Frigger v Mervyn Jonathon Kitay in His Capacity as Liquidator of Computer Accounting and Tax Pty Ltd (in Liquidation) [No 16]
[2020] WASC 337
•22 SEPTEMBER 2020
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: FRIGGER -v- MERVYN JONATHON KITAY IN HIS CAPACITY AS LIQUIDATOR OF COMPUTER ACCOUNTING & TAX PTY LTD (IN LIQUIDATION) [No 16] [2020] WASC 337
CORAM: CURTHOYS J
HEARD: 30 JUNE 2020
DELIVERED : 22 SEPTEMBER 2020
FILE NO/S: CIV 2765 of 2010
BETWEEN: ANGELA CECILIA THERESA FRIGGER
First Plaintiff
ANGELA CECILIA THERESA FRIGGER AND HARTMUT FRIGGER IN THEIR CAPACITIES AS TRUSTEES OF THE FRIGGER SUPERANNUATION FUND
Second Plaintiff
AND
MERVYN JONATHON KITAY IN HIS CAPACITY AS LIQUIDATOR OF COMPUTER ACCOUNTING & TAX PTY LTD (IN LIQUIDATION)
First Defendant
COMPUTER ACCOUNTING & TAX PTY LTD (IN LIQUIDATION)
Second Defendant
Catchwords:
Bankrupt trustees - Status of counterclaim - Representation
Legislation:
Bankruptcy Act, s 60
Result:
Adjourned to case manager
Costs be reserved
Category: B
Representation:
Counsel:
| First Plaintiff | : | In Person |
| Second Plaintiff | : | In Person |
| First Defendant | : | Mr D A Lenhoff |
| Second Defendant | : | Mr D A Lenhoff |
Solicitors:
| First Plaintiff | : | In Person |
| Second Plaintiff | : | In Person |
| First Defendant | : | Lenhoff & Hotz |
| Second Defendant | : | Lenhoff & Hotz |
Case(s) referred to in decision(s):
Duckworth v Water Corporation [2012] WASC 30
Frigger v Kitay (No 15) [2019] WASC 384
Kitay, in the matter of Frigger (No 2) [2018] FCA 1032
Muir v Angeles [2020] NSWSC 1056
Temsign Pty Ltd v Biscen Pty Ltd 20 WAR 47
CURTHOYS J:
Introduction
On 30 June 2020 the Court made the following orders:
1.By no later than 14 July 2020, the defendants do file and serve submissions and any necessary affidavits, in opposition to the standing of the second plaintiffs to represent the Frigger Superannuation Fund in these proceedings.
2.By no later than 6 August 2020, the second plaintiffs do file and serve a written outline of submissions and any necessary affidavits to establish their standing, as undischarged bankrupts, to represent the Frigger Superannuation Fund in these proceedings.
The reason the issue of standing arises is that Mr and Mrs Frigger (the Friggers) were declared bankrupt on 20 July 2018.[1]
[1] Kitay, in the matter of Frigger (No 2) [2018] FCA 1032.
Section 60 Bankruptcy Act
Section 60 of the Bankruptcy Act relevantly provides:
(2)An action commenced by a person who subsequently becomes a bankrupt is, upon his or her becoming a bankrupt, stayed until the trustee makes election, in writing, to prosecute or discontinue the action.
(3)If the trustee does not make such an election within 28 days after notice of the action is served upon him or her by a defendant or other party to the action, he or she shall be deemed to have abandoned the action.
On 1 November 2018, the Friggers' then trustees, Mr Paul Allen and Ms Kelly-Anne Trenfield, were required to elect within 28 days of service of the notice upon them whether to prosecute or discontinue the proceedings (s 60(3) Bankruptcy Act).
No election was made by the trustees within the 28 day notice period. The Friggers in their personal capacity, as first and third plaintiffs, are therefore deemed to have abandoned the action.
In Duckworth v Water Corporation[2] Edelman J stated:
Fifthly, a broad approach to the words 'an action commenced by a person' is also consistent with the broad approach taken to s 60(2) where an action by a bankrupt is stayed even if the bankrupt concerned was 'only one of several plaintiffs, whose claim was separate from those of other plaintiffs, although raising common questions of law and fact': Re Lofthouse ([2001] FCA 25; (2001) 1907 FCR 151) (156) [16], followed by Campbell v Metway Leasing Ltd [2001] FCA 1311; (2001) 188 ALR 100, 104 [18] (Katz J); McKellar v Container Terminal Management Services Ltd (No 4) [2002] FCA 185 [22] (Weinberg J); Goodman v Thomson Maloney & Partners Pty Ltd t/as Charter Keck Cramer[2011] FCA 97 [11] (Gray J).
