Frigger v Trenfield

INTRODUCTION 1 This is an application by the appellants for an order to vacate the hearing of the appeal and an interlocutory application for the Court to receive further evidence in the appeal listed for hearing before the Court on 10, 11 and 12 May 2022. The appellants request that the appeal be relisted in the August 2022 sittings of the Full Court. 2 The application was made on 12 April 2022. It was supported by an affidavit of the first named appellant sworn 12 April 2022. It was further supported by oral submissions made by the appellants today, and the appellants also rely on a notice of appeal from a costs order from a primary judge in the original hearing. 3 The respondent opposes the application. She relies on an affidavit of Paris Parasadi sworn 22 April 2022. She also relies on a written outline of submissions dated 22 April 2022 and the oral submissions of counsel today. 4 The application is said to have been made pursuant to r 5.04, item 33 of the Federal Court Rules 2011 (Cth) (which I will refer to from hereon in as the Rules). In substance, it is an application for the grant of an interlocutory order for directions in relation to the management, conduct and hearing of an appeal under r 36.11 and r 5.04 of the Rules. 5 There is an express power to vacate a hearing under r 36.11(2)(i); however, in any event, there is undoubted power of the Court to make an order granting or refusing an application to adjourn a final hearing, including the hearing of an appeal. That power is to be exercised having regard to, amongst other things, s 37M of the Federal Court of Australia Act 1976 (Cth) (which I will refer from now on as the Federal Court Act). The principles applicable on an application for an adjournment for final hearing are well-settled and need not be rehearsed. 6 In short, there is a broad discretion to adjourn. The Court will consider the interests of justice, the efficient and proper use of the Court's resources and any prejudice that will be suffered by either party flowing from the grant or refusal of an adjournment. The exercise of discretion depends on all the circumstances of the case in the application before it. 7 The appellants' primary ground for contending that the appeal should be vacated is founded on a submission that the issues to be considered in the appeal will be substantially resolved by the outcome of other proceedings in this Court, namely, WAD 66 of 2021 (which I will refer to as simply WAD 66 of 2021). Those proceedings are, in turn, awaiting the outcome of proceedings in the Supreme Court of Western Australia, namely, COR 131 of 2021. Again, I will refer to that from now on as COR 131 of 2021. 8 Against that contention, the respondent submits that WAD 66 of 2021 will not result in a substantial reduction of the issues in the appeal. The respondent also submits that an adjournment to the August sittings of the Full Court will not necessarily achieve the appellants' aim because there is no guarantee that WAD 66 of 2021 and COR 131 of 2021 will be finally concluded before August. 9 The respondent also submits that: (a) delay in the hearing of the appeal will cause prejudice to the respondent; (b) there is a public interest in the finality of litigation; and (c) there has been unexplained delay on the part of the appellants in making the application, all of which are factors that weigh against the grant of an adjournment. 10 For reasons I am about to give in more detail, I am not satisfied that an adjournment should be granted. 11 The main reason is I do not accept that the resolution of WAD 66 of 2021 will substantially resolve the issues in the appeal or that the appeal will be rendered substantially inutile as a consequence. There are also other less significant reasons that weigh against the adjournment.

BACKGROUND 12 Before addressing the substance of the submissions, it is briefly necessary to summarise the relevant background to the application. Although the background will be well familiar to the appellants and the respondent, it is necessary to set it out in a little detail because it forms part of the context in which the application has been brought and has a bearing on the exercise of the discretion overall.

Sequestration order 13 On 20 July 2018, Colvin J made a sequestration order under the Bankruptcy Act 1966 (Cth) (which I will refer to as the Bankruptcy Act), against the estates of each of the appellants. That order was made on the application of Mr Mervyn Jonathon Kitay (who I will refer to as Mr Kitay), in his capacity as liquidator of Computer Accounting & Tax Pty Ltd (as the first applicant, and I will refer to that company as CAT), and CAT itself, as the second applicant. The application arose out of a judgment debt in the sum of $61,042 in respect of a costs order that Master Sanderson had made and a certificate of taxation of Registrar Boyle with respect to proceedings in Supreme Court of Western Australia involving Mr Kitay, CAT and the appellants. 14 The respondent in this appeal (who I shall sometimes refer to as Ms Trenfield) is the trustee in bankruptcy of each of the appellants. Her appointment flowed from the sequestration order made in July 2018.

