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[2010] WASC 2
Supreme Court of WA
2010-01-08
Simmonds J
Original judgment source is linked above.
1 SIMMONDS J: (This judgment was delivered at the end of the hearing, and has been edited from the transcript.)
2 This matter, it seems to me, is one of some considerable urgency. There is an issue of collection of information and there is, as well, an issue having to do with payment in accordance with orders which, as I understand it, have now been made, if not extracted, as a result of the decision of the Court of Appeal in Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd [No 2] [2009] WASCA 183 (S) (PSA [No 2] (S)).
3 Professional Services of Australia Pty Ltd (PSA) and Donald CampbellSmith as the executor of the estate of Martin Paul Banning (deceased) seek orders under Rules of Supreme Court 1971 (WA) O 52A. They are of a freezing and of an ancillary kind. They have undergone some transformation during the course of the lead-up to this hearing, as well as at the hearing itself. In their final form, as put to me, they seek only orders against Hartmut Hubert Joseph Frigger (Mr Frigger) and Angela Cecilia Theresa Frigger (Mrs Frigger) (together, the Friggers), who are the directors and the sole shareholders of Computer Accounting and Tax Pty Ltd (CAT). I will continue to refer to the persons I have identified by their names rather than by their positional designations. Mrs Frigger appeared for herself and as I understood it for her husband.
4 I will refer to the persons involved in these proceedings by their names rather that their positional designations because the proceedings before me are in CIV 2265 of 2006, not in CACV 76 of 2008, and that is because the subject matter of the proceedings goes to, in accordance with O 52A, the question of protection against the risks to which O 52A is directed, in respect of the judgment debt, as that judgment debt has now been fixed by the Court of Appeal.
5 In that last respect I leave aside the matter of the special leave application to the High Court in respect of the Court of Appeal's judgment. It seems to me that that is simply a matter which does not have a bearing on the issues that I have to address. The special leave application and what will happen in it is a matter with respect to which it is simply, at this stage, impossible to sensibly speculate.
6 The judgment sum is now fixed as PSA [No 2] (S) [21] provides. It is not in dispute that CAT was paid the sum of $1,165,661.54 earlier, in June of this year, as I understand it, as the judgment sum. The payment may or may not have been made by Banning Holdings Pty Ltd (Banning Holdings), either for itself or on instructions from the administrator of PSA, Mr Holbrook, under a deed of company arrangement, which provides for such a payment out of a fund to which Banning Holdings was to contribute.
7 It does not seem to me that for my purposes it matters, because it is clear from the Court of Appeal judgment that the Court of Appeal has ordered CAT to refund or 'pay', to use the language of the orders, the appellants in the appeal, being PSA and the estate of Martin Paul Banning, the amounts referred to in [21] of that judgment, at the numbers '4', '5' and '6'.
8 There is a qualification of that obligation to pay. The qualification is this: that there are costs orders which I made on 6 May 2009 which have been set aside, and the question of the costs of the trial has been remitted to me for reconsideration in light of the reasons of the Court of Appeal: see '8' in [21]. That will have an offsetting effect on the liability of the respondent to the appellants, but the orders of the Court of Appeal are, it seems to me, in clear terms, having to do with amounts to be paid either by PSA and the estate of Martin Paul Banning to CAT, or vice versa.
9 My concern in relation to the freezing and ancillary orders are the amounts referred to in the paragraphs numbered '4', '5' and '6' in [21]. Those amounts represent a substantial sum. The substantial sum I am prepared to take as in the order of $850,000. The freezing and ancillary orders being sought are directed to protecting PSA and the estate of Martin Paul Banning from, in what is referred to in O52A r5(4), 'a danger that a judgment or prospective judgment' in this case a judgment 'will be wholly or partly unsatisfied because the assets ... of the judgment debtor,' in this case CAT, will be 'disposed of, dealt with, or diminished in value.'; and O 52A r 5(5), 'a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because [a] third party holds or is using, or has exercised or is exercising, a power of disposition over assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor; or the third party is in possession of, or in a position of control or influence concerning assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor; or a process in the court is or may ultimately be available to the applicant as a result of a judgment or prospective judgment, under which process the third party may be obliged to disgorge assets or contribute toward satisfying the judgment or prospective judgment.'
10 In such cases a freezing order may be made including, as subrule (5) specifically contemplates, against a third party, and ancillary orders may also be made in such a case. Orders both of an ancillary and a freezing kind are now sought against Mr and Mrs Frigger by reference to those considerations, most notably subrule (5) having to do with third parties. The basis for the application is placed in two particular factual matters in relation to which my attention was then drawn to the substantial body of affidavit material that has developed in these proceedings. The first consideration referred to is the registration of a charge over certain assets of the respondent in favour of Mr and Mrs Frigger where the principal amount, for which the charge is said to have been given, is $2 million.
11 For this purpose I need to refer to the affidavit of Mr CampbellSmith, the executor of the estate of Martin Paul Banning, of 3 December 2009, which attaches a deed dated 10 September 2009. This is the date of creation of the security interest referred to in the deed, and the deed describes the property as mortgaged. Indeed, it may well be that the security interest is - and in fact it is described by Mr Campbell-Smith as a fixed charge over the assets of the respondent. The principal sum referred to in the schedule to the deed dated 10 September 2009 is referred to as:
$2,000,000 granted by way of loan secured under this deed which Angela Cecilia Theresa Frigger and Hartmut Hubert Joseph Frigger is entitled to this security to protect loans both present and future and/or undistributed capital gains both present and future and/or equity both present and future such as has been assigned to Angela Cecilia Theresa Frigger and Hartmut Hubert Joseph Frigger under this deed, limited to $2,000,000.
12 The phrasing of the reference to the principal sum is not altogether straightforward, but does appear to indicate that substantial moneys are owing to the Friggers. Indeed, the affidavit of Mrs Frigger, in opposition to the present application sworn 8 December 2009, [24], when read with the earlier paragraphs, having to do with an agreement between CAT and the Friggers for reimbursement of the costs that the Friggers would be incurring in these proceedings (an agreement going back to 2005) would tend to confirm that there is indeed a substantial liability which the deed of charge secures.
13 The charge was registered on 23 October 2009. That is the date on which the reasons of the Court of Appeal Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd [No 2] [2009] WASCA 183 (PSA [No 2]), and after which the orders, the subject of the supplemental reasons, were published on 7 December 2009. That concurrence of dates raises, on the submission of the applicant, a concern about whether or not there is a real danger that assets of the judgment debtor, CAT, are going to be diverted to the Friggers in a way which would prevent satisfaction in full of the judgment debt.
14 That matter of diversion, on evidence of that kind, it seems to me, is not clearly sufficient for the purpose for which it was adduced, as Cardile v LED Builders Pty Ltd [1999] HCA 18; (1999) 198 CLR 380 [51] (Gaudron, McHugh, Gummow and Callinan JJ) makes plain, orders of this kind should not be made in the absence of clear evidence of the risk or danger to which O 52A refers. There is a suggestive quality to the matters that I have referred to but, had they stood on their own, that suggestive quality might not have been sufficient to incline me to the conclusions to which PSA and the estate of Martin Paul Banning would press me.
15 However, there is a further matter. This has to do with what appears to me to be a tension in the evidentiary material to which I referred earlier. The tension is between what appears in an affidavit of Mrs Frigger dated 23 September 2008, [7] and [16] through [23], an affidavit which was concerned with an application brought in the appeal proceedings, which ultimately culminated in PSA [No 2] and PSA [No 2] (S), for stay of execution.
16 Mrs Frigger's affidavit indicated at that point that there were the properties referred to there - and I will have occasion to return to them later - including a property at Edward Street, described as, on the face of the material at least, the property of CAT. Also referred to in those paragraphs was an ability to repay a loan to directors in the amount of $750,000, and that there were no liabilities of CAT.
17 That assertion becomes rather difficult to square with what appears on the face of the deed of charge to which I referred earlier, confirmed, to the extent that it is, by Mrs Frigger's affidavit of 8 December of this year. That, it seems to me, points to - with the other evidence to which I referred - a danger of the kind to which O 52A r 5(5) points.
18 The way in which it engages O 52A r 5(5), it seems to me, is this. It goes to par (b) of subrule (5), pointing to the possibility that there may indeed be a prospect of a payment liable to be set aside by the court, or indeed the granting of a security liable to be set aside by the court, as an unfair preference of CAT if CAT were found to be insolvent at a relevant time.
19 The question of the solvency of CAT is a matter which is raised both by the debt to which I have referred, as well as by the asset position of CAT, to which I will come shortly, when those two matters are considered with the affidavit of Mrs Frigger, 8 December, which refers in [9] to an exchange she had with a Mr Glenn Trinick, registered company liquidator, following the handing down of the Court of Appeal's decision on 23 October 2009. This was a conversation in which she sought advice from him, as the affidavit says, 'as I believed the Respondent could be insolvent.'
20 She goes on to say that she agreed with Mr Trinick that she would again consult with him after his return from holiday early in December 2009. Paragraph 10 says that on 3 December 2009 the members of the respondent resolved to put the respondent into voluntary liquidation, and adds, 'I have assessed the Respondent's financial status and we intend to make a declaration of solvency pursuant to s 494 Corporations Act 2001.'
21 No such declaration could be responsibly made if in fact CAT were insolvent, and Mrs Frigger indicated to me that par 10 was an indication that she had reconsidered the matters referred to in par 9. However, it seems to me that there is a significant question of doubt which has not altogether been resolved in view of the debt for which the deed of charge represents security and, having regard to transactions that I will shortly reach, that in fact the company is solvent.
22 In this regard, it seems to me that I am in a position to distinguish an authority referred to by Mrs Frigger, DRD Australasia APS v Stratton [No 2] [2008] WASC 76, particularly [45] [47], to the extent that those paragraphs support the view that it is necessary, before questions of the application of O 52A r 5(5)(b) arise, that there be reason to doubt the solvency or capacity of a company. In DRD it was for the purpose of an undertaking, but I am prepared to consider that case also for what it has to say with respect to the application of O 52A r 5(5)(b), that PSA and the estate of Mr Banning have discharged the burden of proof for showing that a process may ultimately be available to the applicant, under which the third party may be obliged to disgorge assets or contribute towards satisfying the judgment or prospective judgment.
23 I notice particularly in that regard that the fact there is not detailed information upon which PSA and the estate of Martin Paul Banning are able to rely as to the financial condition of the judgment debtor is not a bar to the court concluding that a sufficient basis has been laid for a real risk of dissipation of assets. For this purpose I refer to the decision that my attention was drawn to by counsel for PSA and the estate of Mr Banning, being Commissioner of State Taxation WA v Mechold Pty Ltd (Unreported, WASC, Library No 950019, 23 January 1995).
24 The conclusion that detailed information is not required for the purpose of the order does, however, have a further significance. Where detailed information is lacking, that may well affect the character of the order to be made, as in fact, I believe, is reflected in the orders sought before me. The ancillary orders, in particular, as I will note, are of an informational kind. As well, the freezing orders are time limited in service of those informational orders.
25 That then takes me to the further matter upon which the present application is rested. That further matter has to do with the lodgement of certain caveats in respect of what appear to be the two principal assets of CAT, whether CAT is to be treated as simply the holder of legal title to those assets, or is to be treated as the holder of those assets beneficially. The assets in question are pieces of real property, and they are identified in Mr CampbellSmith's affidavit of 3 December 2009. They are properties are situated at 140 Edward Street and 46 Pier Street in Perth, which appear to be the subject of certificate of title vol 1280 folio 878; as well as the property at 296 SouthWestern Highway, Armadale, Western Australia, being the subject of certificate of title vol 1913 folio 146.
26 Those properties are respectively the property that is shown in the affidavit of Mrs Frigger of September 2008, to which I earlier referred, in terms which would suggest that it is beneficially, or was beneficially owned by CAT; and the other property, the subject of certificate of title 1913 folio 146, is the property the subject of the action in CIV 2265 of 2006. The latter property is one, the beneficial ownership of which I addressed in my trial judgment in this action, Computer Accounting & Tax Pty Ltd v Professional Services of Australia [2008] WASC 133.
