Frigger v Trenfield (No 3)
[2023] FCAFC 49
•24 March 2023
FEDERAL COURT OF AUSTRALIA
Frigger v Trenfield (No 3) [2023] FCAFC 49
Appeal from: Frigger v Trenfield (No 10) [2021] FCA 1500 File number: WAD 278 of 2021 Judgment of: ALLSOP CJ, ANDERSON AND FEUTRILL JJ Date of judgment: 24 March 2023 Catchwords: APPEAL AND NEW TRIAL – appeal – appeal by way of rehearing – errors of fact – advantage of primary judge – principles of appellate review.
BANKRUPTCY AND INSOLVENCY – appeal from the decision of the primary judge in Frigger v Trenfield (No 10) [2021] FCA 1500 (primary judgment) – where the appellants made numerous challenges to the findings of the primary judge with respect to certain disputed assets – whether these disputed assets were contributed to the appellants’ self-managed superannuation fund, named the Frigger Superannuation Fund (FSF) such that they were trust property – whether the primary judge erred in finding that certain assets vested in the trustee in bankruptcy pursuant to s 58 of the Bankruptcy Act 1966 (Cth) (BankruptcyAct) and were therefore divisible amongst the appellants’ creditors – whether the primary judge erred in finding that the appellants’ Bankwest Account No. 1 (BW1) was not a trust asset of the FSF – whether the primary judge erred in finding that the Bank of Queensland Account No. 1 (BOQ1) and Bank of Queensland Account No. 2 (BOQ2) vested in the first respondent in circumstances where the first respondent failed to identify which funds were deposited into BOQ1 and BOQ2 were funds that belonged to the appellants personally – whether primary judge erred in finding that the shares held by Commonwealth Securities Limited (CommSec) Share Trading Account Portfolio (Main Portfolio) in its custodial service vested in the first respondent – whether the primary judge erred by finding that the first respondent’s conduct in consenting to a payout of security of costs in the Supreme Court of Western Australia did not breach s 82 of the Bankruptcy Act – whether the primary judge erred by refusing to determine the appellants’ claims for losses caused by freezing the BOQ1 account and the Main Portfolio account which required the court to finally determine all controversies between the parties – where no error is detected in the primary judge’s reasoning.
PRACTICE AND PROCEDURE – whether the primary judge failed to provide the appellants with procedural fairness – where the appellants claim that they were denied the right to know and to be given an opportunity to respond to the case presented against them – ground of appeal rejected in its entirety.
SUPERANNUATION – relationship between superannuation and trust law – compliance with legislative and regulatory requirements – adequacy of documentation – finding of lack of merit in appeal grounds.
TRUSTS AND TRUSTEES – whether the primary judge erred in finding that assets vested in the trustee in bankruptcy, in circumstances where the validity of the sequestration orders was being challenged in matter WAD 66 of 2021 – where the appellants claimed that the bankruptcy notices were invalid and that sequestration orders were a nullity – whether the primary judge erred in finding that the appellants had not established that BW1, BOQ1, BOQ2, the CommSec share portfolio and the two residential properties were assets of the FSF – whether the primary judge erred in refusing to grant relief in relation to the trustee’s consent to payments out of court – whether the primary judge erred by failing to remove the first respondent as trustee in bankruptcy – whether the primary judge erred in refusing to determine the claims for losses caused by freezing of BOQ1 and the CommSec share portfolio – where no error is found in the primary judge’s reasoning – held: appeal dismissed.
