Frigger v Banning

background 20 By reason of the nature of the claims which are pleaded and the relief sought by the applicants in the proposed substituted originating application and statement of claim, it is necessary to set out some background. I have been assisted in setting out this summary by the reasons for decision of Barker J in Frigger v Banning [2016] FCA 359, and the reasons for decision of the Court of Appeal of the Supreme Court of Western Australia (the Court of Appeal) in Frigger v Professional Services of Australia Pty Ltd [2016] WASCA 68 and in Frigger v Kitay [No 2] [2017] WASCA 139. 21 In 2003, at a time when the applicants, as the only shareholders and directors, were in control of CAT, CAT commenced an action in the Magistrates Court against PSA (the third respondent to the proposed substituted originating application) and Mr Martin Banning, a director of PSA, and Banning Holdings Pty Ltd (the fourth respondent to the proposed substituted originating application) for losses resulting from the purchase by CAT of a service station property in Armadale, Western Australia. That action was ultimately transferred to the Supreme Court as CIV 2265 of 2006, where the action was tried before Simmonds J. 22 CAT was successful in the action at first instance and was awarded as damages various amounts totalling $967,202.50 plus interest against PSA and Mr Banning (Computer Accounting and Tax Pty Ltd v Professional Services of Australia Pty Ltd [2008] WASC 133). This judgment was delivered by Simmonds J on 9 July 2008. 23 I observe that, in their proposed substituted statement of claim, the applicants pleaded that on 1 September 2003, the applicants executed a "contract for litigation" with CAT for the purposes of issuing a writ against PSA and Mr Banning for losses resulting from the purchase by CAT of the property in Armadale. 24 On 25 July 2008, PSA and Mr Banning instituted an appeal against the judgment and orders of Simmonds J in CIV 2265 of 2006. Mr Banning died on 8 September 2008. Mr Donald Campbell-Smith, the second respondent to the proposed substituted originating application, was appointed as the executor of Mr Banning's estate. 25 On 24 September 2008, Buss JA dismissed an application by PSA and Mr Banning's estate for a stay of the execution of the orders to pay the damages and interest awarded against them by Simmonds J in CIV 2265 of 2006, pending the outcome of the appeal. In dismissing the application, Buss JA relied on an affidavit by Mrs Frigger dated 23 September 2008 that CAT had the funds to repay any monies which the Court of Appeal may order to be repaid to PSA and to Mr Banning's estate should CAT lose the appeal (Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd [2008] WASCA 222 at [27]). 26 On 20 March 2009, whilst the appeal was pending, PSA entered into a deed of company arrangement with its creditors. Mr Kim Holbrook was appointed the deed administrator. 27 On 6 May 2009, Simmonds J made costs orders in CIV 2265 of 2006 in favour of CAT against PSA and Mr Banning's estate. Simmonds J ordered that PSA and Mr Banning's estate pay 90% of CAT's costs if not agreed. 28 On 2 June 2009, CAT lodged a bill of costs for taxation in the amount of $701,000 consequent upon the costs orders of Simmonds J in CIV 2265 of 2006. However, this bill of costs has never been taxed. 29 Between 2 June and 9 June 2009, CAT's solicitors received two cheques totalling $1,165,661.54 from the solicitors for PSA and Mr Banning's estate in respect of the orders made in CAT's favour by Simmonds J in CIV 2265 of 2006. The Friggers then immediately caused those monies to be paid into an account under their control. 30 On 22 July 2009, the appeal by PSA and Mr Banning's estate against the judgment and orders of Simmonds J in CIV 2265 of 2006 was heard by the Court of Appeal and judgment was reserved. 31 On 27 August 2009, CAT commenced an application in the Supreme Court for orders to the effect that the deed of company arrangement be terminated (CIV 2001 of 2009). Mrs Frigger filed an affidavit dated 27 August 2009 in support of that application. In that affidavit, Mrs Frigger claimed that the deed of company arrangement was oppressive, unfairly prejudicial and discriminated against CAT. 32 I observe in passing that this application remained in abeyance for a number of years. The application was subsequently resurrected and finally dismissed by orders made on 18 September 2015 by Simmonds J. This was almost three years after the deed of company arrangement was terminated by order of Simmonds J on 6 November 2012 (see [54] below). 