27 The principal part of the damages award in that judgment was, of course, reversed by the Court of Appeal. However, the finding that I made at [89] was not, it seems, disturbed by the Court of Appeal - certainly the contrary was not put to me - and that finding was that the plaintiff, CAT, acquired the property presently in question in its own right and not in its capacity as trustee for the Frigger Super Fund. I had rehearsed earlier in my judgment the conflict in the evidence with respect to that matter.
28 The caveats lodged in respect of both properties was by the Friggers as holders of beneficial interests. As it appears from the affidavit of Mrs Frigger of 8 December 2008, as well as from what was put to me both by Mrs Frigger and by counsel for PSA and the estate of Martin Paul Banning, the beneficial interests arose out of the Frigger Super Fund.
29 In view of what I have said as to the beneficial interests in the properties concerned, the obvious question arises as to how those beneficial interests were derived. On the evidence before me they were derived - and I have, I stress, no other evidence in that regard than this - by a transaction or transactions of transfer. These transfers appear most conveniently for my purposes as annexures to the affidavits of Mrs Frigger.
30 The relevant annexures are transfer of land documents from CAT to CAT, and it was explained to me that this was to recognise CAT as the trustee of those properties. The consideration recorded for the transfer in each case is $1. It is not clear on the evidence before me as to how it was that the beneficial interest in those properties moved over to the Friggers other than by reference to those transfers. Mrs Frigger's affidavit at [23] and [24] does not, with respect, advance the matter any further.
31 The effect of the transfers appears to have been to place substantial assets - indeed, these substantial non cash assets of CAT - beyond the reach of the general creditors of that company. Of course the cash assets of CAT also have to be accounted for. Those amounts on the evidence before me $80,000, $52,000 and $999,999 on that evidence need to be added to the judgment sum paid to CAT. The total of those amounts though needs also to take account of the amount for which the deed of charge was taken.
32 The caveats were lodged on 13 November 2009. It does not seem to be suggested that those beneficial interests under the Frigger Super Fund go to reduce, in any substantial way, the debt claim for which the deed of charge was entered into. The debt claim, as I have already indicated, is something in the order of $2 million. Indeed, that is equivalent to approximately the total of the $80,000 plus the $52,000, plus the $999,999 deposit, plus the $1,165,000 for the judgment sum.
33 The concern is that there is a danger that, in the payment of the debt for which the deed of charge is security, there will be a reduction in the capacity of CAT to meet the substantial - approximately $850,000 - amount that is due as a result of the supplemental judgment of the Court of Appeal. It is for that reason that I have concluded that there is a basis for the making of the orders sought by PSA and the estate of Martin Paul Banning.
34 That then takes me to the orders themselves. The orders sought, as modified, are of two kinds. The orders of the first kind are ancillary orders and these are of an informational character. During the hearing they were modified to restrict the ancillary orders to the Friggers. The restriction is because a question hangs over whether or not CAT has in fact been placed into voluntary liquidation.
35 I have already referred to the resolution of the members of CAT of 3 December 2009. The voluntary liquidation, if effected by that resolution, has a question mark hanging over it; it has to do with the appointment of a liquidator in respect of whom it is not clear that the consent prior to appointment, being that demanded by Corporations Act 2001 (Cth) s 532(9), was in fact obtained. Mrs Frigger quite frankly acknowledged that it was not clear to her that it had in fact been obtained.
36 If the lack of such prior consent is not a bar to the effectiveness of the liquidation, it is however clear that the liquidation, if it proceeds, would have to be one by way of a creditors' voluntary liquidation. I say this because, again as Mrs Frigger frankly conceded, there had been no provision of a declaration of solvency before the meeting of the members. A prior provision of a declaration of solvency is required before the liquidation is in fact a members' voluntary liquidation. Otherwise, the voluntary liquidation proceeds as a creditors' voluntary liquidation. See Corporations Act s 9 'members voluntary winding up' and 'creditors voluntary winding up'.
37 It may well be Mrs Frigger indicated this that there is a question whether the liquidation will now be persevered with. That is not a matter for me to address. However, the doubt in respect of whether or not the company is in liquidation led to the change that I have referred to in the ancillary orders which had previously called upon the respondent, namely CAT, to provide the information that the Friggers are now required to provide.
38 The information called for in order 7(a) is of a kind which indeed a declaration of solvency might address, if not in the same level of detail. Order 7(a) calls for assets and liabilities to be described; in respect of assets, a breakdown between those held on trust and those not held on trust, and as to liabilities, details of mortgages, charges or other encumbrances.
39 In addition, however, order 7(a) requires that the Friggers provide information as to what has become of the money paid to CAT in satisfaction of the judgment in CIV 2265 of 2006, and to provide copies of the most recent financial statements of CAT showing the details of any loan accounts owing to the Friggers. It seems to me that this is information of a kind which the Friggers have already indicated they intend to reduce to a declaration of solvency, although, as I have said, not at the same level of detail.
40 Order 7(b), the further informational ancillary order, calls for the Friggers to provide information as to the consideration given by them to the present date in support of the loan account owing to them by CAT, as well as what is to become of any amounts paid to them by CAT and diminution of such loan account since 23 October 2009. The information in both cases, under orders 7(a) and 7(b), is to be provided by affidavit by a date to be specified.
41 It seems to me, in view of the bases for orders under O 52A and the undoubted jurisdiction to make ancillary orders under O 52A, that orders of that kind are appropriately to be made. I note for this purpose what the High Court had to say in Cardile [41], quoting from Patrick Stevedores Operations [No 2] Pty Ltd v Maritime Union of Australia [1998] HCA 30; (1998) 195 CLR 1 at 32, which indicates to me that it is not only necessary to see a clear basis laid before orders under rules like those in O 52A are made, but also to see to it that the orders are crafted in a way which is the least burdensome interference with the position, in this case of third parties, that is consistent with, and required by, the basis for making those orders.
42 That then takes me to the freezing of assets orders. The freezing of assets orders are directed solely to the Friggers. As I have indicated throughout these reasons, orders of a freezing and ancillary kind can indeed be made against third parties if the proper basis has been established, as I have said in these reasons it has. The freezing orders are three. They are, firstly, order 8, that:
Mr and Mrs Frigger must not take any steps to enforce the payment to them of any amount claimed to be owing to them by the Plaintiff [that is to say CAT] pursuant to the Deed of Charge dated 10 September 2009, or otherwise.
43 It seems to me that this order goes to the question of the doubt that has been cast over what it is that the Friggers are indeed owed by CAT, a doubt that will be addressed at least by the ancillary orders that I have described. It seems to me then that that order 8 is appropriately made, subject to a point that I will reach in a moment, having to do with the limited effect in time terms of these orders. Order 9, the second of the three, says that:
Mr and Mrs Frigger must not take any steps to replace the Plaintiff [CAT] as trustee of any trust in which the Plaintiff is presently the trustee.
44 This goes to the question, it seems to me, of proper control over assets, the interest of CAT, and which is the matter of the doubt that I referred to earlier. It is true that order 9 is not restricted to the real property the subject of the caveats, but it seems to me that those properties have raised doubts of a broader kind, with respect to the position of CAT as trustee or otherwise in respect of assets that have been described as assets of the company.
45 The problem for the Friggers, referred to by Mrs Frigger in her submissions, although not, as I read it, brought out in her affidavit of 18 December 2009 - a problem which, however, I am prepared to conclude is likely to have some substance - is that at least some assets of which CAT is trustee are assets subject to superannuation fund regulation and in respect of which, if CAT is a company properly in liquidation, and particularly if it is a creditors' voluntary liquidation, may call for CAT to be replaced. That would be a matter of some difficulty were it not for the time-limited character of the orders in question here.
46 The timelimited character, which applies by virtue of order 3, subject to variation or discharge of the order as the orders allow, provides for the orders to have effect up to and including a return date, at which there will be a further hearing in respect of the orders. The return date, it was explained to me, was to enable the affidavit material, the subject of the ancillary orders, to be assembled so that proper submissions could be made with respect to what the affidavit material showed or did not show, as the case may be, provided such a date were reasonably proximate to now.
47 I note again that much of that information is already, it seems, collected, and I refer again to Mrs Frigger's affidavit of 8 December 2009 [10]. That material should be capable of final assembly in reasonably short order, even allowing for what Mrs Frigger informed me was the likely absence of herself and her husband from the jurisdiction between the dates of 22 December next and 12 or 13 January 2010.
48 The third kind of freezing of assets order, order 10, is one for the Friggers not to take any steps to deal with or diminish the value of any of the following assets. The assets are the real property assets that I referred to earlier, or the net proceeds of their sale, and any property in the trust account of any solicitor acting for CAT, in particular that of the law firm Chris Stokes & Associates.
49 The question of order 10 was raised with me by Mrs Frigger with respect to the real property because of what she said was the Friggers' dependence upon those properties for ordinary living expenses, and with respect to the money in the trust account; the dependence, as I understood her, of the Friggers on that money for the purposes of funding the continuing legal proceedings, including, I would conclude, the special leave proceedings in the High Court.
50 The point is of some significance because there are no exceptions to the freezing orders that I have described up to now, of the kinds that normally appear in freezing orders, to allow for ordinary and reasonable living expenses or ordinary and reasonable legal costs. The terms of the freezing orders are, of course, more limited than freezing orders before the court often are, being restricted to particular assets or particular claims.
51 It seems to me, however, that it would be desirable, notwithstanding what I have just described as the limited scope of the freezing orders, that something in the nature of the usual exceptions to a freezing order be recognised in this case. I have already referred to the substantial character of the real property assets of CAT. The money in the trust account of any solicitor acting for the respondent might, of course, include - and perhaps might reasonably be expected to include - the amount paid for the judgment sum.
52 The amount paid for the judgment sum, less the amount due to be repaid to PSA and to the estate of Martin Paul Banning, represents an amount which, it seems to me, is an amount that the Friggers should be able to employ. However, the amount that they are required to repay, if that is what the trust account includes, would not seem to me to be money that they ought to have free access to.
53 The possibility for legal expenses and living expenses to eat up, as it were, amounts that would otherwise be paid to satisfy the judgment debt, do indeed give me some concern. However, it seems to me that there ought to be provision for them by way of exception to the freezing orders, save for that amount in the trust account, representing the amount which should be repaid to the PSA and the estate of Martin Paul Banning. If, however, that saving to the exception - that is to say that amount upon which the exceptions cannot operate - creates a problem for the Friggers, there is the liberty to apply to vary or discharge the order, provided for in order 4, which could be resorted to.
54 If there are then such exceptions of the kind that I have described, then it seems to me the orders are ones that could properly be made. I have not described the balance of the orders. There is, for example, an adjustment to par 11 that may need to be made, although perhaps not to the extent discussed with Mr Stephenson in the hearing because of the exceptions that I have indicated should be allowed. Also, I have not gone into the way in which the order will cease to have effect if CAT pays the amount referred to in order 12, $850,000, into court.
55 I should recognise, as Mrs Frigger pressed upon me, that the deed of company arrangement for PSA has a provision in it with respect to repayment of any excess, not to PSA let alone the estate of Martin Paul Banning, but to Banning Holdings itself. I refer to the latest provision of the deed of company arrangement cl 6.1.3. It seems to me, however, that the effect of that clause on the obligations created by the freezing orders is not one that would prevent me making the orders. I say that because cl 6.1.3 appears to me to allow for the possibility that the resolution of the matters of the excess will require further attention. In effect, the freezing orders provide for further attention to see to it that actions are not taken which reduce the possibilities, or diminish the possibility for payment of the excess in whole or in part, and that any payment of the sum of $850,000 into court or into a joint bank account would be an interim payment for the purpose of the deed of company arrangement.