Legislation: Bankruptcy Act 1966 (Cth) ss 19(1)(k), 30, 30(1)(b), 34A, 58, 58(1)(a), 58(3), 58(5), 77A, 82, 120, 121, 125, 129, 116(2)(a), 116(2)(d)(iii)(A), sch 2 s 90-15(3)(a)
Corporations Act 2001 (Cth) ss 173(1), 173(3A)
Corporations Regulations 2001 (Cth) reg 2C.1.03(c)
Evidence Act 1995 (Cth) ss 46, 59, 60–64, 66A–75, 69, 69(3), 81–84, 87, 135, 136, 138, 140
Federal Court of Australia Act 1976 (Cth) ss 21, 22, 24(1E), 27, 37M
Federal Court Rules 2011 (Cth) rr 1.34, 30.28, 36.57
Income Tax Assessment Act 1997 (Cth) ss 294-30, 295-85, 295-380, 295-385, 295-385(3), 295-385(3)(a), 295-385(4)(a), divs 291, 292, 294
Income Tax Assessment Regulations 1997 (Cth) reg 295-385.01(a)(i)
Insolvency Practice Rules (Bankruptcy) 2016 (Cth) r 42-30(c)
Rules of the Supreme Court 1971 (WA) ord 25 rr 1, 7
Superannuation (Excess Non-concessional Contributions Tax) Act 2007 (Cth)
Superannuation (Excess Transfer Balance Tax) Imposition Act 2016 (Cth) s 294-30
Superannuation Industry (Superannuation) Regulations 1994 (Cth) regs 1.06, 6.01(2), 7.04(4), sch 7
Superannuation Industry (Supervision) Act 1993 (Cth) ss 3, 10, 17A, 19, 35AE, 35B, 35C, 65, 66(1), 103, 103(1), 104, 104A, 105, 253, 289, 289(2)
Superannuation Industry (Supervision) Consequential Amendments Act 1993 (Cth)
Cases cited: Agricultural & Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570
Aldi FoodsPty Ltd v Moroccanoil Israel Ltd (2018) 261 FCR 301
Allen v Roughley (1955) 94 CLR 98
Allesch v Maunz (2000) 203 CLR 172
Associated Alloys Pty Limited v ACN 001 452 106 Pty Limited (in liquidation) (2000) 202 CLR 588
Astbury v Astbury [1898] 2 Ch 111
Atwill v Commissioner of Stamp Duties (NSW) (1970) 72 SR (NSW) 415
Aussiegolfa Pty Ltd (Trustee) v Commissioner of Taxation (2018) 264 FCR 587
Australian Securities and Investments Commission v Big Star Energy Ltd (No 3) (2020) 389 ALR 17
Bahr v Nicolay [No 2] (1988) 164 CLR 604
Benjamin v GB Franchising Australia Pty Ltd [2011] ACTCA 26
Blanch v British American Tobacco Australia Services Ltd (2005) 62 NSWLR 653
Bosanac v Commissioner of Taxation [2022] HCA 34
Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424
Byrnes v Kendle (2011) 243 CLR 253
Cashman v Kinnear [1973] 2 NSWLR 495
Caswell v Powell Duffryn Associated Collieries [1940] AC 152
CDJ v VAJ (1998) 197 CLR 172
CKT20 v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs [2022] FCAFC
Coal and Allied OperationsPty Limited v Australian Industrial Relations Commission (2000) 203 CLR 194
Cock v Smith (1909) 9 CLR 773
Computer Accounting and Tax Pty Ltd v Professional Services of Australia Pty Ltd [2008] WASC 133
Coshott v Prentice (2014) 221 FCR 450
Coulton v Holcombe (1986) 162 CLR 1
Cowan v Scargill [1895] Ch 270
Dovuro Pty Ltd v Wilkins (2003) 215 CLR 317
Duncan (as trustee for the bankrupt Estate of Garret) v National Australia Bank Ltd (2006) 95 SASR 208
Duralla Pty Ltd v Plant (1984) 2 FCR 342
Dwight v Federal Commissioner of Taxation (1992) 37 FCR 178
Eslea Holdings Ltd v Butts (1986) 6 NSWLR 175
Evans v European Bank Ltd (2004) 61 NSWLR 75
Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251
Finch v Telstra (2010) 242 CLR 254
Foskett v McKeown [2001] 1 AC 102
Fox v Percy (2003) 214 CLR 118
Frigger v Trenfield [2019] FCA 1746
Frigger v Trenfield (No 2) [2019] FCA 2009
Frigger v Trenfield (No 3) [2020] FCA 150
Frigger v Trenfield (No 4) [2020] FCA 797
Frigger v Trenfield (No 5) [2020] FCA 827
Frigger v Trenfield (No 6) [2020] FCA 934
Frigger v Trenfield (No 7) [2020] FCA 1740
Frigger v Trenfield (No 9) [2021] FCA 652
Frigger v Trenfield (No 10) [2021] FCA 1500
Frigger v Trenfield (No 11) [2022] FCA 326
Frigger v Trenfield (No 12) [2022] FCA 900
Frigger v Trenfield (No 13) [2022] FCA 906
Frigger v Trenfield (Application for Stay Pending Appeal) [2021] FCA 1605
