Frigger v Trenfield

Federal Court of Australia|2021-07-13|Before: Colvin J

Pursuant to r 19.01 of the Federal Court Rules 2011 (Cth), the applicants are to provide the second respondent with security for their costs of and incidental to defending this proceeding in the sum of $25,000.
The security referred to in order 1 is to be provided by payment into Court or the provision of an unconditional bank guarantee from an Australian trading bank.
Security is to be provided on or before 26 July 2021.
Until the provision of security in accordance with these orders, the proceeding is stayed.
The applicants pay the second respondent's costs of and incidental to this application.
There be liberty to the second respondent to apply for orders in relation to documents alleged to have been included in affidavit material by the first-named applicant in breach of orders of the Supreme Court of Western Australia. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

COLVIN J: 1 Mrs and Mr Frigger were made bankrupt in July 2018. In August 2018 they made an unsuccessful application in the Federal Circuit Court for orders annulling their bankruptcies. The application was dismissed on the basis of a lack of jurisdiction. Thereafter, for some considerable time, they pursued an application for leave to appeal out of time against the making of the sequestration orders. They sought no order for annulment as part of those proceedings. Ultimately, their application for leave to appeal was dismissed in April 2020 by reason of the failure by Mrs and Mr Frigger to pay security for costs as ordered by the Court. Now, by application dated 18 March 2021 they seek annulment of their bankruptcies pursuant to s 153B of the Bankruptcy Act 1966 (Cth), alternatively orders setting aside the sequestration orders. 2 The grounds on which Mrs and Mr Frigger seek annulment include a claim that they are solvent. As to that ground, Mrs Frigger has deposed that she and her husband hold all of their assets in a self-managed superannuation fund known as the Frigger Super Fund (Fund). They claim that the assets of the Fund now total $26 million in value and that, in addition, there are claims for losses to the Fund in the many millions of dollars that are being pursued in other proceedings. 3 Mr Mervyn Kitay, the liquidator of Computer Accounting & Tax Pty Ltd (in liq) was a petitioning creditor on the application that led to the making of the sequestration orders. Mr Kitay is a respondent to the present application by Mrs and Mr Frigger. He opposes the application. He seeks an order for security for costs in an amount of $25,000. 4 Mrs and Mr Frigger seek to proceed by way of summary judgment on their substantive application. They allege that there was a defect or irregularity in the making of the sequestration order. Speaking broadly, it is alleged to arise because (a) the bankruptcy notice and creditor's petition which led to the sequestration orders against them were based upon a judgment for costs; (b) the circumstances pertaining to the terms of engagement of Herbert Smith Freehills as lawyers for Mr Kitay are such that there is in truth no liability for Mr Kitay to pay any costs under the judgment; and (c) approval was required under s 477(2B) of the Corporations Act 2001 (Cth) for the retainer to be valid and enforceable and there was no such approval. They rely upon the alleged strength of these claims as a reason why the security for costs application should not be entertained. They contend that the appropriate course is for the summary judgment application to be listed expeditiously. 5 I determined that the appropriate procedural course was to first deal with the security for costs application because deferring the hearing of the security for costs application until after the summary judgment application would frustrate the purpose of the application for security. Mrs and Mr Frigger submitted that the strength of the merits of their summary judgment application should cause the application for security to be refused and, in the alternative, they submit that any order for security should be confined to an amount of $5,000 which was an appropriate amount to respond to the summary judgment application and only if their summary judgment application is rejected should any order for further security be contemplated.

Relevant principles 6 I summarised the principles to be applied when considering an application for security for costs in Frigger, in the matter of Computer Accounting & Tax Pty Ltd (in liq) (No 2) [2018] FCA 612 at [5]-[10]. The Court's jurisdiction to order security is broad and unfettered. It is to be exercised by considering where the interests of justice lie in the particular circumstances. The decided cases identify different factors that have been weighed in particular instances in reaching a decision. However, they are not a checklist to be brought to account as part of a balancing exercise in each case. The judicial task in considering whether to order security is to evaluate the factors of significance in the particular case. 7 The Court is often concerned to ensure that an order for security will not stifle the bringing of proper proceedings, particularly where the financial circumstances of the applicant for relief might be said to be the consequence of alleged wrongdoing that is the subject of the proceedings. For reasons that will emerge, those aspects are not present in this instance. 8 Two matters should be noted at the outset having regard to the context of the present application. 9 First, bankruptcy affects the status of a person. A person who has valid grounds to seek an order for an annulment should not have their ability to do so stifled. Second, in cases where security is sought against individuals then usually there must be some additional factor beyond a concern as to whether a costs order will be met due to impecuniosity. As I noted in Frigger, in the matter of Computer Accounting & Tax Pty Ltd (in liq) (No 2), examples were given by Lindgren J in Knight v Beyond Properties Pty Ltd [2005] FCA 764 at [33]. This approach reflects the concern that poverty should be no bar to access to the Courts.

