Background
Bad Wolf Purchasing Pty Ltd, as trustee of the Du Bray Property Trust, sued the liquidators of Du Bray and Associates Pty Ltd (DBA) to recover approximately $462,000 held in a Westpac deposit account. Bad Wolf claimed the funds belonged to the Trust and were not available to DBA’s creditors. Between February and July 2022, creditor payments due to Du Bray & Associates Ltd (a New Zealand company) had been diverted into DBA’s account at the direction of Lee Du Bray to avoid freezing orders made by the New Zealand High Court.
Lee Du Bray, an undischarged bankrupt at the relevant time, controlled the proceeding through corporate formalities. He appointed Andrew Chen as director of Bad Wolf and caused the company to commence the litigation. Du Bray Bray provided instructions and documents to Chen, and funded the proceeding through an associated corporation. Despite his bankrupt status, Lee Du Bray made key decisions about the proceeding’s conduct and direction.
Justice McElwaine dismissed Bad Wolf’s claim in July 2025. Subsequently, the liquidators sought a non-party costs order against Lee Du Bray, arguing he was the true party in interest who directed and funded the proceeding and stood to benefit from its success. Lee Du Bray resisted, contending he did not manage or control the proceeding and that Bad Wolf could satisfy the costs order.
The Court’s Holding
Justice McElwaine made a non-party costs order against Lee Du Bray, holding him jointly and severally liable with Bad Wolf to pay the liquidators’ costs on a lump-sum basis. The court found, applying the serious allegation standard (Briginshaw), that Lee Du Bray was the ultimate beneficiary of any successful outcome and the true director of the proceeding. He controlled Bad Wolf, appointed and directed Andrew Chen as the corporate vehicle’s director, devised the scheme that formed the foundation of the claim, and funded the litigation through an associated corporation.
The court rejected Lee Du Bray’s arguments that his bankrupt status prevented him from controlling Bad Wolf or that the solicitor’s retainer was invalid under section 477(2B) of the Corporations Act. The judgment emphasised that substance trumps form: the existence of corporate formalities and a nominal director does not shield the actual beneficiary and controller from cost liability. Lee Du Bray’s direct financial interest in the proceeding’s success, combined with his active involvement in its direction and his funding through an associated entity, engaged the established discretion to make non-party costs orders under the principle stated in Knight v Special Assets Ltd.
Key Takeaways
- Courts will look beyond corporate structures and formal appointments to identify the true party in interest and person directing proceedings, holding such individuals liable for non-party costs orders.
- An undischarged bankrupt may be held liable for costs of a proceeding they directed and funded as a non-party, notwithstanding their bankrupt status and statutory prohibitions on managing corporate affairs.
- A solicitor’s retainer between liquidators and their personal counsel (not the company in liquidation) may fall outside section 477(2B) approval requirements; reliance on that provision as a defence to a costs order is unlikely to succeed.
Why It Matters
This judgment has significant practical implications for liquidators, creditors, and courts dealing with insolvent companies controlled by undischarged bankrupts. It clarifies that the presence of corporate formalities—a nominated director, a trustee company structure—will not shield a bankrupt individual from liability for costs incurred in proceedings they truly direct and finance. The decision reinforces that courts will examine substance over form to determine who holds the actual financial interest and decision-making power.
The ruling also has broader significance for non-party costs jurisprudence: it demonstrates that courts will make such orders not only where a non-party funds proceedings but where they actively direct and control them for their own financial benefit. This deters use of corporate proxies to insulate bankrupt individuals from litigation accountability and protects the interests of defendants in facing the true party in interest, even where statutory restrictions nominally bar that person’s direct participation.