Goldus Pty Ltd (Subject to a Deed of Company Arrangement) v Cummins (No 4) [2021] FCA 1095
Hawkins v Powells Tillery Steam Coal Co Ltd [1911] 1 KB 988
Heperu Pty Ltd v Belle (2009) 76 NSWLR 230
Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271
Holloway v McFeeters(1956) 94 CLR 470
Hung v Warner, in the matter of Bellpac Pty Ltd (Receivers and Managers Appointed) (In Liquidation) [2013] FCAFC 48
In the Estate of William Just (deceased) (No 1) (1973) 7 SASR
In the matter of Tresdar Pty Ltd [2019] NSWSC 179
Jackson v Sterling Industries Ltd (1986) 12 FCR 267
Johnston v Brightstars Holding Company Pty Ltd [2014] NSWCA 150
Jones v Sutherland Shire Council [1979] 2 NSWLR 206 Kauter v Hilton (1953) 90 CLR 86
Kennon v Spry (2008) 238 CLR 366
Korda v Australian Executor Trustees (SA) Ltd (2015) 255 CLR 62
Lee v Lee (2019) 266 CLR 129
Lee v Sankey (1872) LR 15 Eq 204
Legal Practice Board v Computer Accounting and Tax Pty Ltd [2007] WASC 184
Legal Services Board v Gillespie-Jones (2013) 249 CLR 493
Lewis v Nobbs (1878) 8 Ch D 591
Liwszyc v Commissioner of Taxation (2014) 218 FCR 334
Lock v Westpac Banking Corporation (1991) 25 NSWLR 593
Luke v South Kensington Hotel Co (1879) LR 11 Ch D 121
Markopoulos v Marco [2020] WASC 79
McLennan v Taylor (1967) 85 WN (PT1) (NSW) 525
Meeseena v Carr (1870) LR 9 Eq 260
Metwally v University of Wollongong (1985) 60 ALR 68
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104
New South Wales v Kable (2013) 252 CLR 118
O’Brien v Komesaroff (1982) 150 CLR 310
Parbery v QNI Metals Pty Ltd [2020] QSC 143
Pelham v Pelham& Braybrook [1955] SASR 53
Pilmer v HIH Casualty & General Insurance Ltd (No 2) (2004) 90 SASR 465
Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd [2010] WASC 38
Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd (No 2) [2010] WASC 113
Professional Services of Australia Pty Ltd (administrator appointed) v Computer Accounting and Tax Pty Ltd (No 3) [2010] WASC 93
PT Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515
Re Armstrong (1960) VR 202
Re Australian Elizabethan Theatre Trust; Lord v Commonwealth Bank of Australia (1991) 30 FCR 491
Re Billington [1949] St R 102
Re Courtenay House Capital Trading Group Pty Ltd (in liq) [2018] NSWSC 404
Re Kayford Ltd (in Liq) [1975] 1 All ER 604
Robinson Helicopter Inc v McDermott (2016) 331 ALR 550
Rosenbaum v Baidarman (No 2) [2021] NSWSC 574
State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in liq) (1999) 160 ALR 588
Technomin Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd (No 4) [2014] WASC 405
Toksoz v Westpac Banking Corporation (2012) 289 ALR 577
Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107
Trustee of the Property of Cummins (a bankrupt) v Cummins (2006) 227 CLR 278
Trustees of the Kean Memorial Trust Fund v Attorney-General (SA) (2003) 86 SASR 449
Twinsectra Ltd v Yardley [2002] 2 AC 164
Van Rassel v Kroon (1953) 87 CLR 298
Vitali v Stachnik [2001] NSWSC 303
Warren v Coombes(1979) 142 CLR 531
Wilkinson v Clerical Administrative and Related Employees Superannuation Pty Ltd (1998) 152 ALR 332
Young v Murphy [1996] 1 VR 279
Division: General Division Registry: Western Australia National Practice Area: Commercial and Corporations Sub-area: General and Personal Insolvency Number of paragraphs: 637 Date of last submissions: 29 August 2022 (Appellants)
6 September 2022 (Respondent)Date of hearing: 10–12 May 2022, 22–24 August 2022 Counsel for the Appellants: The Appellants appeared in person Counsel for the Respondent: S D Majteles and T J Langdon Solicitor for the Respondent: Carles Solicitors ORDERS
WAD 278 of 2021 BETWEEN: ANGELA CECILIA THERESA FRIGGER
First Appellant
HARTMUT HUBERT JOSEF FRIGGER
Second Appellant
AND: KELLY-ANNE LAVINA TRENFIELD
Respondent
ORDER MADE BY:
ALLSOP CJ, ANDERSON AND FEUTRILL JJ
DATE OF ORDER:
24 MARCH 2023
THE COURT ORDERS THAT:
1.The appeal be dismissed.