33 On 22 October 2009, the Court of Appeal provided to the parties' solicitors its reasons for decision in advance of delivering judgment in the appeal on 23 October 2009. This was done to facilitate the making of orders by the Court of Appeal on the following day disposing of the appeal. The reasons for decision disclosed that the Court of Appeal would allow the appeal and set aside that part of Simmonds J's orders providing for damages to be payable to CAT in the sum of $675,078 and, also, reduced the damages by a further $6,500 together with a corresponding reduction in interest awarded at first instance on those sums. 34 On 23 October 2009, the Friggers caused CAT to register with the Australian Securities and Investments Commission a fixed charge over its property in favour of the applicants. The applicants pleaded in their proposed substituted statement of claim that the charge was executed on or about 10 September 2009. This charge was alleged to secure CAT's indebtedness to the Friggers, including its indebtedness under the contract of litigation. 35 When the Court of Appeal convened on 23 October 2009 for the making of orders in the appeal, the parties could not agree on the appropriate orders for the repayment by CAT of the excess monies attendant upon the Court of Appeal's decision to reduce the damages payable to CAT. The Court of Appeal, accordingly, gave directions for the filing of further submissions. 36 On 29 October 2009, Mr David Lenhoff, a solicitor representing PSA and Mr Banning's estate in the appeal, filed written submissions. These submissions contended that his clients had paid CAT the original judgment sum ordered by Simmonds J; and that consequent upon the appeal decision, the Court of Appeal should make an order requiring the repayment to his clients of the excess monies (the repayment sum). The submissions contended that the Court of Appeal should make that order rather than the order proposed by CAT in court on 23 October 2009. The order that had been proposed by CAT on that day was that CAT should repay a sum representing the difference between the repayment sum to PSA and Mr Banning's estate, less the taxed costs in favour of CAT pursuant to Simmonds J's costs orders. 37 On 11 November 2009, CAT filed its written submissions in response to PSA's and Mr Banning's estate's written submissions of 29 October 2009. CAT's responsive submissions included the following paragraph: 4. The Deed of Company Arrangement stipulates that any reduction in the judgment sum on Appeal is to be paid to Banning Holdings Pty Ltd and is to be offset against the respondent's costs. 38 However, CAT did not put the deed of company arrangement into evidence before the Court of Appeal. Further, CAT's submissions also sought a stay of the final orders for repayment pending it making a High Court special leave application. Those submissions were founded upon the premise that the Court of Appeal would order that CAT pay the repayment sum to PSA and Mr Banning's estate. CAT's submissions contended that any payment of the repayment sum and costs would be "rendered nugatory" as PSA and Mr Banning's estate would by then have dissipated the funds, if CAT's High Court appeal was ultimately successful. 39 On 3 December 2009, which was before the Court of Appeal had made its orders, the Friggers as shareholders of CAT resolved to place CAT into voluntary liquidation, and subsequently, on 12 December 2009, passed a members voluntary winding up resolution appointing Mr Glenn Trinick as liquidator. 40 On 4 December 2009, PSA and Mr Banning's estate filed an urgent interlocutory application in CIV 2265 of 2006 for the making of freezing orders against CAT and the Friggers. 41 On 7 December 2009, the Court of Appeal ordered that CAT pay PSA and Mr Banning's estate $775,822.72 plus interest and ordered that CAT pay 80% of the appellant's taxed costs of the appeal; and set aside the original costs orders made by Simmonds J on 6 May 2009 (see [27] above). The Court of Appeal remitted the question of costs at first instance to Simmonds J for reconsideration in light of the findings and orders of the Court of Appeal. I will refer to these orders as the December 2009 Court of Appeal orders. 42 In its reasons for decision, the Court of Appeal referred to the reference to the deed of company arrangement in para 4 of CAT's submissions, and went on to say: [N]either the Deed of Company Arrangement, nor the assertions in respect of outstanding costs orders have been put in evidence before this court. 43 The Court of Appeal rejected CAT's application that the orders should be stayed pending an application for special leave to appeal to the High Court. CAT's special leave application was subsequently brought, but dismissed by the High Court on 28 May 2010. 44 CAT did not pay the sum of $800,917.08 to PSA and Mr Banning's estate in compliance with the December 2009 Court of Appeal orders. The Friggers seek in this proceeding, a permanent injunction precluding PSA and Mr Banning's estate from enforcing these orders against them and/or CAT. 45 On 10 December 2009, there was a hearing before Simmonds J of the freezing orders application. At that hearing, Mrs Frigger appeared for herself and for Mr Frigger. Simmonds J delivered an ex tempore judgment which was subsequently recorded in writing (Computer Accounting and Tax Pty Ltd v Professional Services of Australia Pty Ltd [No 3] [2010] WASC 2 (CAT [No 3])). Simmonds J made freezing orders which enjoined the Friggers from dealing with or diminishing the value of certain assets and from enforcing payment of any amounts claimed to be owing to them by CAT. 46 It is apparent from the judgment of Simmonds J that it was the discovery of the registration of the fixed charge and caveats over the assets and real property of CAT, which led PSA and Mr Campbell-Smith to apply for the freezing orders. 