Foots v Southern Cross Mine Management Pty Ltd

The High Court of Australia considered an appeal by Mr Foots against a decision of the Queensland Court of Appeal, which had dismissed his appeal from the Supreme Court of Queensland. The dispute concerned whether a costs order made against Mr Foots after he declared bankruptcy was a provable debt under the *Bankruptcy Act 1966* (Cth). Mr Foots had been found liable for damages in a complex mining dispute, and subsequently became bankrupt. After his bankruptcy, the trial judge made an order for indemnity costs against him in favour of Ensham, a party to the original proceedings.

The central legal issue before the High Court was whether the indemnity costs order, made after Mr Foots' bankruptcy, constituted a provable debt within the meaning of s 82 of the *Bankruptcy Act 1966* (Cth). Mr Foots argued that this costs order was a debt or liability arising from an obligation incurred before his bankruptcy, or alternatively, that it was a debt incidental to a provable debt. The Court also considered whether proceedings in which the costs order was sought should have been stayed under s 58(3) of the *Bankruptcy Act 1966* (Cth).

The High Court, by majority, dismissed the appeal. The majority reasoned that a costs order made after bankruptcy, even if related to proceedings where a provable debt existed and judgment was given before bankruptcy, does not fall within the definition of a provable debt under s 82(1) of the *Bankruptcy Act 1966* (Cth). This is because the liability for costs is not a debt or liability to which the bankrupt was subject at the date of bankruptcy, nor is it a liability to which they may become subject before discharge by reason of an obligation incurred before bankruptcy. Instead, the costs order arises from the discretionary judgment of the court based on the proceedings and the conduct of the parties, and the liability is created only when the order is made. Therefore, the costs order was not a provable debt, and the proceedings to obtain it were not automatically stayed by s 58(3) of the *Bankruptcy Act 1966* (Cth).