Relevance of merits 10 As was explained by Murphy J in Mecrus Pty Ltd v Industrial Energy Pty Ltd [2015] FCA 103 at [41]-[43] it is common for the Court to undertake a preliminary assessment of the strength of claims for the purpose of determining whether to order security. However, all depends upon the circumstances. The need to do so is keen where there is a real prospect that the order may stifle the proceedings and where the cause of action is itself a complaint about matters that have brought about the financial circumstances of the substantive applicant for relief. 11 Although it was submitted for Mr Kitay that the substantive application lacked merit, I will approach the application on the assumption, favourable to Mrs and Mr Frigger, that there is an arguable basis for their claim that there should be an order for annulment. I do so despite the fact that much of what Mrs and Mr Frigger seek to do is re-argue points the merits of which have been considered and rejected in earlier proceedings in respect of which there has been no appeal (including the decisions on their application to set aside the bankruptcy notice on which the creditor's petition was based on the application for sequestration orders against Mrs and Mr Frigger). 12 However, I make no such assumption as to the alternative claim that the sequestration orders should be set aside. No identifiable basis upon which such an order might be made was disclosed by the submissions advanced for Mrs and Mr Frigger. The present proceedings are not an appeal and no issue of fraud or irregularity was properly articulated. Finality in the decisions of the Courts is a fundamental principle: Burrell v The Queen [2008] HCA 34; (2008) 238 CLR 218 at [15]. Unless conferred by statute (as is the case with all appellate powers), the Court has no inherent power to reopen a substantive exercise of judicial power and set aside an order earlier made: Bailey v Marinoff (1971) 125 CLR 529; and Gamser v Nominal Defendant (1977) 136 CLR 145. As to the limited jurisdiction to set aside an order for irregularity, even if a basis upon which such an application might now be brought could be identified, the passage of time since the making of the sequestration orders would stand in the way of Mrs and Mr Frigger being able to proceed in that manner rather than by their annulment application: The Austral Brick Company Pty Ltd v Daskalovski [1998] FCA 782; and Symons v Bateman [1999] FCA 658. The power which the Court once had to rescind a sequestration order on application no longer remains: see s 37(2) of the Bankruptcy Act; and Re Gollan; Ex parte Gollan (1992) 40 FCR 38. 13 As to the matters said to give rise to irregularity there is the additional difficulty that contentions to similar effect were advanced unsuccessfully before Charlesworth J as part of the now abandoned attempts to seek an extension of time in which to appeal against the sequestration orders: Frigger v Kitay (No 2) [2020] FCA 497 at [47]-[69]. Further, as was there determined, to the extent necessary, approval has been given retrospectively for the purposes of s 477(2B) of the Corporations Act. 14 Even making an assumption that there is arguable merit in the annulment application, in order to succeed on such an application two matters must be demonstrated. First, a sequestration order should not be annulled unless it be demonstrated that the judge who made the order was bound not to make the order. Second, if satisfied that the sequestration order ought not to have been made the Court has a discretion whether to make any such orders: Ozer v Australian Liquor Marketers Pty Ltd [2001] FCA 1197 at [30] (Heerey, Emmett and Allsop JJ); and Francis v Eggleston Mitchell Lawyers Pty Ltd [2014] FCAFC 18 at [16] (adopting the summary of the principles by Tracey J in Bulic v Commonwealth Bank of Australia Limited [2007] FCA 307 at [12]). As to delay, Tracey J summarised the position in the following terms: Considerations which may have a bearing on the exercise of discretion include unexplained delay in the making of the application, whether or not the applicant is solvent, whether or not the applicant has made full disclosure of his or her financial affairs and a failure by the bankrupt to oppose the creditor's petition and attend the hearing at which the sequestration order was made 15 In an affidavit filed in support of the present annulment application Mrs Frigger has deposed to the following matters concerning the delay in bringing the application (noting that the affidavit concerns steps that she has taken but it appears that they were steps in relation to both her bankruptcy and the bankruptcy of her husband): (1) in or about August 2018, she applied for the bankruptcy to be annulled in the Federal Circuit Court and the application was dismissed on the ground that it was brought in the wrong