2.The appellants pay the respondent’s costs of the appeal, including any reserved costs, to be agreed, or failing agreement taxed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
THE COURT:
Introduction
[1]
Appellants’ background
[4]
Procedural history
[9]
First instance
[9]
The appellants’ submissions at first instance
[13]
Classes of documents in support of the appellants’ claims
[21]
Discovery orders
[25]
Judgments
[34]
Interlocutory judgments
[35]
Liability judgment
[78]
Costs judgments
[80]
The witnesses
[83]
Conclusions as to evidence
[90]
Disputed assets – BOQ1 and BOQ2
[98]
Disputed asset – Main Portfolio
[102]
Disputed asset – Residential Properties
[105]
Issues concerning Court of Appeal orders
[116]
Issues concerning the removal of trustee in bankruptcy
[119]
The appeal
[130]
The principles of appellate review
[133]
The order in which we deal with the grounds of appeal
[148]
Application to receive further evidence in the appeal
[149]
Ground 9: alleged failure to provide procedural fairness
[172]
Grounds of appeal 2 to 5: the disputed assets
[204]
Relevant aspects of the superannuation system, including the SIS Act
[205]
Regulated superannuation funds and self-managed superannuation funds
[211]
Superannuation law and the concept of “vesting” relied upon by the appellants
[215]
Phases and types of superannuation benefits
[221]
Caps on contributions
[227]
The transfer balance cap
[229]
Conclusions regarding the appellants’ submissions on “vesting”
[232]
The relationship between superannuation law and trust law
[241]
When will an asset be treated as “contributed” to a regulated superannuation fund?
[246]
Intention to contribute an asset
[247]
Nature of the asset sought to be contributed
[258]
Effecting the contribution of property to a superannuation fund
[260]
Background to and issues in the ‘dispute’
[268]
Onus of proof
[305]
Errors of fact involving credit
[316]
Errors of fact involving inference
[329]
The primary judge’s approach to intention to create trusts
[335]
Record keeping obligations of SMSF trustees
[345]
Duties and powers of SMSF trustees
[349]
Tracing
[366]
Evidence of FSF financial records
[377]
Documents containing hearsay
[387]
The documents upon which the appellants rely
[395]
Audit reports and balance sheets
[396]
Taxation returns
[423]
2016 tax return
[437]
PPSR Registrations
[464]
Tax File Number notifications
[467]
BW1 account reconciliation
[476]
Declaration of trust
[496]
Asset valuations
[499]
Account ‘nicknames’
[502]
Ground 2: BW1
[505]
Grounds 3 and 4: BOQ1 and BOQ2 and the Main Portfolio
[523]
Overview
[523]
Audit reports, balance sheets and tax returns
[538]
Other financial records
[545]
TFN notifications
[548]
PPSR Registrations
[556]
Account nicknames
[557]
Respondent’s failure to adduce evidence
[558]
Other matters
[560]
Compliance with superannuation and taxation legislation
[565]
Ground 5: the Residential Properties
[568]
Overview
[568]
Contextual evidence
[574]
Proper construction of declarations of trust
[578]
Ground 1: the status of the bankruptcy
[590]
Ground 6: the payout of the security for costs funds
[598]
Ground 7: the removal of the trustee in bankruptcy
[622]
Ground 8: the refusal to assess the loss of opportunity to trade
[630]
Orders
[637]
SCHEDULE 1
[]
Introduction
The appellants (Mrs Angela Cecilia Theresa Frigger and Mr Hartmut Hubert Josef Frigger) (hereafter, appellants or Mrs and Mr Frigger) appeal from the decision of the primary judge in Frigger v Trenfield (No 10) [2021] FCA 1500, delivered on 1 December 2021 (Liability Judgment) dismissing the appellants’ application for, amongst other things, declarations that certain bank accounts and residential properties were and are held in the Frigger Superannuation Fund (FSF) on trust for beneficiaries of the FSF and that pursuant to s 116(2)(d)(iii)(A) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) are not assets divisible amongst Mr and Mrs Frigger’s creditors as undischarged bankrupts.
