Bell v Cribb

HARTMUT HUBERT JOSEF FRIGGER Second Plaintiff

MERVYN JONATHAN KITAY, LIQUIDATOR OF COMPUTER ACCOUNTING & TAX PTY LTD (IN LIQ) Liquidator

order made by: COLVIN J DATE OF ORDER: 11 MAY 2021

1. The proceedings be dismissed.
2. The plaintiffs pay the liquidator's costs of the proceedings including reserved costs to be assessed if not agreed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

COLVIN J: 1 Mr and Mrs Frigger commenced these proceedings against Mr Kitay in his capacity as liquidator of Computer Accounting & Tax Pty Ltd (in liq) (CAT) in November 2015. For a period of time, the proceedings were stayed pending steps being taken in other proceedings in this Court. Then, on 5 December 2017, leave was given to Mr and Mrs Frigger to amend the originating application. Orders were also made for the matter to proceed on pleadings and for a statement of claim to be filed within seven days. 2 By the amended originating application, Mr and Mrs Frigger stated that they made claims as 'members and officers' of CAT. They sought the removal of the liquidator, Mr Mervyn Kitay, and the appointment of a new liquidator. They also sought orders that Mr Kitay pay certain amounts to CAT and that Mrs Frigger be named as a joint owner of the funds in a term deposit account. They also sought a declaration that Mr Kitay is not entitled to costs the subject of orders made in seven different proceedings in the Supreme Court of Western Australia and a declaration that a particular costs agreement entered into by Mr Kitay is not a valid costs agreement. 3 Mr and Mrs Frigger filed a statement of claim in the proceedings on 12 December 2017. A few months later, on 1 March 2018, they filed an amended statement of claim. The amended statement of claim purported to seek relief that extends beyond the relief the subject of the amended originating application. In particular, the amendments added allegations to the effect that Mr Kitay published misleading statements when, as liquidator of CAT, he prepared and filed with the Australian Securities and Investments Commission a report as to the affairs of CAT. Those allegations concluded with the following statement in paragraph 157: As directors of the Company [that is, CAT], the Applicants' credit and reputation has been damaged by false information published by the Respondent alleging the Company had unsecured creditors in number between 4 and 10 and in quantum between $957,681 and $1,265,589. The information has been used by Veda Credit and at least 10 banks in Australia which have rejected applications for loans by the Applicants since 2012 which conduct caused the Applicants loss of reputation and credit in Australia. 4 On the basis of the above claim, the 'summary of relief' in the statement of claim was amended to add a claim for 'exemplary and or aggravated damages' alleged to have been caused by the conduct described in paragraph 157. Plainly, the claim is beyond the terms of the amended application and leave to amend the application would be required in order to advance the claim. No such leave has been sought or granted. 5 The amended statement of claim also purported to add a claim by Mr and Mrs Frigger for orders that certain payments be made to the Frigger Superannuation Fund. However, as has been noted, the amended application expressly states that it is brought by Mr and Mrs Frigger in their capacity as members and officers of CAT. Buried within the amended statement of claim is an allegation that CAT 'is, and remains, the only trustee of the Frigger Super Fund'. Therefore, it appears that to the extent that claims were complaints by Mr and Mrs Frigger about the fund, they were complaints about the conduct of CAT as alleged trustee of the Frigger Superannuation Fund. To the extent that some other type of claim was made (such as a claim by Mr and Mrs Frigger as members of the fund), leave would be required to amend the application to raise such a claim. No such leave has been sought or granted. 6 Mr Kitay foreshadowed an application to disallow the amendments to the statement of claim, but first applied for security for costs. On 7 May 2018, Mr and Mrs Frigger were ordered to pay the sum of $30,000 as security for costs. The proceedings were stayed until provision of that security or further order. 7 On 20 July 2018, sequestration orders were made against the estates of Mr and Mrs Frigger. 8 Since then, the trustee in bankruptcy of the estates of Mr and Mrs Frigger has not sought to pursue these proceedings and the security as ordered has not been provided. 9 In the above circumstances, Mr Kitay seeks dismissal of the proceedings on the basis that they have been abandoned by the trustee, or alternatively by reason of the failure to provide security as ordered. Somewhat belatedly, Mr and Mrs Frigger seek an extension of time in which to provide security. Their application for more time was first sought to be made by interlocutory application which was sought to be filed on 20 January 2021. At my direction the application was not accepted for filing: Frigger, in the matter of Computer Accounting & Tax Pty Ltd (in liq) (No 3) [2021] FCA 21. The application was again made orally in the course of the hearing of the application brought by Mr Kitay.

