Frigger v Kitay

Consideration 13 I have had regard to both Patdith and the authorities referred to by the Friggers in their supplementary submissions. However, I do not consider it necessary, as the Friggers contend, to consider the correctness of Markovic J's decision to exercise the Court's discretion to order security for costs in Patdith, nor the decisions of other courts concerning different statutory regimes. The application before Markovic J concerned both security for costs for the application for leave to appeal and the appeal itself. The interlocutory orders sought by the respondents in these proceedings solely concern the Friggers' application for leave to extend the time within which to appeal, not the substantive appeal should leave be granted. 14 The issue as to the Court's jurisdiction to entertain the respondents' interlocutory application for security for costs can be determined from a consideration of the statutory regime. 15 Section 56(1) of the Federal Court of Australia Act 1976 (Cth) provides: 56 Security (1) The Court or a Judge may order an applicant in a proceeding in the Court, or an appellant in an appeal under Division 2 of Part III, to give security for the payment of costs that may be awarded against him or her. 16 Rules 19.01, 19.02 and 36.09 of the Rules relevantly provide: 19.01 Application for an order for security for costs (1) A respondent may apply to the Court for an order: (a) that an applicant give security for costs and for the manner, time and terms for the giving of the security; and (b) that the applicant's proceeding be stayed until security is given; and (c) that if the applicant fails to comply with the order to provide security within the time specified in the order, the proceeding be stayed or dismissed. (2) An application under subrule (1) must be accompanied by an affidavit stating the facts on which the order for security for costs is sought. … 19.02 Matters to be addressed by the respondent The respondent's affidavit should state the following: (a) whether there is reason to believe that the applicant will be unable to pay the respondent's costs if so ordered; (b) whether the applicant is ordinarily resident outside Australia; (c) whether the applicant is suing for someone else's benefit; (d) whether the applicant is impecunious; (e) any other relevant matter. Note Section 56 of the Act deals with security for costs. … 36.09 Security for costs of appeal (1) A party may apply to the Court for an order that: (a) the appellant give security for the costs of the appeal, and for the manner, time and terms for giving the security; and (b) the appeal be stayed until security is given; and (c) if the appellant fails to comply with the order to provide security within the time specified in the order - the appeal be stayed or dismissed. (2) An application under subrule (1) must be accompanied by an affidavit stating the facts in support of the application. Note Section 56 of the Act also deals with security for costs. 17 While the Rules patently identify certain circumstances in which security for costs may be ordered by the Court, they should not be seen as the authority by which the Court acts. Rather, they are a guide to the parties and their legal advisers as to the way in which the Court will conduct proceedings: BHP Coal Pty Ltd v Construction, Forestry, Mining and Energy Union (2014) 226 FCR 240 per Dowsett, Kenny and Flick JJ (at [20]). As Kirby P said in Fernance v Nominal Defendant (1989) 17 NSWLR 710 (at 729): 'The Rules of Court must never become the master of the court. They are servants for the better administration of justice'. 18 The discretionary power of the Court to order security for costs is that conferred by statute under s 56 of the Act and in assessing the Court's jurisdiction it is to that section to which I have regard. Reliance on the Rules and reference to an 'appellant' giving security for costs of the 'appeal' cannot be read to limit the broad power conferred upon in s 56 of the Act which provides that a 'Judge may order an applicant in a proceeding in the Court' (emphasis added). 'Proceeding' cannot be read narrowly to encompass only an application in the Court's original jurisdiction; it must also include an application in a proceeding in the Court's appellate jurisdiction such as the application for extension of time presently before this Court. This is made clear by the definition of 'proceeding' contained in s 4 of the Act which states: proceeding means a proceeding in a court, whether between parties or not, and includes an incidental proceeding in the course of, or in connexion with, a proceeding, and also includes an appeal. 19 Further, I accept the submission advanced on behalf of the respondents that it would be a peculiar outcome if a party could successfully obtain security for costs of an appeal and security for costs at first instance but not in a 'transition' stage, particularly in a proceeding which has only arisen because of a delay on the part of the applicant necessitating the filing of an application for leave. 20 I am satisfied the Court has jurisdiction to entertain a security for costs application brought within a proceeding commenced by way of an application for leave to extend time within which to appeal of the kind presently commenced by the Friggers.