The appellants, by their re-amended notice of appeal dated 15 June 2022, raise nine grounds of appeal. Those grounds may be briefly summarised as follows:
(1)Ground 1 – Status of Bankruptcy – The primary judge erred in deciding that certain assets vested in the respondent pursuant to s 58 of the Bankruptcy Act, in circumstances where the primary judge was on notice that, in proceeding WAD 66 of 2021, the appellants claimed the bankruptcy notices were invalid and that sequestration orders were a nullity.
(2)Ground 2 – Bankwest Account No. 1 – The primary judge erred in finding that the Bankwest Account No. 1 (BW1) was not a trust asset of the FSF.
(3)Ground 3 – Bank of Queensland Account No. 1 and Bank of Queensland Account No. 2 – The primary judge erred in deciding that the Bank of Queensland Account No. 1 (BOQ1) and Bank of Queensland Account No. 2 (BOQ2) vested in the respondent in circumstances where the respondent failed to identify which funds deposited into BOQ1 and BOQ2 were funds that belonged to the appellants personally.
(4)Ground 4 – Main Portfolio – The primary judge erred in finding that the shares held by Commonwealth Securities Limited (CommSec) Share Trading Account Portfolio No. 270815 (Main Portfolio) in its custodial service vested in the respondent.
(5)Ground 5 – Residential Properties – The primary judge erred by deciding that the respondent had an absolute caveatable interest in real properties (the addresses of which are unnecessary to specify for the purposes of this judgment) in Union Street, Bayswater and Cale Street, Como, Western Australia (Residential Properties) on the ground that in specie contributions of those properties by Mrs Frigger to the FSF on 1 July 2014 constituted contraventions of s 66 of the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act).
(6)Ground 6 – Payout of security of costs – The primary judge erred by deciding that the respondent’s conduct in consenting to a payout of security of costs in the Supreme Court of Western Australia proceedings: CACV45/2016, CACV62/2014 and CACV56/2014 did not breach s 82 of the Bankruptcy Act.
(7)Ground 7 – Respondent’s removal as Trustee in Bankruptcy – The primary judge erred in finding that the respondent’s conduct had not caused the appellants, whether personally or as Frigger Superannuation Fund members, losses occasioned by the lost opportunity to earn dividends and capital gains on share trading on the Main Portfolio and on the BOQ1 fund as a consequence of the Respondent freezing assets of more than $7.5 million.
(8)Ground 8 – Refusal to assess loss of opportunity to trade claim – The primary judge erred when he refused to determine the appellants’ claims for losses caused by freezing the BOQ1 account and the Main Portfolio account which required the court to completely and finally determine all controversies between the parties.
(9)Ground 9 – Failure to provide procedural fairness – The primary judge failed to provide the appellants with procedural fairness in case management orders made on 29 November 2019 and during the trial, by denying the appellants the right to know and to be given an opportunity to respond to the case presented against them.
The proceeding before the primary judge had a long and complex procedural history which is relevant to understanding the case which was put by the appellants on appeal. For this reason, we now set out the background of the appellants, the procedural history and relevant chronology which provides the framework for the determination of the grounds of appeal.
Appellants’ background
The appellants are husband and wife. The appellants are intelligent people and have each held professional roles throughout their working life.
Mrs Frigger, is 71 years old and is now retired. Before her retirement she worked as an accountant. Mrs Frigger holds a Bachelor of Accounting from the Western Australian Institute of Technology (now Curtin University). After graduating, Mrs Frigger went on to qualify as a Certified Practising Accountant and a Registered Tax Agent. Mrs Frigger is also a Fellow of the National Tax and Accountants Association. Mrs Frigger managed all accounting records for the FSF and prepared the FSF’s financial statements throughout the years.