Outcome 10 For the following reasons, the proceedings should be dismissed and Mr and Mrs Frigger should be ordered to pay the costs of the proceedings, including reserved costs, to be assessed if not agreed.

Basis on which application is opposed by Mr and Mrs Frigger 11 Mr and Mrs Frigger advance the following contentions in opposition to the application: (1) the amended statement of claim includes a claim for personal injury being the claim the subject of paragraph 157 which Mr and Mrs Frigger say they are entitled to pursue by reason of the terms of s 60(4) of the Bankruptcy Act 1966 (Cth); (2) the amended statement of claim includes claims brought by Mr and Mrs Frigger as trustees of the Frigger Superannuation Fund; (3) the amended statement of claim includes derivative claims by members of CAT that do not vest in the trustee; (4) Mr Kitay did not properly notify the trustee in bankruptcy of these proceedings and, in consequence, there has been no abandonment of the proceedings by the trustee; (5) on 31 August 2018, Mr and Mrs Frigger filed and served an affidavit showing that they had complied with the order for security, albeit a few days late; (6) the Court should now grant an extension of time for 28 days to allow Mr and Mrs Frigger more time to comply with the order for security; (7) an application has been brought by Mr and Mrs Frigger in the Supreme Court seeking to challenge the costs judgment which was the subject of the bankruptcy notices the basis for the successful petition for their bankruptcy (Costs Judgment); (8) the sequestration orders may be challenged by way of annulment; and (9) Mr Kitay has delayed in bringing his application. 12 Each of these contentions is addressed below.

Contention (1): Alleged claim for personal injury 13 As has been explained, the claim the subject of paragraph 157 does not form part of the proceedings. It is outside the terms of the amended application. Therefore, it cannot form a basis for a claim that the proceedings at the time of the commencement of the bankruptcy of Mr and Mrs Frigger were claims seeking damages for personal injury. There is no other basis for that contention. It must be rejected.

Contention (2): Alleged claims as trustees of the Frigger Superannuation Fund 14 There are a number of problems with this contention. First, the amended application advances no claim by trustees of the Frigger Superannuation Fund. Second, the stay effected by s 60(2) of the Bankruptcy Act operates irrespective of the capacity in which proceedings are brought by Mr and Mrs Frigger: Bell v Cribb [2013] WASC 32 at [53] (Beech J). Third, it is by no means clear Mr and Mrs Frigger personally are able to act as trustees of the fund: see Frigger, in the matter of an application by Frigger [2019] FCA 1730 (Jackson J); and Frigger v Kitay (Liquidator) (No 2) [2020] FCA 721 at [1]. Fourth, as the submissions by Mrs Frigger acknowledge, the claims advanced by the trustees of the Frigger Superannuation Fund are the subject of long standing proceedings in the Supreme Court: Frigger v Kitay (Liquidator) [2020] FCA 482 at [12]-[15], [50]-[51]; and Kitay v Frigger [No 3] [2020] WASCA 55. Finally, in the course of oral submissions, Mrs Frigger acknowledged that the claims 'as trustees of the Frigger super fund' are now being dealt with by the Supreme Court. 15 Therefore, this contention is not a reason why the proceedings should not be dismissed.