56 There is, of course, a question mark hanging over the deed of company arrangement, as Mrs Frigger reminded me. That question mark, as to the validity of the deed of company arrangement, is not one that I can answer in these proceedings. Mrs Frigger also raised with me the possibility that the judgment debt, being the excess I have referred to, has been assigned to Banning Holdings by cl 6.1.3, with the effect that it is Banning Holdings that has standing to bring the present application if anyone does, not PSA and the estate of Martin Paul Banning.
57 With respect to that, it seems to me that it is reasonably clear that 6.1.3, if it does affect an assignment, as to which I express no concluded view, expresses an assignment for a future chosen action. That would leave the assignor, PSA, as trustee, and would leave PSA then in a position where it is the one which would need to assert whatever rights need to be asserted to protect the amount there referred to. Order 52A seems to me to comfortably fall within proceedings of that kind.
58 I leave aside the matter of any registration of an assignment of that character with the court that would enable Banning Holdings to bring an action in its own name; no such registration appears to have occurred in this case in any event.
59 That then brings me finally to two matters. The first of them is the undertaking or undertakings in respect of these orders.
60 There is an undertaking from Mr Donald CampbellSmith, and the worth of that undertaking was questioned vigorously by Mrs Frigger. For this purpose I should refer to a judgment of my own, delivered extemporaneously but not published in which I reviewed the asset position, as at 17 September 2009 on the affidavits that were before me then, of PSA and the estate of Martin Paul Banning. I concluded that I had not been shown any reason to find that the assets of the two of them combined was less than $380,000, and indeed I expected it to be significantly greater.
61 Since that time, of course, the estate of Martin Paul Banning and PSA have acquired, if I may put it that way, an additional asset, being the amount made payable to them under '4', '5' and '6' of PSA [No 2] (S) [21]. The matter of the consideration payable to the estate of Martin Paul Banning, for the sale of the share of Martin Paul Banning and Banning Holdings, is a more difficult one. I reviewed it in my reasons on 17 September 2009 and indicated there that it was not my view at that stage, in any event, that I should treat that share as worthless. Mrs Frigger strongly commends to my attention evidence which she says shows it is worthless. However, it seems to me that that is not, on the evidence in whole that I have before me for the purpose of the present application, a conflict that I can readily resolve.
62 What I can conclude is that between PSA and the estate of Martin Paul Banning there are assets of a substantial size, indeed exceeding $380,000 - or at least it has not been shown to me that they do not have between them assets of that magnitude. That would be sufficient provided there were undertakings from both of them. At present there is an undertaking only from Mr Donald CampbellSmith. It was pressed on me by Mr Stephenson that I should treat his undertaking as sufficient for my purposes.
63 However, it seems to me, in accordance with the common practice of the court, as well as the evidentiary considerations that I have referred to, that it would be appropriate that both parties seeking the benefit of the present orders give undertakings, even if it is expected that only one, Mr CampbellSmith, will ultimately be in a position to - or will ultimately be expected to - meet the undertaking.
64 It was not put to me, if there were significant assets between those two entities, that those assets would not be sufficient to meet any amount claimable under the undertakings for orders of the present kind. I repeat again that the orders are time limited.
65 That then takes me to the final matter of the two that I indicated, and that is the date by which the return of the present orders should be provided for and the date by which the relevant affidavits have to be prepared. In my view that is a matter, as well as the settlement of the final terms of the orders to give effect to these reasons, that should be left to the parties. Failing their agreement on those terms, the parties should have liberty to re-list the matter of settlement of those terms for further hearing.
66 There are two further matters that Mrs Frigger raised and that I should briefly address. One is the matter of the claim the Friggers have in CIV 1727 of 2009 in respect of the transfer to the Friggers of the share in Banning Holdings the property of the estate of Martin Paul Banning.
67 The other is the matter of the costs ultimately payable by the defendants, PSA and the estate of Martin Paul Banning to the plaintiff.
68 As to the first, the matter of the claim in respect of the purchase by the Friggers of a share in Banning Holdings, it seems to me that that has no bearing on the orders to be made here. The claim is against persons in entirely separate proceedings, and questions of setoff, assuming they arise, are, it seems to me, matters not likely to be resolved at any time in the near future. They should not, it seems to me, have a bearing on orders as time limited as these.
69 It is for the same reason that the matter of costs, so far as liability of the defendants to the plaintiff is concerned, should be dealt with. That is to say, the matter of those costs, which as I have indicated has been remitted to me for further consideration, in light of the reasons of the Court of Appeal, are not going to be resolved within the time frame to which the orders, at least as presently crafted, apply.
70 That does not mean that those matters might not have a bearing on future versions of the freezing orders, but it is unlikely they will have such a bearing in the near future. That, it seems to me, proceeds fairly straightforwardly out of the time periods that need to be allowed for under those orders.
CITATION : COMPUTER ACCOUNTING AND TAX PTY LTD -v- PROFESSIONAL SERVICES OF AUSTRALIA PTY LTD [No 3] [2010] WASC 2 (S)
DONALD CAMPBELL SMITH As Executor of the Estate of MARTIN PAUL BANNING
Costs - Costs of freezing and ancillary orders - Approach to costs where orders continued without determination of the merits, before their discharge by consent - Approach to costs of persons against whom orders made who were not party to principal proceedings in which application for freezing and ancillary orders brought - Approach to costs of and against person from whom undertaking for purposes of the freezing and ancillary orders made - Approach to costs where a liquidator in a members' voluntary winding up appointed who had power to take action against persons against whom freezing and ancillary orders made - Approach to costs where liquidator on a winding up appointed
Corporations Act 2001 (Cth), s 9, s 471B, s 532(9)
Property Law Act 1969 (WA), s 89
Supreme Court Act 1935 (WA), s 37
1 These are three sets of applications for costs orders in relation to proceedings for the now discharged, in their varied and extended form, freezing and ancillary orders obtained by the defendants (the defendants' freezing and ancillary orders).
2 One set of applications is of the persons against whom the defendants' freezing and ancillary orders were made, and is for certain costs orders against the defendants and also against one of the persons who purported to provide an undertaking for the purposes of those orders. The persons against whom the defendants' freezing and ancillary orders were made are Angela Cecilia Theresa Frigger (Mrs Frigger) and Hartmut Hubert Josef Frigger (Mr Frigger) (together, the Friggers). The Friggers at all material times have been the directors and have been shareholders of Computer Accounting and Tax Pty Ltd (CAT). CAT is a company now in liquidation, by orders to wind the company up in insolvency. The parties who obtained the defendants' freezing and ancillary orders, and who applied for the orders to wind up CAT in insolvency, were Professional Services of Australia Pty Ltd (PSA), a company which at the time those orders were obtained was a company subject to a deed of company arrangement; and Donald CampbellSmith (Mr CampbellSmith) as executor of the estate of the late Martin Paul Banning (Mr Banning) (together, the defendants). The person who provided an undertaking against whom the Friggers also seek costs orders is Kim David Holbrook (Mr Holbrook). Mr Holbrook at the time of providing the undertaking was the administrator under the deed of company arrangement of PSA.
3 I call the application for costs by the Friggers against the defendants the Friggers' application against the defendants.
4 I call the application for costs of the Friggers against Mr Holbrook the Friggers' application against Mr Holbrook.
5 Another application is of Mr Holbrook for costs against the Friggers. I call this Mr Holbrook's application against the Friggers.
6 A further set of applications is of the defendants for costs against the Friggers and CAT, subject to a limit in the latter case. I call the defendants' costs application against the Friggers the defendants' application against the Friggers. I call the defendants' costs application against CAT the defendants' application against CAT.
7 I call these applications together the costs applications.
8 In these reasons I turn first by way of background to events leading up to, the making of and events following the making of the defendants' freezing and ancillary orders until their discharge.
9 I then describe the orders sought under the costs applications and describe the law principally applicable to the issues the costs applications raise. I turn then to consider separately each of the costs applications. The final section of these reasons is my conclusions and call for orders.
Background: to the making of the defendants' freezing and ancillary orders
10 CIV 2265 of 2006 was an action for damages by CAT against PSA and Mr Banning for loss incurred in CAT's purchase of a property in Armadale (the Armadale property) as a result of misleading or deceptive conduct, negligence and deceit.
11 On 9 July 2008 following trial in the action I gave judgment for the CAT, for the reasons in Computer Accounting and Tax Pty Ltd v Professional Services of Australia Pty Ltd [2008] WASC 133 (CAT WASC 2008), and I ordered that PSA and Mr Banning pay the judgment sum there described (the judgment sum).
12 On 8 September 2008 Mr Banning died. By Mr Banning's last will Mr CampbellSmith was appointed his executor.
13 On 17 November 2008 administrators were appointed for PSA, and on 27 November 2008 Mr Holbrook was appointed administrator of the company.
14 On 20 March 2009 PSA and Mr Holbrook, among others, executed a deed of company arrangement (the DOCA). By the terms of the DOCA Mr Holbrook was appointed the administrator of the DOCA. The DOCA has undergone some amendments since it was entered into, but these do not appear to be material for my purposes.
15 On 6 May 2009, for the reasons in Computer Accounting and Tax Pty Ltd v Professional Services of Australia Pty Ltd [2008] WASC 133 (S) (CAT WASC 2008 (S)), I made costs orders, including special costs orders, in relation to the proceedings in CIV 2265 of 2006.
16 In or about June 2009 CAT was paid $1,165,661.54 as the judgment sum. No question of completion of the taxation of costs had then arisen.
17 By a deed of charge dated 10 September 2009 (the deed of charge) CAT charged among other property the judgment sum in favour of the Friggers to secure loans, present and future, capital gains and equity assigned to them, up to a limit of $2,000,000.
18 On 23 October 2009 the decision in Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd [No 2] [2009] WASCA 183 (PSA [No 2] WASCA) was delivered on the appeal against the decision in CAT WASC 2008. PSA [No 2] WASCA was the reasons for concluding the appeal should be allowed and that part of my decision awarding CAT damages should be set aside while the damages I awarded in another respect should be reduced, with a corresponding reduction in interest. Orders were then made, including setting aside the judgment in CAT WASC 2008 and ordering the payment out of court of the sum of $38,000 to the appellants' solicitors.
19 On the same date, 23 October 2009, the deed of charge was registered.
20 By application filed 3 December 2009, the defendants applied under Rules of the Supreme Court 1971 (WA) O 52A for freezing and ancillary orders against CAT and the Friggers (the defendants' application for freezing and ancillary orders). Those orders are based on the court's previous practice of issuing orders of the Mareva kind, so named for Mareva Compania Naviera SA v International Bulkcarriers SA [1980] 1 All ER 213: Kendall C and Curthoys J, LexisNexis, Civil Procedure in Western Australia, vol 1 (Service: 118) [52A.0.2]. The application for freezing and ancillary orders provided for the orders sought to have effect to a return date, on which there would be a further hearing in respect of those orders.
21 Rules of the Supreme Court 1971 (WA) (RSC) O 52A r 5 in material parts provided at all material times as follows:
(1) The Court may make an order (a freezing order), upon or without notice to the respondent, for the purpose of preventing the frustration or inhibition of the Court's process by seeking to meet a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied.
(1) The Court may make an order (an ancillary order) ancillary to a freezing order or prospective freezing order as the Court considers appropriate.
(2) Without limiting the generality of subrule (1), an ancillary order may be made for either or both of the following purposes -
(a) eliciting information relating to assets relevant to the freezing order or prospective freezing order;
(b) determining whether the freezing order should be made.
The Court may make a freezing order or an ancillary order against a respondent even if the respondent is not a party to a proceeding in which substantive relief is sought against the respondent.
