Frigger v Kitay (No 2)
[2020] FCA 497
•17 April 2020
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 2) [2018] FCA 1032
Microbio Rescourses Inc v Betatene Limited [1993] FCA 848
Pascoe; in the matter of Matrix Group Ltd (in liq) [2011] FCA 1117
Re Computer Accounting and Tax Pty Ltd; Ex parte Mervyn Jonathan Kitay in his capacity as liquidator of Computer Accounting and Tax Pty Ltd (in liq) [No 4] [2014] WASC 169
Stewart, in the matter of Newtronics Pty Ltd [2007] FCA 1375
Date of hearing: 14 October 2019 Date of last submissions: 17 March 2020 Registry: Western Australia Division: General Division National Practice Area: Commercial and Corporations Sub-area: General and Personal Insolvency Category: Catchwords Number of paragraphs: 112 Counsel for the Applicants: The Applicants appeared in person Counsel for the Respondents: Mr DW Johns Solicitor for the Respondents: Herbert Smith Freehills ORDERS
WAD 492 of 2018 BETWEEN: ANGELA CECILIA THERESA FRIGGER
First Applicant
HARTMUT HUBERT JOSEF FRIGGER
Second Applicant
AND: MERVYN JONATHAN KITAY IN HIS CAPACITY AS LIQUIDATOR OF COMPUTER ACCOUNTING AND TAX PTY LTD (ACN 009 470 491) (IN LIQUIDATION)
First Respondent
COMPUTER ACCOUNTING AND TAX PTY LTD (IN LIQUIDATION)
Second Respondent
JUDGE:
CHARLESWORTH J
DATE OF ORDER:
17 APRIL 2020
THE COURT DELCARES THAT:
This proceeding is stayed by the operation of paragraph 2 of the orders of 6 May 2019.
THE COURT ORDERS THAT:
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.
REASONS FOR JUDGMENT
CHARLESWORTH J:
There are four interlocutory applications before the Court raising several related issues. The issues are summarised at [2] to [18] below. The orders to be made are summarised at [19]. Reasons for those orders then follow.
ISSUES
On 20 July 2018, Colvin J made a sequestration order under s 52 of the Bankruptcy Act 1966 (Cth) against the estates of the applicants Angela Cecelia Theresa Frigger and Hartmut Hubert Josef Frigger: see Kitay, in the matter of Frigger (No 2) [2018] FCA 1032 (Kitay No 2). That order was made on a creditor’s petition presented in the name of two creditors. The first named creditor was Mervyn Jonathan Kitay in his capacity as liquidator of Computer Accounting and Tax Pty Ltd (ACN 009 470 491) (in liq) (CAT). CAT was the second named creditor. The proceedings commenced by the presentation of their petition will be referred to as the Bankruptcy Proceedings.
The debt underlying the petition owes its existence to an order for indemnity costs made against the applicants in proceedings in the Supreme Court of Western Australia (the Supreme Court Proceedings). The order was expressed to be in favour of both Mr Kitay and CAT. On a subsequent taxation, a Registrar allowed costs in the amount of $61,000.42. The costs allowed by the Registrar are deemed to be a judgment of the Supreme Court of Western Australia and are recoverable accordingly: Rules of the Supreme Court 1971 (WA), O 66 r 57; Calandra v Murden [2015] NSWCA 231 at [5]. In the Bankruptcy Proceedings, Colvin J was satisfied that the debt referred to in the petition was a debt owed to Mr Kitay. His Honour said that no claim had been asserted that the costs assessed by the Registrar were costs that had been incurred by CAT in the Supreme Court proceedings.
This action was commenced by Mr and Mrs Frigger on 6 November 2018. Mr Kitay and CAT are joined as the first and second respondents respectively. By their originating application, Mr and Mrs Frigger seek an extension of time within which to appeal from the sequestration order. The application for an extension of time is yet to be heard. This is not the occasion for determining it.
On 12 November 2018, a Notice of Address for Service was filed in this proceeding on by the law firm Herbert Smith Freehills (HSF). That notice identified HSF as the solicitor for Mr Kitay and provided an address for service for both respondents.
By an interlocutory application filed on 4 December 2018, the respondents sought an order that the applicants pay security for their costs of defending the application for an extension of time. I will refer to that as the Security Application.
In response, Mr and Mrs Frigger filed an interlocutory application dated 7 January 2019 seeking an order to the effect that the Security Application be dismissed. They also sought an order that the respondents’ Notice of Address for Service filed on 12 November 2018 be struck out. The Notice of Address for Service was amended in September 2019 to identify HSF as the lawyers acting for both Mr Kitay and CAT. Mr and Mrs Frigger have amended their interlocutory application dated 7 January 2019 accordingly. They persist in their contention that the Notice of Address for Service is “invalid” and should be “struck out”.
On 6 May 2019 McKerracher J allowed the Security Application: see Frigger v Kitay [2019] FCA 624. His Honour made orders in the following terms:
1.The applicants’ application to dismiss the respondents’ security for costs application be dismissed.
2.The applicants provide security for the respondents’ costs of defending the application for leave to extend the time within which to appeal by paying the amount of $12,500 into the Court.
3.In the event of a failure to comply with the order for the provision of security, the proceedings be stayed until such security is paid.
4. The respondents have liberty to apply for an amount of further security.
5. The applicants pay the respondents’ costs of this interlocutory application.
As can be seen, the orders in [2] and [3] did not fix a deadline for compliance. To date, no security has been paid.
Mrs Frigger filed a further interlocutory application on 30 May 2019. By that application (as amended), Mrs Frigger sought (among other things) to have the orders for security for costs set aside insofar as the orders required a payment of security for the benefit of CAT. That application, too, has been amended. What is now sought is an order setting aside the orders of 6 May 2019 altogether, that is, in respect of payment of security for the benefit of both CAT and Mr Kitay.
The essence of the applicants’ argument is that HSF has no authority (and has never had authority) to take steps in these proceedings on behalf of CAT, including for the purposes of preparing, filing, serving and prosecuting the Security Application. HSF’s want of authority is said to arise because Mr Kitay required the approval of the Court to enter into a retainer with HSF on behalf of CAT in accordance with s 477(2B) of the Corporations Act 2001 (Cth), which approval he did not have at the time that the retainer was entered into.
Section 477(2B) of the Corporations Act provides:
477 Powers of liquidator
…
(2B)Except with the approval of the Court, of the committee of inspection or of a resolution of the creditors, a liquidator of a company must not enter into an agreement on the company’s behalf (for example, but without limitation, a lease or an agreement under which a security interest arises or is created) if:
(a) without limiting paragraph (b), the term of the agreement may end; or
(b)obligations of a party to the agreement may, according to the terms of the agreement, be discharged by performance;
more than 3 months after the agreement is entered into, even if the term may end, or the obligations may be discharged, within those 3 months.