Contention (3): Alleged derivative claims 16 Mrs Frigger submits that the proceedings include derivative claims advanced by Mr and Mrs Frigger as members of CAT. No leave has been given to bring any such derivative claims. CAT is not a party to the proceedings. Also, as Mrs Frigger recognised, CAT is in liquidation which poses a problem for a derivative action: as to which, see Chahwan v Euphoric Pty Ltd t/as Clay & Michel [2008] NSWCA 52 at [95]-[124] (Tobias JA, Beazley and Bell JJA agreeing). 17 Further, as has been noted, irrespective of the capacity in which Mr and Mrs Frigger seek to bring the application, the statutory stay continues because of their status as bankrupts. 18 Therefore, this contention is also not a reason why the proceedings should not be dismissed.

Contention (4): Proceedings have not been validly abandoned 19 Mr and Mrs Frigger submitted that Mr Kitay did not provide the correct statement of claim to the trustee in bankruptcy at the time of notifying the claims. Mr Kitay has deposed to the fact that the amended statement of claim was included with his notification to the trustee in bankruptcy. The factual foundation for that contention is not established. 20 Mr and Mrs Frigger also relied upon the fact that there was a change in the trustee in bankruptcy for their estates on 31 August 2018 when the public trustee took over the administration. On that basis it was contended that notification of these proceedings to the previous trustee could not operate to give rise to an abandonment for the purposes of the Bankruptcy Act and that there needed to be fresh notification to the new trustee. I do not accept that submission. If, as was the case here, notification was given to the holder of the office of trustee at the time notice was given then it operates as a valid notice. It is a matter for the former trustee and the new trustee to ensure that the records of the administration of the bankrupt estates are transmitted from one to the other.

Contention (5): Alleged late compliance with the order for security 21 Mrs Frigger made an oral submission that she and Mr Frigger applied for a bank guarantee but it 'did not come through until 25 May [2018]'. It was submitted that the Registrar refused to accept the bank guarantee. However, the evidence did not establish that to be the case. 22 The evidence was to the effect that, on 14 May 2018, Mr and Mrs Frigger inquired of the Court registry as to whether the bank guarantee as ordered had to be provided to the Court. They were told that the bank guarantee was required to be provided to the registry so it could be held as security for the other party's costs. Then, on 31 August 2018, Mr and Mrs Frigger sought to file an affidavit of Mrs Frigger deposing to what had occurred concerning the bank guarantee. The affidavit included the following statement: On 25 May 2018 my husband and I obtained a bank guarantee from Bank Australia in the sum of $30,000 in compliance with the order for security for costs dated 7 May 2018. Attached and marked AF1 is copy of the approval. 23 The document that was attached was not a bank guarantee. It was an email to Mrs Frigger from 'Bank Australia'. It said: Congratulations, Bank Australia is pleased to advise that your application for a Bank Guarantee of $30,000.00 has been approved. This approval is conditional. It is based on your financial position as stated at the time your application was assessed. Bank Australia may reconsider its approval of your loan if your financial position changes. This would be necessary to ensure your capacity to repay the loan remains within our guidelines. Please note that this email is NOT an offer of finance. The official offer will be in the form of an offer and loan contract which we will now prepare. You will receive a separate advice from us once this is ready for you. 24 The affidavit was not accepted for filing because security for costs was not provided and the stay of the proceedings continued. 25 It was obvious that the approval was not a bank guarantee. Mr and Mrs Frigger did not present to the Court a bank guarantee. Mrs Frigger maintained in oral submissions that once the approval was obtained the bank guarantee was in place. As to that position, the transcript of the hearing records the following exchange: HIS HONOUR: And you don't have, today, a bank guarantee? MS FRIGGER: Well, the bank guarantee is still there. I haven't contacted Bank of Australia since they gave me the approval, and the - my attempt to have that bank guarantee filed in the court was rejected. HIS HONOUR: Well, it wasn't - there's no attempt to file it in the court because there has never been one. MS FRIGGER: Well, your Honour, that's not my understanding of the bank guarantee. Once it was approved, it is in place. All of the other stuff about - - - HIS HONOUR: Well, that's certainly not the case and that's the significance of bank guarantees. They're an instrument. It's the instrument that has the operative effect. That's why the orders are made in the terms in which they are. The instrument has considerable significance because it's the instrument that the person calls upon in order to meet the obligation. MS FRIGGER: Yes. I understand that. HIS HONOUR: Not some approval of some application. MS FRIGGER: Your Honour, the only reply I could give to that was the affidavit of 31 August was also served on Mr Kitay. If there was any question about the validity of the bank guarantee or if that document which I put in as proof of the obtaining a bank guarantee was not sufficient, Mr Kitay could have asked me for more information and he did not. HIS HONOUR: Or he could have looked at the affidavit and concluded that you didn't have a bank guarantee, which is self-evident from the terms of the document. MS FRIGGER: Your Honour, well, if that's your position, there's nothing more I can say about that. 26 Mrs Frigger intimated in her affidavit that she was overwhelmed with the 'sequestration' and in consequence she did not have sufficient time to devote to these proceedings. Given the fact that steps were taken to apply for a bank guarantee and an approval was forthcoming, it is unclear how that was said to explain the failure to provide security being the first step that needed to be attended to if these proceedings were to be advanced by Mr and Mrs Frigger (as they claimed they could, despite their bankruptcy). 27 In oral submissions, Mrs Frigger then repeated her claim that she did not do anything after the affidavit was not accepted for filing because she was overwhelmed with litigation that came about as a consequence of the making of the sequestration orders. However, the record shows that much of the litigation that has ensued has been instigated by Mr and Mrs Frigger. Far from being overwhelmed, they have been most industrious in bringing applications in this Court and in the Supreme Court of Western Australia. 28 Further, even though Mr and Mrs Frigger act on their own behalf, they are experienced litigators. The history up until 2016 of the many claims brought by Mr and Mrs Frigger in the Supreme Court of Western Australia was set out by the Court of Appeal in Frigger v Professional Services of Australia Pty Ltd [No 2] [2016] WASCA 68 at [6]. Since then, there have been many more published decisions involving Mr and Mrs Frigger in this Court and in the Supreme Court. 29 Mrs Frigger frankly admitted that there was no other reason for the failure to provide the security as ordered. 30 Therefore, there was no compliance with the order for security and it remains the position that Mr and Mrs Frigger do not proffer a bank guarantee despite seeking to oppose the application to dismiss the proceedings. No real reason has been offered for their failure to do so.