47 On 16 December 2009, PSA and Mr Banning's estate served a statutory demand on CAT for $800,917.08, being the judgment sum payable by CAT pursuant to the December 2009 Court of Appeal orders. CAT did not comply with the statutory demand. 48 On 8 January 2010, PSA and Mr Banning's estate applied to the Supreme Court in COR 2 of 2010 for the appointment of Mr Mervyn Kitay as the provisional liquidator of CAT. 49 On 21 January 2010, Simmonds J appointed Mr Mervyn Kitay the provisional liquidator of CAT (Professional Services of Australia Pty Ltd v Computing Accounting and Tax Pty Ltd [2010] WASC 38). 50 There followed a number of directions hearings in respect of the return date for the hearing of argument in respect of the freezing orders made against the Friggers. The freezing orders were extended by consent on each of these occasions. 51 On 6 May 2010, Master Sanderson, also in COR 2 of 2010, made an order that CAT be wound up in insolvency. Mr Mervyn Kitay was appointed as the liquidator of CAT (Professional Services of Australia Pty Ltd (Administrator Appointed) v Computer Accounting and Tax Pty Ltd [No 3] [2010] WASC 93). 52 On 7 July 2010, there was a further hearing before Simmonds J in relation to the freezing orders. At the hearing, the parties, after having conferred, agreed that orders could be made by Simmonds J that the freezing orders be discharged with effect from 4:00 pm on 14 July 2010. 53 Also, in 2010, the Friggers commenced a proceeding (CIV 2765 of 2010) against Mr Kitay in his capacity as the liquidator of CAT in the Supreme Court. Mr Kitay has made a counterclaim against the Friggers. That proceeding is still on foot. In that proceeding, among other claims made, Mr Kitay challenges the Friggers' claim that the September 2003 litigation contract and the charge executed by CAT and the Friggers on 23 October 2009 are effective to give the Friggers any entitlement to the proceeds of the original judgment of Simmonds J in CIV 2265 of 2006. One of the allegations made by Mr Kitay is that the charge was entered into during the "relevant period" and so is void against the liquidator. 54 On 6 November 2012, Simmonds J made orders on the application of the deed of company arrangement administrator, Mr Kim Holbrook, in COR 205 of 2011, terminating the deed of company arrangement (Holbrook v Professional Services of Australia Pty Ltd [2012] WASC 444 (Holbrook)). In his reasons for decision, Simmonds J considered whether there were any unpaid creditors of PSA. Simmonds J accepted that CAT may have a claim for costs in respect of CIV 2265 of 2006 arising from his reconsideration of that question on remittal to him by the Court of Appeal. However, Simmonds J went on to order the termination of the deed of company arrangement because he accepted that on the evidence, it was likely that any such order for costs in favour of CAT that he may make on remittal, would be exceeded by CAT's liability to pay PSA pursuant to the December 2009 Court of Appeal orders. 55 On 5 August 2014, Mr Banning's estate applied to the Supreme Court for a means inquiry in relation to the Friggers, following their refusal to pay an order for costs taxed in the amount of $31,599.72 made by Simmonds J in CIV 2265 of 2006. 56 On 22 August 2014, on the return of the summons for the means inquiry, Mrs Frigger applied on behalf of herself and Mr Frigger for a suspension of the costs judgment and for a suspension of the means inquiry. This application was subsequently transferred to Simmonds J for hearing. 57 On 29 May 2015, Simmonds J made costs orders in CIV 2265 of 2006 pursuant to the remittal orders made by the Court of Appeal. Simmonds J reduced the award of costs in favour of CAT in CIV 2265 of 2006 ordering that PSA and Mr Banning's estate pay 50% of the trial costs. However, Simmonds J also ordered that CAT pay the costs of PSA and Mr Banning's estate in respect of a number of chamber summonses in the action. 58 On 2 October 2015, the Court of Appeal heard an application brought by Mr and Mrs Frigger for leave to set aside the December 2009 Court of Appeal orders. The Friggers had, of course, not been parties to that appeal proceeding. The Friggers claimed that the December 2009 Court of Appeal orders were inconsistent with a term of the deed of company arrangement. The Friggers claimed to have standing and relied upon O 21 r 10 of the Rules of the Supreme Court 1971 (WA). This rule is referred to as the "slip rule". The Court of Appeal reserved its decision. 