court; (2) in or about November 2018, she applied for an extension of time to appeal the sequestration order and was initially represented by lawyers; (3) in December 2018, she tried to negotiate a commercial solution but an offer made was rejected; (4) as to the orders for costs made in the proceedings seeking an extension of time in which to appeal, Mrs Frigger says that she and her husband were ordered to pay costs of $30,000 and then she says 'I did not pay $30,000, nor $12,500 security, because I knew that [Mr] Kitay had no liability to pay and [his lawyer] was once again using legal proceedings to enforce payment'; (5) she says she now has proof that the $30,000 claimed in legal fees has not been paid by Mr Kitay; (6) during the period from May 2020 to November 2020, 'I was fully occupied with preparing for and conducting, the trial against [Ms] Trenfield'; (7) in October 2020, she applied to set aside the debt that had been relied upon as the basis for the sequestration orders. Mrs Frigger says that for the first time she was able to oppose the application on the indemnity ground; (8) it is said that at no time did Mr Kitay or his lawyer refute her contention that Mr Kitay has no liability to pay his lawyer's fees; and (9) she says that it was not until March 2021 that 'I could prove my contention that [Mr] Kitay has no liability to pay the Judgment Debt' and that she was nervous to make such a serious contention without adequate proof. 16 The claim about there being no liability on the part of Mr Kitay to pay his lawyers forms just one part of the basis for the annulment application which relies on numerous grounds. As has been indicated it is not a new complaint. Mrs and Mr Frigger have made complaints to the effect that the indemnity principle was not met in relation to the costs the subject of the judgment that was relied upon to support the bankruptcy notice and creditor's petition on previous occasions. The merits of the claims have been consistently rejected. In submissions Mrs Frigger sought to claim that there was a new aspect to the way the claim was made. The only additional matter seems to be the claim about proof that legal fees have not been paid and the fact that despite the passage of time the lawyers for Mr Kitay continue to act on the basis that they will only be paid out of monies recovered from Mrs and Mr Frigger. Of course, it is not necessary for the indemnity principle to be met that the costs claimed have actually been paid. It is sufficient if there is a liability to meet such costs: Wentworth v Rogers [2006] NSWCA 145; (2006) 66 NSWLR 474 at [126]. 17 Even putting those difficulties to one side, the extent of the other matters relied upon by Mrs and Mr Frigger as grounds for their annulment application mean that the single factual matter identified as a recent development is not an explanation for the delay in bringing the annulment application on the grounds upon which Mrs and Mr Frigger seek to rely. 18 The circumstances deposed to by Mrs Frigger concerning the failure to pay the costs awarded against Mrs and Mr Frigger in the application, since abandoned, seeking an extension of time in which to appeal the making of the sequestration orders assume considerable significance in the present application. They manifest a most concerning approach to orders made by this Court in relation to costs. Mrs and Mr Frigger evidently consider they can disregard those orders based upon their own views as to whether there was a proper basis for the making of those orders. That evidence, of itself, is a substantial factor in support of the application for security. 19 The reference to the conduct of a 'trial' against '[Ms] Trenfield' is a reference to proceedings brought by Mrs and Mr Frigger against their trustee in bankruptcy. They show that Mrs and Mr Frigger have caused those responsible for the administration of their bankrupt affairs to incur substantial costs in the administration which they now, belatedly and without any real explanation as to the delay, seek to annul. 20 These matters also indicate that, even on the assumption that there are grounds for the annulment application, there are, as matters presently stand, reasons why the application may be refused in the exercise of the Court's discretion. The delay in bringing the application and the focus of many of the grounds raised upon matters that were known to Mrs and Mr Frigger and indeed relied upon by them at the time of their hearing of the creditor's petition and the bringing of their application for an extension of time in which to appeal, the primary judge had a discretion to decline to annul the bankruptcy, as well as the taking of substantial steps in the administration to the extent of conducting what they describe as a trial against their trustee will all count against the grant of their application.