Contention (6): Oral application to extend time to comply with security for costs order 31 Mr and Mrs Frigger made an oral application for a 28 day extension of time to comply with the security for costs order. Reliance was placed upon the evidence filed in support of the claim (outlined above) that there had been compliance with the order but the filing of the affidavit had been rejected. The evidence filed and submissions made demonstrate that Mr and Mrs Frigger knew what was required. They made inquiries of the Court as to whether the bank guarantee had to be provided and there were told that it did. They presented to the Court nothing more than an approval. They took no further steps after the affidavit was not accepted to provide the bank guarantee. No reasonable person in their position could have thought that the approval was the required instrument. Mrs Frigger accepted as much in the course of submissions. In those circumstances, in substance, they offered no real explanation for the failure to comply with the orders. Years have now passed since the order was made. For those reasons, the application for an extension of time should be refused.

Contention (7) Application to challenge the Costs Judgment 32 Mrs Frigger deposes that an application has been brought by Mr and Mrs Frigger in the Supreme Court to set aside the Costs Judgment which was relied upon as the basis for the petition that led to the sequestration orders against the estates of Mr and Mrs Frigger. They rely upon the bringing of that application as a reason why the present proceedings should not be dismissed. 33 At the hearing of the bankruptcy petition Mr and Mrs Frigger raised 11 grounds in opposition: Kitay, in the matter of Frigger (No 2) [2018] FCA 1032 at [11]. They included a number of grounds that sought to go behind the Costs Judgment for the purpose of demonstrating that there was no liability to pay the costs and therefore no act of bankruptcy. Those arguments were considered in detail and were not accepted. 34 Thereafter, Mr and Mrs Frigger embarked upon an extensive course of litigation in seeking to challenge the sequestration orders: see Frigger v Kitay [2019] FCA 624; Frigger v Kitay (No 2) [2020] FCA 497; and Frigger v Kitay (No 3) [2020] FCA 650. They have also been involved in other proceedings in this Court in which dismissal orders were sought consequent upon their bankruptcy and opposed by them: Frigger v Banning (No 11) [2020] FCA 1257. Amongst the various arguments raised in opposition to the dismissal of those other proceedings, it was not suggested that there might be some challenge to the original judgment on which the petition was based. 35 More than two years after the sequestration orders were made and after taking the steps I have described, Mr and Mrs Frigger now seek to challenge the original Costs Judgment. The delay in doing so is unexplained. As I have already observed, the merits of many arguments advanced by Mr and Mrs Frigger concerning the Costs Judgment have been considered by this Court and have not been accepted. 36 Mrs Frigger submitted that the statement of grounds that had been filed by Mr and Mrs Frigger in seeking to set aside the Costs Judgment had been considered by Hill J in the Supreme Court and had been found to be serious allegations of misconduct by Mr Kitay. Reference was made to the reasons of Hill J in Re Kitay in his capacity as Liquidator of Computer Accounting and Tax Pty Ltd (in liq) and Computer Accounting and Tax Pty Ltd (in liq) [No 2] [2020] WASC 373. 37 Perusal of the reasons reveals that Mr Kitay has brought proceedings against Mrs Frigger for contempt of court for alleged disobedience of orders made by the Supreme Court. Those orders were made when Mr Kitay as liquidator sought court approval in 2012 to enter into certain agreements. They provided for confidentiality of certain material relied upon at the time of seeking the approval. It is claimed that Mrs Frigger has breached those orders. 