Frigger v Trenfield (No 10)

Case [2021] FCA 1500

FEDERAL COURT OF AUSTRALIA

Frigger v Trenfield (No 10) [2021] FCA 1500

File number: WAD 141 of 2019
Judgment of: JACKSON J
Date of judgment: 1 December 2021
Catchwords:

BANKRUPTCY AND INSOLVENCY - application for declarations that various assets held in regulated superannuation fund and so not divisible among creditors - s 116(2)(d)(iii)(A) of the Bankruptcy Act 1966 (Cth) - principles as to when an asset is part of a fund - beneficial or remedial legislation - possible disposition of property after sequestration orders - purported dispositions ineffective - finding that assets not held in regulated superannuation fund - application dismissed

SUPERANNUATION - meaning of 'regulated superannuation fund' in Superannuation Industry (Supervision) Act 1996 (Cth) (SIS Act) - finding that applicants' SMSF is a regulated superannuation fund - duties of trustees of self-managed superannuation funds (SMSFs) - failure to adequately distinguish SMSF assets and personal assets - purported contributions not compliant with SMSF trust deed - alleged contribution of residential property to SMSF in breach of s 65 and s 66 of the SIS Act - meaning of 'business real property' - contributions not effective and would have infringed SIS Act - failure to establish that claimed assets formed part of SMSF

TRUSTS AND TRUSTEES - creation of express trusts  - objective manifestation of intention - inferring intention - burden of proving existence of trust - lack of written evidence manifesting required intention - no reliable evidence of objective manifestation of intention before sequestration order - documents put before court deliberately altered by first applicant - mixing of trust funds and personal funds - significance of registration of 'trust receipts' on Personal Property Securities Register - whether notification of tax file number to financial institutions an objective manifestation of intention - uncertainty as to mechanism of contribution - uncertainty as to beneficiaries - no trust established over certain assets - construction of declarations of trust - lack of objective intention to transfer legal title to other trustees of SMSF - declarations effective to create separate trust, but not effective to contribute properties to SMSF

BANKRUPTCY AND INSOLVENCY - administration of bankrupt estates - duties of trustee in bankruptcy - application for order removing trustee in bankruptcy - effect of bankruptcy on separate legal proceedings - claim that trustee not 'competent' to sign consent orders in separate proceedings by virtue of s 58(3) of the Bankruptcy Act - costs liabilities are debts provable in bankruptcy - s 58(3) only applies in respect of steps in proceedings commenced by creditors - successful appeal parties secured creditors due to security for costs - no proven loss or damage - claim relating to consent orders dismissed - alleged failure to take necessary steps in administration of bankrupt estate - inhibiting bankrupts' dealings with assets - allegation of improper purpose - allegations that trustee in bankruptcy gave false evidence - scope of trustee in bankruptcy's investigatory inquiries - allegation of collusion with third party - uncooperative and belligerent bankrupts - reasonable…

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Frigger v Trenfield (No 10) [2021] FCA 1500
Case
[2021] FCA 1500
Decision Date

CaseChat Overview and Summary

The applicants, Angela and Michael Frigger, sought various declarations and orders in relation to their bankruptcy and the administration of their estates. The respondents were the Official Trustee in Bankruptcy, Kelly-Anne Trenfield, and the liquidator of the company that had been trustee of the applicants' self-managed superannuation fund (SMSF), Mervyn Kitay. The primary issue was whether certain assets, including a bank account and two residential properties, were held in the applicants' SMSF and thus not divisible among creditors. Other issues included the legality of certain orders made in the Court of Appeal and the propriety of the trustee's conduct. The court found that the applicants had not established that the disputed assets were held in the SMSF. Consequently, the application was dismissed.

The court considered several legal issues, including the principles governing when an asset is part of a fund, the meaning of "regulated superannuation fund" under the Superannuation Industry (Supervision) Act 1996, and the duties of trustees in bankruptcy. The court found that the applicants had not demonstrated that the disputed assets were held in the SMSF, either by objective manifestations of intention or compliance with legal requirements. The court also found that the trustee's conduct, while sometimes deficient, did not warrant her removal. The applicants' complaints about the costs orders in the Court of Appeal were dismissed as the trustee had not acted improperly in signing the consent orders. The court concluded that the trustee's actions, while sometimes lacking in detail, did not reflect any ethical failing or lack of competence. The application for her removal was dismissed.

