Frigger v Mervyn Jonathon Kitay in his capacity as liquidator of Computer Accounting & Tax Pty Ltd (in liquidation) [No 4]
[2014] WASC 165
•9 MAY 2014
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 4] [2014] WASC 165
CORAM: ALLANSON J
HEARD: ON THE PAPERS
DELIVERED : 9 MAY 2014
FILE NO/S: CIV 2765 of 2010
MATTER :Section 78 of the Trustees Act 1962 and Section 1321 of the Corporations Act 2001
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 PlaintiffHARTMUT HUBERT JOSEF FRIGGER
Third PlaintiffAND
MERVYN JONATHON KITAY IN HIS CAPACITY AS LIQUIDATOR OF COMPUTER ACCOUNTING & TAX PTY LTD (IN LIQUIDATION)
First DefendantCOMPUTER ACCOUNTING & TAX PTY LTD (IN LIQUIDATION)
Second Defendant
Catchwords:
Practice and procedure - Application to amend originating summons - Application to amend statement of claim - Turns on own facts
Legislation:
Supreme Court (Corporations) (WA) Rules 2004, pt 14
Result:
Applications allowed in part
Category: B
Representation:
Counsel:
First Plaintiff : No appearance
Second Plaintiff : No appearance
Third Plaintiff : No appearance
First Defendant : No appearance
Second Defendant : No appearance
Solicitors:
First Plaintiff : Peter J Griffin & Co
Second Plaintiff : Peter J Griffin & Co
Third Plaintiff : Peter J Griffin & Co
First Defendant : Holborn Lenhoff Massey
Second Defendant : Holborn Lenhoff Massey
Case(s) referred to in judgment(s):
Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc [1981] HCA 39; (1981) 148 CLR 170
Australian Securities and Investments Commission v Letten (No 17) [2011] FCA 1420
Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253
Computer Accounting and Tax Pty Ltd v Professional Services of Australia Pty Ltd [2008] WASC 133
Custom Credit Co Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42
Fitzwood Pty Ltd v Unique Goal Pty Ltd (In Liq) [2002] FCAFC 285
Frigger v Mervyn Jonathon Kitay in his Capacity as Liquidator of Computer Accounting & Tax Pty Ltd (In Liquidation) [2013] WASC 229
Frigger v Mervyn Jonathon Kitay in his Capacity as Liquidator of Computer Accounting & Tax Pty Ltd (In Liquidation) [No 2] [2013] WASC 394
Frigger v Mervyn Jonathon Kitay in his Capacity as Liquidator of Computer Accounting & Tax Pty Ltd (in liquidation) [No 3] [2014] WASC 24
Frigger v Professional Services of Australia Pty Ltd [No 3] [2014] WASCA 69
Octavo Investments Pty Ltd v Knight [1979] HCA 61; (1979) 144 CLR 360
Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd [2008] WASCA 222
Re Suco Gold Pty Ltd (In Liq) (1983) 33 SASR 99
ALLANSON J: Following my decision on 30 January 2014 in Frigger v Mervyn Jonathon Kitay in his Capacity as Liquidator of Computer Accounting & Tax Pty Ltd (in liquidation) [No 3] [2014] WASC 24, the plaintiffs have applied for leave to amend the originating summons and statement of claim.
The proposed amendments to the originating summons
In the originating summons, as first filed, the plaintiffs sought orders under s 78 of the Trustees Act 1962 (WA) for the vesting of two lots of land, the Perth land and the Armadale land, in Mr and Mrs Frigger in their capacities as trustees of the Frigger Super Fund. The application was apparently based on the previous trustee, Computer Accounting & Tax Pty Ltd, being placed in liquidation. The plaintiffs also sought orders, said to be pursuant to s 1321 of the Corporations Act 2001 (Cth), in relation to a term deposit held in the St George Bank, and a taxing fee paid by Mrs Frigger in earlier proceedings in this court (CIV 2265 of 2006).
The proposed amended originating summons has two additions. Paragraph 3, in its present form, claims an order that the liquidator has no grounds upon which to withhold consent to the refund of the taxing fee paid by Mrs Frigger. The plaintiffs wish to add a claim for an order that the liquidator pay Mrs Frigger the amount of that taxing fee, plus interest from 10 November 2010.
In a proposed new par 4, the plaintiffs add a claim that the defendants 'jointly and severally pay damages to the plaintiffs for losses resulting from the defendants' wilful default and breach of fiduciary duty under an express trust alternatively a Quistclose resulting trust'. There follows eight paragraphs, each of which relates to legal costs of some kind, incurred in CIV 2265 of 2006 and other proceedings. From the accompanying statement of claim, I understand these references to legal costs are, in effect, particulars of the damage or loss which the plaintiffs say they suffered.