38 I note that the Costs Judgment was an indemnity costs order made in consequence of the actions of Mr and Mrs Frigger when they obtained access to the material the subject of the confidentiality orders and refused to deliver up that material. These matters were described in my reasons on the hearing of the bankruptcy petition: Kitay, in the matter of Frigger (No 2) at [44]-[90]. 39 Mrs Frigger sought discovery in the contempt proceedings and an issue arose as to whether those orders could be made. In giving reasons refusing the application for discovery, Hill J referred to Mrs Frigger having filed a number of affidavits in support of the discovery application and described those affidavits as raising a number of serious allegations against Mr Kitay and his solicitors which are denied by them. Her Honour then said at [9]: 'In circumstances where I have determined that Mrs Frigger's application cannot be made pursuant to the liberty to apply, or in the notice of motion for contempt it is unnecessary for me to refer to or summarise these allegations'. Later, in setting out the submissions of Mrs Frigger as to why she was entitled to discovery, Hill J said at [11]: 'Mrs Frigger contended that the Original Application [being the application for court approval], on which orders were made by the court on 17 January 2012, was an abuse of process and abuse of power. She also contended that there was a serious non-disclosure of material facts and "a fraud on the court"'. The mere recounting of these matters by her Honour lends no credibility to the claims by Mr and Mrs Frigger that there may be some basis to challenge the Costs Judgment. 40 In the above circumstances, I am not satisfied that the belated application to challenge the Costs Judgment is a reason why the dismissal order should not be made.

Contention (8): Foreshadowed annulment application 41 Mrs Frigger submitted that the sequestration orders could be challenged by way of annulment. It appeared to be a possibility that was linked to the challenge in the Supreme Court to the Costs Judgment which led to the sequestration orders. 42 In Frigger v Banning (No 9) [2019] FCA 1611, I declined to order dismissal of the proceedings in circumstances where Mr and Mrs Frigger had proceedings on foot in which they sought leave to bring proceedings to challenge the sequestration orders. In the result, those proceedings did not result in leave. As Mrs Frigger explained in the course of oral submissions in these proceedings: [The proceedings brought challenging the sequestration orders] were dismissed because we decided we did not want to continue with that application to appeal … I think it's called leave to appeal out of time … because the application to set aside the original costs judgment [that is the Cost Judgment] had already come into play in the Supreme Court and there was no point in running two parallel matters at the same time, and that is why we simply did not pursue the application for leave to appeal. 43 In the result, the proceedings the subject of the decision in Frigger v Banning (No 9) were dismissed for reasons that I gave in Frigger v Banning (No 11). 44 It was submitted that a similar approach should be adopted because of the pending challenge to the Costs Judgment and, so it would appear, the possible consequent application to annul the bankruptcies if and when the Costs Judgment was set aside. 45 For reasons that I have given, because of the history of scrutiny of the Costs Judgment which has not been met with any success on the part of Mr and Mrs Frigger and the considerable delay in bringing the proceedings in the Supreme Court (which reaches back to when the judgment was relied upon as the basis for a bankruptcy notice), I am not satisfied that it is appropriate to further delay consideration of the dismissal of these proceedings for that reason.