Mr Frigger is 69 years old. He too is retired. During his working years, Mr Frigger was gainfully employed as a process and commissioning engineer. Mr Frigger also acted as a consultant to companies in this capacity. At one point in time, Mr Frigger also managed the family accounting and investment business, and used his own experience in investments in property, shares, managed funds and bonds to help others start a self-managed investment portfolio (see details surrounding the background of the appellants in: Computer Accounting and Tax Pty Ltd v Professional Services of Australia Pty Ltd [2008] WASC 133 and Legal Practice Board v Computer Accounting and Tax Pty Ltd [2007] WASC 184).
It is clear that through investment, entrepreneurship or other means, Mrs and Mr Frigger had accumulated substantial assets by the time they were declared bankrupt.
Mrs and Mr Frigger have had, and had prior to the hearing before the primary judge, the opportunity to become familiar with court practice and procedure and important underlying notions such as the onus of proof resting on the party seeking to establish grounds for relief. Our observations of them in the various days of the appeal confirm this.
Procedural history
First instance
This appeal arises from an application brought by the first appellant, Mrs Frigger, against Mrs Trenfield seeking relief with respect to BOQ1 and BOQ2, the shares held in the Main Portfolio and the Residential Properties (collectively, the disputed assets), consent orders and costs assessments in the Court of Appeal of Western Australia, and the first respondent’s conduct of the administration of the bankrupt estate.
The first appellant filed an originating application on 12 March 2019 as against Mrs Trenfield. By orders dated 14 June 2019 and 31 July 2019, the second appellant, Mr Frigger, was joined as the second applicant and Paul Allen was joined as the second respondent. Mr Allen was subsequently removed as the second respondent by order dated 19 March 2020. For the reasons given in Frigger v Trenfield (No 6) [2020] FCA 934 (Frigger (No 6)), H & A Frigger Pty Ltd (or HAF) as the former trustee of FSF was joined as second respondent. Neither Mr Allen nor HAF is a party to these proceedings.
The learned primary judge helpfully summarised in the Liability Judgment at [7] the relief the appellants sought:
(a)declarations that BOQ1, BOQ2 and the Residential Properties are held in the FSF on trust for the beneficiaries of that fund, and so pursuant to s 116(2)(d)(iii)(A) of the Bankruptcy Act are not assets divisible among creditors;
(b)compensation for losses the applicants say they have incurred as a result of the first respondent having placed holds or freezes on BOQ1;
(c)an order requiring the first respondent to remove caveats she has placed on the Residential Properties and to pay any losses caused by the caveats;
(d)declarations that the various consent orders and costs assessments in the Court of Appeal are ‘incompetent’ pursuant to s 58(3)(b) of the Bankruptcy Act;
(e)compensation for losses resulting from the Court of Appeal costs orders and orders effectively requiring the first respondent to apply to that court to have the orders set aside;
(f)orders disentitling the first respondent to remuneration and costs in relation to the above matters;
(g)orders requiring the first respondent to write to CommSec and the ASX to remove a trading suspension on the Main Portfolio which appears to have been placed following a previous letter from the first respondent to CommSec, and requiring her to say that the securities in that account have not vested in her pursuant to s 58 of the Bankruptcy Act;
(h)compensation for losses said to have been caused by the suspension of trading in the Main Portfolio;
(i)an order removing the first respondent as the trustee in bankruptcy of the applicants’ estates; and
(j)costs.
The appellants sought the orders under s 30 of the Bankruptcy Act and also s 90-15(3) of Schedule 2 to the Bankruptcy Act. Some of the orders were also sought in the alternative under s 21 of the Federal Court of Australia Act 1976 (Cth) (FCA Act).
The appellants’ submissions at first instance
By orders of the primary judge on each of 14 June 2019, 20 September 2019, 14 January 2020 and 1 July 2020, the appellants were granted leave to amend the originating application. The effect of these amendments was to join the second appellant as a party to those proceedings and to amend the relief sought by the appellants among other amendments discussed further below.