59 On 9 October 2015, Mrs Frigger's application for the suspension of the means inquiry was dismissed (Computer Accounting and Tax Pty Ltd (in liquidation) v Professional Services of Australia Pty Ltd [No 10] [2015] WASC 380). 60 As mentioned, on 19 October 2015, the applicants commenced proceeding WAD 607 of 2015 in this Court. 61 On 10 December 2015, the Court of Appeal delivered judgment (Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd [No 4] [2015] WASCA 253 (PSA [No 4])) and rejected the Friggers' application to set aside the December 2009 Court of Appeal orders. 62 The Court of Appeal declined to grant the Friggers leave to be heard on the basis that the Friggers did not have a sufficient interest in the December 2009 Court of Appeal orders. 63 In their application to the Court of Appeal for leave to be heard, the Friggers had contended that they were creditors of CAT and, thereby, had a direct interest in the December 2009 Court of Appeal judgment. The Court of Appeal found that it was CAT as a party to the proceeding, that was the beneficiary of the judgment under appeal to the Court of Appeal in December 2009, and that the Friggers did not have a direct interest in the subject-matter of the proceeding, on the basis of their claim to be creditors of CAT. 64 Further, the Court of Appeal said that in bringing the claim to set aside the December 2009 Court of Appeal orders, the Friggers were seeking to usurp the liquidator's control over CAT and its affairs. The Court of Appeal observed that this was an "improper objective" and would for that reason not exercise a discretion, even if the Court of Appeal had such a discretion, in favour of permitting the Friggers to be "heard in relation to the revocation of orders made in an appeal to which they were not a party". 65 Further, at [30]-[31], Martin CJ observed: 30 These principles preclude the application of the slip rule to the circumstances of this case. First, it cannot be said that the failure to draw the attention of the court to the deed of company arrangement (upon which the current application is based) was inadvertent or accidental. As I have noted, the attention of the court was in fact drawn to the deed of company arrangement in the written submissions which preceded the making of the orders which the Friggers now seek revoked. However, no argument of the kind now advanced was brought based upon the terms of the deed of company arrangement, nor was the deed adduced in evidence. The court refused to act upon the assertions made with respect to the deed for those reasons. Omissions of that kind cannot be characterised as accidental or inadvertent, but are more properly characterised as a failure to provide any basis for, or to substantiate by evidence, the proposition advanced. The slip rule does not permit arguments or contentions that have been poorly or inadequately advanced to be bolstered by further argument or evidence after final orders have been made. Further, there is a fair inference that the failure to produce in evidence and advance detailed submissions based upon the deed of company arrangement may have well been a deliberate forensic decision on the part of the Friggers and/or their legal advisers. That is because CAT had commenced proceedings in the Supreme Court of Western Australia seeking orders to the effect that the deed of company arrangement was either void or had been terminated according to its terms. Those proceedings were on foot at the time written submissions were provided to this court on behalf of CAT, and at the time this court made the orders which the Friggers now seek to have revoked. 31 Second, the consequences which the Friggers assert flow from the terms of the deed of company arrangement are neither obvious nor compelling, and are matters upon which there is great scope for argument and for the formation of differing views. To the contrary, the legal reasoning said to underpin the Friggers' application is convoluted and at points circuitous. 66 The means inquiry, referred to in [55], [56] and [59] above, was held on 15 April 2016. The Friggers did not appear. In their proposed substituted statement of claim, the Friggers seek a permanent injunction under s 1324(1) of the Corporations Act restraining the respondents from enforcing the Supreme Court order for the means inquiry. 67 The aforegoing outline refers only to some of the litigation in the Supreme Court in which the Friggers have been involved. There are many other proceedings. In a number of the proceedings in the Supreme Court costs orders have been made against the Friggers or CAT (before it went into liquidation). Some of these proceedings are referred to in the proposed substituted statement of claim. The Friggers by their proposed substituted statement of claim, also seek a permanent injunction under s 1324(1) of the Corporations Act precluding the beneficiaries of the costs orders from enforcing those costs orders.