High Court Of Australia Overturns Principle Of British Gold Fields – A Costs Order Consequent Upon A Provable Judgment Debt Is Not Itself Provable If Made After The Date Of Bankruptcy

Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56

In Brief

The High Court of Australia has overturned an established principle in relation to proof of debts in bankruptcy, specifically the situation where judgment is entered before the date of bankruptcy, but the consequent costs order is not made until after bankruptcy.

In doing so, the High Court has restored a principle laid down by Lord Eldon in 1804.

Background

On 1 September 2005, Chesterman J in the Supreme Court of Queensland gave judgment against the appellant, Mr F, for $2,460,000.00 in a commercial case. On 15 September 2005, Mr F entered bankruptcy. On 3 February 2006, Chesterman J gave detailed reasons for his decision, and ordered that Mr F pay the other party's costs on an indemnity basis.

Mr F argued that any such costs order would be a provable debt in his bankruptcy and therefore should not be made. However, Chesterman J found that the costs order was not a provable debt.

Mr F appealed on this point to the Queensland Court of Appeal, unsuccessfully. Mr F then obtained special leave to appeal to the High Court of Australia.

The Appeal

Section†82 of the Bankruptcy Act 1966 (Cth) identifies those debts and liabilities which are provable in a bankruptcy. It relevantly provides:

"(1) Subject to this Division, all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy Ö".

The majority of the High Court1 noted that the long...