Solvency 21 A significant factor that will bear upon the merits of the annulment application is the merits of the claim by Mrs and Mr Frigger that they are (and were at the time of the making of the sequestration orders) solvent. As to solvency, Mrs and Mr Frigger rely upon their access to monies in the Fund. On the hearing of the creditor's petition that led to the making of sequestration orders, they also relied upon the availability of monies from the Fund as a reason why they should not be made bankrupt. 22 This was the position that they maintained in opposing the making of the sequestration orders. In determining that sequestration orders should be made, I reviewed the evidence and concluded as follows (Kitay, in the matter of Frigger (No 2) [2018] FCA 1032 at [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. 23 The issue as to solvency in the particular case of Mrs and Mr Frigger is whether the sequestration orders ought to have been made in circumstances where they maintain that they have access to a large amount of money in the Fund but execution cannot be levied by creditors against the monies in the Fund. It is an issue that Mrs and Mr Frigger have chosen not to pursue by way of appeal.

Relevant matters concerning Mrs and Mr Frigger 24 On the materials before me, the following matters have been established concerning Mrs and Mr Frigger for the purposes of the security for costs application: (1) they made a conscious decision not to pursue their application for leave to appeal out of time against the making of the sequestration orders against them; (2) they have refused to pay the costs awarded against them in those proceedings; (3) they have provided no explanation for the delay for almost a year between the decision not to pursue the appeal and the commencement of the present application; (4) they have provided no adequate explanation for the delay in commencing the annulment proceedings; (5) the debt which led to their bankruptcy arose out of a costs order; (6) they have failed to meet many costs orders; (7) many of the matters that they wish to raise in support of their application have been considered and rejected in earlier decisions of this court; (8) the claim that the sequestration orders should be set aside lacks merit; (9) even assuming there are arguable grounds to support the annulment application there are matters that would weigh against the making of such an order in the exercise of the Court's discretion; (10) they have been ordered to provide security for costs in the past and have not provided security as ordered; (11) they are serial litigants in this and other courts; (12) they have disregarded court orders; (13) they point to no means by which Mr Kitay might expect to be paid in the event that he was to obtain a costs order in his favour in these proceedings; and (14) on their own account they have access to substantial funds in the Fund and therefore they are able to meet any order for security. 25 In addition, it may be noted that they have been found by the Court of Appeal of Western Australia, on the evidence then before the Court, to have engaged in conduct for the purpose of putting their assets out of the reach of their creditors (see Frigger v Kitay [2016] WASCA 173). Mrs Frigger made submissions to the effect that the finding in those proceedings should not be brought to account because it was an inference and not a finding of fact and because there was no avenue of appeal against the finding because it could only be challenged by seeking special leave to appeal to High Court which was likely to be refused. Mrs Frigger also made submissions to the effect that the finding had not been acted upon and, in some way, there should be a conclusion drawn that there was no basis for the finding. I reject all of these submissions. 26 First, a finding made by reasoning by way of inference is still a finding of fact. It is a finding of fact based upon the existence of some other fact by applying the ordinary powers of human reason: G v H (1994) 181 CLR 387 at 390; and Morgan v Babcock & Wilcox Ltd (1929) 43 CLR 163 at 173. 27 Second, conclusions reached by a Court of Appeal after a contested hearing involving the same parties as the present dispute are to be accorded every respect irrespective of application of principles of res judicata and Anshun estoppel, to which Mrs Frigger herself made reference in submissions but only for the purpose of submitting that they did not apply. 28 Third, the finality of a judicial determination and the binding nature of factual findings made as between parties is not dependent upon whether there is any form of appeal right that may be exercised. 29 Fourth, the submissions made by Mrs Frigger to the effect that claims based upon the matters addressed by the Court of Appeal had not been pursued by the trustee because a view had been formed that they lacked merit were contrary to the evidence placed before the Court by Mrs and Mr Frigger as to matters to which the trustee had deposed. That evidence was expressed in the following terms: I am aware that in previous proceedings in the Court of Appeal of the Supreme Court of Western Australia in Frigger v Kitay [2016] WASCA 173 there was a finding that it was open to infer, based on the evidence led in that proceeding, that the mortgage over the Applecross property was done with the intention of putting assets out of the reach of the applicant's creditors. I have not yet taken steps to fully investigate the circumstances surrounding the granting of that mortgage nor made any claims in respect of that mortgage and the Applecross property. I have not done so, because, depending on the outcome of these proceedings, it may be unnecessary to do so, there being sufficient other assets available for the payment of my remuneration, costs and expenses and creditor claims. … In addition to the Applecross property, there may be other claims that I have, as trustee, against the applicants, including potential voidable transactions or income contribution claims. I am not presently investigating these claims because it may be unnecessary to pursue such claims depending on the outcome of the judgment yet to be delivered in these proceedings. Further, there is no third-party funder who is prepared to fund the administration of the estates or any such claims.

