Ralan liquidators hit with costs after late disclosure derails trial timetable

The Federal Court has ordered the liquidators of several Ralan Group companies to pay costs thrown away after the final hearing of a complex insolvency proceeding was postponed by more than four months, finding the liquidators failed to disclose that a proposed evidentiary exercise had expanded from approximately 500 documents to more than 7,500. Justice Cheeseman ordered the liquidators to pay the defendants' costs arising from the vacation of a hearing scheduled to begin on 28 September 2026. The trial has been relisted to commence on 1 February 2027.

The underlying proceeding concerns the alleged release and use of purchaser deposits across the Ralan Group, which undertook more than 30 property developments. The liquidators allege that unpaid released deposits exceeded $288 million when the group entered administration and are pursuing claims involving voidable transactions and accessorial liability, supported by extensive documentary, lay and expert evidence.

The costs dispute arose from the liquidators' attempt to use section 50 of the Evidence Act 1995 (Cth) to prove information contained in thousands of underlying documents through summaries rather than tendering each document individually. At an April hearing, the liquidators had foreshadowed summaries covering approximately 500 contracts. By 11 August, however, they served summaries covering more than 7,500 documents, prepared using generative AI followed by verification by their solicitors. Updated versions were served on 14 August and again on 3 and 21 September.

The defendants identified errors through spot checks and argued that the volume and timing of the material left them without enough time to verify the summaries before trial. Justice Cheeseman agreed that proceeding with the September hearing would deny them a fair opportunity to review the summaries against the source documents, forcing them either to divert resources from other trial preparation or proceed without completing that review.

The Court found the critical problem was that the proposed exercise had grown approximately fifteen-fold without that increase being disclosed before timetable orders were made on 11 August. Justice Cheeseman said the liquidators were best placed to appreciate the increased scale and that their failure to correct their earlier estimate was inconsistent with their obligation under section 37M of the Federal Court of Australia Act 1976 (Cth) to conduct litigation consistently with the just, efficient, timely and cost-effective resolution of the dispute.

Significantly, the Court rejected the defendants' argument that the liquidators' use of generative AI provided a separate basis for an adverse costs order. Justice Cheeseman distinguished between problems caused by AI and those caused by the management of the evidentiary process, finding that the liquidators had used AI to extract information from the documents and then undertaken substantial manual review and correction.

Justice Cheeseman said responsible use of AI for collation and synthesis can further the efficient conduct of litigation where adequate verification, human supervision and traceability to source material are maintained. She went further, observing that if the liquidators could appropriately use AI to organise the material, there was no principled reason why the defendants could not use equivalent technology to expedite their own review, subject to verification against the underlying documents.

The Court ultimately found that the adjournment was substantially attributable to the way the liquidators conducted the section 50 exercise, particularly their failure to disclose its escalating scale and the resulting impact on the defendants' ability to prepare. The liquidators were therefore ordered to pay the defendants' costs thrown away by the vacation of the September hearing, as agreed or assessed.

Read the decision here.

Roger Marshall SC of Ground Floor Wentworth Chambers and Michael Wells, together with Swaab, acted for the defendants; while Dr Christopher Ward SC of 3VB, Daniel Krochmalik of 3 St James' Hall Chambers and Frank Tao of Ninth Floor Selborne Chambers, together with Norton Rose Fulbright, acted for the liquidators.