…
The applicants submit that their application to have the Notice of Address for Service struck out ought to have been determined and allowed by McKerracher J before his Honour considered and allowed the Security Application. They submit that McKerracher J’s orders should now be set aside in the exercise of the power conferred by r 39.05 of the Federal Court Rules 2011 (Cth).
The interlocutory applications of 7 January 2019 and 30 May 2019 name Mrs Frigger as the sole applicant. The parties’ submissions nonetheless proceeded on the basis that Mr Frigger joined in both applications and Mr Frigger has confirmed that position. Accordingly, the orders to be made on the applications are as binding on him as they are on Mrs Frigger.
By an interlocutory application filed on 1 July 2019 the respondents seek an order in the following terms:
Pursuant to s 56(4) of the Federal Court of Australia Act 1976 (Cth) and rr 5.21(a) and 19.01(1)(c) of the Federal Court Rules 2011 (Cth), if the Applicants do not, within 14 days of the date of this order, comply with order 2 of the orders made by McKerracher J on 6 May 2019, the proceeding against the Respondent be dismissed, with the Applicants to pay the Respondents’ costs.
And, by a further interlocutory application filed on 28 August 2019 the respondents seek orders as follows:
1. To the extent necessary:
(a)an order pursuant to section 477(2B) of the Corporations Act 2001 that the entry by first named Respondent, Mervyn Jonathan Kitay (Kitay) as liquidator of Computer Accounting & Tax Pty Ltd (In Liquidation) (CAT), into the costs agreement with Herbert Smith Freehills, which is Annexure MJK3 to the affidavit of Kitay filed herewith and dated [?] [sic] August 2019 (Costs Agreement) is approved nunc pro tunc;
(b)pursuant to section 90-15 of the Insolvency Practice Schedule (Corporations), a direction that Kitay may act on the Costs Agreement as though he had entered into it with the approval necessary to accord with section 477(2B) of the Corporations Act; and
(c)pursuant to section 1322(4)(a) of the Corporations Act, an order declaring that Kitay’s entry into the Costs Agreement is not invalid, despite any contravention of section 477(2B) of the Corporations Act.
2.To the extent necessary, the Respondents have leave to amend the Notice of Address for service filed herein and dated 12 November 2018 in terms of the attached Amended Notice of Address for Service.
The affidavit intended to be referred to in [1(a)] of the proposed orders is the affidavit of Mervyn Jonathan Kitay sworn on 28 August 2019.
In addition to the substantive issues arising on these interlocutory applications, a further issue arises as to whether the applicants should be entitled to rely upon an affidavit that has been (and remains) the subject of confidentiality orders made by a Master of the Supreme Court of Western Australia.
OUTCOME
I have concluded that:
(1)To the extent that the costs agreement forming annexure MJK-3 to the affidavit of Mervyn Kitay sworn on 28 August 2019 is an agreement to which s 477(2B) of the Corporations Act applies, the agreement should be approved as and from 27 November 2018 (see [42] to [69] below).
(2)The applicants’ application for an order striking out the respondent’s Notice of Address for Service filed on 12 November 2018 as amended on 29 September 2019 should be dismissed (see [70] to [71] below).
(3)The applicants’ application to set aside the security for orders of 6 May 2019 should be dismissed (see [72] to [77] below).
(4)By virtue of the applicants’ non-compliance with the order in paragraph 2 of the orders of McKerracher J of 6 May 2019, these proceedings are stayed (see [78] to [79] below). A declaration to that effect should be made to put the current status of the proceedings beyond doubt).
(5)A springing order to the effect sought on the respondents’ interlocutory application dated 1 July 2019 should be made (see [80] to [82] below), save that the time provided to pay the security will be 28 days from today.
(6)Annexure AF-1 to the affidavit of Mrs Frigger sworn on 16 August 2019 will not be admitted in evidence on the basis that the evidence is irrelevant to any matter to be determined on the interlocutory applications and (assuming that assessment to be wrong) in the exercise of the discretion conferred by s 138 of the Evidence Act 1995 (Cth) (see [83] to [108] below).
EARLIER PROCEEDINGS
Of the 11 grounds of opposition to the creditors petition, at least three appear to have proceeded from the premise that various retainers or cost agreements entered into by Mr Kitay on behalf of CAT were agreements that depended for their validity on a grant of approval under s 477(2B) of the Corporations Act, which approval they did not have. As summarised by Colvin J in Kitay No 2 at [11], the allegations were:
(2)the solicitors who issued the bankruptcy notice on behalf of CAT did not have authority to do so;
…
(4) the costs order was obtained by Mr Kitay allegedly swearing a false affidavit;
…
(9)the agreement between CAT and HSF was not valid and enforceable because it was not approved pursuant to s 477(2B) of the Corporations Act.
…
By those grounds, the applicants sought to go behind the judgment debt underlying the petition in a number of ways, only some of which deserve mention here. First, they took issue with the exercise of the Supreme Court’s discretion to make an order for indemnity costs in favour of CAT. Secondly, they argued that as CAT could owe no liability to its lawyers under an unapproved costs agreement, the indemnity principle was not satisfied: see Adams v London Improved Motor Coach Builders Ltd [1921] 1 KB 495. Accordingly, they argued, the judgment resulting in the indemnity costs order and the subsequent taxation did not give rise to a legally enforceable debt capable of sustaining the creditors’ petition.
Colvin J summarised the latter issue as follows:
38As costs orders operate as an indemnity they depend upon the existence of a liability to pay costs on the part of the party in whose favour the order is made. An issue may be raised as to whether the indemnity principle is met at the time when a cost order is made. In effect, an unsuccessful party can claim that the presumption should not be applied. Broadly speaking, if there is no liability on the part of the successful party to pay legal costs then there will be no basis for a costs order.
39Further, if a costs order is made and a costs assessment is undertaken then a party must demonstrate to the taxing officer or assessor that there is an actual liability in respect of the costs claimed of a kind that satisfies the indemnity principle. This is especially so where, as in the present case, the order for costs is itself to provide an indemnity in respect of all costs reasonably incurred. So, the costs assessment or taxation process is a further point at which an issue may be raised as to whether there is an underlying liability.
40A costs order creates an obligation to indemnify in respect of costs incurred (which is why the indemnity principle must be met before such an order can be made or enforced). No debt can arise from that obligation unless there is a liability on the part of the party who has the benefit of the costs order to pay legal costs in respect of the conduct of the proceedings. In those circumstances, an assessment of costs on taxation is an adjudication that there is a debt which, by operation of the costs order, there is a liability to pay by way of indemnity.
41So, a taxation involves an assessment as to whether there is indeed a debt at all. If there has been a determination by the court in adversarial proceedings that the indemnity principle was satisfied (rather than the application of the presumption) or an assessment process in which both parties participated in which there was a consideration of the question then it would be expected that a court exercising bankruptcy jurisdiction would act upon the reliability afforded by such adjudications.
