Frigger v Mervyn Jonathon Kitay in His Capacity as Liquidator of Computer Accounting & Tax Pty Ltd (in Liquidation)
[2013] WASC 229 (S)
FRIGGER -v- MERVYN JONATHON KITAY IN HIS CAPACITY AS LIQUIDATOR OF COMPUTER ACCOUNTING & TAX PTY LTD (IN LIQUIDATION) [2013] WASC 229 (S)
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2013] WASC 229 (S) | |
| Case No: | CIV:2765/2010 | 12 AUGUST 2013 | |
| Coram: | ALLANSON J | 23/10/13 | |
| 10 | Judgment Part: | 1 of 1 | |
| Result: | Plaintiffs to pay the defendants' costs of the application for trial of a preliminary issue | ||
| B | |||
| PDF Version |
| Parties: | ANGELA CECILIA THERESA FRIGGER ANGELA CECILIA THERESA FRIGGER AND HARTMUT FRIGGER IN THEIR CAPACITIES AS TRUSTEES OF THE FRIGGER SUPERANNUATION FUND MERVYN JONATHON KITAY IN HIS CAPACITY AS LIQUIDATOR OF COMPUTER ACCOUNTING & TAX PTY LTD (IN LIQUIDATION) COMPUTER ACCOUNTING & TAX PTY LTD (IN LIQUIDATION) |
Catchwords: | Practice and procedure Costs Plaintiffs unsuccessful on application for trial of preliminary issue Whether defendants entitled to costs in light of litigation funding agreement Turns on own facts |
Legislation: | Nil |
Case References: | Adams v London Improved Motor Coach Builders Ltd [1921] 1 KB 495 Angor Pty Ltd v Ilich Motor Co Pty Ltd (1992) 37 FCR 65 Dyktynski v BHP Titanium Minerals Pty Ltd [2004] NSWCA 154; (2004) 60 NSWLR 203 Frigger v Mervyn Jonathon Kitay in his Capacity as Liquidator of Computer Accounting & Tax Pty Ltd (In Liquidation) [2013] WASC 229 Noye v Robbins [2010] WASCA 83 Wentworth v Rogers [2006] NSWCA 145; (2006) 66 NSWLR 474 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- 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:
Practice and procedure - Costs - Plaintiffs unsuccessful on application for trial of preliminary issue - Whether defendants entitled to costs in light of litigation funding agreement - Turns on own facts
Legislation:
Nil
Result:
Plaintiffs to pay the defendants' costs of the application for trial of a preliminary issue
Category: B
Representation:
Counsel:
First Plaintiff : In person
Second Plaintiff : In person
First Defendant : Mr B W Ashdown
Second Defendant : Mr B W Ashdown
Solicitors:
First Plaintiff : In person
Second Plaintiff : In person
First Defendant : Holborn Lenhoff Massey
Second Defendant : Holborn Lenhoff Massey
Case(s) referred to in judgment(s):
Adams v London Improved Motor Coach Builders Ltd [1921] 1 KB 495
Angor Pty Ltd v Ilich Motor Co Pty Ltd (1992) 37 FCR 65
Dyktynski v BHP Titanium Minerals Pty Ltd [2004] NSWCA 154; (2004) 60 NSWLR 203
Frigger v Mervyn Jonathon Kitay in his Capacity as Liquidator of Computer Accounting & Tax Pty Ltd (In Liquidation) [2013] WASC 229
Noye v Robbins [2010] WASCA 83
Wentworth v Rogers [2006] NSWCA 145; (2006) 66 NSWLR 474
1 ALLANSON J: On 14 June 2013, I dismissed an application by the plaintiffs to set down the trial of a preliminary issue. My reasons for dismissing the application included issues raised by an amendment to the defence and counterclaim - the defendants amended the defence and counterclaim after the application had been made, although still well before it was heard. But I would have dismissed the application even without the amendments on the more general ground that the issue which the plaintiffs sought to have separately determined was not appropriate for separate determination: see Frigger v Mervyn Jonathon Kitay in his Capacity as Liquidator of Computer Accounting & Tax Pty Ltd (In Liquidation) [2013] WASC 229.
2 On the application of well understood principles guiding the exercise of the court's discretion on costs, the defendants would have the costs of the application. I deferred making a costs order, however, to give the parties an opportunity to make submissions on the effect of material that had been filed in an earlier application in these proceedings.
3 On 30 April 2013, Mr David Lenhoff, solicitor for the defendants, swore an affidavit to which he annexed a letter from Mr Kitay. That letter provided a response to an enquiry regarding the extent of assets that Mr Kitay (as liquidator of Computer Accounting & Tax Pty Ltd) would need to recover in order to discharge all the known debts of the company in full. Mr Kitay referred to a litigation funding agreement with Hillcrest Litigation Services Ltd, under which Hillcrest 'are entitled to a 40% success fee, after recoupment of legal fees'. The letter included a table to the effect that: the total claims against the company were either $1,767,583 or $1,667,483 (the difference being to the amount of an unliquidated damages claim); Hillcrest's share at 40% was either $1,178,388 or $1,111,655; legal costs were estimated at $300,000; so the total recovery to discharge the debts was $3,245,971 (or $3,079,138).