(a) judgment has been given in favour of an applicant by -
(5) The Court may make a freezing order or an ancillary order or both against a person other than a judgment debtor or prospective judgment debtor (a third party) if the Court is satisfied, having regard to all the circumstances, that -
(a) there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because -
(i) the third party holds or is using, or has exercised or is exercising, a power of disposition over assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor; or
(ii) the third party is in possession of, or in a position of control or influence concerning, assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor;
(b) a process in the Court is or may ultimately be available to the applicant as a result of a judgment or prospective judgment, under which process the third party may be obliged to disgorge assets or contribute toward satisfying the judgment or prospective judgment.
22 The ancillary orders applied for against CAT were for it to file an affidavit listing all of its assets and liabilities and in particular what had become of the money paid to it in satisfaction of the judgment following on CAT WASC 2008; and to provide copies of the most recent financial statements of CAT showing details of any loan accounts owing to the Friggers.
23 The ancillary orders applied for against the Friggers were for them to file an affidavit deposing to the consideration given by them in support of any loan account claimed to be owing to them by CAT, and what had become of any amounts paid to them by CAT in diminution of any such loan account since 23 October 2009.
24 The freezing orders applied for against CAT were to prohibit it removing from Australia or in any way disposing of, dealing with or diminishing the value of any of its assets up to the unencumbered value of $850,000. CAT's assets for this purpose were defined as including among other listed assets ones it held in trust for others; properties (collectively, the land assets), being land at 140 Edward Street and 46 Pier Street in Perth, apparently the subject of Certificate of Title Volume 1280 Folio 878 (the Edward and Pier Street properties) and land at 296 South Western Highway in Armadale, being the subject of Certificate of Title Volume 1913 Folio 146 (the Armadale property); and money in the trust account of any solicitor acting for CAT (the trust account monies).
25 The freezing orders applied for against the Friggers were to prohibit them taking any steps to enforce the payment to them of any amount claimed to be owing to them by CAT pursuant to the deed of charge.
26 On 7 December 2009 the Court of Appeal delivered its reasons for, and the terms of, further orders following from PSA [No 2] WASCA, in Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd [No 2] [2009] WASCA 183 (S) (PSA [No 2] WASCA (S)).
27 The orders on the appeal following PSA [No 2] and PSA [No 2] WASCA (S) (the orders on the appeal) in material part were as follows:
1.1 the sum of $280,625.00 together with the sum of $87,370.48 being interest at the rate of 6 per cent per annum from 1 May 2003 to 9 July 2008, and thereafter $60.49 per day from 9 July 2008 to the date of payment.
1.2 the sum of $4,999.50 together with the sum of $1,444.24 being interest thereon at the rate of 6 per cent per annum from 15 September 2003 to 9 July 2008, and thereafter $1.06 per day from 9 July 2008 to the date of payment.
28 Subsequently, special leave to appeal against the decision in PSA [No 2] WASCA was applied for to the High Court.
Background: the making of the defendants' freezing and ancillary orders
29 On 10 December 2009 the defendants' application for freezing and ancillary orders was heard. At the hearing CAT was not represented while Mrs Frigger appeared for herself and Mr Frigger. PSA and Mr CampbellSmith sought the making of freezing and ancillary orders against the Friggers only.
30 As to the restraints on the Friggers, the case for PSA and Mr CampbellSmith was rested principally on preserving from action by the Friggers by way of enforcement of their deed of charge or dealing with the land assets or the trust account monies what were at least potential assets of CAT, in circumstances where such action would adversely affect CAT's ability to meet its liability under the orders on the appeal.
31 At the end of the hearing I gave oral reasons for deciding that freezing and ancillary orders should be made against the Friggers. Those reasons as edited were published on 8 January 2010 as Computer Accounting and Tax Pty Ltd v Professional Services of Australia Pty Ltd [No 3] [2010] WASC 2 (CAT [No 3] WASC 2010).
32 In outline, I concluded that the making of freezing and ancillary orders was appropriate by reference to RSC O 52A r 5(5)(b): see CAT [No 3] WASC [18] and [33]. I also concluded that the making of the orders was also appropriate by reference to O 52A r 5(5)(a): see CAT [No 3] WASC [33]. I reached those conclusions by reference to the registration of the deed of charge coinciding with the publication of PSA [No 2] WASCA (S), as well as evidence of the transfer for a nominal consideration to a superannuation fund of which the Friggers were beneficiaries (the Frigger Superannuation Fund) of the land assets of which CAT then became trustee, together with evidence pointing towards the insolvency of CAT that was of three kinds. They were evidence as to the debt under the deed of charge, evidence as to the beneficial interests in the land assets and evidence from Mrs Frigger herself as to doubts she had entertained as to CAT's solvency following the delivery of the decision in PSA [No 2] WASCA. See CAT [No 3] WASC 2010 [12], [13], [18], [16], [17], [19] [21] and [31] [33].
33 I noted that there was a lack of detailed information upon which PSA and Mr CampbellSmith could rely as to the financial condition of CAT, while detailed information was not required for the purpose of the freezing orders: see CAT [No 3] WASC 2010 [23]. At the same time that lack was reflected in the character of the ancillary orders sought, and the time limited character of the freezing orders sought: see [24]. I noted that during the hearing on 10 December 2009 the ancillary orders had been restricted to the Friggers, as questions hung over whether or not CAT had been placed into a members' voluntary liquidation under a resolution of the members to that effect of 3 December 2009; and, if not, whether there would be any such liquidation. Those questions arose as it was not clear that the consent of the liquidator prior to appointment demanded by Corporations Act 2001 (Cth) s 532(9) had in fact been obtained, and because there had been no declaration of solvency put before the meeting of the members as required for a members' voluntary liquidation by Corporations Act s 9 'members' voluntary winding up' and 'creditors' voluntary winding up': see [35] [36].
34 I also noted that an undertaking as to damages had only been proffered from Mr CampbellSmith. None was proffered by PSA. I concluded that it would be appropriate that both parties seeking the benefit of the defendants' freezing and ancillary orders provide undertakings, even if, as counsel for the applicants had put to me, it was expected that only Mr CampbellSmith would ultimately be in a position, or would ultimately be expected, to meet the undertaking: see CAT [No 3] WASC 2010 [63].
35 On 12 December 2009 a resolution for a members' voluntary winding up of CAT and the appointment of a liquidator, Glenn Douglas Trinick (Mr Trinick), was passed, replacing the earlier resolution of 3 December 2009 to those effects, and with a declaration of solvency having been provided at the later meeting.
36 On 16 December 2009 there was a hearing before me at which the final form of the orders to be made on the defendants' application for freezing and ancillary orders was settled. At the hearing PSA and Mr CampbellSmith were represented by counsel and Mrs Frigger and Mr Trinick appeared in person. The orders in that form, the defendants' freezing and ancillary orders, were to have effect until 22 January 2010, when there was to be a further hearing in respect of the orders (the First Return Date), subject to any earlier discharge.
37 The defendants' freezing and ancillary orders were principally as follows:
(a) Angela Cecilia Theresa Frigger and Hartmut Frigger (Mr & Mrs Frigger) shall file an affidavit deposing to:-
(i) all assets of whatever nature the Plaintiff owns or holds whether within or outside Australia, and, where the Plaintiff holds the same in trust for any person or persons and if so for whom, to separately identify the assets which are held for each trust;
(ii) all liabilities the Plaintiff owes to any person and the amount of those liabilities at the date of swearing the affidavit, and, including the details of any mortgages, charges or other encumbrances to which any assets are subject);
(iii) in particular, what has become of the money paid to the Plaintiff in satisfaction of the judgment in CIV 2265 of 2006; and
(iv) provide copies of the most recent financial statements of the Plaintiff showing the details of any loan accounts owing to Mr & Mrs Frigger.
(b) Mr & Mrs Frigger shall file an affidavit deposing to:-
(i) the consideration given by them to the present date in support of any loan account claimed to be owing to them by the Plaintiff; and
(ii) what has become of any amounts paid to them by the Plaintiff in diminution of any such loan account since 10 September 2009.
(a) the properties known as 140 Edward Street and 46 Pier Street in Perth, and, 296 South Western Highway, Armadale in the State of Western Australia, or, if any have been sold, the net proceeds of the sale;
(b) any money in the trust account of any solicitor acting for the Plaintiff, but, in particular Chris Stokes & Associates; but
(c) nothing in Order 10(b) hereof shall be taken to prevent the use of the money therein referred to to pay the reasonable legal expenses of the Plaintiff.
(a) pays the sum of $850,000 into Court; or
(b) pays that sum into a joint bank account in the name of the Plaintiff's solicitor and the solicitor for the First and Second Defendants as agreed in writing between them; or
(c) provides security in that sum by a method agreed in writing with the First and Second Defendants to be held subject to the order of the Court.
(d) Any such payment and any such security will not provide the First and Second Defendants with any priority over the Plaintiff's other creditors in the event of its insolvency.
38 The costs of the application for the defendants' freezing and ancillary orders were reserved to the judge hearing the application on the First Return Date.
39 For the hearing on 16 December 2009, the defendants provided undertakings, one commencing 'The Second Defendant in his capacity as executor in the estate of the late Martin Paul Banning', dated 10 December 2009, and the other commencing 'Kim David Holbrook in his capacity as the Administrator of the First Defendant', dated 14 December 2009. No issue arose as to the first undertaking. As to the second, there was an exchange between counsel for the defendants, Mrs Frigger and myself as to the provision in its terms limiting the compensation payable under it 'to the value of the assets of the First Defendant'. As a result of that exchange the form of undertaking provided to the court signed by Mr Holbrook and dated 16 December 2009 (Mr Holbrook's undertaking of 16 December 2009) was in the form of the earlier undertaking but materially for my purposes modified by the addition of the words after 'value of the assets of the First Defendant' of the words 'including for this purpose the assets held by it for the purposes of the Deed of Company Arrangement'; and by a further modification, the replacement of the commencing words 'Kim David Holbrook in his capacity as the Administrator of the First Defendant' with the words 'The Administrator of the First Defendant'. As will be seen counsel for the Friggers placed considerable emphasis on these modifications.
Background: events following the making of the defendants' freezing and ancillary orders until their discharge
40 There were a number of hearings held between the making of the defendants' freezing and ancillary orders and the making of orders for the discharge of their successors at which the matters of those orders and the costs of them were raised.
41 At the first such hearing, on the First Return Date, 22 January 2010, there were appearances for PSA and for Mr CampbellSmith by counsel and by Mrs Frigger. Most of the freezing orders, including in particular Orders 8 to 12, but not the ancillary orders, were extended, by consent (the defendants' extended freezing orders), to a new return date of 19 March 2010 (the Second Return Date).
42 It was noted at the hearing on 22 January 2010 that on 21 January 2010 I had made orders for the appointment of a provisional liquidator for the reasons given orally then and later published as Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd [2010] WASC 38. The provisional liquidator, Mr Mervyn Jonathan Kitay (Mr Kitay), was to replace Mr Trinick.
43 As I have indicated, at the hearing on 22 January 2010, the making of the defendants' extended freezing orders was by consent. Counsel for the defendants stated that that extension so far as the defendants were concerned was against the background that 'the provisional liquidator may by then have had plenty of time to come to grips with whatever he needs to and that need for continuation of the freezing orders would then fall away'.
44 Subsequently to the hearing on 22 January 2010, at a hearing on 15 February 2010, I made programming orders for the determination of the costs of the defendants' freezing and ancillary orders, on papers to be submitted (the programming orders of 15 February 2010). At that hearing on 15 February 2010 I also dismissed an application by the Friggers to dismiss the provisional liquidator without replacing him, for the reasons given orally and later published as Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd [No 2] [2010] WASC 113.
45 Subsequently, but before the Second Return Date, written submissions for the defendants as to costs indicating that they sought costs orders against both CAT and the Friggers were provided on or about 29 January 2010, with an affidavit in support of David Lenhoff (Mr Lenhoff), a partner in the firm of solicitors representing the defendants, sworn 29 January 2010; written submissions for the Friggers indicating that they sought costs orders against the defendants were provided on or about 19 February 2010; and responsive submissions for the defendants, provided on or about 24 February 2010.