42However, if neither of those steps has occurred and there is evidence in the bankruptcy proceedings raising a real question as to whether the indemnity principle was met then that may be a substantial reason why the court would not accept the judgment arising upon assessment pursuant to a costs order as proof of the existence of a debt for the purposes of s 52 of the Bankruptcy Act. Certainly, if a party was seeking to obtain a sequestration order on the basis that a certificate of a taxing officer took effect as a judgment, but it was known to that party that the indemnity principle had not be [sic] satisfied then that would be a substantial reason why a court exercising bankruptcy jurisdiction would not allow the judgment to be enforced.
Supreme Court Proceedings
The issue arising under s 477(2B) of the Corporations Act is similar to an issue now arising before me, albeit in relation to a different costs agreement. It is an issue that has been agitated repeatedly by the applicants in different litigious contexts, including the Supreme Court Proceedings in which the debt underpinning the creditors’ petition arose.
In those proceedings, Mr Kitay, in his capacity as the liquidator of CAT, sought ex parte orders under s 477(2B) of the Corporations Act in relation to (among other things) a proposed litigation funding agreement to fund the defence of proceedings that had been commenced by the applicants against him and CAT (referred to by Colvin J as the Frigger Proceedings) and to pursue a counterclaim against the applicants in those proceedings.
In support of his application for approval, Mr Kitay relied on five affidavits, two of which were described by Colvin J as follows:
48… In addition he provided a further affidavit (Fourth Affidavit) in which he described certain issues that had arisen in the liquidation, the issues raised in the Frigger Proceedings and a description of the essence of the claim in those proceedings and the nature of a proposed counterclaim. It also set out details of formal or informal proofs and the fact that they had not been adjudicated. He said that he had not called for proofs of debt from the creditors of CAT and the creditors and amounts may be different if creditors were asked to formally prove their debts.
49The reasons for seeking litigation funding and the benefits to creditors were then set out in the Fourth Affidavit. The affidavit concluded with a claim to confidentiality in respect of the contents of a separate affidavit (Confidential Affidavit). The Confidential Affidavit attached, amongst other things, two detailed letters of advice regarding potential claims against Mr and Mrs Frigger.
The Confidential Affidavit has been adduced in evidence before me in circumstances that will be described in due course. On 17 January 2012, Master Chapman of the Supreme Court made orders as follows:
UPON THE APPLICATION OF the Plaintiffs by interlocutory process dated 6 January 2012 and UPON HEARING Mr DW John for the Applicants IT IS ORDERED THAT:
1.The application be heard in closed court.
2.The Confidential Affidavit of Mervyn Kitay dated 5 January 2012 (Confidential Affidavit) and the annexures thereto remain in the court file in a sealed envelope marked ‘confidential’, such Confidential Affidavit not to be accessed by any person without order of this Honourable Court.
3.Under s477(2B) of the Corporations Act 2001 (Cth) the first applicant may enter into the following agreements on behalf of the Computer Accounting and Tax Pty Ltd (CAT).
(a)the Litigation Funding Agreement between Hillcrest Litigation Services Limited, CAT and the first applicant which is annexure MJK6 to the Confidential Affidavit (Funding Agreement);
(b)Costs Agreement between Holbom Lenhoff Massey solicitors and CAT which is annexure MJK7 to the Confidential Affidavit (Costs Agreement); and
(c)the Indemnity Agreement contemplated by paragraph 16 of the Confidential Affidavit (Indemnity Agreement).
4.The Funding Agreement, the Costs Agreement and the Indemnity Agreement are confidential and are not available for inspection by creditors under reg 5.6.01 and 5.6.02 of the Corporations Regulations 2001.
5. Costs of the application be costs in the winding up of CAT.
Notwithstanding the confidentiality order in paragraph 2, it later became apparent that the Confidential Affidavit had gone missing from the file of the Supreme Court. Then, on 7 August 2013 the first applicant, Mrs Frigger, swore an affidavit in the Frigger Proceedings to which she attached a copy of the Confidential Affidavit. She did not at that time explain how she came to be in possession of it.
There followed an interlocutory application which ultimately gave rise to the indemnity costs order against the applicants. Colvin J describes the application as follows:
59On 25 November 2013, a document entitled ‘Interlocutory Process for Orders Regarding Confidential Affidavit’ was filed in COR 2 of 2010 …. It was filed by HSF on behalf of ‘the Applicants’. The applicants in the proceedings were Mr Kitay as liquidator of CAT and CAT. The details of the application stated that ‘Kitay, as the first named Applicant, in his capacity as the liquidator of the second named Applicant, Computer Accounting and Tax Pty Ltd (In Liquidation), applies for the following orders’. I note that, as a result, there is some uncertainty on the face of the application as to whether it was brought by Mr Kitay (as liquidator of CAT) or by both Mr Kitay and CAT.
60The orders sought were to the effect that Mr and Mrs Frigger do ‘deliver up to the Applicants all hard copies of the Confidential Affidavit’. Also, a written statement be provided that they have not retained any copies, and have deleted electronic copies, and dealing with any disclosures to third parties. An order restraining Mr and Mrs Frigger from disclosing the contents of the Confidential Affidavit to any person was also sought. It was clear that the application was brought against both Mr and Mrs Frigger.
The applicants opposed the interlocutory application. They refused to deliver up the Confidential Affidavit on the asserted basis that they had a legal entitlement to use it in ongoing and contemplated proceedings. Among other things, they alleged that the Confidential Affidavit had been prepared for the furtherance of proceedings instituted for “improper, illegal and collateral purposes”. Mrs Frigger swore a further affidavit in which she claimed to have come across the Confidential Affidavit on the Court file and that she was unware that orders had been made to preserve its confidentiality. There can be no doubt that Mrs Frigger subsequently became aware of the confidentiality orders. She nonetheless persisted in her claim that she was not obliged to deliver up the Confidential Affidavit.
Indemnity Costs
The applicants were wholly unsuccessful in their challenge to the interlocutory application. On 15 May 2014 Master Sanderson of the Supreme Court made orders as follows:
1Within 7 days of the date of this order, Angela Cecilia Theresa Frigger (Mrs Frigger) and Hartmut Frigger (Mr Frigger) do deliver up to the Applicants all hard copies of the Confidential Affidavit of Mervyn Jonathan Kitay sworn on 5 January 2012 and any of the annexures thereto, which was filed herein (Confidential Affidavit).
2Within 7 days of the date of this order, Mr and Mrs Frigger do each provide a written statement to the solicitors of the Applicants:
(a)that they have not retained any copies of the Confidential Affidavit or any of the annexures thereto;
(b)that they have permanently deleted any electronic copies of the Confidential Affidavit and any of the annexures thereto in their possession;
(c)setting out each and every person, whether as solicitor, or counsel, or otherwise, (Third Parties), to whom they have provided a copy of the Confidential Affidavit or any of the annexures thereto, whether in hard copy or electronically;
(d)confirming that they have had returned to them, for return to the Applicants, all copies of the Confidential Affidavit and any of the annexures thereto which were provided to Third Parties; and
(e)confirming that these Third Parties have confirmed to them in writing that they have permanently deleted any electronic copies of the Confidential Affidavit and any of the annexures thereto in their possession.