This broad approach to s 60(2), generally staying any litigation in which a bankrupt is one of a number of plaintiffs, has been acknowledged to 'doubtless cause hardship in many cases'. But that is the necessary effect of the broad statutory language and policy: John v Neiman Holdings Pty Ltd (1986) 84 FLR 84, 86 (Young J).
The effect of the decision in Re Lofthouse is that the Bankruptcy Act 1966, and (necessarily) the 1924 Act which preceded it, effected a break with the historic approach where actions by a bankrupt as trustee for another would not be stayed. Although this conclusion cannot be confidently asserted, there is a reasonable basis to suppose that this break might have been part of an intentionally broader approach in the broad new scheme of the 1924 Act. In any event, for the seven reasons I have described above, at [32] [48], I am not satisfied that the decision in Re Lofthouse is plainly wrong. The conclusion is therefore that an action commenced by a subsequently declared bankrupt is stayed even if that action is commenced, and asserts rights, which the bankrupt holds in his or her capacity as a trustee for another.
The effect of s 60(2) of the Bankruptcy Act is that this action was stayed upon the sequestration order against Mr Duckworth. As Young J (as his Honour was then) explained in John v Neiman Holdings Pty Ltd (86), all that is meant by a stay 'is that nobody can take any step in the proceedings, nobody can make any order in the proceedings'.
The action is therefore stayed until the trustee in Mr Duckworth's bankruptcy, after receipt of proper notice, makes an election, in writing, to prosecute or discontinue the action. Failing an election within 28 days after service of the notice, the action is deemed abandoned (s 60(3)). The consequences of abandonment are discussed by Wheeler J in Temsign Pty Ltd v Biscen Pty Ltd [(1998) 20 WAR 47] (58).
[2] Duckworth v Water Corporation [2012] WASC 30 [40] - [41], [82], [90] - [91].
Equally, even though the Friggers commenced the action as second plaintiffs in their capacity as trustees of the Frigger Superannuation Fund, the second plaintiff is also deemed to have abandoned the action.
At a hearing before this Court on 17 September 2020 Mr and Mrs Frigger, on their own behalf and on behalf of the trustee of the Frigger Superannuation Find, to the extent that they are able, accepted that the primary claim had been abandoned.
The consequences of abandonment
The question then arises as to the status of the proceedings consequent upon abandonment. In Muir v Angeles[3] Hallen J stated:
[3] Muir v Angeles[2020] NSWSC 1056.
113.The effect of the deemed abandonment of the Cross-Claim was stated by the unanimous Full Court of the Federal Court in Freeman v Joiner [2005] FCAFC 149 at [14]:
'The position is that, whilst the proceedings brought by the bankrupt are deemed to have been abandoned by the trustee, the cause of action remains. The provision, properly construed, operates only upon the trustee. There is no bar to the trustee commencing a fresh proceeding on the same cause of action or a bankrupt, on discharge, doing so whether there has been no determination of the issues.'
114.The practical consequences of a deemed abandonment were described by Wheeler J (as her Honour then was) in Temsign Pty Ltd v Biscen Pty Ltd at 58:
'The question which then arises, as it did in Stobbart's case, is whether, as the result of the deemed abandonment of the action by the trustee, the plaintiffs' action should be dismissed, or whether the action should simply be stayed, and if so for what period the stay should operate.'
115.Those remarks received at least the implicit approval of Edelman J in Duckworth v Water Corporation at [91].
116.A separate question, then, arises whether there ought to be a dismissal of the Cross-Claim. The answer will depend on all the relevant circumstances at the time of the application: Nugawela v Commissioner of Taxation [2018] FCA 1458 at [11] (Colvin J); Frigger v Rowe Bristol Lawyers Pty Ltd at [4] (Hill J).
