Cosenza v Stephen Duncan of Duncan Powell (Trustee in Bankruptcy) (No.2)

This matter concerned an application by the applicant, Mr Cosenza, for an order that the respondent, Mr Stephen Duncan, the trustee in bankruptcy of Mr Cosenza's estate, provide an indemnity for the costs of certain litigation. The dispute arose from Mr Cosenza's bankruptcy and the subsequent conduct of the trustee in relation to the administration of the bankrupt estate, specifically concerning litigation initiated by the trustee. The application was heard in the Federal Court of Australia.

The primary legal issue before the Court was whether the trustee, Mr Duncan, was obliged to provide an indemnity to Mr Cosenza for the costs of litigation that the trustee had commenced against a third party. This involved considering the trustee's duties and powers in administering a bankrupt estate, particularly in relation to the initiation and conduct of legal proceedings, and the extent to which a bankrupt could seek an indemnity from the trustee for the costs associated with such proceedings.

Judge Brown considered the principles governing the conduct of trustees in bankruptcy. The Court noted that a trustee has a duty to administer the bankrupt estate for the benefit of creditors and has powers to commence litigation to recover assets. However, the Court found that there was no general principle or statutory provision that obliged a trustee to indemnify a bankrupt for the costs of litigation initiated by the trustee, even if that litigation was ultimately unsuccessful or resulted in a costs order against the bankrupt. The Court reasoned that the trustee acts in the interests of the creditors, and the decision to litigate is a commercial one made by the trustee, not on behalf of the bankrupt. The applicant's claim for an indemnity was therefore dismissed.