WAD 141 of 2019 and WAD 278 of 2021 15 After the sequestration order, the appellants commenced proceedings in this Court in WAD 141 of 2019. The trial and submissions were heard over 12 days during 2020 before Jackson J. On 1 December 2021, Jackson J made an order dismissing the appellants' applications in WAD 141 of 2019 and delivered reasons for his decision. On 13 December 2021, the appellants commenced this appeal and filed a notice of appeal. 16 On the same day, the appellants made an interlocutory application in the appeal to stay the primary judge's judgment. On 16 December 2021, Colvin J made an order dismissing the application for a stay. At about the same time, the respondent gave an undertaking, which was in the following terms: …the respondent in her capacity as trustee of the bankrupt estates of the first and second appellants to take no steps to dispose of, transfer or otherwise deal with the shares held by Commonwealth Securities Limited in Portfolio 270815 without first giving 30 days prior notice to the first and second appellants such undertaking being subject to the respondent complying with any court order concerning those shares and the respondent having liberty to apply on notice to vary or be released from the undertaking. 17 The shares held by Commonwealth Securities Ltd formed part of the disputed assets, which were the subject of the application in WAD 141 of 2019. I will describe the nature of that dispute in more detail shortly. 18 On 17 February 2022, Logan J, amongst other orders, granted the appellants leave to file an amended notice of appeal in terms of a document filed in the Court on 30 January 2022. 19 On 21 March 2022, the appellants applied for an interlocutory order for the Court to receive further evidence in the appeal contained in an affidavit of the first named appellant sworn 18 March 2022. On 4 April 2022, I made a number of orders for directions, including an order that the appeal and the application for leave to adduce further evidence be heard at or immediately before the hearing of the appeal and listing the appeal and the interlocutory application for hearing on 10, 11 and 12 May 2022. 20 As of today, an index for Part A and an index for Part B of the Appeal Book has been filed. The parties have filed submissions on the appeal and the application for leave to rely on further evidence, and the remaining steps in the appeal comprise the filing of Part C and Part D of the Appeal Book.

WAD 66 of 2021 21 After the hearing in WAD 141 of 2019, the appellants commenced WAD 66 of 2021. The respondent in this appeal, Ms Trenfield, is the first respondent in WAD 66 of 2021, and Mr Kitay is the second respondent in that proceeding. In WAD 66 of 2021, the appellants seek an annulment of the sequestration order of 20 July 2018 under s 153B of the Bankruptcy Act. 22 The appellants have applied to amend the originating application in WAD 66 of 2021 to seek orders setting aside the sequestration order under s 23 of the Federal Court Act and r 39.05(b) of the Rules, alternatively, under s 153B of the Bankruptcy Act. The apparent ground for setting aside the order under s 23 of the Federal Court Act and r 39.05 is that the order was obtained by fraud, allegedly. The application to amend the originating application in WAD 66 of 2021 has not been determined and has been adjourned pending the outcome of the application in COR 131 of 2021.

COR 131 of 2021 23 As to COR 131 of 2021, there is little evidence before the Court in this appeal as to the nature of those proceedings or the potential effect that they will have or may have on WAD 66 of 2021 and this appeal. In the affidavit in support of this application, the first named appellant states at [7]: At present WAD66/2021 is adjourned, pending Justice Hill's reserved judgment in WA Supreme Court COR131/2021 whether Kitay's application for retrospective s 477(2B) Corporations Act 2001 approval of a retainer dated October 2013 is an abuse of process, including Anshun estoppel. The same retainer was considered in the sequestration judgment by Colvin J and found not to require approval: Kitay, in the matter of Frigger [2018] FCA 1032 @ [179]. 24 On 18 August 2021, Logan J made an order adjourning the appellants' application in WAD 66 of 2021 for summary judgment to a date to be fixed pending the outcome of the proceedings in the Supreme Court of Western Australia in COR 131 of 2021. His Honour's reasons for decision are contained in Frigger v Trenfield (No 2) [2021] FCA 1255. 25 At [2] and [3], his Honour indicated the reason why he adjourned the application is that, both in respect of the summary judgment application made by the appellants in this appeal and, for that matter, their substantive annulment application, one issue at large is whether or not there was need for the liquidator first to have approval under s 477(2B) of the Corporations Act 2001 (Cth) in respect of entering into, with solicitors, of costs agreements which would extend for more than three months. It was by no means apparent to his Honour that this was the only issue that would be relevant in either the summary judgment application or the substantive annulment application, but it was an issue. His Honour went on to conclude that it may or may not be the case, either in the context of the summary judgment or the substantive annulment application, that approval of the Court, exercising jurisdiction under the Corporations Act, is a panacea in terms of the bankruptcy notice and the validity of the bankruptcy notice which grounded the act of bankruptcy upon which sequestration was ordered. 26 His Honour considered it neither necessary nor desirable to embark on any consideration whatsoever of the subject at the time of that application. For the purposes of that application, it was enough to recognise that a court of competent jurisdiction, namely, the Supreme Court of Western Australian, was seized with an application by the liquidator either for a declaration that approval was not necessary or, alternatively, for approval nunc pro tunc under provisions in the Corporations Act. 27 It is evident that an issue in WAD 66/2021 concerns the extent to which Mr Kitay required approval before entering into a retainer. That issue will be resolved in COR 131 of 2021. For the purposes of this application, I have assumed that the outcome of WAD 66 of 2021 is, at least in part, dependent on the outcome of COR 131 of 2021.