Orders

Orders of the court

1. The application is dismissed.

2. On or before 15 December 2021, the first respondent must file and serve written submissions on the question of the costs of the proceeding, including any reserved costs, of no more than three pages in length (excluding header).

3. On or before 12 January 2022, the other parties must file and serve any written submissions in reply, of no more than three pages in length (excluding header).

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

Table of Contents

INTRODUCTION

[1]

Background

[12]

Description of the issues - disputed assets and the applicants' interests in the FSF

[21]

Terminology

[24]

BOQ1 and BOQ2

[29]

The CommSec Main Portfolio

[32]

The Residential Properties

[35]

Whether the FSF is a regulated superannuation fund

[40]

Description of the issues - the orders concerning costs in the Court of Appeal

[41]

Description of the issues - removal of the first respondent as the trustee in bankruptcy

[46]

THE WITNESSES

[50]

Angela Frigger

[51]

The altered St George Bank statement

[52]

The altered CommSec statement

[73]

Other matters concerning Mrs Frigger's credibility

[86]

Kelly-Anne Trenfield

[90]

FIRST GROUP OF ISSUES - ARE THE DISPUTED ASSETS PART OF THE FSF?

[96]

Principles

[96]

When a court will find that assets are held subject to a trust

[96]

When an asset is part of a fund

[120]

Questions of timing

[136]

Contextual matters

[145]

Terms of the FSF Deed

[157]

Management of the FSF

[174]

Who were trustees and members of the FSF at various times?

[178]

Is the FSF a regulated superannuation fund within the meaning of the SIS Act?

[198]

BW1

[211]

The first respondent's tracing of funds

[212]

The evidence about BW1

[221]

What can be inferred from the transactions in BW1

[295]

The applicants' tracing exercise

[304]

Other reasons advanced by the first respondent as to why BW1 is not a trust asset

[326]

Conclusions about BW1

[329]

BOQ1

[333]

Opening of BOQ1 and source of funds

[335]

Matters relied on by the applicants in connection with BOQ1

[340]

Notification of the FSF TFN

[348]

Conclusion regarding BOQ1 and BOQ2

[370]

The CommSec Main Portfolio

[371]

The parties' cases

[372]

Another necessary digression - an application to exclude evidence

[379]

The opening of the Main Portfolio

[385]

Contextual evidence about the purchase of shares in the Main Portfolio

[393]

Notation of the FSF in documents issued or kept by share registries and ASX

[407]

Notification of the FSF TFN

[416]

Conclusions regarding the Main Portfolio

[449]

The Residential Properties

[459]

The evidence as to the Residential Properties being held in the FSF

[463]

The effect of the 2014 Declarations

[482]

Breach of the SIS Act

[505]

Conclusion regarding the Residential Properties

[530]

Summary of conclusions and orders regarding the Disputed Assets

[532]

SECOND GROUP OF ISSUES - THE COURT OF APPEAL ORDERS

[537]

THIRD GROUP OF ISSUES - THE REMOVAL OF TRUSTEE IN BANKRUPTCY

[550]

Principles

[550]

The course of the administration of the bankrupt estates

[560]

The grounds for seeking the removal of the first respondent as trustee in bankruptcy

[575]

(1) Failure to obtain or review information said to be relevant to the question of the capacity in which assets are owned

[582]

(a) Failure to follow up BOQ for HSBC bank cheque (no date provided in Schedule 3)

[584]

(b) Sends follow up letter to BOQ only after receiving notice of demand for loss from applicants (17 October 2018)

[591]

(c) Failure to check BWA [Bankwest] bank statements (September 2018)

[594]

(2) Failure to take steps required in the administration

[598]

(a) Fails to prove alleged creditors (31 August 2018 until present)

[598]

(b) Fails to offset applicants['] claims against alleged creditors (31 August 2018 until present)

[613]

(3) Inhibiting the applicants' dealings with assets

[615]