SHOULD SECURITY BE ORDERED? 21 I note again, the Friggers were made bankrupt by the Primary Decision on 20 July 2018. The application to extend time was not lodged by the Friggers until 6 November 2018. Promptly thereafter the respondents wrote to the Friggers seeking security for costs of the application. No agreement was reached and the respondents filed this application for security for cost of the application seeking security in the amount of $12,500. 22 This is by no means the first occasion on which the Friggers, who are prolific litigants, have been ordered to pay security for costs. As the respondents note, such occasions include: (a) on 19 November 2014, by the Court of Appeal of the Supreme Court in the matter of Frigger v Professional Services of Australia Pty Ltd [2015] WASCA 3; (b) on 11 December 2015, by the Court of Appeal of the Supreme Court in the matter of Frigger v Clavey Legal Pty Ltd (No 2) [2015] WASCA 258; (c) on 30 March 2016, by the Supreme Court in Frigger v Mervyn Jonathan Kitay in his capacity as Liquidator of Computer Accounting & Tax Pty Ltd (In Liquidation) [No 9] [2016] WASC 92; (d) on 7 April 2016, by the Court of Appeal of the Supreme Court in the matter of Frigger v Clavey Legal Pty Ltd [2016] WASCA 67; (e) on 13 April 2016, by this Court in Frigger v Banning [2016] FCA 359 (the quantum of which security was adjusted in the decision reported as Frigger v Banning (No 2) [2016] FCA 749); (f) on 2 September 2016, by the Court of Appeal of the Supreme Court in the matter of Frigger v Kitay [2016] WASCA 173; (g) on 11 November 2016, by the Court of Appeal of the Supreme Court in the matter of Frigger v Mervyn Jonathan Kitay in his capacity as Liquidator of Computer Accounting & Tax Pty Ltd (in liq) [2016] WASCA 204; and (h) on 7 May 2018, by this Court in Frigger, in the matter of Computer Accounting & Tax Pty Ltd (in Liq) (No 2) [2018] FCA 612. 23 As is apparent from an affidavit filed in support of the respondents' application for security, the security for costs awarded in relation to the last mentioned Federal Court matter was not paid in the period prior to the bankruptcy of the Friggers. It is has still not been paid. 24 The bankruptcy of the Friggers is not a decisive factor against ordering security. There are several cases where security for costs has been ordered or otherwise considered appropriate in cases where a bankrupt seeks to challenge the bankruptcy order including Mulhern v Pearce (No 2) [2014] FCA 805 and Maher v Official Trustee in Bankruptcy [2013] FCA 1143. 25 In Maher, Jessup J ordered security against a bankrupt who had also been involved in an extensive saga of litigation, much like the present case. His Honour said (at [5]): "The purpose in ordering security for costs is to provide protection to a party brought into litigation by a party who is unable to meet the costs of that other party, should the litigation be unsuccessful": Delta Electricity v Blue Mountains Conservation Society Inc [2010] NSWCA 264 at [4]. It seems clear beyond argument that the applicant, if unsuccessful in this proceeding, would be unable to pay the Bank's costs. However, normally a court would be reluctant to order an individual applicant to provide security, if the effect would be to stultify his or her access to justice: Barton v Minister for Foreign Affairs (1984) 2 FLR 463, 469; and see the Federal Court authorities collected by Heydon JA in Melville v Craig Nowlan and Associates Pty Ltd; (2002) 54 NSWLR 82, 102 - 106 [84]-[94]. But this consideration is a discretionary one, rather than an absolute bar to the provision of security: Ninan v St George Bank Ltd (2012) 294 ALR 190, 197 - 198 [28]-[31]. One conventional instance in which the voice with which the consideration speaks is muted is where the individual appeals from a judgment at first instance which has gone against him or her: Cowell v Taylor (1885) 31 Ch D 34, 38. The policy consideration which informs that practice is that, prima facie at least, the need for the individual to have access to justice will have been satisfied by the hearing at first instance, and that the successful respondent would, therefore, have a stronger claim for security on the appeal: Ng v Van Der Velde [2010] FCA 89 at [28]. 26 As also noted by the respondents, in the decision of Barker J in Frigger v Banning, his Honour set out the following factors which are relevant to the question of whether security for costs should be ordered (relying on the decision of Hill J in Equity Access Ltd v Westpac Banking Corporation [1989] FCA 361, as applied in the context of the Rules in, amongst others, the decision of Murphy J in Mecrus Pty Ltd (ACN 088 126 756) v Industrial Energy Pty Ltd (ACN 080 687 681) (2015) 327 ALR 523): (a) the chances of success of the applicant; (b) whether the applicant's claim is bona fide or a sham; (c) the quantum of the risk that the applicant cannot satisfy an order for costs; (d) whether the power is being used oppressively; (e) whether the impecuniosity arises out of the conduct in respect of which relief is sought; (f) whether there are aspects of public interest which weigh in the balance against the making of the order; (g) whether there are any particular discretionary matters peculiar to the circumstances of the case; and (h) whether an order for security will stultify the proceedings (being an additional criterion considered by Murphy J in Mecrus). 