117.McMurdo J (as his Honour then was) wrote in State of Queensland v Beames [2003] QSC 399; [2004] 2 Qd R 99 at 103 [16]; [2003] QSC 399 at [16]:
'... the deemed abandonment of this counterclaim has not destroyed any cause of action underlying it. Once that is recognised then there is at least a potential for a striking out or dismissal of the counterclaim to have an impact going beyond that from s 60.In Millane v Shire of Heidelberg [1927] ArgusLawRp 110; [1928] VLR 52, Irvine CJ was asked to dismiss an action in these circumstances, i.e. where the trustee had elected to abandon the proceedings. He was concerned that the dismissal could be pleaded in bar as res judicata and he therefore declined to dismiss it. His decision was applied by Shepherdson J in Holmes v Goodyear Tyre & Rubber Co (Aust) Ltd (1984) 55 ALR 594 at 598. It is not entirely clear that the order sought here, which is the striking out of the counterclaim, would give rise to a res judicata. For example, a judgment dismissing proceedings for want of prosecution, being an interlocutory order, does not give rise to a res judicata. It is unnecessary however to explore that further.' (citations omitted)
118.I also bear in mind the remarks of Young JA in Savage v Australian Unity Funds Management Ltd at [17]:
'The authorities dealing with first instance cases are to the effect that where an action is abandoned under s 60(3), the Court ought not to dismiss it, because to dismiss it would be to prevent the bankrupt from re-litigating the question once he or she became free to do so: Millane v President of the Shire of Heidelberg [1927] ArgusLawRp 110; [1928] VLR 52; Holmes v Goodyear Tyre & Rubber Co (Aust) Ltd (1984) 73 FLR 88.'
119.In Millane v President of Shire of Heidelberg [1927] ArgusLawRp 110; [1928] VLR 52, Irvine CJ was concerned that if he dismissed the action then 'that dismissal may be pleaded in bar as res judicata ...': at 53.
120.Presently, however, s 91(1) of the Civil Procedure Act applies. Should I dismiss the Cross-Claim for want of prosecution, that dismissal would not prevent the Defendant from bringing fresh proceedings or claiming the same relief in fresh proceedings. (That, of course, does not mean his application would be successful.)
121.In my opinion, this is an appropriate case for dismissal. Neither the Defendant, nor his Trustee in Bankruptcy, has expressed any interest in continuing with the Cross-Summons. Indeed the Defendant, by his Submitting Appearance, has expressly disclosed an active disinterest in prosecuting the Cross-Claim.
Although the deemed abandonment of the action by the trustees does not, subject to matters such as limitations, destroy the underlying cause of action, it does bring the proceedings to an end insofar as the plaintiffs' claims are concerned so that it is now too late for them to pursue their claims in these proceedings.[4]
[4] Temsign Pty Ltd v Biscen Pty Ltd 20 WAR 47, 57 ‑ 58.
However, in order to finally terminate the claim the liquidators/defendants will need to bring an application, possibly an application to dismiss the claim for want of prosecution. The nature of that application is a matter for the liquidators.
The status of the counterclaim in CIV 2765 of 2010
Although the claim has been abandoned, the counterclaim in these proceedings is still outstanding. The defendants wish to proceed with the counterclaim.
The defendant's counterclaim seeks extensive relief against the Friggers in their personal capacity and against the trustee of the Frigger Superannuation Fund
Frigger, in the matter of an application by Frigger [2019] FCA 1730
On 21 October 2013 in Frigger, in the matter of an application by Frigger[5] Jackson J made the following orders:
1.Pursuant to s 206G(1)(c) of the Corporations Act 2001 (Cth), and subject to the condition in paragraph 2 of these orders, Hartmut Hubert Josef Frigger and Angela Cecilia Theresa Frigger (the Applicants) have leave to manage H & A Frigger Pty Ltd (ACN 156 617 864) (the Company).
2. Until such time as both of the Applicants are no longer disqualified from managing corporations under Part 2D.6 of the Corporations Act, the Company must not engage in any activity other than to act as trustee of the Frigger Super Fund and to do things that are reasonably incidental to so acting.
3.Pursuant to s 126J(1)(b) of the Superannuation Industry (Supervision) Act 1993 (Cth), each of the Applicants is not a disqualified person in relation to the Company and the Frigger Super Fund.
[5] Frigger, in the matter of an application by Frigger [2019] FCA 1730.
The liquidators argue that the leave which the plaintiffs were given does not include leave to be the trustee of the Fund. I agree with that submission.
Order 2 permits H & A Frigger Pty Ltd to 'act as trustee of the Frigger Super Fund and to do things that are reasonably incidental to so acting'. Defending litigation is clearly incidental to acting as trustee of a fund.
Indeed Justice Jackson's judgment expressly contemplates that H & A Frigger Pty Ltd will act as managers of that litigation. Justice Jackson stated at [45]:
It appears that if Mr and Mrs Frigger obtain leave to manage the Company, they will seek to have it substituted as plaintiff the Supreme Court proceedings I have mentioned between them and CAT and its liquidator. While that may expose the Company to risks, including the risk of adverse costs orders, I do not consider that weighs against granting leave. Whether the Company should be permitted to prosecute those proceedings, including whether they may represent the Company in the proceedings, are matters for the Supreme Court of Western Australia, not for this court. Also, for this court to determine that it is not appropriate for the Company to become the plaintiff in any given proceedings would bring the court close to usurping the management role itself. An application for leave to manage a corporation is not the occasion for the court to supervise that management.