(a) Freezes BW1 account (September 2019)

[615]

(b) Fails to acknowledge that BOQ1 and BOQ2 are FSF assets paras 12, 13, 15-16 (31 August 2018 until present)

[626]

(c) Freezes [Main Portfolio] on the grounds listed in April 2019 [sic] above (September 2019)

[627]

(d) Notifies CommSec that the securities in the Main Portfolio were assets divisible among the creditors of the bankrupt estates and making related claims to the Australian Financial Complaints Authority paras 26, 27, 28, 29, 30, 31, 32 (31 August 2018 until present)

[627]

(e) Informs AFSA that the applicants failed to inform Commsec that they were acting on behalf of FSF and were trustees of FSF in 1998 in circumstances where: (a) the applicants were not trustees; (b) could not be trustees (August 2019)

[627]

(f) Informs AFSA that the applicants had acted suspiciously in the administration of their estates and had hampered the respondent's administration (August 2019)

[627]

(g) Freezes $6,500,000 of assets held by the applicants in their SMSF, without proving any alleged creditors, causing the applicants loss of more than $2,500,000 in lost earnings and capital gains (31 August 2018 until present)

[644]

(h) Places a caveat on the Residential Properties paras 38, 39, 40, 43 (31 August 2018 until present)

[646]

(4) Correspondence from first respondent to third parties of which the applicants complain

[649]

(a) Send a letter to ATO attaching five documents, in an attempt to persuade the regulator the FSF should be declared an unregulated super fund (April 2019)

[649]

(b) Sends an email on ATO business portal (which is for the exclusive use of FTI Consulting business with the ATO) to ATO attaching five documents, in an attempt to persuade the regulator the FSF should be declared an unregulated super fund (October 2019)

[649]

(c) Sends an email on ATO website (which website is for the exclusive use of persons connected with SMSFs reporting unrectified contraventions) to ATO attaching five documents, in an attempt to persuade the regulator the FSF should be declared an unregulated super fund. On 15 November 2019 the ATO informed the respondent she has no legal right to obtain information about the FSF (4 November 2019)

[649]

(d) Sends emails to share registry staff, disclosing the applicants['] tax file numbers (April 2020)

[667]

(e) Sends emails to share registry staff, informing hundreds of people the applicants have attempted to 'circumvent' the [B]ankruptcy [A]ct (April 2020)

[669]

(5) Giving false evidence

[670]

(a) States on oath in this action she does not have bank statements for cheques drawn on BW[1] and paid into HSBC (June 2019)

[670]

(b) States on oath in this action she does not have copy of HSBC bank cheque paid into BOQ3 in March 2018 (June 2019)

[679]

(c) States on oath she is unable to trace the BOQ funds to assets held by the FSF when the tracing exercise had already been completed by [Official Trustee] in August 2018 (May 2020)

[680]

(6) Signature of costs orders

[687]

(a) Signs consent orders for indemnity costs and dismissal against the applicants in WAD 607, without becoming a party (September 2018)

[687]

(b) Signs consent orders in CACV45/2016 without offsetting applicants claim against Kitay; applicants lose $25,000 (October 2018). See also paras 51 and 57 of applicants' written opening submissions

[701]

(c) Signs consent orders in CACV56 and 62/2015 without: (a) Becoming a party in the action; (b) without [sic] offsetting applicants claim against Kitay; and (c) applicants lose $62,500 (October 2018). See also para 58 of applicants' written opening submissions

[701]

(7) Collusion with Mr Kitay

[702]

(a) Receives letter from Kitay['s] lawyer; accepts offer of pro bono assistance from Stephenson (October 2018)

[702]

(8) Failure to interview the applicants

[708]

Conclusion on removal of the first respondent

[739]

Remuneration and costs

[747]

CONCLUSION

[750]