The proposed amendments to the statement of claim
There are some minor amendments, including amendments to dates which are not opposed. There are also amendments of substance.
First, where the plaintiffs had previously pleaded that the Perth property and the Armadale property were held by Computer Accounting & Tax on a resulting trust for Mr and Mrs Frigger, they now wish to substitute 'on an express trust alternatively a Quistclose resulting trust': pars 20(a) and 25(a). The pleading of material facts is unchanged. That is, in each case:
1.Mr and Mrs Frigger in their personal capacity agreed to pay the purchase price for the Perth property and the Armadale property pursuant to the terms of a written contract for the sale of land.
2.At the time of executing the contract it was the 'mutual understanding and intention' of Mr and Mrs Frigger and Computer Accounting & Tax that:
a.following settlement of the sale, the beneficial interest in each property would be held by Computer Accounting & Tax for the benefit of Mr and Mrs Frigger;
b.at a later date each property would be transferred for nominal consideration of $1 as an undeducted personal in specie contribution to the Frigger Super Fund;
c.as trustee of each property, Computer Accounting & Tax would be entitled to derive rental income and any such income would be held for the benefit of Mr and Mrs Frigger.
3.On 19 December 2001 and 1 May 2003, Mr and Mrs Frigger paid the purchase price to the vendor of each property and later paid stamp duty on the transfer.
4.Computer Accounting & Tax was registered as the proprietor of the Perth property on 2 August 2002 and the Armadale property on 17 September 2003.
As a consequence of those matters, the plaintiffs claim that, upon the registration of Computer Accounting & Tax as the registered proprietor of each property, it held that property and any income derived from it on an express trust, alternatively a Quistclose resulting trust.
The plaintiffs further propose to plead in par 25(c) that, as a consequence of the facts pleaded in relation to the Armadale property, Computer Accounting & Tax became the trustee of an express trust (the Secondary Trust) for the benefit of Mr and Mrs Frigger over a chose in action 'being legal proceedings commenced on 17 September 2003 in the Local Court of Western Australia which was transferred and resolved in Supreme Court CIV 2265/2006'. Presumably, the intention of the plea is that the trust was over the chose in action that was the subject of the proceedings and not a trust over the proceedings themselves.
In proposed new pars 27 and 28, the plaintiffs plead that as a result of the Perth property and the Armadale property being transferred to the Frigger Super Fund as undeducted personal in specie contributions, and the execution of transfers in registrable form stamped for nominal stamp duty and delivered to Computer Accounting & Tax, the contributions became legally binding on 6 May 2009, the date on which the stamped transfers were delivered. As a result, and consequent on the transfers, the objectives of the trust (whether it is an express trust or Quistclose trust) over each parcel of land were fulfilled.
The plaintiffs also seek leave to plead a further secondary trust. They assert that on the date of commencement of the members' voluntary liquidation of Computer Accounting & Tax, it held the following assets in trust for the benefit of Mr and Mrs Frigger:
A.An entitlement to legal costs in CIV 2265 of 2006 in the amount of $701,000 pursuant to a bill of costs lodged for taxation on 2 June 2009, plus costs of taxation plus interest.
B.An entitlement to enforcement costs of $53,399 for variation of freezing orders obtained in CIV 2265 of 2006 on 8 January 2008, appointment of a receiver on 21 November 2008, and property (seizure and sale) order dated 15 August 2008.
C.Property (seizure and sale) order in CIV 2265 of 2006 dated 25 September 2009 in the amount of $32,162.88 plus interest.
D.Costs orders in CACV 76 of 2008 for $9,000 plus interest.
E.A claim in the Magistrates Court in an amount of $57,000 against Vogt Graham Pty Ltd.
F.An entitlement to repayment of legal costs paid by Mrs Frigger to Bowen Buchbinder Vilensky, following the termination of Computer Accounting & Tax's costs agreement with that firm on the reconstitution of the Bowen Buchbinder Vilensky partnership on 1 May 2007, plus interest.
G.An entitlement to repayment of legal costs paid to another practitioner in CIV 1216 of 2009 pursuant to a review of taxation, plus costs of the taxation, plus legal costs for the refund of those costs, plus interest.
H.Legal costs of Computer Accounting & Tax's application for declaratory relief, paid in CIV 2001 of 2007.
The plaintiffs plead that on 23 January 2010, Mrs Frigger advised the liquidator about the proceedings set out above, advised him that all legal costs had already been paid, advised him that Mr and Mrs Frigger would pay further legal costs of Computer Accounting & Tax and the responding parties, and requested that the defendants allow the proceedings to continue. The plaintiffs plead that the liquidator failed to give his consent, and none of the above matters has been resolved.