As noted by the primary judge, distilling the contentions on which the appellants sought the above relief was a complicated task. The appellants made wide-ranging contentions which came in the form of numerous affidavits and submissions. The difficulty in distilling the appellants’ contentions was further compounded by what the primary judge described as “the changing nature of the positions [the appellants] took in the case over time” (Liability Judgment at [10]). It is not necessary nor possible to canvass all the appellants’ submissions made at trial. However, for the purposes of this appeal, we will synthesise the submissions articulated by the appellants that the primary judge considered to be sufficiently cogent to warrant an express mention.
First, as to BOQ1 and BOQ2, the appellants submitted that the money in those accounts was originally earned by the FSF as rental income from two commercial properties (the addresses of which are unnecessary to specify for the purposes of this judgment): one at Edward Street, Perth and the second at Campbell Street, Hobart, which is leased to Officeworks. To establish that the BOQ1 and BOQ2 funds are FSF assets, the appellants’ relied upon several indicia. These included that the Hobart property was purchased in their names as trustees of the FSF, that there was a declaration of trust over the Edward Street property and that a registrar’s caveat was registered on the title. Invoices to the tenants of these properties were said to have been issued by the appellants as trustees of the FSF, with the tenants being directed to pay rent and outgoings to the BW1 account.
Secondly, as to the Main Portfolio, the appellants submitted that, although the trading account was opened at a time when Mr and Mrs Frigger were not trustees of the FSF, the surrounding circumstances indicated that the shares then held in the Main Portfolio were purchased in their capacity as trustees of the FSF.
Thirdly, as to the Residential Properties, the appellants submitted that those properties were FSF assets. Although each certificate of title of the properties lists Mrs Frigger as the registered owner, the appellants rely upon declarations of trust over the properties made on 1 July 2014 by Mrs Frigger (2014 Declarations) in support of their contention. More specifically, they contend that the properties were contributed to the FSF by Mrs Frigger as in specie transfer by way of these declarations. As a result, the appellants submitted that the first respondent does not have a caveatable interest in the Residential Properties.
Fourthly, as to the Court of Appeal orders, the primary judge noted that the basis for the appellants’ claims was difficult to establish from their written submissions (Liability Judgment at [43]). Nonetheless, the appellants’ oral opening distilled two complaints. The first complaint was that the costs liabilities were debts provable in the bankruptcy, and, rather than calling for proofs and adjudicating on them, the first respondent signed consent orders which led to the payment out of the amounts that had been paid in as security for costs. The second complaint was that Mrs Trenfield should not have consented to that payment as the cost liabilities were more than offset by the substantial counterclaims the appellants had against Mr Mervyn Kitay and Clavey Legal.
Although the appellants sought declarations that the Court of Appeal orders were “incompetent”, the appellants in oral submissions made clear that they were not seeking for this court to somehow reverse or override the order.
Lastly, as to the first respondent’s conduct of the administration of the bankrupt estates, the appellants made a number of allegations in support for the declaration they sought that Mrs Trenfield be removed as trustee in bankruptcy. These were listed in schedule 4 to their written submissions dated 29 June 2020 and summarised by the primary judge in the Liability Judgment at [46]–[48].
Classes of documents in support of the appellants’ claims
In support of their submissions, the appellants relied upon numerous classes of documents that they put before the primary judge. This included financial statements, annual returns, audit reports, Personal Property Security Register (PPSR) registrations, tax file number (TFN) notifications, holder identification statements, bank statements and reconciliations among other things.
However, as noted by the primary judge, the orders the appellants sought were “on the basis of evidence with many gaps; gaps that they seek to cross with leaps of broad assertion”: Frigger v Trenfield [2019] FCA 1746 at [67] (Frigger (No 1)).
Indeed, one major issue that arose at trial was whether the financial statements and annual returns relied upon were reliable. The real possibility that such documents were prepared after the sequestration orders, and so were unreliable, was a real issue.
As highlighted by the respondent, the appellants had not put before the primary judge documents evidencing their personal tax returns they asserted were relevant, financial statements, annual returns and audit reports prior to 2015, and CommSec statements prior to 2016, among other things. In other words, in the mass of material placed before the Court at first instance, and on appeal (including in additional tenders on the appeal) no coherent, reliable body or framework of documents was placed before the Court from which any reliable inferences could be drawn (in particular without Mrs Frigger’s evidence as to context) as to what assets and what activity were those of Mr and Mrs Frigger on their personal account and of the FSF. A starting point for such a coherent analysis could have been the kinds of documents referred to in the first sentence of this paragraph.