Schedule 1

Schedule 2

Background

Background to the litigation

For the following reasons the application will be dismissed.Background Before describing the issues in more detail it is convenient to set out some relatively uncontentious background to the applicants, the respondents and the FSF. The applicants are husband and wife. There was little direct evidence as to their respective backgrounds. But records show that the first applicant, Mrs Frigger, is 68 years old (ACTF 1 p 51 - I will use this format to refer to the 18 affidavits of Mrs Frigger which the applicants put into evidence, which will be numbered in the order in which they were sworn and filed as set out in Schedule 1 to this judgment). Mrs Frigger is now retired, although the volume of litigation in which she and Mr Frigger have been personally involved in the last 13 or so years makes that an incomplete description of her working status. Before her retirement she worked as an accountant. She has a Bachelor of Accounting from the Western Australian Institute of Technology (now Curtin University). She qualified as a Certified Practising Accountant and is a Fellow of the National Tax and Accountants Association. Mr Frigger is 66 years old (ACTF 1 p 53). He too is retired. During his working life he was an engineer. It is clear that through investment, entrepreneurship or other means, he and Mrs Frigger had accumulated substantial assets by the time they were declared bankrupt. Much of this case concerns the capacity in which they held some of those assets. The FSF was formed on about 1 July 1997 by the execution of a deed entitled 'Superannuation Trust Deed for a Self-Managed Fund for Frigger Super Fund' (FSF Deed). Its members, that is the beneficiaries of the trust, may have changed over time, but they have always included the applicants. The first trustee of the FSF was a company called Serenity Holdings Pty Ltd, which subsequently changed its name to Computer and Accounting Tax Pty Ltd (so, while there will occasionally be a need to use the former name, I will define it as CAT). It appears that CAT was trustee of the FSF until about July 2010 (KAT 4 para 66 - I will adopt a similar naming convention for the first respondent's affidavits as I have for those of the applicants - see Schedule 1). An order for its winding up in insolvency was made on 6 May 2010 (KAT 4 para 27). Mervyn Kitay is its liquidator (KAT 4 para 26). When other persons or entities were, and were not, trustees of the FSF proved to be in dispute and has implications for the main issues in the proceeding. I will consider that question later. The applicants' bankruptcies occurred when this court made a sequestration order against their respective estates on 20 July 2018: Kitay, in the matter of Frigger (No 2) [2018] FCA 1032. It is not necessary to describe the events leading up to the bankruptcy in any detail. At one time the applicants claimed that they had an appeal or other proceedings on foot which would have resulted in the setting aside or annulment of their bankruptcies. However by force of an order made by Charlesworth J on 17 April 2020, an application for an extension of time to appeal from the sequestration order was dismissed: Frigger v Kitay (No 2) [2020] FCA 497; (2020) 143 ACSR 655. Therefore the court proceeds on the basis that the applicants' attempts to appeal from or otherwise overturn the sequestration orders have been unsuccessful. There was a fresh application to annul the bankruptcies made after judgment was reserved. I dismissed an attempt by the applicants, based on their application to annul, to have me stay judgment in this proceeding: Frigger v Trenfield (No 9) [2021] FCA 652. As at the date of this judgment, the annulment application had been neither granted nor dismissed.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