3.Any solicitors or counsel acting for Mr and Mrs Frigger who have had access to the Confidential Affidavit, or any of the annexures thereto, cease to act for Mr and Mrs Frigger in relation to Supreme Court proceedings CIV 2765 of 2010 unless they have the prior consent of Mervyn Jonathan Kitay.
4Mr and Mrs Frigger be restrained from disclosing the contents of the Confidential Affidavit or any of the annexures thereto to any person, including, any solicitor or counsel acting for them in the future.
5Within 14 days of the date of this order, Mrs Frigger do file any submissions as to costs.
In his reasons for making those orders, the Master said:
This matter has gone on long enough. As soon as it was pointed out to Mrs Frigger she had obtained a copy of the confidential affidavit she was not entitled to possess, she should have returned it to the liquidator’s solicitors. That is the beginning and the end of the matter. There can be no possible justification for her retaining possession of any copies of the confidential affidavit and the orders I will make are designed to so far as is possible put the situation to rights. Mrs Frigger should pay the costs of this application including all reserved costs. I will hear the parties as to whether those costs ought be payable on an indemnity basis.
See Re Computer Accounting and Tax Pty Ltd; Ex parte Mervyn Jonathan Kitay in his capacity as liquidator of Computer Accounting and Tax Pty Ltd (in liq) [No 4] [2014] WASC 169 (at [22]).
On 17 June 2014 Master Sanderson made an order for indemnity costs in the following terms:
UPON THE APPLICATION of the Applicants by Interlocutory Process dated 25 November 2013, IT IS ORDERED THAT:
1.Angela Cecilia Theresa Frigger … and Hartmut Frigger … should pay the costs, including the reserved costs of the Applicants on a full indemnity basis, save insofar as those costs have been properly incurred.
Mr Kitay and CAT filed a bill of costs on 19 January 2015. A certificate in respect of that bill was signed by a Registrar on 5 July 2015. The resulting debt formed the subject of a bankruptcy notice served on the applicants.
The applicants filed an application to set aside the bankruptcy notice. That application was dismissed by a Deputy District Registrar of this Court. An application for review of that decision was dismissed by Siopis J: Frigger v Kitay [2017] FCA 1278. There was no appeal from that judgment. The applicants did not comply with the bankruptcy notice and the resulting act of bankruptcy was relied upon by both Mr Kitay and CAT as petitioning creditors.
Bankruptcy Proceedings
As has been mentioned, the applicants opposed the creditors’ petition on 11 grounds. For present purposes, it is sufficient to summarise Colvin J’s reasoning in relation to the three grounds extracted at [20] above.
In relation to the allegation that the bankruptcy notice was invalid (ground 2), Colvin J said that the question of the validity of the bankruptcy notice had been finally determined by Siopis J.
In relation to the allegation that the Confidential Affidavit contained falsehoods (ground 4), Colvin J said that the truth of the contents of the Confidential Affidavit was not in issue before Master Sanderson on the interlocutory application giving rise to the order for indemnity costs. His Honour said that when the terms of the order for confidentiality became known to both Mr and Mrs Frigger they had an obligation to comply with it. They were obliged to take those steps irrespective of the content of the Confidential Affidavit: whether the Confidential Affidavit was false in any respect was irrelevant to whether there was a debt now due.
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 Act
177As 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.
His Honour went on to say (at [201]) that the extent of the claims that had been made by the applicants in opposition to the petition revealed:
… 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. The indemnity costs orders themselves were made in circumstances where there was a disregard of Court orders as to confidentiality (at least from the time that the obligations in relation to confidentiality were made clear).
Against that background it is convenient to deal first with the respondents’ application for approval of a costs agreement between them and HSF. To be clear, that agreement is not the same as the agreement considered by Colvin J in the passage extracted at [39] above.
THE COSTS AGREEMENT
Respondents’ interlocutory application filed on 28 August 2019
It is axiomatic that each of the separately named respondents in this action are entitled to obtain legal advice and representation and to engage legal practitioners for that purpose.
As the liquidator of CAT, Mr Kitay may defend any legal proceeding in the name of and on behalf of CAT: Corporations Act, s 477(2)(a). He is also entitled to appoint a solicitor to assist him in his duties: Corporations Act, s 477(2)(b).
By letter dated 23 November 2018 addressed to Mr Kitay, HSF proposed the terms of a costs agreement. The terms were executed by Mr Kitay on 27 November 2018. The letter accompanying the costs agreement commences “Thank you for engaging Herbert Smith Freehills … to act for you and Computer Accounting and Tax Pty Ltd”. The agreement is expressed to relate to the subject matter of these proceedings, being the applicants’ application for an extension of time to appeal from the sequestration order and to any subsequent appeal, should an extension of time be granted.
Notwithstanding the orders sought on his application, it is Mr Kitay’s primary position that the costs agreement does not require the Court’s approval under s 477(2B). Approval is sought only in the event that the Court should find that Mr Kitay’s primary position is wrong.
The following propositions are advanced in support of the primary position.
First, s 477(2)(a) makes it clear that it is the liquidator who defends legal proceedings on behalf of a company in liquidation. Second, a liquidator may appoint a solicitor to assist him or her in defending the proceedings on behalf of the company. Third, it is the liquidator who is liable to pay the solicitor in accordance with the terms of any costs agreement between them. Fourth, in accordance with s 556 of the Corporations Act, the legal expenses incurred by the liquidator under the costs agreement in defending proceedings on the company’s behalf may be recouped by the liquidator in priority over debts and claims in accordance with s 556(1)(a) or (dd) of the Corporations Act, whichever is applicable. Accordingly, to the extent that the agreement is between Mr Kitay in his capacity as liquidator of CAT on the one hand and HSF on the other, s 477(2B) has no application to it.
I accept these general propositions. There exists an agency relationship between Mr Kitay and CAT. That relationship is reflected in s 477(2)(a) of the Corporations Act. In my view, for the purposes of instructing HSF to take steps in this proceeding on behalf of CAT, it was sufficient for Mr Kitay to enter into a costs agreement with HSF in his capacity as liquidator. A solicitor may take steps in proceedings on behalf a company in liquidation on the liquidator’s instructions pursuant to a costs agreement with the liquidator. Where there exists a costs agreement between a solicitor and a liquidator, the contractual liability to pay the solicitor’s fees is that of the liquidator. Subject to the terms providing to the contrary, the liquidator’s contractual liability to pay the solicitor arises irrespective of whether there are sufficient assets in the company to reimburse the liquidator in accordance with s 556 of the Corporations Act.