46 At the hearing on the Second Return Date, 19 March 2010, the third hearing on the defendants' freezing and ancillary orders, there were appearances for the defendants by counsel, by Mrs Frigger and for Mr Holbrook by his solicitor.
47 There were in fact two matters before me at that hearing. One was the application by the defendants for a variation of freezing orders against them obtained by CAT (CAT's freezing orders). This occupied most of the time at the hearing. I made orders for variation of CAT's freezing orders and reserved costs. It is my understanding that those costs are not the subject of any of the costs applications.
48 The other matter before me at the hearing on 19 March 2010 was the return of the defendants' freezing and ancillary orders. Following the request of Mrs Frigger, which she made in view of her medical difficulties in continuing at the hearing, and following a brief exchange which included a reference to an affidavit of Mrs Frigger sworn 18 March 2010 (Mrs Frigger's affidavit of 18 March 2010) in opposition to the extension of the defendants' freezing and ancillary orders, I made orders without opposition further extending the defendants' extended freezing orders to 1 April 2010, as the next return date (the Third Return Date), with costs reserved. I noted that notwithstanding the programming orders of 15 February 2010 had expired the Friggers might wish to make submissions that matters as to the costs of the defendants' freezing and ancillary orders were raised by Mrs Frigger's affidavit of 18 March 2010, to which the defendants might wish to reply.
49 On 31 March 2010 I made orders by consent on the papers further extending the defendants' extended freezing orders to a new return date of 9 April 2010 (the Replacement Third Return Date). There was no costs order included in these orders.
50 On the Replacement Third Return Date, 9 April 2010, there were appearances for the Friggers by their then solicitor, for the defendants by counsel and for Mr Holbrook by his solicitor. At the hearing the solicitor for the Friggers, who indicated he had only recently been retained, requested a further adjournment to obtain the services of counsel. After exchanges with all the legal representatives present I made orders further extending the defendants' extended freezing orders to a new return date of 29 April 2010 (the Fourth Return Date), with costs reserved. I had settled the Fourth Return Date following the request of counsel for the defendants that that date come after the hearing of an application before Master Sanderson by the defendants to wind up CAT in insolvency or on the just and equitable ground.
51 On the Fourth Return Date, 29 April 2010, there were appearances for the Friggers by the solicitor who appeared for them on 9 April 2010, for the defendants by counsel and for Mr Holbrook by his solicitor. Counsel for the defendants indicated that at the hearing of the defendants' application for the winding up of CAT Master Sanderson had indicated he intended to grant the application but wished to issue reasons before making formal orders. The solicitor for the Friggers indicated he wished the hearing before me adjourned to permit counsel to attend and for that purpose the solicitor for the Friggers said they would consent to the further extension of the defendants' extended freezing orders. I made orders further extending the defendants' extended freezing orders to a new return date of 20 May 2010 (the Fifth Return Date) with costs reserved. I also made orders programming the provision of submissions and affidavits by the Friggers, the defendants and Mr Holbrook with respect to the basis upon which the Friggers claimed the defendants' freezing and ancillary orders should not have been made or did not come into effect, or the defendants' extended freezing orders should not be further extended.
52 On 6 May 2010 Master Sanderson delivered his reasons for deciding that CAT should be wound up in insolvency. See Professional Services of Australia Pty Ltd (Administrator Appointed) v Computer Accounting and Tax Pty Ltd [No 3] [2010] WASC 93 (PSA [No 3] WASC 2010).
53 On the Fifth Return Date, 20 May 2010, there were appearances for the Friggers by the same solicitor who appeared for them on 9 and 29 April; for the defendants by counsel; and for Mr Holbrook by his solicitor. Counsel for the Friggers sought a further extension of the defendants' extended freezing orders. At the hearing, and after consideration of a variation to O 9 in the defendants' extended freezing orders to allow for the appointment of a replacement of CAT as trustee of the Frigger Superannuation Fund, I made orders further extending the defendants' extended freezing orders, with a variation of O 9 (the defendants' extended freezing orders as varied) until 9 June 2010 (the Sixth Return Date). The hearing of the matters of the costs of defendants' application for freezing and ancillary orders and the costs of the hearing on 20 May 2010 was adjourned to 9 June 2010.
54 I note that during the hearing on 20 May 2010 counsel for the defendants made reference to the defendants' understanding there was or would be an appeal against making of the winding up order by Master Sanderson and an application for stay of that order. He stated a concern for the position of the defendants as judgment creditors of CAT until those matters were disposed of. Counsel for the Friggers made no comment on these matters. In fact, an appeal was ultimately made, but against only a part of the costs order of Master Sanderson: see Computer Accounting and Tax Pty Ltd (in liq) v Professional Services of Australia Pty Ltd [2010] WASCA 171.
55 On 28 May 2010 the High Court refused special leave to appeal the decision in PSA [No 2].
56 On the Sixth Return Date, 9 June 2010, there were appearances for the Friggers by counsel; for the defendants by counsel; and for Mr Holbrook by his solicitor. The Friggers sought orders that the defendants' extended freezing orders as varied be further extended until further order, while seeking an adjournment of the hearing as to costs. I made orders further extending the defendants' extended freezing orders as varied until further order and adjourning 'the matter' to a hearing on 5 July 2010. I also made programming orders for further affidavits from the Friggers, the defendants and Mr Holbrook. I ordered that the costs of the defendants and Mr Holbrook thrown away by the adjournment of the matter be paid by the Friggers in any event.
57 I note that at the hearing on 9 June 2010 counsel for the defendants indicated that as soon as the liquidator of CAT had determined with the benefit of legal advice whether it should take proceedings to claw back assets from Friggers the court might say, 'perhaps even now', that no 'possible reason' for the defendants' extended freezing orders as varied would remain.
59 On 7 July 2010, there was a hearing at which there were appearances for the defendants by counsel, for Mr Holbrook by his solicitor and for the Friggers by their counsel. Counsel for the Friggers put to me that the matter of the continuation of the defendants' extended freezing orders as varied was 'reopened', at least on the bases that the defendants' freezing and ancillary orders had never come into effect and in any event, at least with the appointment of the liquidator in May 2010, the orders had become 'redundant'. At that point counsel for the defendants indicated that they were content to have the orders discharged. After permitting the parties to confer on the matter, I made orders in the terms proposed by Friggers, consented to by the defendants, that the defendants' extended freezing orders as varied should be discharged effective 14 July 2010. That delay was to permit notice to liquidator of CAT of the change. Orders were also made that the costs of the hearing were to be treated as costs of the defendants' application for freezing and ancillary orders.
60 Argument at the hearing of 7 July 2010 then turned to the matter of costs of the application for the defendants' freezing and ancillary orders, with extensive submissions addressed to me from counsel for the defendants and for Mr Holbrook. Counsel for the defendants' submissions directed particular attention to the contents of an affidavit of Mrs Frigger sworn 22 June 2010 (Mrs Frigger's affidavit of 22 June 2010) which it was common ground was filed pursuant to the programming orders I made on 9 June 2010. Counsel put to me I should not take account of the affidavit as it was provided after the last date provided for in those orders, as it was inconsistent or in tension, in certain respects he developed in argument before me, with other affidavit evidence of Mrs Frigger. Counsel further put to me that Mrs Frigger's affidavit of 22 June 2010 lacked the documentary support called for by a request of the Friggers made by the solicitors for the defendants which counsel said was required to permit cross-examination of Mrs Frigger on the affidavit, were leave to crossexamine to be given. After hearing from counsel for the Friggers that additional time was required for the purposes of providing submissions in reply, I made orders without objection from the Friggers, the defendants or Mr Holbrook for the Friggers to produce the documents requested by the solicitor for the defendants, programming further submissions as to costs for the Friggers and adjourning the hearing to a further hearing as to costs on 30 August 2010, with Mrs Frigger to be available for cross-examination should leave be given to crossexamine her.
61 On 22 July 2010 there was a further hearing at which only counsel for the defendants appeared. At that hearing I made springing orders for the production of the documents called for by my orders of 7 July 2010. I ordered that the Friggers pay the costs of the hearing and those costs be fixed at the amount I indicated.
62 On 30 August 2010 there were appearances for Mr Holbrook by his solicitor, for the Friggers by their counsel and for the defendants by their solicitor. No argument as to the costs of the defendants' application for the freezing and ancillary orders occurred at that hearing. It was agreed that the hearing should be adjourned to a further hearing. I made orders that there be such an adjournment, that the costs of the hearing on 30 August 2010 be reserved to that further hearing, that the Friggers, the defendants and Mr Holbrook file and serve on one another and Mr Holbrook a list of the documents upon which it was proposed to rely at the hearing, that it not be possible for the Friggers, the defendants and Mr Holbrook to rely on any other documents without leave and that Mr Holbrook have liberty to file and serve for the hearing submissions and any supporting affidavits in response to certain submissions of the Friggers. The solicitor for Mr Holbrook had submitted to me that by those submissions for the first time the Friggers indicated clearly they would seek indemnity costs orders against Mr Holbrook.
63 The hearing on 13 and 14 October 2010 was the hearing provided for by the orders of 30 August 2010.
64 From this complicated history, particularly the hearing of 7 July 2010, I consider it to be evident that the defendants' freezing and ancillary orders were discharged by consent without any final argument or determination before that discharge of the merits of the cases proposed to be put for and against those orders ever having come into effect or their not having been discharged earlier. I did not understand any of those appearing before me to contend otherwise.
65 I should add that the Friggers subsequently applied for leave to adduce further evidence. For the reasons in Computer Accounting and Tax Pty Ltd v Professional Services of Australia Pty Ltd [No 4] [2011] WASC 284 I decided that I would not grant that leave.
66 To understand the issues raised by the costs applications it is necessary to describe in more detail the orders sought under each of them.
67 The Friggers' application against the defendants is for orders of two kinds. One is the Friggers' costs of the defendants' application for the defendants' freezing and ancillary orders and of all of the subsequent hearings to extend or otherwise deal with those orders, on an indemnity basis. In the alternative the Friggers submit there should be no order as to costs.
68 The defendants' application against the Friggers is for orders of two kinds. One kind, as I understood that application from the hearing on 13 and 14 October 2010, is that the Friggers pay the costs of the defendants' application for the defendants' freezing and ancillary orders, and all of the subsequent hearings to extend or otherwise deal with those orders, on an indemnity basis. In the alternative, as I understood that application from that hearing, the Friggers pay those costs, with a special costs order to include an uplift in the relevant item in the applicable scale for the additional work completed by the defendants' solicitor and counsel in preparation, the increased hearing time, the attendance of the defendants' solicitor to instruct counsel and the preparation of written submissions as to costs following the hearings.
69 The defendants' application against CAT is for orders of the same kinds, but limited as I will indicate below.
70 The Friggers' application against Mr Holbrook is as I understood it from the hearing of 13 and 14 October 2010 for an order for him to pay the Friggers' costs of the proceedings so far as they related to dealing with the provision by Mr Holbrook of an undertaking for the purposes of the defendants' freezing and ancillary orders on an indemnity basis. At the hearing before me that application was widened to include in the alternative an application for the Friggers' costs of the defendants' application for the defendants' freezing and ancillary orders under the undertaking Mr Holbrook ultimately gave.
71 Mr Holbrook's application against the Friggers is, as I understood the matter from the hearing of 13 and 14 October 2010, for an order for them to pay Mr Holbrook's costs of participating in the proceedings to meet the matters alleged by the Friggers against him to which I return below.
72 I turn now to law principally applicable to the issues raised by the costs applications.
73 I leave aside for the time being, for the most part, the principles applicable to the orders sought by the defendants' application against CAT, the Friggers' application against Mr Holbrook and Mr Holbrook's application against the Friggers. That is because, in significant part as to the first two, and for the most part for the third, those principles are distinct from the ones I now reach.