4 That was the only information then available. The arrangement, as outlined in that letter, left some questions about the defendants' entitlement to costs.
5 The defendants have now put into evidence an affidavit of Mr Kitay, dated 29 July 2013, in which he says:
4. By orders made in Supreme Court of Western Australia action COR 2 of 2010 on 17 January 2012 approval was granted pursuant to section 477(2B) of the Corporations Act for the entry into of a Litigation Funding Agreement by myself and Computer Accounting and Tax Pty Ltd (In Liquidation) with Hillcrest Litigation Services Ltd in respect of Supreme Court action CIV 2765 of 2010 ('Litigation Funding Agreement').
5. The orders made on 17 January 2012 also contained confidentiality orders with respect to, inter alia, the terms of the Litigation Funding Agreement.
6. On 18 January 2012 I entered into the Litigation Funding Agreement on behalf of myself and Computer Accounting and Tax Pty Ltd (In Liquidation).
7. By orders made in Supreme Court of Western Australia action COR 2 of 2010 on 26 July 2013 approval was granted pursuant to section 477(2B) of the Corporations Act for the entry into of a Litigation Funding Amendment Agreement by myself and Computer Accounting and Tax Pty Ltd (In Liquidation) with Hillcrest Litigation Services Ltd in respect of Supreme Court action CIV 2765 of 2010 ('Amendment Agreement').
8. On 26 July 2013 I entered into the Amendment Agreement on behalf of myself and Computer Accounting and Tax Pty Ltd (In Liquidation).
6 The Litigation Funding Agreement and Amendment Agreement were attached to the affidavit, with very limited redactions for the purposes of preserving confidentiality. The amount of Budgeted Costs has not been revealed. In the Litigation Funding Agreement, Mr Kitay is referred to as the 'Litigant', and Hillcrest as 'HLS'. The 'Proceedings' are the current matter, CIV 2765 of 2010.
7 The Litigation Funding Agreement relevantly provides:
2. FUNDING BY HLS
HLS agrees to:-
(a) pay the Budgeted Costs, in accordance with an agreed budget and timetable;
(b) pay any taxed costs (which are taxed on a party party basis) payable by the Litigant to any other party whether arising upon the dismissal or discontinuance of the Proceedings or otherwise, but only to the extent that those costs were incurred during the term of this Agreement;
(c) provide any security for costs ordered by the court in the Proceedings during the term of this Agreement.
Subject to the provisions of clause 4(b), HLS will indemnify and keep indemnified the Litigant and the Company in respect of any Adverse Costs Order (as defined).
4. THE LITIGANT'S OBLIGATIONS, THE LAWYERS' RETAINER AND INSTRUCTIONS
(a) If the Costs exceed the Budgeted Costs, the Litigant shall be responsible for payment of such excess costs.
(b) If any costs order is made against the Litigant or the Company in the Proceedings on any basis other than a party party basis, HLS shall be responsible for payment of that part of such costs as represents the amount that would have been payable if the costs were taxed on a party party basis and the Litigant shall be responsible for payment of that part of such costs as exceeds the amount that would have been payable if the costs were taxed on a party party basis.
(c) The Lawyers are to be instructed by the Litigant, and not HLS, and the Litigant will instruct the Lawyers to prosecute the Proceedings as soon as reasonably practicable after the execution of this Agreement and the Litigant will keep the Lawyers properly instructed during the Proceedings.
(d) Subject to clause 5, HLS will not interfere with the conduct of the Proceedings by the Litigant.
(e) If the Litigant is beneficially entitled to any real property as a result of the resolution of the Proceedings (whether by way of settlement, judgment or order), the Litigant shall sell those properties in the ordinary course of the liquidation of the Company and the net proceeds of such sales (after the costs of the sales) shall form part of the Resolution Sum and be disbursed in accordance with clause 8.
…
7. CONSIDERATION AND ASSIGNMENT
In consideration of HLS agreeing to provide the funding set out in clause 2 and to provide the indemnity set out in clause 3, the Litigant hereby assigns to HLS the HLS Percentage of the Net Resolution Sum.
8. DISBURSEMENT OF THE RESOLUTION SUM
The parties agree that the Resolution Sum shall be paid into a trust account operated by the Lawyers and the Litigant and HLS each hereby irrevocably authorise and direct the Lawyers to apply and pay the Resolution Sum in the following manner and order, namely:-
(a) firstly, in reimbursing HLS for the Funding Costs paid by HLS;
(b) secondly, in paying the amount comprising the HLS Percentage of the Net Resolution Sum to HLS;
(c) thirdly, in paying the amount comprising the Litigant's Percentage of the Net Resolution Sum to the Litigant.
…
13. TERM OF AGREEMENT
(a) Subject to clause 13(b), this Agreement shall endure until the disbursement of the Resolution Sum in accordance with this Agreement.
(b) HLS may terminate this Agreement at any time upon written notice.