They seek leave to plead, in pars 49 and 50, that the liquidator 'wilfully defaulted in his duty as trustee of the Secondary Trust alternatively as the proper officer of the second defendant' by failing to resolve the proceedings, and by failing to give written consent to Mr and Mrs Frigger to resolve those proceedings. Consequent upon and resulting from those matters, Mr and Mrs Frigger claim that they have suffered loss in the unresolved proceedings. In a proposed new item F in the prayer for relief, the plaintiffs seek an order directing the liquidator and Computer Accounting & Tax jointly and severally to pay Mr and Mrs Frigger, as beneficiaries of the secondary trust, damages for losses incurred in the secondary trust, 'which amount will be quantified by expert evidence prior to trial'.
The application for leave
There are threshold questions arising in this application. In two respects, the defendants have submitted that the plaintiffs' application and the proposed plea is an abuse of process.
The first question is whether the plaintiffs should be given leave to proceed in a claim for damages against the liquidator personally. In 2013, the plaintiffs proposed to amend the originating summons and to proceed against the liquidator on various claims, including a claim that he is liable to them in damages for wilful default in his duty to bring in the assets of an express trust.
In Frigger v Mervyn Jonathon Kitay in his Capacity as Liquidator of Computer Accounting & Tax Pty Ltd (In Liquidation) [No 2] [2013] WASC 394, in not allowing the amendment, I said:
It is not necessary, in this application, to consider whether all or some of these allegations are capable of founding a cause of action, or whether the claims are inconsistent with matters asserted by the plaintiffs in other proceedings. If Mr and Mrs Frigger have a claim against Mr Kitay personally, it is a quite separate matter from their claim that certain property is not owned beneficially by Computer Accounting & Tax and available for distribution to the creditors of the company in the liquidation. Case management considerations, in my opinion, call for the existing matters to proceed to determination. The plaintiffs' personal claims against Mr Kitay, if they are to proceed, can be the subject of a separate claim commenced by writ [35].
The defendants rely on that finding, and the fact that the plaintiffs initially appealed from it but discontinued the appeal, to submit the proposed amendment is an abuse of process.
An interlocutory decision does not necessarily preclude a further similar application in the same matter, although the ordinary rule is that even an interlocutory order of the court cannot be reopened in the absence of changed circumstances: see Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc [1981] HCA 39; (1981) 148 CLR 170, 178. The plaintiffs point to no change in circumstances, but refer to another interlocutory decision in which I refused an application for trial of a preliminary issue, at least in part on the basis that the issue of beneficial ownership of the Armadale property and the Perth property were only part of the issues to be determined: see Frigger v Mervyn Jonathon Kitay in his Capacity as Liquidator of Computer Accounting & Tax Pty Ltd (In Liquidation) [2013] WASC 229. There is, of course, a potential benefit in having related issues determined together.
The plaintiffs also put some store in the defendants' plea in par 48A of the defence that, even if the properties were or are held on trust by Computer Accounting & Tax, the company 'is entitled to exercise rights of exoneration and/or to be indemnified out of such trust' with respect to debts, liabilities and costs and expenses it has incurred. The plaintiffs submit that the 'clear accounts rule' applies. That rule was described by Gordon J in Australian Securities and Investments Commission v Letten (No 17) [2011] FCA 1420 [20] as 'essentially a mathematical exercise setting off the trustee's right to indemnity against its liability with respect to previous breaches of trust'. See also Fitzwood Pty Ltd v Unique Goal Pty Ltd (In Liq) [2002] FCAFC 285 [138].
I have considered the claim against the liquidator again, but I have not changed my mind. The plaintiffs' personal claims for damages against the liquidator, which will not affect the determination of what property (if any) of Computer Accounting & Tax is available for distribution to its creditors, should not hold up an already protracted liquidation. Any personal claim against the liquidator is not a claim regarding the trustee's liability for previous breaches of trust that would go into the equation for the purposes of the clear accounts rule. I do not believe the objects of case management would be advanced by including these claims in the present action.
The second threshold question is whether the plaintiffs should be permitted to maintain a claim that Computer Accounting & Tax held the two properties in an express trust or Quistclose trust, and the plea of the secondary trust. The defendants have, in one paragraph of their submissions, raised the fundamental issue: is any reliance by the plaintiffs on the creation of a trust, or on the Perth property and/or the Armadale property being held on trust at any date earlier than 23 September 2008, an abuse of process and subject to an estoppel. They rely on findings made by Simmonds J in Computer Accounting and Tax Pty Ltd v Professional Services of Australia Pty Ltd [2008] WASC 133 and Buss JA in the Court of Appeal in Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd [2008] WASCA 222.
