Kennedy, David v Australian Mutual Provident Society (ARBN 008 387 371)

This appeal concerns an order made by a single Judge of the Federal Court of Australia that the appellant, David Kennedy, acting as the trustee of a composition under the Bankruptcy Act 1966 (Cth), pay the costs incurred by the respondent, Australian Mutual Provident Society (AMP), in a proceeding that AMP commenced seeking to set aside a composition. The appeal was dismissed with costs.

The appeal involved the interpretation of the Bankruptcy Act 1966 and the discretion of the Court to order costs in a proceeding to set aside a composition. The central issue was whether the trustee was liable for the costs incurred by AMP in the proceeding and, if so, whether the trustee had a right to be indemnified out of the funds of the composition. The appeal hinged on the trustee's conduct in filing a defence to the proceeding and whether his Honour was correct in finding that the trustee should bear the costs of the proceeding from the date the defence was filed.

The Court found that the trustee had breached his duty by not obtaining legal advice on AMP's claim that it was a creditor of Mr Hughes entitled to vote at the meeting. However, the Court was not persuaded that the trustee should be made liable for the costs of the proceeding by reason of this breach. The Court found that the trustee's breach of duty was not the sole cause of the costs incurred by AMP, and that a significant portion of the costs arose from the dispute between AMP and Mr Hughes. The Court held that it would be inappropriate to impose the entire costs of the proceeding on the trustee, as it would be a heavy burden on the trustee to fulfil his public duty. The Court also found that the trustee's filing of a defence in the proceeding was an active participation in the litigation and that the trustee should bear the costs from the date the defence was filed. The Court further held that the trustee was not entitled to be indemnified out of the funds of the composition for the costs incurred by him or the costs to be paid to AMP. The exclusion of the right of indemnity operated in respect of the trustee's costs incurred after the date the defence was filed. The Court held that the order made by his Honour did not offend commonsense or reason and was not shown to have been affected by any error of law.