Issues in WAD 141 of 2019 28 I now need to turn to WAD 141 of 2019 and issues in this appeal. There were three broad groups of issues determined at the trial during 2020 and by the order and decision of the primary judge in December 2021. 29 These comprised, in group 1, whether certain assets form part of the property divisible amongst the creditors or the bankrupt estates. I refer to those as the disputed assets. 30 These are described in the primary judge's reasons as follows: (a) two bank accounts with Bank of Queensland Limited, defined as BOQ1 and BOQ2, holding 2.8 million and a little over $50; (b) shares in a portfolio, defined as the main portfolio, administered by the sharebroker Commonwealth Securities Ltd or CommSec; and (c) two parcels of residential land in suburbs of Perth, one in Bayswater, defined as the Bayswater property, and the other in Como, defined as the Como property, and together referred to as the residential properties. The issue in dispute concerned whether those disputed assets were assets of the bankrupt estates or assets of the Frigger Superannuation Fund. 31 The second group of issues concerned whether, as a result of the respondent's consent to certain orders in the Supreme Court of Western Australia, the respondent suffered loss and the question of whether those orders were properly consented to and made. 32 The third group of issues concern whether the respondent should be removed as the trustee in bankruptcy for various reasons. 33 There was a fourth group of issues concerning the question of whether the appellants were entitled to compensation in relation to losses alleged to have been suffered when freezes were placed on the BOQ1 account and the shares in the main portfolio at the instigation of the respondent. 34 The fourth group of issues was separated from the other three groups of issues by an order of the primary judge on 5 June 2020 and that is referred to in Frigger v Trenfield (No 4) [2020] FCA 797.

Grounds of appeal 35 The grounds of appeal in the amended notice of appeal broadly fall into grounds corresponding to the four groups of issues in the primary proceedings. I will come back to ground 1. 36 Grounds 2 and 3 relate to the bank accounts and BOQ1 and BOQ2. Ground 4 relates to the main portfolio. Ground 5 relates to the residential properties. Therefore, in effect, grounds 2-5 concern the disputed assets and assets that the primary judge was, on the grounds in the notice, asserted to be in error for finding that they were not assets of the Frigger Superannuation Fund. 37 Ground 6 concerns the Supreme Court of Western Australia costs order and the second group of issues. Ground 7 concerns the respondent's removal and the third group of issues. Ground 8 is linked to the fourth issue of compensation associated with the disputed assets or a subset of them. Ground 9 concerns procedural fairness and the conduct of the trial in general. And ground 1 is connected WAD 66 of 2021. 38 I asked the first named appellant, during her submissions, for an explanation of the nature of ground 1. And it became apparent that it was connected to a submission that the decision of the primary judge in WAD 141 of 2019 was hypothetical because, when it was made, there was an extant application to set aside the sequestration order in WAD 66 of 2021. That was submitted to render the issues in the appeal, also, hypothetical. And that was, essentially, another ground or an additional ground for the adjournment. 39 At this point, I want to note that, to accept that submission, would involve, in effect, prejudging ground 1 of the notice of appeal and judging it in favour of the appellants. But, in any case, it is difficult to characterise the decision of Jackson J in WAD 141/2019 as involving an hypothetical question. In substance, the decision and orders determined ownership of disputed assets. That was not an hypothetical question in the relevant sense in which that expression is used in the case referred to by the first named appellant.