Simmonds J found (at [89]), that Computer Accounting & Tax acquired the Armadale property in its own right and not in its capacity as trustee for the Frigger Super Fund. The Perth property was not in issue before him.
In the proceedings in the Court of Appeal, Buss JA was determining an application to stay a judgment (in favour of Computer Accounting & Tax) pending appeal. In issue was whether there was a real risk that, if a stay was not granted and the judgment debt was paid, Computer Accounting & Tax would be unable to repay the money awarded to it if the appeal was allowed. At [24] and [27] his Honour said:
The respondent opposes any extension of the interim stay. It relies on an affidavit of Angela Cecilia Theresa Frigger sworn 23 September 2008. Mrs Frigger is a director of the respondent. She says, relevantly, in relation to the respondent's current financial position, that the total value of the respondent's net assets is about $2,850,043. It has no liabilities except for quarterly GST liabilities.
…
In my opinion, the only proper basis, in the present case, on which the interim stay might be extended is if there was a real risk that the respondent would be unable to repay the judgment sum in the event of the appeal being allowed. I am satisfied, on the basis of the material in pars 7 and 16 to 22 of Mrs Frigger's affidavit, that there is no such risk.
In a recent further decision of the Court of Appeal, Frigger v Professional Services of Australia Pty Ltd [No 3] [2014] WASCA 69, delivered 8 April 2014, the court set out the paragraphs referred to by Buss JA (at [9]). The net assets of $2,850,043 included the Perth property, the Armadale property, and a term deposit with the ING Direct Bank that is also in issue in this action. The Court of Appeal did not decide whether Mrs Frigger's affidavit of 23 September 2008 was false. The court said [109]:
… the result of the inconsistencies in Mrs Frigger's affidavits of 23 September 2008, 22 June 2010 and 12 October 2010 was that if Mrs Frigger's affidavit of 23 September 2008 contained falsehoods, it resulted in Buss JA refusing the application for a stay. If, on the other hand, her two 2010 affidavits filed in relation to the freezing and ancillary orders application contained the falsehoods, then she was attempting to mislead Simmonds J. It is not necessary to decide which is true for the purpose of this appeal. All that is necessary is to observe that she has been guilty of bending the truth.
On the basis of the findings of Simmonds J and Buss JA, the defendants challenge any pleading that the Perth property and the Armadale property were held on trust. The challenge extends beyond the proposed amendment and this application for leave, as there is an existing pleading that those properties are held in trust.
In my opinion, it is inappropriate to deal with such fundamental questions on the basis of one paragraph in submissions in an application to be determined on the papers. There are significant issues to consider, including the fact that Mr and Mrs Frigger were not parties to the earlier proceedings. They were, however, the directors and members of Computer Accounting & Tax at the time those proceedings were conducted, and the findings referred to were made on the basis of the evidence of Mrs Frigger. I have received submissions on none of those matters.
The plaintiffs may have difficulty in establishing their claim at trial, in the light of evidence which they have previously given and the findings made regarding the Armadale property by Simmonds J. Notwithstanding those difficulties, in my opinion it is inappropriate to deal with them on an application to disallow an amendment.
Looking solely at the proposed amendment, the proposed new plea changes only the characterisation of the trust. The material facts upon which the plaintiffs rely, including the facts relied upon for the plea of a Quistclose trust, are unchanged. Whether the plaintiffs are relying on facts which fall outside the circumstances in which the courts have used the term Quistclose trust is of little consequence. The question will be whether, on a close analysis of the facts, the land was the beneficial property of Computer Accounting & Tax or whether the company held the legal title only. I will allow the amendments to pars 20, 22 and 25(a), and the corresponding amendments to items A and B in the prayer for relief.
The claims regarding the secondary trust should not, however, be permitted to proceed as pleaded. Whether there is an express trust will always have to be answered by reference to intention. In deciding whether there is an intention to create a trust, and on what terms, the court ascertains that intention by inference from the outward manifestations of intention: Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253 [53] ‑ [59], [102] ‑ [115]. The secondary trust regarding the chose in action over the Armadale land is pleaded as an express trust arising solely as a consequence of the transaction under which Computer Accounting & Tax purchased the Armadale land. I have set out above the facts on which the plaintiffs rely. The facts pleaded are not sufficient to establish an express trust over the quite distinct property, the chose in action which later arose.