Other matters 30 Having regard to the procedural nature of the application and the fact that it concerns only the question whether security for costs should be provided and, if so, in what amount, I have formed the view that the above matters are those which are of significance. To the extent that there were other matters raised I am of the view that they provide further support for ordering security or were matters that were not material.

Quantum of security and liberty to apply 31 Mrs and Mr Frigger disputed the quantum of security. They also contended that if security was to be ordered it should be confined to security as to their summary judgment application. 32 The quantum of security is supported by affidavit. The amount sought is reasonable and consistent with the practice of the Court when it comes to security for a one day hearing in matters of the present kind. It is not appropriate for security to be ordered in tranches. The costs involved in meeting the summary judgment application will depend upon the extent of the contentions ultimately advanced in support of the application. That is a matter in the hands of Mrs and Mr Frigger and Mr Kitay should not be exposed to the risk that insufficient security is ordered. In addition, given the circumstances of this case, Mr Kitay should not be required to make further application at a later time if the summary judgment application is not successful. For reasons that have been given, there are serious questions as to the merit of that application. 33 The application for security seeks liberty to apply. I am satisfied that it is appropriate to reserve such liberty to allow for the possibility that the hearing of the application may involve more than a single day of hearing and the presentation of more affidavit evidence than is presently indicated.

Alleged breach of confidentiality orders 34 In the course of the hearing, counsel for Mr Kitay sought orders concerning the content of an exhibit to an affidavit filed by Mrs Frigger on the basis that the document had been included in breach of confidentiality orders made by the Supreme Court of Western Australia. In submissions Mrs Frigger maintained that it was appropriate to have included the attachment to the affidavit despite the terms of the order. The nature of the complaint raised on behalf of Mr Kitay gives rise to issues of considerable seriousness. If indeed it is apparent to this Court that there has been, as was submitted, a blatant disregard of confidentiality orders made by the Supreme Court then that is a matter that will need to be addressed with due formality. 35 In the circumstances I will provide Mrs Frigger with an opportunity to provide to the registry a copy of the affidavit that does not include the relevant exhibit or any reference to the exhibit in the body of the affidavit together with a request that the existing affidavit be removed from the Court file. I will also give leave for an application to be brought by Mr Kitay for appropriate orders. I take this approach because of the nature of the allegations raised and the need to identify precisely the evidence relied upon and the basis for any position adopted by Mrs Frigger, after due consideration, by way of response. It appears to be a matter that, as matters presently stand, concerns only Mrs Frigger and that is a further reason why the matter should be addressed in the manner I propose.

Conclusion 36 In the circumstances that I have described I am satisfied that it has been clearly demonstrated that security for costs is appropriate and should be ordered. It is plainly in the interests of justice that there should be an order for security. I am also satisfied that the order should provide for costs of the annulment application based upon a one day hearing. The amount in which security is sought is reasonable. I am also satisfied that there should be liberty to apply for further security in the event that it becomes apparent that the nature of the annulment proceedings assumes a scale which is significantly different to that on which security is to be ordered. 37 Mrs and Mr Frigger having failed in opposing the application for security in circumstances where there was ample basis for the making of an order. Therefore, there should also be an order that Mrs and Mr Frigger pay the costs of the application. As indicated, there should also be an order allowing liberty to apply in relation to the alleged breach of confidentiality orders. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Colvin.

Bankruptcy Act 1966(Cth)ss 37, 153B

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