Application to stay judgment 40 Before turning to the potential impact of WAD 66 of 2021 on the appeal, I need to mention a further application made in WAD 141 of 2019. After the trial, but before judgment was delivered, the appellants made an application in April 2021 seeking a stay of the delivery of a judgment in WAD 141 of 2019. That application was dismissed on 14 June 2021. That application is significant in that the grounds relied on in support of the application for the stay are substantially the same as the grounds relied upon in support of the adjournment of the appeal. 41 That rather long summary provides relevant context in which to consider the question of the exercise of the Court's discretion on the adjournment.

DISPOSITION 42 Returning now to the primary premise upon which the application is based, namely, that if the sequestration order is annulled or set aside, in effect, it will obviate the need to determine all the issues in the appeal except for the fourth issue (that is, the fourth group of issues, the compensation resulting from the freeze of BOQ1 in the main portfolio) and the second group of issues, namely, compensation and losses associated with the orders made in the Supreme Court of Western Australia. 43 If the sequestration order were annulled or set aside, it would resolve the question of removal of the respondent, that is, it would essentially, deal with ground 6 of eight, so one of the eight grounds. It would not resolve the second group of issues, that is, the question of losses flowing from the orders in the Supreme Court of Western Australia which is ground 5 of eight. Most significantly, there is very considerable uncertainty as to whether it would resolve the disputed asset issue. It certainly would not resolve that issue, but it also would not obviate the need, necessarily, to determine what assets truly form part of the estate of the bankrupts. 44 Insofar as the appellants seek annulment in WAD 66 of 2021, the effect of an annulment was dealt with by the primary judge in Frigger v Trenfield (No 9) [2021] FCA 652 at [13]-[17]. In short, the annulment would not invalidate anything the respondent has done as trustee in bankruptcy. Further, the property vested in her will remain vested in her so that she may apply it in the payment of costs, charges and expenses of the administration of the bankruptcies, including her remuneration and expenses. 45 There is evidence before the Court on this application that these costs exceed $1 million. There is no evidence before the Court on this application as to what assets may be available to be realised to recover the costs of the administration in bankruptcy and I am not in a position to form a view about the reasonableness of the fees or the assets vested in the respondent overall. However, I accept the respondent will claim in excess of $1 million and will seek to recover that sum from assets vested in her, including the disputed assets. 46 As to the claim for compensation for freezing BOQ1 and the main portfolio, that claim turns, in part, on demonstrating that the assets were assets of the Frigger Superannuation Fund. Therefore, that issue remains live and is the substance of grounds 2-4 of eight. 47 As to the issue of setting aside on the grounds of fraud, as I have mentioned earlier, that is not currently an issue that is in play in WAD 66 of 2021. There is no certainty that it will become an issue in those proceedings and it is very unlikely, in my view, if raised, that it will be resolved before August 2022 on information currently before the Court. 48 But even if I were to assume fraud will be permitted to be raised in WAD 66 of 2021, it would not necessarily result in a different outcome to the annulment application. There are good arguable grounds for considering that the outcome would not be substantially different. 49 The first is that s 153B of the Bankruptcy Act provides that if the Court is satisfied that the sequestration order ought not to have been made or in the case of the creditor's petition that the petition ought not to have been presented or ought not to have been accepted by the Official Receiver, the Court may make an order annulling the bankruptcy. In its terms, it is sufficiently wide to capture the idea that there should be an annulment on the grounds that the original sequestration was obtained by fraud. If so, it is difficult to see the basis for which a court would apply a different set of rules or principles in dealing with the working out post an order setting aside a bankruptcy order, or sequestration order and an annulment. 50 The second reason is that a judgment of a superior court of record is valid until set aside. Third parties who have acted on statutory powers that depend on the 'fact of' an order, rather than the 'legal validity' of an order would arguably be protected from the consequences of acting on the face of the order. For example, New South Wales v Kable [2013] HCA 26; (2013) 252 CLR 118 at [32]-[41], [51]-[61]. 51 Third, there would be a power for the Court to make such orders as are necessary to deal with the respondent's remuneration costs and expenses under s 23 of the Federal Court Act. By way of analogy see Robson as former trustee of the estate of Samsakopoulos v Body Corporate for Sanderling at Kings Beach CTS 2942 [2021] FCAFC 143; (2021) 392 ALR 93 at [24], [30], [38], [40], [92], [254]-[255], [273] and [298]. 