(c) If this Agreement is terminated pursuant to clause 13(b) then:
(i) HLS remains liable to pay all amounts incurred up to the date of termination and will also remain liable to indemnify the Litigant for any Adverse Costs Order relating to costs incurred up to the date of termination; and
(ii) the Litigant will reimburse HLS for any payments it has made pursuant to the Agreement from the Resolution Sum, if any.
9 The amendments made by the Amendment Agreement included a definition of Recovered Costs in these terms:
any amount ordered to be paid to, or otherwise recovered or recoverable by, the Litigant pursuant to any order for costs made in, or in connection with, the Proceedings (whether fixed, agreed, assessed or determined by taxation) irrespective of whether such entitlement to costs or order for costs is made: during the subsistence of the Proceedings (on an interlocutory or final basis, and whether ordered to be paid forthwith, in any event, or reserved); in respect of any interlocutory application or step or issue; at or following the final determination or conclusion of the Proceedings; or in respect of the Proceedings as a result, consequence or following the outcome of, any appeal.
10 The definition of 'Net Resolution Sum' was amended to read 'the amount obtained by deducting the Recovered Costs from the Resolution Sum'.
11 Clause 8 was also amended, by requiring the lawyers, in disbursing the Resolution Sum, to pay to Hillcrest the amount by which the recovered costs exceed the funding costs paid by Hillcrest before paying the HLS percentage (that is, 40%) to Hillcrest, and the Litigant's percentage to the litigant.
12 It was further provided that nothing in the agreement would permit or result in any amount of legal costs or recovered costs being paid to Hillcrest otherwise than in reimbursement of legal costs and disbursements paid by Hillcrest to and on behalf of the Litigant; and any amount payable to Hillcrest (in addition to the reimbursement of legal costs actually paid by Hillcrest) being calculated by reference to, or by application of, the HLS percentage to any amount which includes recovered costs.
13 Before dealing with the proper order for costs of the application, informed by this additional material, there is a side issue that requires resolution. In response to the defendants' application for costs, the plaintiffs relied upon several affidavits sworn by Mrs Frigger. In particular, Mrs Frigger swore an affidavit dated 7 August 2013 to which she appended several documents. They included a copy of a confidential affidavit sworn by Mr Kitay on 5 January 2012 on the application under s 477(2B) of the Corporations Act 2001 (Cth). The body of the confidential affidavit refers to attachments, including a letter of advice from solicitors who then acted for Mr Kitay.
14 In the course of submissions, counsel for the defendants pointed out the presence of this material, and objected to it. I do not know how Mrs Frigger obtained clearly confidential material, including letters subject to legal professional privilege. The only question immediately raised is whether I should allow those parts of the affidavit to be read in this application. The material is not relevant to the question I have to now decide. The affidavit of Mrs Frigger, pars 15 to 19 together with attachment AF7 will not be read in this application.
15 Until further order, the affidavit of Mrs Frigger sworn on 7 August 2013 will be confidential, will be kept on the court file but sealed and marked to the effect and will not be available for access to any person except by order of the court.
The defendants' entitlement to costs and the indemnity principle
16 The 'indemnity principle', 'at its simplest, provides that a party who does not have a liability to his solicitor for costs cannot recover costs against the unsuccessful party to the litigation': Noye v Robbins [2010] WASCA 83, Owen JA (Pullin JA & Buss JA agreeing) [296]. The principle is, however, flexible, and 'designed to allow for a just and fair result': Noye v Robbins [332] - [334]; Dyktynski v BHP Titanium Minerals Pty Ltd [2004] NSWCA 154; (2004) 60 NSWLR 203 [80]; Wentworth v Rogers [2006] NSWCA 145; (2006) 66 NSWLR 474 [45] - [50].
17 I am not satisfied that anything in the arrangements between the defendant and the litigation funder, or between the defendants and their solicitors, should lead me to deny a costs order.
18 First, the Litigation Funding Agreement provides for Hillcrest to pay the defendants' costs, within the amount of Budgeted Costs. But the defendants remain responsible for costs exceeding the Budgeted Costs. And, by cl 8, the defendants must reimburse Hillcrest for funding costs out of any amount the defendants recover before any other payments.
19 Second, there is nothing to show that the defendants are not liable to their solicitors for costs incurred. The Litigation Funding Agreement is a separate agreement to which the defendants' solicitors (although identified in the agreement) are not parties. Nothing in that agreement is inconsistent with the defendants' obligations to their solicitors: see Adams v London Improved Motor Coach Builders Ltd [1921] 1 KB 495, 501, 504; Angor Pty Ltd v Ilich Motor Co Pty Ltd (1992) 37 FCR 65.
20 Third, I am satisfied that the just and fair result is that the defendants are entitled to recover their costs. Otherwise, the funds available to the liquidator for legal costs, within the Budgeted Costs, could be exhausted in resisting repeated interlocutory applications which might be without merit.
Conclusion
21 The plaintiffs are to pay the defendants' costs of the application to set down the trial of a preliminary issue. I will hear the parties on the wording of the order, including whether there are any reserved costs. I will also hear the parties on what is the appropriate order for the costs of determining the present question.
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