In my view, HSF’s authority to take steps in the proceedings on behalf of CAT exists by virtue of its costs agreement with Mr Kitay as liquidator.
However, on the facts of the case, the terms executed by Mr Kitay make it clear that the costs agreement takes the form of a contract to which CAT appears (at least arguably) to have the status of a party. It is that latter circumstance that gives rise to a question as to whether the costs agreement is one to which requirements of s 477(2B) apply. In my view, that question only arises insofar as Mr Kitay has entered into the agreement on CAT’s behalf or otherwise caused CAT to enter into the agreement.
In the result, I do not consider it necessary to express a concluded view as to whether (or the extent to which) the costs agreement is one to which s 477(2B) applies. In all of the circumstances, I am satisfied that to the extent that the agreement is one that requires approval, then that approval should be given in accordance with established principle, without hesitation or qualification. The continuing obsession by the applicants with HSF’s authority to take steps in this proceeding on behalf of CAT (and the associated wasted time and costs) must be firmly put to rest so that the substantive questions arising on the originating application can be heard and finally determined.
The principles to be applied when a liquidator seeks approval of an agreement under s 477(2B) of the Corporations Act are well settled. They are conveniently summarised as follows in the respondents’ submissions, as agreed by the applicants:
(1)the Court’s role is to determine whether the entry into the agreement is a proper or bona fide exercise of the liquidator’s powers: 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 at [22]);
(2)the Court is not concerned with matters of commercial judgment, but is concerned that the entry into the agreement is not ill-advised or improper on the part of the liquidator: In the matter of 7 Steel Distribution Pty Limited (in liquidation) (receivers and managers appointed) [2013] NSWSC 669 at [17]);
(3)the question for the Court is whether the liquidator’s judgment had been infected by a lack of good faith, or an error of law or principle, and whether there is a real or substantial ground for doubting the prudence of the liquidators conduct: Pascoe; in the matter of Matrix Group Ltd (in liq) [2011] FCA 1117 at [14]);
(4)the task of the Court is not to reconsider all of the issues which have been weighed up by the liquidator in deciding to enter into the agreement and to substitute its determination for the liquidators, in a hearing de novo, but rather:
… simply to review [the agreement], paying due regard to [the liquidator’s] commercial judgement and knowledge of all of the circumstances of the liquidation, satisfying itself that there is no error of law or ground for suspecting bad faith or impropriety, and weighing up whether there is any good reason to intervene in terms of the ‘expeditious and beneficial administration’ of the winding up’.
See Stewart, in the matter of Newtronics Pty Ltd [2007] FCA 1375 at [26(4)]); and
(5)the Court undertakes something less than a merits review: Pascoe at [7].
There is no doubt that the Court has the power to grant approval with retrospective effect: see ACN 154 520 199 Pty Ltd at [27] (Gleeson J) and the cases cited therein.
There is no reason why either respondent ought to be denied their choice of legal representative for the purpose of defending the application for an extension of time to appeal from the judgment and orders of Colvin J. The choice of lawyer is fundamentally one for Mr Kitay, having due regard to the interests of CAT’s creditors in the winding up: see Empire (Aust) Nominees Pty Ltd v Vince [2000] VSC 324 at [11]-[12] (Warren J).
The applicants submit that the costs agreement is a “sham arrangement”. They make the very serious allegation that the agreement did not come into existence in November 2018 but rather in August 2019. In effect, they allege that Mr Kitay and his solicitor have fraudulently misled the Court by falsifying the date of a document for the purposes of undermining the applicants’ arguments about HSF’s authority to act for CAT.
It is well established that an action founded in fraud must be pleaded specifically and with particularity: see Banque Commerciale SA, En Liquidation v Akhil Holdings Limited (1990) 169 CLR 279 at [15] (Mason CJ and Gaudron J).
In support of the fraud allegations, the applicants query why the existence of the costs agreement was not made known to the Court before 28 August 2019 when it was annexed to an affidavit sworn by and filed on behalf of Mr Kitay. They rely on the fact that the existence of the agreement was not made known until they advanced arguments to the effect that HSF had no authority to cause CAT to join in an application for security for costs. The applicants refer to earlier correspondence drafted by Mr Kitay’s solicitor in which he refers to his “client” in the singular. They point to evidence showing that Mr Kitay had already instructed HSF to defend the proceedings and to make an application for security some days before the terms of the costs agreement were proffered by HSF to Mr Kitay. They assert that no other costs agreement entered into with HSF had named CAT as a client. The applicants make wider ranging allegations about the lack of authority of HSF to act for CAT in earlier proceedings dating back some eight years.
None of the matters referred to by the applicants provide a proper evidentiary foundation to support the serious allegations of fraud. The circumstance that HSF might have received instructions from Mr Kitay before a formal costs agreement was executed between them is not unusual, nor is it improper. The suggestion that the delayed disclosure of the costs agreement indicates fraud is especially unmeritorious. Mr Kitay is not and has never been compelled in this proceeding to produce to the applicants a copy of any retainer governing his relationship (or CAT’s relationship) with HSF.
It was appropriate to disclose the existence of the costs agreement in an affidavit sworn in support of Mr Kitay’s application for approval under s 477(2B) of the Corporations Act because it was relevant to that application. As has been mentioned, Mr Kitay has correctly proceeded on the basis that it was open to him to enter into a costs agreement pursuant to which he would be liable to pay the solicitor and entitled to recover those expenses in accordance with s 556 of the Corporations Act. He assumed (in my view correctly) that he could, with the advice and assistance of HSF, take steps in the proceedings on behalf of CAT pursuant to the costs agreement entered into between him in his capacity as liquidator on the one hand and HSF on the other. Mr Kitay also recognised (again correctly) that it was arguable that approval might be required because CAT was identified as a party to the costs agreement. The application for approval is made contingently, recognising that an issue arises as to the construction of the agreement and the identification of the parties to it. It is understandable that Mr Kitay has proceeded out of an abundance of caution in bringing the contingent application for approval, given the unrelenting fixation of the applicants on the alleged want of authority of Mr Kitay and his solicitor to take steps on behalf of CAT in previous proceedings. Nothing in the circumstances is suggestive of fraud on the part of Mr Kitay or his solicitor.
It is then suggested that the application for approval is an abuse of the Court’s processes because it seeks to agitate an issue that has already been determined by Colvin J. The applicants rely on the passage extracted at [39] in which his Honour makes findings in relation to a costs agreement entered into by Mr Kitay in relation to other proceedings. That is not the agreement that is presently before me.
Next it was submitted that CAT has no interest in defending this proceeding because, as Colvin J found, no debt referable to the indemnity costs order was owed to it. It is true that Colvin J expressed the view that the costs liability forming the basis of the Registrar’s quantification of costs was a liability that had been incurred by Mr Kitay. His Honour concluded that the existence of that debt was, of itself, sufficient to support the conclusion that the debt upon which Mr Kitay relied in the petition existed and had not been paid. It mattered not that CAT did not owe a costs liability to HSF that was recoverable pursuant to the indemnity costs order, so his Honour held.