74 The principles I now reach are those most often drawn from Re Minister for Immigration & Ethnic Affairs (Cth); Ex Parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622, 624 625 (McHugh J) (most footnotes omitted):
In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.
In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. In administrative law matters, for example, it may appear that the defendant has acted unreasonably in exercising or refusing to exercise a power and that the plaintiff had no reasonable alternative but to commence a litigation. Thus, for example, in R v Gold Coast City Council; Ex parte Raysun Pty Ltd [[1971] QWN 13], the Full Court of the Supreme Court of Queensland gave a prosecutor seeking mandamus the costs of the proceedings up to the date when the respondent council notified the prosecutor that it would give the prosecutor the relief that it sought. The Full Court said that the prosecutor had reasonable ground for complaint in respect of the attitude taken by the respondent in failing to consider the application by the prosecutor for approval of road and drainage plans.
Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. This is perhaps the best explanation of the unreported decision of Pincus J in The South East Queensland Electricity Board v Australian Telecommunications Commission [Federal Court of Australia, 10 February 1989] where his Honour ordered the respondent to pay 80 per cent of the applicant's taxed costs even though his Honour found that both parties had acted reasonably in respect of the litigation. But such cases are likely to be rare.
If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases.
75 See also Biscoe, Peter, Freezing and Search Orders Mareva and Anton Piller Orders 2nd ed (2008) [6.176] (the 'leading statement of general principle').
76 I extract from Ex parte Lai Qin the following principles:
77 It was put to me by counsel for the Friggers that these principles had no application where the Friggers were not parties to the proceedings, but rather third parties drawn in by freezing and ancillary orders. Such persons should as a general rule receive their costs regardless of the outcome, including no determination of the merits.
78 However, it seems to me that, without commenting on the correctness of these propositions in at least some cases, these propositions would not hold for third parties who are not independent of a party and who have become mixed up in that party's arrangements. On such third parties, see Freezing and Search Orders Mareva and Anton Piller Orders [4.5]. The Friggers do not claim to be independent of CAT at the relevant times, and were clearly involved in arrangements CAT made then.
79 Counsel for the Friggers also put to me that the principles had no application where there had been no opportunity for a determination of the merits, and in any event the event had not been determined in favour of the other side. However, it seems to me that on the face of the approach referred to neither condition prevents the operation of that approach. It seems to me the approach provides, for a case where there has been no opportunity for a determination of the merits because an order has been determined, that an applicant who had acted unreasonably in obtaining the order or who would almost certainly at a hearing have seen the application for the order or its continuation go against it would be liable for the costs of the other side. And the fact no determination was made is in fact the condition for the application of the approach.
80 I note that, of all the submissions put to me, only the written submissions for the Friggers referred to Ex parte Lai Qin, and then only, without elaboration, as the basis for the alternative orders those written submissions contended for. Further, as I will indicate, some of the submissions for the Friggers and the defendants at least appeared to proceed on the basis that I should determine the merits of the making, coming into effect and continuation of the defendants' freezing and ancillary orders. However, in my view it cannot be doubted that the principles from Ex parte Lai Qin apply in this case.
81 I turn now to consider each of the costs applications.
The Friggers' application against the defendants
82 The case for the making of the orders sought by this application was put as that the bases for making the defendants' freezing and ancillary orders could never have been made out at a final hearing. The case was also that, in any event, with the appointment of a liquidator in the members' winding up after the decision granting the defendants' application for the defendants' freezing and ancillary orders but before the making of those orders, the case for the making or at least the continuation of them could not have been made out, while the evidence that became available after the making of the orders would have convinced the court that the bases for making them relied upon in that decision could no longer be made out. In that regard affidavit evidence from Mrs Frigger, provided after the making of those orders, was pointed to as demonstrating that actions to which the Friggers were parties representing those bases were not ones which could have been set aside. Authority was pointed to that it was said led to the conclusion that, with the appointment of the liquidator in the members' voluntary winding up, the case for the continuation of the defendants' freezing and ancillary orders must fail.
83 The case for making the orders sought by the Friggers' application against the defendants was also that the undertaking of Mr Holbrook purportedly as called for by the defendants' freezing and ancillary orders had never been provided in a proper form. Thus, it was said, the defendants' freezing and ancillary orders never came into effect.
84 To the extent the case I have described was, as I consider to an extent it was, an invitation to determine the merits of making the defendants' freezing and ancillary orders, for regarding those orders as never having come into effect or for not continuing them apart from any agreed discharge, that case is inconsistent with the principles from Ex parte Lai Qin at 2 above.
85 Approaching the case I have described as one that the conduct of the defendants in applying for the defendants' freezing and ancillary orders was unreasonable, and so within Ex parte Lai Qin at 3, in my view requires me to determine whether or not I have been shown there was no reasonably arguable basis for that conduct.
86 As a separate matter, I should then go on to consider, within Ex parte Lai Qin at 4, whether, even if there was a reasonably arguable basis for the defendants' conduct, I can be confident that it was 'almost certain' that the Friggers would have succeeded in their case against the defendants' freezing and ancillary orders had the matter been fully argued.
88 I begin by noting that my attention was not drawn to evidence available to the defendants at the time of their application for the defendants' freezing and ancillary orders that would have shown them the case they put forward was not reasonably arguable.
89 So far as the continuation of the defendants' freezing and ancillary orders was concerned, I accept that evidence available to an applicant subsequently might show that the applicant's conduct in seeking to maintain such orders was unreasonable.
90 The evidence to which counsel for the Friggers referred me in that regard was as I understood him in Mrs Frigger's affidavit of 22 June 2010; the affidavit of Mrs Frigger sworn 12 October 2010 (Mrs Frigger's affidavit of 12 October 2010); and the affidavit of Mrs Frigger sworn 14 October 2010 (Mrs Frigger's affidavit of 14 October 2010). For reasons I gave at the hearing on 14 October 2010 I held that the springing orders I made on 22 July 2010 were not engaged and Mrs Frigger's affidavit of 22 June 2010 was properly before me. No objection was taken to my regarding Mrs Frigger's affidavit of 12 October 2010 and Mrs Frigger's affidavit of 14 October 2010 as also properly before me. I turn now to consider that body of evidence.
91 The evidence in Mrs Frigger's affidavit of 22 June 2010 to which the written submissions for Mrs Frigger of 24 August 2010 drew my attention was with respect to the transfers of the land assets, to which CAT [No 3] WASC 2010 (see particularly [27] [29] and [32]) referred; with respect to the existence and amounts of accounts for liabilities to directors, to which CAT [No 3] WASC 2010 (see particularly [15] [17]) referred and which on the submissions for the Friggers I should understand were reduced by the transfers; and that on the basis of legal advice the Friggers had received in relation to the appeal against the trial decision in CIV 2265 of 2006 'CAT's position was in any event going to be substantially positive'. I took from that evidence that it was of liabilities to the directors that were substantially greater than some of the evidence referred to in CAT [No 3] WASC 2010 indicated. However, I also took from that evidence that it was of liabilities of a size and nature that did not affect the solvency of CAT at any material time, assuming the correctness of the legal advice the Friggers had been given.
92 I also note from Mrs Frigger's affidavit of 22 June 2010 [45] [57], read with an affidavit of hers of 18 May 2010 (Mrs Frigger's affidavit of 18 May 2010), the explanation for the delay in providing the evidence in that affidavit. That explanation was in terms of her difficulties in securing legal representation and the demands of matters relating to CAT, including the demands of the provisional liquidator of CAT. There was no indication as to those respective contributions to the delay. In respect of three of the four solicitors referred to, there were statements in the affidavits as to conversations she had with each of them concerning conversations they said they had had with solicitors for the defendants. It was not clear from those statements how and the extent to which those conversations had contributed to the difficulties referred to. Those statements were the basis for the Friggers' claim for indemnity costs.
93 At the hearing on 7 July 2010 counsel for the defendants drew my attention to a number of previous affidavits of Mrs Frigger and other evidence of hers in the proceedings in CIV 2265 of 2006 and related proceedings containing evidence as to the liabilities of CAT and the Friggers' dealings with it, which counsel submitted on the face of that evidence was difficult to square with the evidence in Mrs Frigger's affidavit of 22 June 2010 as to the liabilities of CAT to its directors. At the hearing on 13 and 14 October 2010 it appeared to be common ground that I might have regard to those submissions. I consider evidence in at least some of those affidavits and other evidence in CIV 2265 of 2006 and the appeal against CAT WASC 2008, CACV 76 of 2008, to which reference was made in the defendants' list of documents for the hearing on 13 and 14 October 2010, is indeed on its face difficult to square with the evidence in Mrs Frigger's affidavit of 22 June 2010. See in CIV 2265 of 2006 two affidavits sworn by Mrs Frigger in April 2007 (Mrs Frigger's affidavits of April 2007 referred to), Mrs Frigger's affidavit sworn 10 April 2007 [24] and Mrs Frigger's affidavit sworn 24 April 2007, annexures ACF 2, ACF 3, ACF 4 and ACF 5; as well as, in CACV 76 of 2008, Mrs Frigger's affidavit sworn 23 September 2008 (Mrs Frigger's affidavit of 23 September 2008) [16] [23]; and her evidence in crossexamination in the trial at ts 491. On counsel for the defendants' submissions, this gave reason to believe that the evidence in Mrs Frigger's affidavit of 22 June 2010 in material respects should not be believed, and in particular to the extent it indicated that assets had been transferred to the Friggers in satisfaction of liabilities Mrs Frigger deposed as owed to them.
94 I should note that at the hearing on 14 October 2010 I gave reasons for my refusal of an application by the defendants for leave to crossexamine Mrs Frigger on her affidavit of 22 June 2010 and related matters. The defendants had applied for that leave on the basis of the previous evidence of Mrs Frigger which was difficult to square with that in Mrs Frigger's affidavit of 22 June 2010. I dismissed that application on the basis that the benefits of allowing crossexamination were outweighed by the burden it would impose in proceedings in relation solely to costs.
95 At the hearing 14 October 2010 counsel for the Friggers drew my attention to Mrs Frigger's affidavit of 12 October 2010 and Mrs Frigger's affidavit of 14 October 2010 as, on my understanding of his submissions, the Friggers' explanations of the matters to which counsel for the defendants had drawn my attention at the hearing of 7 July 2010 as I have indicated. Those explanations were, as I understood them, in significant part that the amounts shown as liabilities to the Friggers in Mrs Frigger's affidavit of 22 June 2010 were as shown on financial statements in accordance with Australian Accounting Standards for CAT. Those financial statements had only been prepared after Mrs Frigger's affidavits of April 2007 referred to and for the most part after Mrs Frigger's affidavit of September 2008 (Mrs Frigger's affidavit of 12 October 2010 [6] read with Mrs Frigger's affidavit of 14 October 2010 [4]).
96 Counsel for the defendants submitted to me, as I understood him, that the explanations in Mrs Frigger's affidavit of 12 October 2010 and Mrs Frigger's affidavit of 14 October 2010 should be approached with scepticism for the same reason the explanations in Mrs Frigger's affidavit of 22 June 2010 should be so approached.
97 I consider that no resolution of the issue of the veracity of any of those explanations could be reached in proceedings such as these.
98 I also consider that I should draw from the foregoing evidence and submissions the following conclusions for the purposes of the approach in Ex parte Lai Qin. The explanations in Mrs Frigger's affidavit of 22 June 2010, provided prior to the discharge of the defendants' freezing and ancillary orders, were not such, in the context of the other evidence on which the defendants relied at the hearing on 7 July 2010, as to make a case for those orders no longer reasonably arguable. The defendants could reasonably have taken the position that while those orders were on foot, and in view of the material to which counsel for the defendants drew my attention at the hearing on 7 July 2010, they might avail themselves of the opportunity to test those explanations, by crossexamination if possible. Further, those explanations, even as supplemented by those in the two later affidavits of Mrs Friggers, were not such as in my view to advance the matter any further.