The position is even more stark for the second element of the secondary trust, the trust over 'assets', being the entitlement to legal costs in various actions. The plaintiffs simply assert that, at the date of commencement of the voluntary liquidation, Computer Accounting & Tax held those assets in trust. If the plaintiffs wish to claim that those entitlements were assets that were held in trust by Computer Accounting & Tax, something more is required than the mere assertion set out in proposed par 44.
I will not allow pars 25(c) and 44. Paragraphs 45 to 50, which are dependent on the earlier pleas, also cannot stand.
Next, in pars 53 and 54, the plaintiffs propose to add to the plea that Computer Accounting & Tax ceased to be a trustee of the Frigger Super Fund from 1 July 2010, and allege that from then it held the Perth property and the Armadale property as a bare trustee. They plead that, as a consequence, the powers and rights and duties of Computer Accounting & Tax are limited to protecting the property and do not include the power of sale. With Computer Accounting & Tax now in liquidation I am not sure what the point of the plea is.
First, the defendants' primary position is that Computer Accounting & Tax owned the properties in its own right. The liquidator's powers include the power to sell the property of the company: Corporations Act s 477(2).
Second, if either property was held in trust, Computer Accounting & Tax may be entitled to be indemnified from the trust assets held by it against expenses for which it became liable in conducting the business of the trust. For the purpose of enforcing the indemnity, it possesses a charge or right of lien over those assets: Octavo Investments Pty Ltd v Knight [1979] HCA 61; (1979) 144 CLR 360, 367. To the extent Computer Accounting & Tax has a right of indemnity out of trust assets for liabilities it incurred as a trustee, its creditors (or at least the creditors of the trust) are entitled to be subrogated to that right of indemnity: Custom Credit Co Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42, 52 ‑ 53. That right is a beneficial interest in the assets of the trust which passes to the liquidator and is property of the company in the liquidation: Octavo Investments (370); Re Suco Gold Pty Ltd (In Liq) (1983) 33 SASR 99, 102.
This application, however, is not the occasion to decide question about these issues. The proposed addition to the plea in pars 53 and 54 does not, in my opinion, materially alter the issues that will have to be decided at trial. The short addition to par 59 is also a matter that will not affect the trial. I am not satisfied that these amendments may prejudice, embarrass or delay the fair trial of the action and I will allow them.
Finally, the plaintiffs' claim for repayment of the taxing fee has been amended. In par 78, it is proposed to add that Mrs Frigger paid the fee 'pursuant to the terms of the Secondary Trust'. Paragraph 81 now includes the plea that the defendants have failed to apply for new costs orders in CIV 2265 of 2006 and failed to give consent to Mr and Mrs Frigger to do so.
The proposed amendment to par 78 suffers the same problem as the balance of the plea regarding the Secondary Trust. The plaintiffs plead no facts which support the assertion of a Secondary Trust, or how this payment could be pursuant to the terms of such an express trust.
On the facts pleaded, the fee for lodging the bill of costs has not been paid to the liquidator. There is nothing to support the proposed claim that the liquidator pay that fee, or an equivalent amount, to Mrs Frigger.
As to par 81, the defendants submit that any review of the acts, omissions or decisions of the liquidator should be by separate application under s 1321 of the Corporations Act: and see Supreme Court (Corporations) (WA) Rules 2004, pt 14. If the proposed plea is intended to have the court review the acts of the liquidator in not applying for new costs orders, it should be the subject of a separate application. If that is not what is intended, the amendment is irrelevant. I agree with the defendants' submission. If the addition to par 81 is intended to seek review of an act or omission of the liquidator, it should be done by originating process under the Rules. The plaintiffs would require an extension of time for such an application. If that is not what is intended, the plea is embarrassing.
I will not allow the proposed additions to par 78 or 81.
Conclusion
The application for leave to amend the originating summons will be refused.
The application for leave to amend the statement of claim will be refused except for the amendments to pars 1, 35, 36, 40, 59 and 80 (which were not opposed) and pars 20, 22, 25(a), 53, 54 and items A and B in the prayer for relief.
The plaintiffs have been intermittently represented in the four years these proceedings began, but throughout the time I have been managing this matter they have often been self‑represented. Despite the fact that Mr and Mrs Frigger are now represented, and the court was advised that counsel had been instructed, the pleas are in the same terms as claims they made when unrepresented. I also note that on two occasions, the submissions in support of the proposed amendments assert that the solicitor for the defendants will be cross‑examined at trial. It is not uncommon, in my experience, for unrepresented litigants to believe they can cross‑examine people who are unlikely to be called as witnesses. But it is not a submission I would have expected from a practitioner. It should not be necessary to remind legal practitioners that they have obligations to the court which may not coincide with the wishes of their clients.
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