It does not follow that CAT is not a proper party to these proceedings. CAT was properly joined as a party by the applicants, because it was a party to the proceedings in which the sequestration order was made. It may be that the submissions to be made on behalf of CAT in defence of the originating application are limited and that the costs incurred by it in its own name and right will be moderate or minimal. But that is not a reason to withhold approval for any costs agreement to which it is a party. It is possible that should an extension of time be granted for an appeal, CAT may commence a cross appeal from that part of the judgment denying the existence of a debt owed to it, whether severally or jointly. But the costs of preparing and prosecuting any such cross appeal are not costs considered by McKerracher J in fixing the sum of security to be paid.
Next it is submitted that the defence of “this appeal” is serving only to prolong CAT’s liquidation. It is difficult to comprehend what is intended by that submission. Mr Kitay has the benefit of the judgment of Colvin J. Clearly he is entitled to defend the application for an extension of time in which to appeal, and then to defend any appeal should that extension be granted. If there be a prolongation of the liquidation of CAT (and, for that matter, the administration of the applicants’ bankrupt estates) resulting from this proceeding, it is explained wholly by the applicants’ choice to bring the interlocutory applications now before me.
It is as equally difficult to comprehend the utility of the applicants’ ongoing challenge to CAT’s status as a creditor of their bankrupt estates. The critical finding of Colvin J is that it was sufficient that Mr Kitay was shown to be a creditor of the applicants. His contractual liability to pay HSF is a liability that can be indemnified by recourse to the assets of CAT in accordance with s 556 of the Corporations Act. The order that the applicants indemnify Mr Kitay’s costs in the Supreme Court proceedings ensures that the divisible property of the company not be diminished. The applicants cannot escape their liability to Mr Kitay under the indemnity costs order by demonstrating (rightly or wrongly) that they owe no liability under the same order to CAT.
It is then argued that assertions by Mr Kitay about the legal representation of CAT in earlier proceedings are false. Whether Mr Kitay has or had a correct understanding of the agency relationships authorising him, through his solicitors, to take steps on behalf of CAT in other proceedings may well arise on an appeal from the sequestration order (should there be one), but for present purposes it is unnecessary to entertain arguments on that question.
Separate consideration must be given to the question of whether the approval should operate retrospectively.
I am satisfied that there is an adequate explanation for the failure to obtain approval in relation to the agreement (assuming it is required) namely the liquidators’ acknowledged doubt as to whether approval is required at all. I am also satisfied that the retrospective operation of the approval would not materially prejudice the applicants’ legitimate interests in these proceedings, including in relation to the order for security for costs. I will explain why that is so in the paragraphs that follow.
In addition to the approval, the respondents seek “ancillary” orders as follows:
(b)pursuant to section 90-15 of the Insolvency Practice Schedule (Corporations), a direction that Kitay may act on the Costs Agreement as though he had entered into it with the approval necessary to accord with section 477(2B) of the Corporations Act; and
(c)pursuant to section 1322(4)a) of the Corporations Act, an order declaring that Kitay’s entry into the Costs Agreement is not invalid, despite any contravention of section 477(2B) of the Corporations Act.
Orders in these terms are not necessary. The retrospective approval of the agreement necessarily has the legal effect that the agreement may validly operate on the contractual relationship between HSF and CAT. To the extent that there was a failure by Mr Kitay to comply with s 477(2B) of the Corporations Act, on the evidence before me there is nothing to indicate that the non-compliance was deliberate.
THE NOTICE OF ADDRESS FOR SERVICE
Applicants’ interlocutory application filed on 7 January 2019 (as amended), [1]
In light of all that has been said, there is no proper basis for striking out the Notice of Address for Service filed on 12 November 2018 as amended 28 August 2019. In the form in which it was first filed, HSF was said to be the solicitor for Mr Kitay. Even if there was no binding costs agreement in place as at 12 November 2018, the applicants have advanced no reason why that of itself should justify the striking out of the Notice. It is to be recalled that the application for security for costs was filed on 4 December 2018, after the costs agreement was entered into. There can be no doubt that HSF was authorised to file that application as solicitor and agent for Mr Kitay. Even without the retrospective approval of the costs agreement, Mr Kitay was entitled to instruct his solicitors to file that application on his own behalf and on behalf of CAT in accordance with the conclusions I have stated above.
Whether or not CAT was capable of incurring a liability to pay HSF any invoices issued to it in accordance with the terms of the costs agreement is different question.
THE SECURITY FOR COSTS ORDER
Applicants’ interlocutory application filed on 30 May 2019 (as amended), [3]
Rule 39.05(c) of the Rules provides that the Court may vary or set aside a judgment or order after it has been entered if it is interlocutory. The rule is capable of applying to the order that the applicants pay security for the respondents’ costs.
As has been mentioned, the applicants originally applied to have the order for security varied so as to require only that they pay security for Mr Kitay’s costs and not for CAT’s costs. That application has been abandoned. What is now sought is an order setting aside the security order altogether.
The applicants submit that McKerracher J should have determined their application to strike out the Notice of Address for Service before determining the respondents’ application for security for costs.
At the commencement of the hearing of the respondents’ application, his Honour made it plain that he was aware that the applicants had raised multiple other issues and that it was his intention to deal only with the question of security. The reasons given for making the security orders expressly confirm that choice: Frigger v Kitay [2019] FCA 624 at [3], [38]. Whether his Honour should proceed in that order was entirely a matter for his Honour’s discretion. It was open to the applicants to submit to McKerracher J that their outstanding interlocutory applications must be determined first, whether as a matter of law or procedural fairness. But they did not object to the course clearly proposed by McKerracher J at the commencement of the hearing. I would not set aside the security for costs orders on a basis that could have been argued, but was not argued, before the orders were made.
Even if the Court as presently constituted should take the view that the applicants’ interlocutory application for an order striking out the Notice of Address for Service should have been determined first, that application has now been heard and will be dismissed on its merits. If there was ever a want of authority in HSF to act for CAT that could not remedied by the retrospective approval, I would today make the same orders for security as those made by McKerracher J in any event. That is because Mr Kitay was at all times entitled to make the application on his own behalf and to instruct HSF to assist him in performing that function. HSF was entitled to act on those instructions whether or not CAT was also named as a party to the costs agreement. On any reasonable view, Mr Kitay is liable under the costs agreement to pay HSF’s invoices in connection with these proceedings. As I have said, Mr Kitay may recover that expense in accordance with the priorities prescribed in s 556 of the Corporations Act. It has not been shown that the amount of security to be paid should have differed according to whether or not CAT was a party to a costs agreement with HSF. The order for security for costs ultimately protects CAT’s creditors from the diminution of its assets by the applicants’ failure to satisfy costs orders that may be made against them in this proceeding. There is no principled reason to disturb it.