99 So far as the matter of the contention that one of the undertakings purportedly provided for the purposes of defendants' freezing and ancillary orders was not in proper form, and so the defendants' freezing and ancillary orders were of no effect or should be discharged, is concerned, I consider that at the very least I have not been shown that that contention was such that contending the contrary was not reasonably arguable.
100 I took the bases for the contention for the Friggers from the submissions made for the Friggers in respect of the Friggers' application against Mr Holbrook. Those bases were that in fact Mr Holbrook in providing Mr Holbrook's undertaking of 16 December 2009 had no authority to provide the undertaking as 'Administrator of the First Defendant' as he had ceased to occupy that position; in any event Mr Holbrook's undertaking was a 'pledge' of 'the assets of the First Defendant' which was beyond his power under the Deed of Company Arrangement; and, as advanced at the hearing of 13 October 2010, the undertaking was fatally uncertain as it was ambiguous or not clear concerning as at what date the limit on administrator's liability was to be determined, the date of the undertaking, the date of a claim under it or some other date.
101 However, I consider none of these bases have been shown to make it not reasonably arguable that the undertaking was not defective.
102 I accept for the purposes of the following analysis, without deciding, that the establishment of any the bases for the Friggers' contentions would be sufficient to show that the defendants' freezing and ancillary orders never came into effect, or would have warranted the defendants' freezing and ancillary orders being discharged.
103 I consider that it was at the least reasonably arguable that Mr Holbrook did not provide Mr Holbrook's undertaking of 16 December 2009 as administrator of PSA but rather in his personal capacity. The identification of him in that document did not it seems to me require such a conclusion. The language of the obligation to pay is that 'The Administrator of the First Defendant undertakes to the court that he will pay' (emphasis supplied). It is not expressed as that PSA or any other source will pay. I do not consider that the language later in the undertaking emphasised by the Friggers requires the opposite conclusion. That language is of the limitation of the liability undertaken, to 'the assets of the First Defendant including for this purpose the assets held by it for the purposes of the Deed of Company Arrangement'. That is at the very least arguably not the language of the liability of those assets to answer the undertaking.
104 This view derives support from the exchanges at the hearing of 16 December 2009 as to the nature and limits of the undertaking Mr Holbrook was asked to provide which appear at ts 2313 2314, 2321, 2323, 2326 and 2327; see also ts 2328. I note in particular ts 2327, as follows:
SIMMONDS J: The words that would be inserted in the undertaking of Mr Holbrook would be after the words 'value of the assets of' and the words to be inserted would be, 'or held by' - the grammar is getting a bit awkward. Just one moment. Sorry, insert after 'first defendant', 'or held by it for the purposes of the deed of company arrangement' and my most excellent associate has identified the deed of company arrangement. It is annexure 6 to the affidavit of Donald Campbell-Smith sworn 10 September 2009 in the present proceedings, 2265 of 2006: for the purpose of the undertaking, 'or held by it for the purposes of the deed of company arrangement.
What that does, Ms Frigger, is it makes Mr Holbrook liable up to the value of those assets even if they are held by Professional Services of Australia for someone else.
FRIGGER, MS: And thereby if the
SIMMONDS J: So if he doesn't have recourse against Professional Services of Australia in respect of those assets that's his problem.
FRIGGER, MS: And thereby the deed of company arrangement which was put in place - those funds were put in place to pay the tax costs of the plaintiff
SIMMONDS J: Ms Frigger, that takes no position on your argument that that's the only purpose for which those moneys can be used. That's a different point.
FRIGGER, MS: Yes.
SIMMONDS J: What this says is that Mr Holbrook's liability under the undertaking is measured by the value of the assets of Professional Services of Australia whether they are held by it beneficially or held by it solely for the purposes of the deed of company arrangement. That sets the metric of the liability of Mr Holbrook.
105 This view of the undertaking is also one that it was at the least reasonably arguable Mr Holbrook did not pledge the assets of PSA.
106 As to the basis for the contention that the undertaking was fatally uncertain, I do not consider it has been shown that the contrary was not reasonably arguable. In particular, it is not evident to me beyond reasonable argument that a meaning setting the limit as at the date of the claim under the undertaking was not sufficiently clear, by reference to the purpose on the face of the undertaking to offer Mr Holbrook the possible (if not assured) protection of a claim over against the assets of PSA as defined.
107 So far as the matter of the appointment of the liquidator of CAT is concerned, the contention was that, with the appointment of the liquidator in the members' voluntary liquidation, there was an independent party appointed whose responsibilities included to inquire into whether there were assets of CAT held by others, or other assets held as a result of voidable transactions with it. That appointment, as I have indicated, occurred on 12 December 2009, after the decision in CAT [No 3] WASC 2010 but before the making of the defendants' freezing and ancillary orders. That appointment, on the contention for the Friggers, meant that those orders at a hearing at which argument was addressed to the point would not have been made or continued, on the authority of Khoury v Rosemist Holdings Pty Ltd (in liq) [2003] WASC 228 (EM Heenan J).
108 On my analysis of the authorities, I consider that it has not been shown to me that Khoury puts beyond reasonable argument the making and continuation of the defendants' freezing and ancillary orders.
109 Khoury was an urgent interim application for Mareva orders in respect of assets the subject of a transaction impugned under Property Law Act 1969 (WA) s 89 with a company which, after the making of the application but before it was heard, had been placed in insolvent liquidation. The hearing was adjourned, apparently to permit the liquidator to be notified to decide whether or not it would seek the orders. See [21]. The basis for that determination appears in my view in [13] and [14], as follows:
Now that Rosemist Holdings Pty Ltd is in liquidation it is my view, if only at a prima facie level, that it is only the liquidator of that company who can pursue or vindicate any claim to set aside the alleged fraudulent transaction because it is the liquidator who is charged with the responsibility of gathering all the assets of the company in liquidation and also of pursuing and setting aside fraudulent, void or voidable preferences. Unless the liquidator takes that action I am not satisfied that there is any basis upon which an individual unsecured creditor of Rosemist Holdings Pty Ltd can do so in his stead.
There are of course other provisions in the Corporations Act (2001) (Clth) containing a variety of detailed options to pursue fraudulent preferential or uncommercial transactions. They can be found in Pt 5.7B of the Corporations Act, especially in s 588FA, dealing with unfair preferences, in s 588FB dealing with uncommercial transactions and in s 588FF dealing with the power of courts to make orders about voidable transactions. There is also power under s 588FH for a liquidator to recover from a related entity any benefit resulting from an insolvent transaction. Then there is the opportunity for claims against directors or persons involved in a fraudulent unfair or uncommercial transaction set out in Div 4 subdiv (a) of the Corporations Law.
110 I note that Khoury was concerned with an application for freezing orders dealt with after the appointment of a liquidator in insolvency. I also note the emphasis in [14] on provisions in Corporations Act 2001 (Cth) for the setting aside of transactions following an insolvency. EM Heenan J appeared to consider that matter was significant in identifying the liquidator as 'primarily, if not exclusively, entitled' to bring proceedings such as those under Property Law Act s 89. See [20] (source of quotation). Until the appointment of such a liquidator, at least, in my view that authority does not put beyond reasonable argument a position contrary to the conclusion that the Friggers would have me draw from that authority.
111 For the purpose of my view, I note that the principal High Court authority on Mareva injunctions recognised the possibility of such orders being made before the appointment of a liquidator in insolvency, which might be obtained on the application of the applicant for such an injunction. Such a liquidator would be entitled to pursue and recover the assets in question. The application to wind up a company in insolvency, and thereby secure the appointment of a liquidator in insolvency, would represent one of the processes (another would be a process under a provision like Property Law Act s 89) 'available to the judgment creditor' and 'ultimately enforceable by the courts ... pursuant to which, whether by appointment of a liquidator, trustee in bankruptcy, receiver or otherwise, the third party might be obliged to disgorge' the assets in question. See Cardile v LED Builders Pty Ltd [1999] HCA 18; (1999) 198 CLR 380 [57] (source of quotation; emphasis added), [69] and [70] (Gaudron, McHugh, Gummow & Callinan JJ). Nor is it evident to me as beyond argument that once such an appointment had been made the defendants' freezing and ancillary orders would immediately be discharged because of such appointment. The contrary view would at least arguably be inconsistent with the conclusion in Khoury that the application in that case should be adjourned, not dismissed. At the least a time might be allowed for the person appointed to investigate the matter of the assets or transactions in question to determine what position that person would take with respect to them. See Freezing and Search Orders Mareva and Anton Piller Orders [4.51]. This would be more clearly the case where there was an unresolved question of whether or not the company in question was insolvent at the relevant time. If it were solvent, there would be no question of the use of the Corporations Act provisions referred to in Khoury [14]. In this case, there was an unresolved question as to the solvency of CAT, at least until the making of the winding up orders by Master Sanderson following his decision in PSA [No 3] WASC 2010.
112 Thus, it is not evident to me that it would be unreasonable for the defendants to seek the making of the defendants' freezing and ancillary orders notwithstanding the appointment of the liquidator in the members' voluntary liquidation. Nor is it evident to me it would be unreasonable for the defendants to seek the maintenance of those orders until after a time following the appointment of the liquidator in CAT's insolvency.
113 I have considered whether I can be satisfied that, notwithstanding that defendants acted reasonably, the Friggers were almost certain to have succeeded if the action had been tried. On the material I have reviewed as the basis of the Friggers' case, I am unable to come to such satisfaction.
114 These conclusions make it unnecessary for me to enter into the question whether there should be an order for the Friggers' costs on an indemnity basis.
115 Thus, I would dismiss the Friggers's application against the defendants so far as it is for an order for their costs.
116 I have previously mentioned the alternative order sought, of no order as to costs. As will become apparent, that in effect, save as to Mr Holbrook, is the order for the costs of the defendants' application for freezing and ancillary orders I would make. To that extent then the Friggers' application against the defendants is upheld. However, I consider the submissions and argument for the Friggers were devoted almost entirely to showing me why that was not the appropriate order. I return at the end of these reasons to what might be the implications of this view.
The defendants' applications against the Friggers
117 The defendants' case for making orders was put on the basis that the case against the making, coming into effect and continuing of the defendants' freezing and ancillary orders could never have been made out at a full hearing. For this purpose counsel for the defendants, as I understood his submissions, relied upon the matters I have described as put against the case of the Friggers in those respects. In particular, I took it that counsel relied on the difficulties arising out of prior evidence of Mrs Frigger for the evidence in Mrs Frigger's affidavit of 22 June 2010, Mrs Frigger's affidavit of 12 October 2010 and Mrs Frigger's affidavit of 14 October 2010 that the Friggers put against the defendants' freezing and ancillary orders. Indeed those difficulties were relied upon as the basis for the defendants' case for costs on an indemnity basis against the Friggers.
118 Counsel for the defendants also put to me that the defendants were the successful parties in this case. On what occurred at the hearing on 7 July 2010, viewed against the background of the previous hearings, I am unable to accept that submission.
119 To the extent the submissions of counsel for the defendants were an invitation to determine the merits of the case for making or continuing the defendants' freezing and ancillary orders, as to an extent I consider those submissions were, I make the same comment as for the submissions of the Friggers in that respect.
120 Approaching the submissions of counsel for the defendants as ones that the conduct of the Friggers was unreasonable in contending that the defendants' freezing and ancillary orders ought never to have been made, never came into effect or after the appointment of the liquidator in the members' voluntary winding up should never have been continued, I consider that the matters that made the conduct of the defendants in maintaining the contrary position in each respect reasonable are not such as to show that the case of the Friggers to the contrary was not reasonably arguable.