52 In Robson, a Registrar of the Federal Circuit of Australia made a sequestration order under a delegated judicial power. A Federal Circuit Court judge later reviewed and set aside the sequestration order. Section 104(4) of the Federal Circuit Court of Australia Act 1999 (Cth) provided at that time that on review of the exercise by a registrar of delegated power, the Federal Circuit Court 'may make any order or orders it thinks fit in relation to the matter in respect of which the power was exercised'. The trustee in bankruptcy appointed after the Registrar made the order applied for orders that the creditor petitioner and former bankrupt pay the remuneration costs and expenses of the trustee in administering the former bankrupt's estate. 53 On appeal to the Full Court of the Federal Court of Australia an issue was whether there was a power to make that order under s 104(3) of the Federal Circuit Court of Australia Act. The Full Court of this Court held that there was such a power and it made orders, in effect, requiring the creditor's petitioner to pay the trustee's costs. 54 Section 23 of the Federal Court Act is in similar terms to s 104(3) of the Federal Circuit Court of Australia Act as it stood. In the course of the Full Court's decision, there was a distinction drawn between an order with no legal effect and an order with legal effect until set aside. Although there was a difference between the various judges of the Court on that issue, it made no difference in the end in exercising the power under s 104(3). 55 By analogy, even without the application of s 153B and s 154 of the Bankruptcy Act, if an order were made under s 23 of the Federal Court Act, the Court would have power to make orders dealing with the respondent's remuneration, costs and expenses. That would not be a straightforward question. However, the power is sufficiently wide to consider that orders may be made permitting the trustee to recover all or some of the remuneration, costs and expenses from the former bankrupt's estates. In that context, a decision regarding ownership of the disputed assets may be of considerable assistance. At least, it is not obvious that the appeal would be inevitably rendered inutile on those issues. 56 Now, to be clear, I am not seeking to deal with the propositions as if they were certain or beyond argument or doubt. I have raised these for the point of illustrating that the outcome in WAD 66 of 2021, even if the appellants were to succeed, is by no means certain or straightforward. Put another way, it is speculative to contend that the dispute asset issue is of no relevance if the appellants succeed in WAD 66 of 2021. 57 That is sufficient to refuse the appellants' application. However, I would add that there are the grounds that weigh against the grant of an adjournment. The public interests in the efficient resolution of legal proceedings is also a significant factor. The Court has allocated time and resources to determine the appeal in May. And that has been at the expense of other litigants in the system. 58 The appellants proffered an explanation for their delay in bringing the application by way, in effect, of a submission. It was submitted that the decision of Hill J in the Supreme Court of Western Australia proceedings was to be delivered in January of 2022 and, therefore, the appellants considered that there was no need to make this application, as it was thought that WAD 66 of 2021 would be resolved before the appeal. That submission, even if accepted on the factual basis, does not really explain the absence of an application after January 2022 and, in any event, before the more significant costs in the appeal were incurred by the respondent. 59 As Colvin J said in Pedley v Deputy Commissioner of Taxation [2019] FCA 1106 at [3]: It is a significant disruption to the administration of the work of this Court for an appeal hearing to be vacated close to the date listed for hearing. The Court arranges appeals so that they are listed in special sittings and considerable efforts are made to accommodate limitations on availability and to list matters in an efficient way. If the appeal hearing was to be vacated at this stage, there would be no prospect that the date might be allocated to other litigants. When these matters were raised with Mr Pedley, he apologised for raising matters at this late stage. Nevertheless, the consequence that the date will be lost to other litigants would follow if there was an adjournment. For similar reasons, the same point could be made here. 60 And the last point I make in this respect is that the appellants have sought an adjournment and that the matter be relisted in the August 2022 listings for the Full Court. There is no certainty that the reasons given for the adjournment or the vacation would be resolved in that period of time. If it were otherwise, it would, in effect, be a stay of the appeal pending the determination of WAD 66 of 2021. 61 As to the question of prejudice to the respondent, I note the submissions in that respect. But it is, essentially, prejudice of a kind that would ordinarily be able to be resolved by reference to a favourable costs order.

CONCLUSION 62 Nonetheless, for all the reasons I have given, I would refuse the appellants' application for an adjournment and dismiss the application. I certify that the preceding sixty-two (62) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Feutrill.