Frigger v Kitay (No 2)

Case [2020] FCA 497

FEDERAL COURT OF AUSTRALIA

Frigger v Kitay (No 2) [2020] FCA 497

Appeal from: Kitay, in the matter of Frigger (No 2) [2018] FCA 1032
File number: WAD 492 of 2018
Judge: CHARLESWORTH J
Date of judgment: 17 April 2020
Catchwords:

CORPORATIONS – whether an agreement in the nature of a solicitor’s retainer requires approval under s 477(2B) of the Corporations Act 2001 (Cth) – whether liquidator entitled to take steps in defence of a proceeding on behalf of a company in liquidation – whether a costs agreement between a solicitor and the liquidator is sufficient to confer authority on the solicitor to act on the company’s behalf – whether a costs agreement naming a company as a party to the agreement requires approval – approval granted to the extent that it is required

PRACTICE AND PROCEDURE – application under r 39.05 of the Federal Court Rules 2011 (Cth) to set aside an order that the applicants pay security for the respondents’ costs – applicants disputing the authority of a solicitor to make the security application on a company’s behalf – applicants seeking to agitate the merits of their originating application in circumstances where the judge ordering security held that the merits were a neutral consideration – application to set aside refused

PRACTICE AND PROCEDURE – notice of address for service – whether notice should be struck out by reason of any want of authority of solicitor to take steps in proceeding on behalf of a company – whether solicitor authorised to make an application for security for costs on company’s behalf – whether any such want of authority is a proper basis to set aside an order for security for costs expressed to be for the benefit of the liquidator and the company

PRACTICE AND PROCEDURE – proceeding stayed as a consequence of a failure to pay security for costs – whether the proceedings should be dismissed in the event security is not now paid
Legislation:

Bankruptcy Act 1966 (Cth) s 52

Corporations Act 2001 (Cth) ss 477, 556

Evidence Act 1995 (Cth) ss 56, 138

Federal Court of Australia Act 1976 (Cth) s 56

Federal Court Rules 2011 (Cth) rr 5.21, 5.23, 19.01, 39.05,

Rules of the Supreme Court 1971 (WA) O 66, r 57

Cases cited:

Adams v London Improved Motor Coach Builders Ltd [1921] 1 KB 495

Banque Commerciale SA, En Liquidation v Akhil Holdings Limited (1990) 169 CLR 279

Calandra v Murden [2015] NSWCA 231

Deputy Commissioner of Taxation, in the matter of ACN 154 520 199 Pty Ltd (in liq) v ACN 154 520 199 Pty Ltd (in liq) (No 2) [2017] FCA 755

Director of Public Prosecutions (Cth) v Galloway (2014) 245 A Crim R 427

Empire (Aust) Nominees Pty Ltd v Vince [2000] VSC 324

Frigger v Kitay [2017] FCA 1278

Frigger v Kitay [2019] FCA 624

In the matter of 7 Steel Distribution Pty Limited (in liquidation) (receivers and managers appointed) [2013] NSWSC 669

Kitay, in the matter of Frigger (No…

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AGLC
Frigger v Kitay (No 2) [2020] FCA 497
Case
[2020] FCA 497
Decision Date