121 I have considered whether I can be satisfied that notwithstanding that the Friggers acted reasonably the defendants were almost certain to have succeeded if the action had been tried. On the material I have reviewed as the basis of reasonableness of the conduct of the defendants, I am unable to attain such satisfaction. I accept that the strength of the arguments in support of their case varied, being strongest in respect of the undertaking. Standing on its own, I consider that I would be able to attain that satisfaction in respect of it. However, the Friggers' case was not limited to that matter, and on the explanations in Mrs Frigger's affidavit of 22 June 2010, Mrs Frigger's affidavit of 12 October 2010 and Mrs Frigger's affidavit of 14 October 2010 I am unable to attain that level of satisfaction in respect of the basis represented by those explanations.
122 These conclusions make it unnecessary for me to enter into the questions whether there should be an order for the defendants' costs on an indemnity basis or with a special costs order.
123 It follows I would dismiss defendants' application against the Friggers.
124 The case the Friggers make for making a costs order against Mr Holbrook was it seems placed on the basis of the general discretion of the court as to costs. That case is rested on what was said to be Mr Holbrook's facilitation of the defendants' freezing and ancillary orders by Mr Holbrook's undertaking of 16 December 2009 as a 'manifestly' defective undertaking. In addition, at the hearing the case was rested on that undertaking, as a claim for, in its terms, 'such compensation as the court may consider in the circumstances to be just'.
125 I did not understand it to be in contest that court's general discretion in Supreme Court Act 1935 (WA) s 37 extended to making a costs order in favour of persons in the position of the Friggers, who were third parties in relation to the principal proceedings in which the defendants' application for freezing and ancillary orders was brought, although against whom orders had been sought and had been granted in that application, against a person who was also not a party to the principal proceedings. At the hearing on 13 October 2010 I allowed the Friggers and Mr Holbrook to provide further submissions referring to authorities in relation to the issues of costs of a person in a position in relation to an application for freezing orders like that of the Friggers against a person who was in a position in relation to such an application like that of Mr Holbrook. No authorities were found.
126 It appears to have been common ground that the Friggers were parties in relation to the application for freezing orders, although it was not common ground that, as submitted by the Friggers, Mr Holbrook was also a party. I consider without deciding that as a person who was neither served with notice of the application in his own right nor the subject of the orders applied for, he was not a party to the application. He was of course a person from whom an undertaking was obtained for the purpose of the orders made. However, I consider without deciding that is not sufficient for him to be treated as a party to the application. In the final analysis, however, I do not consider it necessary to arrive at a final view on these points, as I will explain.
127 Applying the authorities concerning the making of orders for costs against a party to proceedings in favour of or against a nonparty, the making of such an order would be exceptional and is to be made only with considerable caution: see Naidoo v Williamson [2008] WASCA 179; (2008) 37 WAR 516 [42] (Steytler P, Pullin JA & Murray AJA agreeing) (on making such a costs award); Leighton Contractors Pty Ltd v Public Transport Authority of Western Australia (No 7) [2009] WASC 218 [63] [67] (Le Miere J). I accept that one such case might be where a nonparty facilitates orders by providing for their purposes a 'manifestly' defective undertaking. However, I do not consider that the provision of an undertaking that only arguably is defective, let alone where that argument was 'almost certain' to fail, as I have indicated here, would be such a case.
128 I consider that it has at the least not been shown that Mr Holbrook had provided a manifestly defective undertaking. I have already indicated that opposition to the Friggers' case that the defendants' freezing and ancillary orders had not come into effect or would have been discharged because of Mr Holbrook's undertaking of 16 December 2009 was reasonable. My analysis of the case for that opposition indicates why I consider I have not been shown the undertaking was 'manifestly' defective.
129 Further, I consider that even if it were not necessary for the Friggers to show this was an exceptional case, I am not satisfied that Mr Holbrook's undertaking of 16 December 2009 has been shown to me to be defective, without the qualifying word 'manifestly'. I refer again to my analysis of the matter of the defectiveness of that undertaking earlier.
130 As to the basis the Friggers advance in relation to the undertaking itself, I put aside, as not necessary for me to address further, the difficulty counsel for Mr Holbrook put to me existed in the Friggers making a claim on what the Friggers submit is a 'manifestly' defective undertaking. In my view the answer to the Friggers' claim is that Mr Holbrook's undertaking of 16 December 2009 does not reach an award to compensate for the costs of the proceedings for the purposes of which the undertaking was given. As the Friggers were the subject of the freezing and ancillary orders, their costs here were in my view part of the costs of the proceedings.
131 My view is because of Supreme Court Act s 37 and its historical context. The common law did not recognise a power in the courts to award the costs of proceedings as such. The power in Supreme Court Act s 37 addresses that position. See Civil Procedure in Western Australia [66.0.1]. On the language of Mr Holbrook's undertaking of 16 December 2009, which is for 'compensation', not costs, that power in my view must be seen as the sole source of the court's discretion to award those costs. The alternative view would in my view be inconsistent with the terms of the conferral of the power referred to, which is affirmed in relation to freezing orders by O 52A r 8. While it may be that the court might call for an undertaking that required assuming liability for such costs - as to which I express no opinion - it seems to me that the wording of Mr Holbrook's undertaking of 16 December 2009 is inapt for that purpose.
132 It follows I would dismiss the Friggers' application for costs against Mr Holbrook.
133 I have already referred to the power of the court to make such an order as this one, in favour of a party, against a nonparty. I apply the approach I identified to the exercise of that power in the present context, without deciding that I am required to do so.
134 Counsel for Mr Holbrook put his case on two bases.
135 One basis was that of an allegation in Mrs Frigger's affidavit of 18 March 2010. The allegation was in the following terms ([23], [31]):
Accordingly Mr Holbrook gave an undertaking in the form attached and marked 'AF8'. I believe this undertaking is false for three reasons:
...
I respectfully request that the freezing orders which expire on 19 March 2010 not be renewed due to the dishonesty of the directors of the first defendant and the dishonesty of Mr Lenhoff and Mr Holbrook.
136 Subsequently, in Mrs Frigger's affidavit of 18 May 2010 the following appeared ([13]):
I also believe that the undertaking given by Mr Holbrook as administrator of the first defendant, when in fact he was not the administrator, was false, misleading and/or valueless.
137 The case for Mr Holbrook was that such allegations were of dishonesty and required a response, including attendance by a legal representative for Mr Holbrook at hearings at which it might be expected the allegation would be advanced, in support of the Friggers' case that on a proper address of that case the defendants' freezing and ancillary orders never came into effect or should have been discharged. I have previously described the case of the Friggers in that respect.
138 The other basis of Mr Holbrook's case was the incorrectness of the Friggers' case that the undertaking was of no effect and so failed to meet a condition for the grant of the freezing order.
140 It seems to me, without deciding, that I might make the orders Mr Holbrook applies for on that basis. I have already indicated my assessment of the strength of the Friggers' case. I consider that that assessment might well be sufficient to make out an exceptional case for such orders.
141 This leaves the matter of the allegations of dishonest conduct. I consider that the matter from the affidavits of Mrs Frigger referred to represented such allegations and that the conduct of Mr Holbrook in having his legal representative attend at the hearings referred to was a reasonable response to them.
142 Further, it seems to me that an allegation of dishonesty, never formally withdrawn and only ceasing to be maintained with submissions for the costs hearing itself, where no foundation reasonably capable of supporting those allegations had been shown, might represent an exceptional case to justify making orders of kind Mr Holbrook sought. I derive support for this view from Australian Securities & Investments Commission v Fortescue Metals Group (No 5) [2009] FCA 1586; (2009) 264 ALR 201 [69] [70] (Federal Court, Gilmour J), reversed in Australian Securities & Investments Commission v Fortescue Metals Group Ltd [2011] FCAFC 19; (2011) 190 FCR 364 without reaching this point.
143 I should add that it was put to me that the allegations should be understood in the context of persons who at the time were self-represented and who were simply referring to the matters for argument of the kind referred to in Mrs Frigger's affidavits. However, it seems to me the affidavits do not simply refer to those matters, but characterise the conduct of Mr Holbrook as I have indicated. Further, it would appear that at the time of the preparation of the affidavit of 18 March 2010 the Friggers were represented, as attachments AF11 and AF12 to her affidavit of 18 March 2010, being letters dated 17 March 2010 from her solicitor to the solicitor for Mr Holbrook, would appear to indicate. In addition, the allegations were never formally withdrawn, although it is common ground they were not maintained at the latest from the date of submissions of the Friggers of 24 August 2010 for the purposes of the hearing on 13 and 14 October 2010.
144 The Friggers could of course put up the position they did. However, the risk for them was that no foundation reasonably capable of sustaining the allegations could be shown, which might justify an order for costs against the Friggers.
145 The foundations I took to be relied upon by the Friggers for the allegations were ones which I understood to be the matters previously referred to as making out their case as to the defectiveness of Mr Holbrook's undertaking of 16 December 2009. I have already indicated my conclusion that the matters concerned were at the least not reasonably capable of putting beyond reasonable argument a case contrary to theirs. I consider that conclusion makes it impossible, without more, to find that those matters were reasonably capable of supporting an allegation of dishonesty in Mr Holbrook's conduct in giving Mr Holbrook's undertaking of 16 December 2009. Nothing more was shown to me.
146 In exercise of my discretion, I would grant the application by Mr Holbrook against the Friggers.
147 In the defendants' minute of orders of 8 September 2010 for the purposes of the hearing of 13 and 14 October 2010 the same costs orders were sought against CAT as were sought against the Friggers. At the hearing on 14 October 2010 it was explained to me that the only costs sought against CAT were those to the date of the appointment of the provisional liquidator, 21 January 2010. The basis for the defendants' application against CAT so limited was the failure of CAT to provide a proper explanation for the transactions on which the defendants' case for the freezing and ancillary orders had been made and to that point continued with. Counsel for the defendants told me that there had been discussions with the legal representatives of the liquidator of CAT to confirm this limitation. On the basis of those discussions there was no appearance before me for the liquidator. Counsel for the defendants referred me to written submissions for the defendants, which, however, it appears were never provided to the court. There was no appearance by the liquidator, nor any submissions or other statement of his views as to the limited claim against him provided to me.
148 In view of my discussion of the case of the Friggers against the freezing and ancillary orders it is not evident to me that the case of the defendants against CAT is any stronger than that against the Friggers.
149 In any event, there would appear to be a problem with the application. It is that of non-compliance with the requirement in Corporations Act s 471B for leave of the court to proceed with that claim against CAT while it is in insolvent liquidation. No such leave had been previously been granted, nor was such leave applied for before me, and in any event I consider I did not have the benefit of the view of the liquidator as to any such application.
150 Accordingly I consider I am not in a position to grant the present application. In the circumstances, I consider that I should order a stay of the defendants' application against CAT pending the outcome of any application by the defendants for leave to apply for orders against it.
151 I have concluded that the Friggers' application against the defendants, the Friggers' application against Mr Holbrook and the defendants' application against the Friggers should all be dismissed, while Mr Holbrook's application against the Friggers should be granted. I have also concluded that the defendants' application against CAT should be stayed as I have indicated. I will hear from parties as to orders to be made to give effect to these conclusions.
152 I should add this as to orders as to the costs of certain of the costs applications.
153 At first blush it might be said that if the costs of the Friggers against the defendants and the costs of the defendants against the Friggers were to follow their events those costs would be offset against one another, and that in the circumstances it might be appropriate to make no costs orders for the applications in question. This would be save as to the costs of the Friggers in respect of their alternative costs order against the defendants, that there be no order as to costs, which would be difficult to identify and on my preliminary view of the submissions and argument for them of very slight amount.
154 Further, at first blush it is not evident to me that I am in a position to make any order as to the costs of the defendants' application against CAT without an opportunity having been given to CAT for it to appear before me. Thus CAT should be notified of this decision in the same way the Friggers, the defendants and Mr Holbrook are notified of it.
155 However, I will hear any submissions from the parties on these matters as well as any others as to the orders to be made to give effect to my conclusions.
(1999) 198 CLR 380
(1998) 195 CLR 1
(1997) 186 CLR 622
(2008) 37 WAR 516
(2009) 264 ALR 201
(2011) 190 FCR 364