27 When considering an application for security for costs, the court is not obliged to assess the merits of the claim at length, as to do so would ordinarily be a waste of resources: see Impex Pty Ltd v Crowner Products Ltd (1994) 13 ACSR 440 per Pincus JA (at 441) and Mecrus (at [42]). However, it is common for the Court to undertake a preliminary assessment of the strength of the applicant's claim in considering a security for costs application: see Bray v F Hoffman-La Roche Ltd (2003) 130 FCR 317 per Finkelstein J (at [252]) and Mecrus (at [43]). I accept a preliminary assessment is common, but in this instance I have put the discretionary consideration of the merits of the extension of time application to one side. I treat that consideration neutrally so that neither party is prejudiced in light of my other findings below. (Of course the merits of the appeal will have to be considered in the application for extension of time.) 28 I do note, however, that the leave application will also have to address the question of delay as the application has been filed almost three months after the due date for filing the appeal. The respondents say: (1) First, part of the explanation appears to be the fact that the Friggers made an application in the Federal Circuit Court of Australia to annul the sequestration order made in the Primary Decision. However, it is clear that during the period of July and August 2018, the Friggers had legal representation. If advice had been sought on the issue, any competent lawyer would have advised the Friggers that a decision of the Federal Court could not be overturned (and the bankruptcy annulled) in the Federal Circuit Court. (2) Secondly, it appears that another part of the purported explanation for the delay is the difficulties encountered by the Friggers in obtaining legal representation. However: (a) solicitors had agreed to act for the Friggers on 24 July 2018, giving them ample opportunity to file an appeal within time, but they did not; and (b) thereafter, the difficulties faced by the Friggers in obtaining representation was entirely of their own making, due to extended negotiations regarding the retainer and the unreasonable requirements of the Friggers in this regard. The requirement to appeal within the period specified in the Rules is not to be ignored, having regard to the convenience of the Friggers. (3) In any event, there is no explanation whatsoever for why the Friggers' ultimate lawyers, who were approached on 8 September 2018, were not instructed until 26 September 2018 and then as to why, from the Friggers agreeing to their engagement until 2 October 2018, the application was not filed for more than a month thereafter (ie more than the prescribed period of 21 days). 29 No view has been formed on those foreshadowed arguments. The Friggers make clear they can all be answered. Nevertheless, it is clear that all these issues, let alone the actual merits of the appeal, will make the leave application far from straightforward and likely to give rise to not insignificant costs. 30 Beyond that, the respondents also argue: (1) There is real prejudice to the respondents arising out of delay. In particular, the Friggers have already caused significant delay, through the 'cynical' exercise of pursuing every avenue available to them to challenge decisions of this Court. That is, the bankruptcy notice issued more than two years ago in August 2016, yet by an application to set it aside, an application for a review of that decision, a contested creditors petition and an attempt to annul the Primary Decision, the Friggers have already delayed the outcome significantly. This delay has been exacerbated by the delay in applying for leave to appeal out of time, the subsequent delay in progressing the application, and the delays which will follow, if leave to appeal is given. The consequence is that the bankruptcy is unlikely to be resolved within three years of the issue of the bankruptcy notice. (2) As to the consequence of the delay, it is apparent from the report of the Friggers' Trustee in Bankruptcy that there may be an asset of the order of $2.8 million available for distribution to the creditors. But of course, no distribution can or will be made, and the issue of whether the asset is one available to the creditors will not be resolved, until the appeal is resolved. 31 Against the foregoing background, in my view, there is no question of any oppression in seeking security for costs. As noted in the Primary Decision (at [201]): The extent of the claims made by [the Friggers] in these proceedings reveals an intense unwillingness to accept their liability to meet costs under costs orders. They prefer to find whatever argument they can irrespective of its merit not to meet their debts… 32 I note from the Primary Decision (at [112] and [120]) that the Friggers asserted that the Frigger Superannuation Fund of which they are members has assets in excess of $18 million and they could access 84% of those assets at any time. They did not do so to meet costs orders which, in turn, have led to their bankruptcies. As found in the Primary Decision, they chose not to do so: 123 There was no attempt by Mr and Mrs Frigger to claim that some form of execution could be levied against the monies in the Frigger Superannuation Fund. Rather, the submission advanced concerning the decision in Vangsnes was that the judgment debt was incurred by Mr and Mrs Frigger as trustees of the Frigger Superannuation Fund and they are entitled to a right of indemnity out of the Fund, but they have a duty not to resort to the Fund if they dispute the claim, which they do. Therefore, although they could resort to those funds they choose not to do so for what they consider to be good reason. The reasons advanced are those raised by other grounds and are dealt with in the balance of these reasons. … 126 I find that by reason of the funds available to Mr and Mrs Frigger from the Frigger Superannuation Fund, they are able to pay their debts. However, those are the only funds available to a creditor. The petitioning creditors are unable to resort to the monies in the Frigger Superannuation Fund. The petitioning creditors have sought to levy execution, but have been unsuccessful in doing so. In those circumstances, even though I am satisfied that Mr and Mrs Frigger are able to pay their debts I decline to dismiss the petition under s 52(2) of the Bankruptcy Act. (Emphasis added.) 