Contention (9): Alleged delay by Mr Kitay 46 I do not accept that the fact that Mr Kitay has waited for some time until bringing the present application counts against dismissal. For a time, as has been recounted, steps were being taken by Mr and Mrs Frigger to seek to challenge the sequestration orders. It was appropriate for Mr Kitay to wait until the outcome of those steps was known. Otherwise, the passage of time in which nothing was done by Mr and Mrs Frigger to provide the security or seek an extension of time in which to do so, counts in favour of now dismissing the proceedings.

Should the proceedings be dismissed? 47 In Frigger v Banning (No 8) [2019] FCA 1319 at [27]-[34], I summarised the decisions as to the consequences of the statutory stay followed by abandonment of proceedings by a trustee. The abandonment operates only as against the trustee. The stay operates as to the proceedings by the bankrupts in any capacity. However, notwithstanding abandonment by the trustee and the statutory stay, the cause of action remains. In appropriate circumstances, the proceedings may still be able to be advanced by others. Possibilities include allowing a party who is not a bankrupt to continue the proceedings where they are advanced in a representative capacity or an assignee of the claims the subject of the proceedings to continue them. 48 Therefore, it is necessary for the further step to be taken of dismissing the proceedings if there is to be an order that may affect the cause of action. Even when a dismissal order is made it is possible that it may provide for leave to bring further proceedings if that is the intended effect. Otherwise, it may be necessary for there to be subsequent consideration as to whether the dismissal order, in the circumstances in which it was made, was to operate finally: Zetta Jet Pte Ltd v The Ship 'Dragon Pearl' (No 2) [2018] FCAFC 132; (2018) 265 FCR 290 at [27]. However, it is apparent that the orders sought by Mr Kitay are of a kind that will bring these proceedings to an end without qualification as to the effect of an order for dismissal and the application should be approached on that basis. 49 For reasons I have given, none of the matters raised by Mr and Mrs Frigger as reasons why the proceedings should not be dismissed have merit. The proceedings have been stayed by operation of the Bankruptcy Act for a number of years. The trustee in bankruptcy has abandoned the proceedings. There is no suggestion that any third party is interested in advancing the claims the subject of the proceedings. Mr and Mrs Frigger have been afforded ample opportunity to advance their claim that the sequestration orders should be set aside and have not obtained leave to do so. The proceedings have been on foot since 2015 and Mr Kitay is entitled to have the proceedings brought to an end rather than have the ongoing uncertainty of pending litigation and the prospect of being brought back before the Court to respond to the claims at a time that will now be many years after the events the subject of those claims has passed. For those reasons, even putting to one side the failure to provide security, I am persuaded that the proceedings should be dismissed. 50 Therefore, no purpose would be served by affording Mr and Mrs Frigger a further opportunity to provide security notwithstanding their substantively unexplained delay in doing so - which is a further reason for not acceding to their oral application for more time to comply. 51 Where a party fails to give security as ordered, then the proceedings may be dismissed: s 56(4) of the Federal Court of Australia Act 1976 (Cth). In substance, the failure to provide security is unexplained. I am satisfied that in the circumstances I have described, it is a further basis upon which the proceedings should be dismissed. 52 Therefore, there should be orders dismissing these proceedings with costs. I certify that the preceding fifty-two (52) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Colvin.