Case note: Costs thrown away not ordered where both parties share responsibility for pleading delay

In a recent decision, the Federal Court of Australia dispensed with the ordinary rule requiring an amending party to pay costs thrown away in circumstances where the parties shared the responsibility for the circumstances that gave rise to the need for amendment: Cathro v Chief Commissioner of State Revenue, in the matter of Cubic Interiors NSW Pty Ltd (in liquidation) [2026] FCA 275.

Takeaways

• The ordinary rule that the amending party pays costs thrown away will not automatically be applied in circumstances where the parties’ failure to cooperate gives rise to an amendment.
• Where a defendant lacks information to assess an insolvency claim at the time of filing a defence, a non-admission of insolvency does not necessarily constitute a ‘forensic choice’ to contest the issue, and a defendant should not be penalised in costs when it later obtains that information and amends to admit insolvency.
• If insolvency is pleaded, and an insolvency report is referred to in an affidavit accompanying the originating process or in particulars, request a copy in early course.
• A Court will not allow costs orders to be made in circumstances which disincentivise early admissions and the narrowing of issues, reinforcing the overarching purpose under ss 37M and 37N of the Federal Court of Australia Act 1976 (Cth).

Background 

The Liquidator of three related companies – Cubic Interiors NSW Pty Ltd, Cubic Interiors Sydney Pty Ltd, and Bigmig Pty Limited (all in liquidation) – commenced proceedings in the Federal Court of Australia alleging that the companies had made payments to various defendants that were insolvent transactions within the meaning of s 588FC of the Corporations Act 2001 (Cth) (Act) and voidable transactions within the meaning of s 588FE of the Act and sought recovery under s 588 FF of the Act.

The statement of claim, filed on 12 June 2025, alleged that each company was insolvent at relevant times. Those allegations were particularised by reference to a solvency report dated 1 April 2025 prepared by the Liquidator. Despite being identified in both the statement of claim and an affidavit that accompanied the originating process, the report was not provided to most defendants until 21 August 2025.

The defences of the first, third, eighth, fifteenth, and eighteenth defendants either did not admit or denied the insolvency allegations. Most of those defences were filed before the relevant defendant had received the solvency report. The Court accepted that those defendants had no information enabling them to form a view about insolvency when they filed their original defences.

After the report was distributed, those defendants progressively amended their defences to admit insolvency. In the interim, the Liquidator filed an application on 26 September 2025 for separate determination of the insolvency question under r 30.01 of the Federal Court Rules 2011 (Cth). All five defendants subsequently amended their defences to admit insolvency between October and December 2025.

The Liquidator then applied for costs orders against those defendants for costs thrown away by reason of the amendments, including the costs of preparing the solvency report and the separate question application.

Decision

Owens J declined to make any costs order against the defendants in connection with the amendments and ordered the costs of the separate question application to be costs in the cause.

The Court acknowledged the ordinary rule that a party given leave to amend its pleadings must pay the costs thrown away by reason of the amendment. However, the Court held that the circumstances in this matter warranted a different approach.

First, at the time most defendants filed their original defences, they had no information upon which to form a view about insolvency. The Court observed: ‘If a party is simply not in a position to assess whether a pleaded fact is true or not, then… it is difficult to see what else the party can do but plead a non-admission’.

Second, the circumstances giving rise to the amendments were attributable to the conduct of both sides. The Liquidator had completed the solvency report before proceedings were commenced yet failed to provide it to most defendants for more than four months. ‘The plaintiffs should have provided that report without being asked, and, given that that had not occurred, the defendants should have asked for it’. The court was perplexed by the conduct of both sides, noting that a simple request in correspondence would have sufficed.

The Court reached the same conclusion with respect to the third and eighteenth defendants who may have had the report at the time of filing their defences. As the third defendant had only received the report about two weeks before its defence was due, the Court did not consider it unreasonable for it not to have formed a view in that period. Further, the evidence did not disclose when the report was provided to the eighteenth defendant. The Court considered it ‘almost inconceivable’ that the liquidator had incurred any costs solely attributable to those two defendants’ positions

Overall, the amendments were not a reversal of a strategic ‘forensic position’. Rather, they represented ‘the first occasion in the proceedings’ where the defendants were able to take an ‘informed and substantive position’ on insolvency. The Court found that, had the parties cooperated, the originally filed defence would likely have admitted insolvency.

The court held that ‘the approach to determining the issue of costs between the parties should not be…fractured by the particular procedural mechanism by which a particular narrowing or determination takes place,’ as imposing such costs orders could disincentivise parties from narrowing issues promptly.

Read the decision here.

Artificial intelligence was used to assist with summarising the facts in this case update. The content was reviewed and verified by the author before publication.