Most fundamentally, whatever be the position in relation to CAT, the applicants have shown no reason why Mr Kitay should not have the benefit of the security order in his capacity as CAT’s liquidator. The order now sought on the amended interlocutory application would have the effect of depriving Mr Kitay of the benefit to that order. The applicants advance no alternative moderate position. In its amended form, the interlocutory application must be dismissed for that reason even if there was merit in their argument concerning CAT’s legal representation.
STAY OF PROCEEDINGS
The order for security was made on 6 May 2019. Although it did not specify a time for compliance, the order makes it plain that these proceedings would be stayed if the security was not paid. The order has not been complied with. On any reasonable interpretation of the order, the proceedings are now stayed. It is appropriate to make a declaration to that effect so as put the respective rights and obligations of the parties beyond doubt.
Over the respondents’ objection, the applicants’ interlocutory applications have been heard and determined notwithstanding the stay, principally because they go to the question of whether the security order (which operates to bring about the stay) should be set aside. The stay should be understood to have been lifted, in my discretion, for that limited purpose. The applicants’ applications have been determined and that purpose is now fulfilled.
SPRINGING ORDER
Respondents’ interlocutory application filed on 1 July 2019
The respondents seek an order to the effect that the proceedings be dismissed in the event that the applicants do not comply with the order to pay security for their costs within a specified time. The source of power to make that order is s 56(4) of the Federal Court of Australia Act 1976 (Cth). See also r 5.21, r 5.23 and r 19.01 of the Rules. In Microbio Rescourses Inc v Betatene Limited [1993] FCA 848 the Full Court identified the factors that may be taken into account in determining whether a “springing order” of that kind should be made. They include the period of time that has elapsed since security was ordered, the prejudice to the person for whose benefit the security was ordered, and the interests of the Court in the certain resolution of its proceedings.
As counsel for the respondents submitted, these proceedings cannot remain in stasis indefinitely. I accept that submission. The question of whether the applicants should be granted an extension of time in which to appeal is a question that ultimately affects the applicants’ status as bankrupts and so affects the interests of their creditors. Unless overturned on appeal, the sequestration orders remain operative. All of applicants’ creditors (including Mr Kitay) have a real and present interest in the prompt administration of the applicants’ bankrupt estates. The prolongation of these proceedings by the applicants’ unmeritorious interlocutory applications is clearly prejudicial to the interests of those creditors. The order for security could not have been intended to provide a means by which the applicants might delay indefinitely the final resolution of their originating application and so frustrate the administration of their estates.
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.
Whether or not the Confidential Affidavit is capable of assisting the applicants in the conduct of any appeal is of no consequence to the Court at the present time. As has been made clear to the applicants, the Court is not presently determining the merits of the application for an extension of time, let alone any contemplated appeal. The use to which the applicants seek to put the affidavit on the interlocutory applications that are presently before me is otherwise unclear.
The matters alleged in the 16 August 2019 affidavit do not assist the applicants on their application to have the respondents’ Notice of Address for Service in this action struck out. Determination of that application does not depend on any finding as to the authority (or lack of authority) of HSF to act for CAT in any earlier proceeding.
Nor does the content of the 16 August 2019 affidavit provide any proper basis for setting aside the orders of McKerracher J requiring the applicants to pay security for the respondents’ costs in this proceeding. In concluding that the order should be made, McKerracher J made it plain that he considered the parties’ respective merits on the application for an extension of time (and on any appeal) to be a neutral consideration. With respect, I would adopt the same approach. The applicants cannot succeed on their application to set aside the orders for security by seeking now to agitate the contested factual and legal matters bearing on the merits of any substantive appeal. That includes a contention advanced by the applicants that “CAT breached the indemnity principle by getting an order for costs in its favour when it had no liability to pay”.
In summary, Annexure AF-1 to the affidavit of Mrs Frigger should not be read because its content is not relevant to any issue currently arising before me. Evidence that is irrelevant is inadmissible: Evidence Act, s 56(2).
I am conscious, however, that in oral submissions, counsel for the respondents did not object to the Court reading the affidavit on the grounds of relevance. Rather, counsel submitted that the Court should not read the affidavit in the exercise of the discretion conferred by s 138 of the Evidence Act. Accordingly, I will now rule on the objection as the respondents have advanced it.
Section 138 of the Evidence Act provides:
138 Discretion to exclude improperly or illegally obtained evidence
(1) Evidence that was obtained:
(a) improperly or in contravention of an Australian law; or
(b)in consequence of an impropriety or of a contravention of an Australian law;
is not to be admitted unless the desirability of admitting the evidence outweighs the undesirability of admitting evidence that has been obtained in the way in which the evidence was obtained.
…
(3)Without limiting the matters that the court may take into account under subsection (1), it is to take into account:
(a)the probative value of the evidence; and
(b)the importance of the evidence in the proceeding; and
(c)the nature of the relevant offence, cause of action or defence and the nature of the subject matter of the proceeding; and
(d)the gravity of the impropriety or contravention; and
(e)whether the impropriety or contravention was deliberate or reckless; and
(f)whether the impropriety or contravention was contrary to or inconsistent with a right of a person recognised by the International Covenant on Civil and Political Rights; and
(g)whether any other proceeding (whether or not in a court) has been or is likely to be taken in relation to the impropriety or contravention; and
(h)the difficulty (if any) of obtaining the evidence without impropriety or contravention of an Australian law.
Note: The International Covenant on Civil and Political Rights is set out in Schedule 2 to the Australian Human Rights Commission Act 1986.
I am satisfied that this provision applies to the affidavit of 16 August 2019 insofar as it contains material that remains subject to confidentiality orders made in the Supreme Court proceedings. At the very least, the copy of the Confidential Affidavit has been obtained improperly in the sense that it is a document that each applicant was ordered to deliver up and destroy. Each of the applicants swore an affidavit to the effect that they had complied with the orders made in 2014, including by permanently deleting all electronic copies of the affidavit.
The applicants now contend that they used an IT expert to retrieve the affidavit from a computer on which it was previously stored. They contend that they did so for the purpose of using the affidavit in the conduct of their defence of criminal proceedings in which Mrs Frigger was charged with perverting the course of justice. The applicants rely on an exception to legal professional privilege “in favour of an accused who had come into possession – even by unlawful means – of a document or information to which [privilege] would otherwise attach”: Director of Public Prosecutions (Cth) v Galloway (2014) 245 A Crim R 427 at [6]. The applicants submit that the Confidential Affidavit was in fact adduced in evidence in criminal proceedings in accordance with that exception, with the result that it is now in the public domain.