I am unable to see anything in Justice Jackson's orders that permits the Friggers to act in a personal capacity as trustees of the Frigger Superannuation Fund as distinct from as the managers of H & A Frigger Pty Ltd as trustee of the Frigger Superannuation Trust.
However, Justice Jackson's order does permit the Friggers to manage H & A Frigger Pty Ltd's defence of the counterclaim as an incident of acting as trustee.
Leave to substitute H & A Frigger Pty Ltd as second plaintiffs in CIV 2765 of 2010
On 21 October 2019 the Friggers made an application in these proceedings for the following orders:
1.An order dispensing with the requirement under RSC O 4 r 3(2) that [H & A Frigger Pty Ltd] be represented by a solicitor.
2.An order that [H & A Frigger Pty Ltd] may appear through its directors [Mr and Mrs Frigger].
3.[H & A Frigger Pty Ltd] in its capacity as trustee of the Frigger Super Fund be and is hereby substituted as the second plaintiff.
In Frigger v Kitay (No 15),[6] Allanson J dismissed an application made by Mrs Frigger to substitute the company H & A Frigger Pty Ltd (the Company) as the second plaintiff in these proceedings.
[6] Frigger v Kitay (No 15) [2019] WASC 384 [9] ‑ [11].
The outcome of that application before the primary judge is stated in the judgment of the Court of Appeal in Kitay v Frigger [No 3]:[7]
On 24 October 2019, the primary judge dismissed the application for an order that H & A Frigger Pty Ltd in its capacity as trustee of the Frigger Superannuation Fund be substituted as the second plaintiff in the primary proceedings. His Honour gave ex tempore reasons for that decision which were subsequently converted to written reasons [Frigger v Kitay [No 15] [2019] WASC 384). The primary judge's reasons for dismissing the application to substitute H & A Frigger Pty Ltd as plaintiff were materially as follows:
The proceedings commenced by Mr and Mrs Frigger in this court are stayed by operation of s 60(2) of the Bankruptcy Act 1966 (Cth), as a result of their subsequent bankruptcy. The effect of s 60(2) is that if one plaintiff becomes bankrupt, even if another does not, the entire action is stayed, and control of the action passes to the trustee in bankruptcy until the trustee makes an election in writing to prosecute or discontinue the action.
Section 60(2) also operates to stay proceedings commenced by Mr and Mrs Frigger in their capacity as trustee, not only the action in their personal capacities.
As the action is currently stayed, the application to substitute the second plaintiff will be dismissed (citations omitted).
[7] Kitay v Frigger [No 3] [2020] WASCA 55 [20].
Where now?
Mr Lenhoff for the liquidators seeks a decision from the Court as to 'the standing of the plaintiffs in their capacity as trustees of the super fund'. The liquidators intend to proceed with the counterclaim. He states that he needs clarity on who is representing the superannuation fund.
Reluctant as I am to comment on where a matter should proceed when another judge is the case manager it may be useful to make the following obiter comments in the light of the decision Mr Lenhoff seeks from the court.
It seems to me that, at least on the face of it,
a)the application to Justice Allanson was poorly expressed in that it did not seek a specific order in respect of H & A Frigger being substituted as trustee/defendant in the counterclaim in; or,
b)the order may not cover H & A Frigger Pty Ltd being substituted as a defendant to the counterclaim.
Section 60(2) of the Bankruptcy Act does not appear to deal with a counterclaim against a bankrupt.
If so, then arguably s 60(2) does not provide a basis for a refusal to substitute H & A Frigger Pty Ltd as a trustee for the Frigger Superannuation Fund in the counterclaim.
I cannot make any orders at present. If the order does cover H & A Frigger Pty Ltd in the counterclaim then I have no power to amend that order.
It seems to me that only solution is for the Friggers, as managers of H & A Frigger Pty Ltd, to bring a fresh application in this action to substitute H & A Frigger Pty Ltd as defendant in the counterclaim. This is a matter for the Friggers as managers of H & A Frigger Pty Ltd. It would seem likely that the liquidators would not oppose the application if they wish to bring the counterclaim to a resolution.
Order
1.Matter adjourned to case manager.
2.Costs be reserved.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
MDM
Associate to the Honourable Justice Curthoys21 SEPTEMBER 2020
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