Victorian Court orders liquidator to pay indemnity costs, shields Commonwealth FEG funder from non-party costs

The Supreme Court of Victoria has ordered a liquidator to pay indemnity costs from the commencement of failed proceedings brought by Gemwood Projects Pty Ltd (in liq), after finding that his conduct breached the paramount duty and overarching obligations under the Civil Procedure Act 2010, but declined to make the Commonwealth jointly liable for those costs despite its role as litigation funder.

Justice Croft’s costs ruling follows his December 2025 decision dismissing claims brought by Gemwood Projects and its liquidator, Michael Carrafa, against Emilios Georgiou and related parties. In that earlier decision, the Court also ordered Carrafa to cease acting as liquidator and return to the company all remuneration and expenses incurred and paid to him in respect of the proceeding, including funds provided by the Commonwealth.

The costs dispute raised three issues: whether the defendants were entitled to indemnity costs because the plaintiffs failed to accept Calderbank offers made in December 2023 and March 2025, or because of the liquidator’s conduct; whether costs should be apportioned between the plaintiffs’ primary claims and the defendants’ counterclaim; and whether the Commonwealth, which had funded the litigation after advancing employee entitlements under the Fair Entitlements Guarantee regime, should be exposed to a non-party costs order.

The defendants argued that indemnity costs were warranted because the Court had already found serious breaches of the liquidator’s obligations under the CPA. They also relied on two Calderbank offers, including a December 2023 offer under which the defendants would have paid $1.5 million to resolve the proceeding, and a March 2025 offer under which the plaintiffs would pay $700,000 or 75% of the defendants’ standard costs to date. Both offers were rejected.

Justice Croft accepted that the liquidator’s conduct justified a strong costs sanction, finding that the liquidator’s conduct had substantially prolonged the trial and increased legal costs, and was sufficiently serious to “discolour” the character of the proceeding from start to finish. As a result, the Court ordered indemnity costs from the commencement of the proceeding, not merely from the date of the first rejected Calderbank offer.

Justice Croft said the indemnity costs order would serve as a “clear reminder” that insolvency professionals must adhere to high professional standards and comply with their civil procedure obligations, while noting that general deterrence was not itself the Court’s function in assessing costs.

The Court rejected the liquidator’s attempt to apportion costs between the insolvent trading and voidable transaction claims, on one hand, and the defendants’ counterclaim seeking removal and consequential relief, on the other. Although the defendants did not succeed on every ground advanced in their expanded counterclaim, Justice Croft found that the primary claims and counterclaim were “necessarily and intrinsically intertwined” and that, on any fair assessment, the defendants had succeeded both in defending the claims and obtaining the liquidator’s removal and repayment of fees.

The defendants also sought to make the Commonwealth jointly and severally liable for their costs as a non-party funder. They argued that the liquidator was a “man of straw,” that the Commonwealth had funded the litigation and participated in strategic decisions, and that the Commonwealth had a substantial interest in the outcome as a priority creditor owed more than $600,000 after making FEG advances.

Justice Croft accepted that the defendants could establish key elements of the Knight v FP Special Assets framework, including that the liquidator was unlikely to meet a significant costs order and that the Commonwealth had an interest in the proceeding. However, the Court refused to treat the Commonwealth like a commercial litigation funder. The Commonwealth’s involvement arose from mandatory statutory payments of employee entitlements under the FEG Act and a public interest objective of recovering those advances through the winding up, rather than a profit-driven funding arrangement. As a result, the Court declined to make the Commonwealth jointly and severally liable for the defendants’ costs, but cautioned that the Commonwealth and other public authorities are not immune from non-party costs orders merely because they act in the public interest.

Read the decision here.

Professionals involved:

• Lachlan Currie, Barrister at the Victorian Bar, and Aitken Partners, solicitors, for the defendants

• Jim Hartley, Barrister at the Victorian Bar, and Australian Government Solicitor, solicitors, for the Commonwealth (Department of Employment and Workplace Relations)

• Benjamin Fry, Barrister at the Victorian Bar, and Polczynski Robinson, solicitors, for Michael Carrafa as liquidator of Gemwood Projects