It may be acknowledged that the availability of the Confidential Affidavit in the public domain (if that is indeed what has occurred) may bear on the question of whether the orders of Master Sanderson preserving its confidentiality should be maintained. However, this Court is not concerned with the question of whether Master Sanderson’s orders should remain in force. If there is a proper basis for the applicants to argue that the orders should no longer remain in force (whether because confidentiality in otherwise privileged material has been lost or for any other reason) then an application may be made to the Supreme Court to have the orders varied or revoked.
Until that is done, the indisputable fact is that the orders are binding on the applicants. At the very least, their attempted use of the affidavit in this proceeding is an improper act.
For the purposes of s 138(3)(a) and (b) of the Evidence Act, if the material contained in AF-1 to the affidavit of 16 August 2019 is relevant at all, its relevance is marginal to all four of the interlocutory applications before me. For the purposes of s 138(3)(c), these are not proceedings in which the ascertainment of criminal guilt is in issue. The issue is whether orders sought by the parties on their interlocutory applications should be made. They are purely procedural issues.
For the purposes of s 138(3)(d) of the Evidence Act, I consider the attempted use of the Confidential Affidavit in these proceedings to be a serious matter, irrespective of whether the Confidential Affidavit was retrieved from a hard drive for the purpose of adducing it in criminal proceedings in the legitimate aid of a criminal defence (as to which I make no finding). If her evidence is to be accepted, the only reason Mrs Frigger had a copy of the affidavit in her possession at the time that she swore her affidavit of 16 August 2019 was because she had not permanently deleted an electronic copy of it, even though she had sworn on oath in 2014 that she had done so. Whether or not that circumstance would preclude the admission of the Confidential Affidavit in other proceedings as an exception to common law of legal professional privilege (or statutory analogues) in a criminal proceeding is not to the point. Mrs Frigger’s use of the Confidential Affidavit in this proceeding is improper, not because the affidavit contains information that is privileged, but because the affidavit remains the subject of orders precluding her possession and use of it and because she swore on oath that she had permanently deleted it, in purported compliance with yet further orders of the Supreme Court. For the purposes of s 138(3)(e) of the Evidence Act I consider that, at the very least, the applicants have been reckless as to whether the use of the affidavit might constitute a breach of Master Sanderson’s orders. For the purposes of s 138(3)(g) of the Evidence Act, at the time that judgment was reserved on the applications, the Court was aware that the respondents had threatened the commencement of contempt proceedings against Mrs Frigger. Commencement of such proceedings appeared to be likely at that time. Whether they have in fact been commenced has no bearing on the exercise of my discretion.
Although she is self-represented, Mrs Frigger is a seasoned litigator. She could be under no misapprehension that the Confidential Affidavit remained the subject of orders restricting its disclosure and use, nor does she claim to be. To the extent that she could identify a reason why that order should not continue, the appropriate course was to apply to have the orders of Master Sanderson set aside. For the purposes of s 138(3)(h) of the Evidence Act, the making of such an application would not be difficult. Indeed the evidence before me suggests that Mrs Frigger has made such an application and so is aware of her entitlement to do so. To date she has not succeeded.
Application to reopen argument
Following reservation of judgment on the interlocutory applications, the Court received email correspondence from Mrs Frigger. The email attached a further affidavit of Mrs Frigger sworn on 28 February 2020. The affidavit has not been filed. The electronic file comprising the email and its attachment will be preserved and marked MFI-3.
The affidavit contains factual allegations to the effect that Mrs Frigger has been served with initiating documents in proceedings in the Supreme Court of Western Australia. The documents include an affidavit to which the Confidential Affidavit is annexed. The Confidential Affidavit is itself included among the annexures to the affidavit of 28 February 2020.
The applicants applied to reopen argument to contend that the Confidential Affidavit is now in the public domain and that annexure AF-1 to the affidavit of Mrs Frigger sworn on 16 August 2019 should therefore be read. They sought leave to file the affidavit of 28 February 2020 for that purpose. The applicants submitted that they should not be precluded from adducing the Confidential Affidavit in this proceeding, notwithstanding the orders of Master Sanderson, given that a copy of it has now been served upon them. They further submitted that the service of the affidavit is conduct that is inconsistent with the maintenance of any claim for legal professional privilege in its contents.
The respondents filed an affidavit and submissions in opposition to the application to reopen. That affidavit is to the effect that the documents served upon Mrs Frigger were initiating documents in proceedings commenced against her in the Supreme Court of Western Australia in which the respondents seek to have Mrs Frigger punished for contempt. The particulars of the contempt include Mrs Frigger’s disclosure of the Confidential Affidavit in these very proceedings. To the extent that the respondents require leave to file that affidavit, leave is granted, nunc pro tunc. Leave will not be granted to the applicants to file the affidavit of Mrs Frigger sworn on 28 February 2020 attached to the email marked MFI-3. Orders will be made for its preservation or destruction in due course.
The materials provided by the parties have been read for the limited purpose of determining whether argument on any one of the interlocutory applications should be reopened. Argument should not be reopened unless it could be shown (among other things) that service of the Confidential Affidavit on Mrs Frigger in the context of the contempt proceedings is capable of justifying different conclusions to those which I have reached under s 56(2) and s 138 of the Evidence Act.
Nothing in the affidavit attached to the email marked MFI-3 detracts me from the view that the material contained in AF-1 to the affidavit of 16 August 2019 is either irrelevant or (if that assessment be wrong) only marginally relevant to the issues presently falling to be decided. I would not reopen argument for that reason alone.
Furthermore, it is clear that the service of the affidavit has been affected for a limited purpose of having Mrs Frigger committed for contempt in connection with her apparently unlawful use of the affidavit at earlier times, including her attempted use of it in these proceedings. As I have said, the fact of service on Mrs Frigger in the contempt proceedings of material which includes the Confidential Affidavit does not affect my assessment of its relevance on the limited applications before me. In addition, considered in their proper context, the more recent events do not affect my conclusion that Mrs Frigger’s earlier conduct of maintaining and using a copy of the same material in her possession as at 16 August 2019 was an instance of serious impropriety when viewed against the long history of proceedings I have described in these reasons. I would arrive at the same conclusion irrespective of whether the content of the Confidential Affidavit was or remains privileged.
To be clear, I make no finding as to whether the content of the Confidential Affidavit is (or was at any other time) properly the subject of a claim for legal professional privilege. Nor do I make any finding as to the relevance of that affidavit on the applicants’ application for an extension of time. Provided that the applicants pay security for the respondents’ costs in accordance with the orders of 6 May 2019, that application should now proceed to a hearing.
Annexure AF-1 to the affidavit of Mrs Frigger sworn on 16 August 2019 will not be read.
I will hear from the parties as to the future preservation or destruction of MFI-2 and MFI-3 in a manner consistent with these reasons for judgment, and as to costs.
I certify that the preceding one hundred and twelve (112) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Charlesworth. Associate:
Dated: 17 April 2020
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