33 At least at the time of the Primary Decision, there was no doubt that the Friggers could access the funds in the Frigger Superannuation Fund and, certainly, an order for security for costs would therefore not have stultified the proceedings. However, the Friggers now assert that they are no longer able to access those funds by reason of their bankruptcies. In Mrs Frigger's affidavit in opposition to the security for costs application, she deposes: On the date of the sequestration order, my husband and I ceased to be members of the Frigger Super Fund. Pursuant to the terms of the Frigger Super Fund Trust Deed, my husband's and my pensions are now held in a "forfeiture" account pending this application and any appeal. We do not have access to those funds, and are being paid the minimum amount allowed under bankruptcy law. 34 It was apparent from the evidence that the statutory minimum which could go to bankrupts in the Friggers' circumstances was just over $57,000 as currently indexed. Even assuming (which is by no means clear on the evidence) that this is the applicable figure, that sum would, of course, be ample to cover the security for costs sought by the respondents' application, though it may not be the Friggers' preferred expenditure. It may not appeal to the Friggers to utilise funds in this manner, but having regard to the history and the observations made by the primary judge that is not a good reason why they should not be ordered to pay security for costs. 35 Importantly, the respondents have already had success on a fiercely contested dispute and are entitled to the fruits of their victory. They should not be put through the exercise once again without some costs protection. This principle is noted in the following passage in Tran v The Commonwealth [2009] FCA 921, where Jagot J noted (at [3]-[6]) that: 3. The purpose of the discretion to order security is protective, to ensure a respondent is not unreasonably exposed to a risk that, if successful in defending the claim, the respondent will nevertheless be deprived of the benefit of a costs order in its favour by reason of the applicant being impecunious. 4. The principles are different depending upon the status of the applicant as either a corporate entity or natural person and whether the proceeding involves an application at first instance or an appeal against a first instance decision. 5. Courts are reluctant to order that an impecunious applicant, being a natural person, provide security where the effect would be to stifle that person's access to the courts. This is the basis for the traditional rule at common law that "poverty is no bar to a litigant" (Cowell v Taylor (1885) 31 Ch D 34 at 38). But where such a person has already obtained access to a court, and has received a decision dismissing the claim, the position is different. 6. This difference has been explained by Spender J in Tait v Bindal People [2002] FCA 322 at [2]-[4] in these terms: [2] The position in relation to security for costs in the present matter is governed by s 56 of the Federal Court of Australia Act 1976 (Cth). Section 56 provides that security is to be of such amount and given at such time and in such manner and form as the Court or Judge directs. As to whether security for costs should be ordered, Cowell v Taylor (1885) 31 Ch D 34 at 38, a case of more than 100 years ago, sets out the fundamental principle: "The general rule is that poverty is no bar to a litigant, that, from time immemorial, has been the rule at common law. There is an exception in the case of appeals, but there the appellant has had the benefit of a decision by one of Her Majesty's Courts, and so an insolvent party is not excluded from the Courts, but only prevented, if he cannot find security, from dragging his opponent from one Court to another". [3] What that passage demonstrates is that there is a difference in principle in relation to the ordering of security for costs in a first instance matter and the ordering, or the consideration of the ordering, of security for costs where one is at the appellate level. The difference is that, at the appellant [sic] level, there has already been a determination adverse to the person against whom security for costs is sought and, if it be shown that there is a substantial risk that even if successful the respondent to the application for leave to appeal, or to an appeal, will be deprived of his costs, such an outcome would clearly be unjust. … … (Emphasis added.) 36 Finally, the Friggers have strenuously argued that the sum of $12,500 is excessive in relation to their leave application. Patently, that is not so. That some $12,500 in costs, at the very least will be incurred by the respondents is well satisfied by the evidence and arguments foreshadowed by each side in relation to the application. Clearly argument will be extensive. It will be necessary to consider the merits of the appeal if an extension of time is granted. Further, I am far from persuaded on the state of the evidence (including the history of this and other litigation involving the Friggers) that the Friggers have proven they could not access sufficient funds to meet a modest security for costs order. In all the circumstances I consider it should be made. 37 For all of these reasons, security for costs will be ordered in the sum sought. 38 There was also a foreshadowed application by the Friggers to strike out the notice of address for service filed for the respondents. I did not expressly hear either party on this topic. I make no ruling in respect of this application, but the Friggers would need to address the observations made by the respondents in their written submissions if they were to pursue it. In the meantime, status quo will remain with respect to the notice of address for service. I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher.