. The Court may conclude that the liquidator acted reasonably on the information then available.

If your business is considering litigation against a liquidator, budget conservatively. Even if you succeed, the likely starting point may still be party and party costs from company assets rather than indemnity costs or a personal costs order against the liquidator. That matters commercially because there can be a significant difference between those outcomes.

If you are a liquidator or advising one, the case confirms that the Court will look closely at whether the costs of defending the proceeding were reasonably and honestly incurred. A liquidator is not protected simply because they acted in good faith, but equally they are not punished simply because they lost. The Court will examine the quality of the decision-making, the evidence available at the time, and whether the litigation stance was reasonably open.

Finally, if either side wants to rely on a settlement proposal later in a costs dispute, the drafting should be done carefully and with the intended costs consequences in mind. A loosely framed invitation to consent may not achieve that purpose.