CaseChat Overview and Summary

In the matter of Frigger v Kitay (No 2), the applicants sought to challenge the liquidator’s authority to enter into certain agreements and take certain steps in proceedings relating to the liquidation of CAT. The applicants also sought to set aside an order for security for costs, arguing that the solicitor who had made the application lacked the authority to do so on behalf of the company. The court was required to determine whether the liquidator needed approval to enter into certain agreements, whether a costs agreement between the liquidator and a solicitor was sufficient to confer authority on the solicitor to act on the company’s behalf, and whether the solicitor was authorised to make an application for security for costs on the company’s behalf. The court found that the liquidator did not need approval to enter into certain agreements, that the costs agreement was sufficient to confer authority on the solicitor to act on the company’s behalf, and that the solicitor was authorised to make an application for security for costs on the company’s behalf. The court held that the liquidator was entitled to enter into an agreement with a solicitor in his capacity as liquidator and that such an agreement did not require approval under s 477(2B) of the Corporations Act 2001 (Cth). The court also held that a costs agreement naming a company as a party to the agreement required approval, but that the costs agreement in question was approved to the extent that it was required. The court held that the liquidator was authorised to make an application for security for costs on the company’s behalf, and that any want of authority on the part of the solicitor was not a proper basis to set aside an order for security for costs. Finally, the court held that the proceedings should be dismissed if security for costs was not paid within the specified timeframe. The applicants’ application for an order in terms of paragraph 1 of their interlocutory application dated 7 January 2019 (as amended on 29 September 2019) was dismissed, as was their application for an order in terms of paragraph 3 of their interlocutory application dated 30 May 2019 (as amended on 29 September 2019). To the extent that the costs agreement forming annexure MJK-3 to the affidavit of Mervyn Jonathan Kitay sworn on 28 August 2019 was an agreement to which s 477(2B) of the Corporations Act 2001 (Cth) applied, the costs agreement was approved, effective as and from 27 November 2018. Pursuant to s 56(4) of the Federal Court of Australia Act 1976 (Cth) and r 5.21(a) and r 19.01(1)(c) of the Federal Court Rules 2011 (Cth), if the applicants did not comply with the order in paragraph 2 of the orders of 6 May 2019 on or before 15 May 2020, then, by this order, the originating application was dismissed, and the applicants were to pay such of the respondents’ costs of the originating application as were not presently the subject of an order for costs.

Orders

Orders of the court

1. The applicants’ application for an order in terms of paragraph 1 of their interlocutory application dated 7 January 2019 (as amended on 29 September 2019) is dismissed.

2. The applicants’ application for an order in terms of paragraph 3 of their interlocutory application dated 30 May 2019 (as amended on 29 September 2019) is dismissed.

3. To the extent that the costs agreement forming annexure MJK-3 to the affidavit of Mervyn Jonathan Kitay sworn on 28 August 2019 is an agreement to which s 477(2B) of the Corporations Act 2001 (Cth) applies, the costs agreement is approved, effective as and from 27 November 2018.

4. Pursuant to s 56(4) of the Federal Court of Australia Act 1976 (Cth) and r 5.21(a) and r 19.01(1)(c) of the Federal Court Rules 2011 (Cth), if the applicants do not comply with the order in paragraph 2 of the orders of 6 May 2019 on or before 15 May 2020, then, by this order:

(a) the originating application is dismissed; and

(b) the applicants are to pay such of the respondents’ costs of the originating application as are not presently the subject of an order for costs.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

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Evidence

Evidence Before The Court

On the applications before me the applicants did not take issue with McKerracher J’s finding that they had the capacity to pay the amount ordered. It is reasonable to infer (and I find) that the applicants’ failure to pay that amount is explained by their strongly held conviction that they should not be required to pay into Court the secured amount. They should now be provided with a short time to comply with the orders, failing which the originating application will be dismissed. There was no suggestion by the applicants that they could not access and pay the secured amount within 28 days, no matter how reluctant they may be to do so.RULING ON EVIDENCE The affidavits read on the interlocutory affidavits are identified in a document marked MFI-1. It is not necessary to list them here. On the hearing of the applications, I reserved the question of whether an affidavit of Mrs Frigger sworn on 16 August 2019 should be read. Annexure AF-1 to that affidavit is another affidavit sworn by Mrs Frigger on 13 August 2018 in a criminal proceeding in which she is a defendant. That affidavit, in turn, annexes the Confidential Affidavit of Mr Kitay sworn in the Supreme Court proceedings and referred to earlier in these reasons. The respondents object to the Court reading annexure AF-1 to the 16 August 2019 affidavit on the grounds that Mrs Frigger’s use of it in these proceedings constitutes a contravention of the orders of Master Sanderson made on 17 January 2012. Those orders remain in force. It is to be recalled that in 2014, Master Sanderson made additional orders requiring the applicants to deliver up the Confidential Affidavit and that it was the applicants’ conduct in resisting an application for those orders that led to the indemnity costs order against them and the approbation of Master Sanderson. It is also to be recalled that Master Sanderson made the orders in 2014 notwithstanding that the information contained in the Confidential Affidavit had come into the applicants’ possession On 2 May 2014, the applicants swore an affidavit in the proceedings before Master Sanderson in which they said on oath that they had not retained any copies of the Confidential Affidavit or any annexures thereto. They also deposed that they had permanently deleted any electronic copies of the Confidential Affidavit and any of its annexures then in their possession. It is in those unusual circumstances that the applicants asked this Court to read the affidavit of Mrs Frigger sworn on 16 August 2019 which annexes a copy of the Confidential Affidavit as a part of AF-1 The affidavit of 16 August 2019 contains assertions in the nature of submissions to the effect that the Confidential Affidavit should not be regarded as confidential. It also asserts that the Confidential Affidavit contains falsehoods about the authority of Mr Kitay’s solicitors to act for him and for CAT in various earlier proceedings dating back as early as 2012. The applicants submit that material contained in the Confidential Affidavit would be relevant to their appeal from the sequestration orders of Colvin J, should their application for an extension of time to appeal be granted.

Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

Ground 9 more made direct allegations in relation to the operation and effect of s 477(2B) of the Corporations Act. It is convenient to extract what Colvin J said of that ground of opposition in full:Ground 9: The HSF terms of engagement and s 477(2B) of the Corporations Act177As I have noted, s 477(2B) of the Corporations Act provides that except with the approval of the Court, of the committee of inspection or of a resolution of creditors a liquidator must not enter into an agreement on behalf of the company in liquidation if obligations of a party to the agreement may be discharged by performance more than three months after the agreement was entered into, even if the term may end or the obligations be discharged within three months.178It is common ground that no such approval was obtained in respect of the HSF terms of engagement concerning the conduct of the proceedings relating to the Confidential Affidavit. However, s 477(2B) only applies where a liquidator enters into an agreement on behalf of the company. It does not apply to agreements made by a liquidator personally in his capacity as liquidator. It is common for liquidators to seek legal advice as to the discharge of their responsibilities as liquidator.179Therefore, in the circumstances of the present case, no such approval was required because, as I have found, the agreement was between HSF and Mr Kitay. CAT was not a party to the agreement. In accordance with common practice, Mr Kitay engaged HSF in his capacity as liquidator of CAT. As Mr Kitay had been an applicant for orders based upon the Confidential Affidavit and he had prepared the affidavit in the discharge of his responsibilities as liquidator he was entitled to bring the application for orders as to the use of the Confidential Affidavit in his capacity as liquidator.180Accordingly, liability for the costs the subject of the indemnity costs order was incurred by Mr Kitay as liquidator, not by CAT. The application that was determined by Master Sanderson was brought by Mr Kitay. Orders were made on the application of Mr Kitay. Those orders provided for an order for indemnity costs in favour of both Mr Kitay and CAT as applicants in the substantive winding up proceedings (being the proceedings in which the interlocutory application was made for orders concerning the Confidential Affidavit).181The bill of costs was presented by both Mr Kitay and CAT as the applicants. However, the only costs claimed in the bill were costs that had been incurred by Mr Kitay. The claim to the costs in the bill did not depend upon a claim that costs had been incurred by CAT. The indemnity costs order did not apply only to costs jointly incurred by Mr Kitay and CAT. It is an order in favour of each of them. No claim is advanced by the petitioning creditors that the costs that were assessed by Registrar Boyle were incurred by CAT. They rely upon the terms of engagement agreed between Mr Kitay and HSF.182Although the petition for sequestration orders is presented by both Mr Kitay and CAT, it is sufficient if Mr Kitay demonstrates that he is a judgment creditor in respect of the costs the subject of the assessment. For reasons I have expressed elsewhere in these reasons, he has done so.183 Therefore, there is no merit in this ground.