This complaint has been made out only to the extent that the applicants have established that Mrs Trenfield misunderstood r 42-30(c) of the Bankruptcy Practice Rules.Conclusion on removal of the first respondent The applicants have made out the following aspects of their complaints about the conduct of the first respondent:(1)In her letter to CommSec dated 28 August 2019, which resulted in a stop on transactions in the Main Portfolio, the first respondent asserted her position - that the securities in the Main Portfolio had vested in her - too categorically, so as not to admit of the possibility that it was subject to doubt or dispute.(2)In her letter to AFCA dated 27 September 2019 the first respondent relied specifically on the account opening form and CHESS sponsorship form for the Main Portfolio, both dating from 1998, as evidence that the Main Portfolio was not an FSF asset in 2018. In circumstances where the applicants were not trustees of the FSF at that time, the fact that they did not open the account in that capacity said little about their intentions after they became trustees. The first respondent's reliance on those forms was misplaced.(3)The same letter to AFCA said, in effect, that the applicants had asserted their claim over the securities in the Main Portfolio merely to attempt to hamper the administration of the estates, when it was clear that the applicants, however unmeritoriously, were asserting the claim for the purpose of establishing that the securities had not vested in the first respondent and were not property divisible among their creditors.(4)The first respondent's subjective purpose in sending the letter of 9 April 2019 to the ATO was, when considered objectively, not a purpose which could advance the legitimate objectives of the first respondent's administration of the bankrupt estates, because it could not have resulted in any change to the status of the FSF as a regulated superannuation fund.(5)The first respondent considered that she had an unfettered discretion as to whether to interview the applicants when, under r 42-30(c) of the Bankruptcy Practice Rules she was, at the start of the administration, required to interview them to clarify any matters in their statements of affairs, if necessary. Considered together and in the context of the administration as a whole, these shortcomings in the first respondent's conduct do not warrant her removal as trustee in bankruptcy. It is plain from nearly every page of this judgment that the administration has been a difficult and adversarial one. At the time of all three of the letters referred to, the first respondent was embroiled in complex and hard fought litigation with the applicants in which the applicants did not hesitate to attack her honesty and impugn her motives. Understood in that light, the deficiencies in the first two of the letters can be ascribed to an excess of zeal, prompted by the adversarial situation in which the first respondent found herself. The first respondent's reliance on the account opening forms is revealed to be misplaced in hindsight, after due consideration of a messy and shifting body of evidence. It has not been established that the letters were misleading. They do not reflect any ethical failing, bias or lack of independence or a failure to meet the necessary minimum standard of competence to be expected of trustees in bankruptcy.

Ratio Decidendi

Legal Principle Established

The applicants say that Mrs Frigger contributed both properties to the FSF by means of written declarations of trust made on 1 July 2014 (2014 Declarations). I will examine the terms of those declarations when I resolve this issue below. The first respondent nevertheless disputes that the Residential Properties are assets of the FSF. She says that on the proper construction of the 2014 Declarations they do not have the result that the properties were held by the applicants in their capacities as trustees of the FSF. She also submits that there would be contraventions of the SIS Act arising from any contribution of the Residential Properties to the FSF which would make them invalid. So the issue to be determined by the court is whether, having regard to those matters, the applicants have established that the Residential Properties are assets of the FSF. The applicants, once again, describe the issue in a narrower way, as whether the first respondent has a caveatable interest in the Residential Properties. That is because the first respondent lodged an absolute caveat on each property on around 11 October 2018, claiming an interest as trustee in bankruptcy (KAT 4 p 295). The interest claimed is the 'vesting in equity' in the first respondent (and Mr Allen) 'as joint and several trustees of the bankrupt estate of the registered proprietor in accordance with section 68 [sic 58] of the Bankruptcy Act 1966 (Cth)'. As has been said, the applicants seek orders for the removal of these caveats, so the existence of caveatable interests is in dispute. But it is not a complete description of the issues. In any event, the first respondent submits that even if the properties are assets of the FSF, she still has a caveatable interest in them by reason of the vesting of those properties in her under s 58(1) of the Bankruptcy Act.Whether the FSF is a regulated superannuation fund The first respondent puts the applicants to proof of the status of the FSF as a regulated superannuation fund within the meaning of the SIS Act. As has been explained, that must be resolved in the applicants' favour for their interests in the FSF to fall outside the pool of property divisible among creditors of their bankrupt estates.Description of the issues - the orders concerning costs in the Court of Appeal The Court of Appeal orders sought to be impugned were made in three appeals. The first was an appeal which the applicants brought to which Mr Kitay was the respondent. The applicants were ordered to pay $25,000 into court as security for Mr Kitay's costs of the appeal, which they did. The appeal was unsuccessful and before they became bankrupts, the applicants were ordered to pay Mr Kitay's costs of the appeal on an indemnity basis (ACTF 1 p 134). A certificate for the taxation of costs was issued on 18 September 2018 (ACTF1 p 138), after the sequestration order and a little over two weeks after the first respondent's appointment as the applicants' trustee in bankruptcy. The first respondent took no part in that taxation. The Court of Appeal taxed the costs in the sum of $85,363.90 (ACTF 1 p 138). After that, at Mr Kitay's request, Mrs Trenfield signed a minute of consent orders for the payment of the $25,000 out of court to Mr Kitay. The Court of Appeal ordered accordingly.