Discovery orders
With respect to Frigger v Trenfield (No 2) [2019] FCA 2009 (Frigger (No 2)), the respondents brought an interlocutory application seeking specific discovery of documents said to be relevant to the source of the funds in BOQ1 and BOQ2, and the capacity in which the Residential Properties and securities in the Main Portfolio are owned. By way of context, the appellants also brought an interlocutory application for summary judgment in respect of the declarations that BOQ1 and BOQ2 are FSF assets.
Mrs Trenfield’s submissions in support of her application for discovery were relevantly put in four sworn affidavits. Across the four affidavits, Mrs Trenfield made various statements of purpose as to why she was seeking discovery. In essence, Mrs Trenfield said that she did not know the true nature of the beneficial ownership of the disputed assets based on the available evidence in order to firmly respond to the appellants’ contentions, and that a full and proper investigation is required. Mrs Trenfield provided details of the investigations she had conducted in performing her duties as the trustee in bankruptcy.
Ultimately, the primary judge found that the respondents were not pursuing discovery for any purpose collateral to the just resolution of the issues in the proceedings, and thus did not amount to an abuse of process.
Similarly, in Frigger v Trenfield (No 6) [2020] FCA 934 (Frigger (No 6)), Mrs Trenfield also brought an interlocutory application for discovery of certain miscellaneous documents pertaining to (i) an alleged additional CommSec portfolio, (ii) notices from a share registry (Computershare), and (iii) certain bank statements. She submitted that these documents were relevant to the issues of the beneficial ownership of the shares in the Main Portfolio, the appellants’ claim for losses regarding the freezing of the Main Portfolio, whether Mrs Trenfield made any claim to hold a power of attorney on some 40 shareholdings held in the Main Portfolio, and the source of trust funds traceable into other accounts.
Relevantly, the discovery orders made with respect to the St George and Citibank bank statements directly relate to the discovery orders made in Frigger (No 2). With respect to the St George statement, the primary judge clarified that it was discoverable under the previous orders (Frigger (No 6) at [64]). Similarly, the primary judge explained in his reasons why the appellants’ assertion that further pages of a relevant Citibank statement were not included in the previous discovery order was incorrect (Frigger (No 6) at [65]). The specific discovery orders were made for the purpose of addressing “any doubt”, noting that the Citibank account “falls within that order”.
Consequentially, two sets of discovery orders were made each on 29 November 2019 (Frigger (No 2)) and 25 June 2020 (Frigger (No 6)).
The 29 November 2019 orders required the appellants to provide the following classes of documents:
(1)all documents, including but not limited to bank statements, deposit slips, invoices, cheques, cheque butts, withdrawal forms, transfer instructions and receipts evidencing the source of the funds held in [BOQ1 and BOQ2] …
(2)all documents, including but not limited to all bank statements, application forms, agreements, accounts and correspondence evidencing the person or entities which have or had a legal or beneficial interest in [BOQ1 and BOQ2];
(3)all documents … evidencing the purchase, sale, transfer or conveyance of, and the identity of the legal and beneficial owner of [various properties, including the Residential Properties].
The 25 June 2020 orders further required the appellants to provide the following additional classes of documents:
(a)All documents that evidence the holding, purchase, sale, transfer, subscription or other conveyance of, and the identity of the legal and beneficial owner of, the securities identified in the Commonwealth Securities Ltd portfolio that is referred to in the affidavit of Angela Frigger sworn 16 September 2019 at annexure AF6, page 14 …
(b)All bank statements for the St George bank account identified in the affidavit of Kelly-Anne Trenfield sworn 1 June 2020 at annexure KAT-9, pages 42 to 43, whether in the name of Jessica Frigger or any other person (excluding pages 1 and 2 of the statement of account for the period 26 February 2017 to 7 July 2017).
(c)All bank statements for the Citibank account identified in the affidavit of Kelly-Anne Trenfield sworn 1 June 2020 at annexure KAT-8, page 44, in the name of “Angela Frigger & Hartmut Frigger ATF Frigger Super Fund” (excluding page 3 of 3 for the statement for 1 November 2018 to 30 November 2018).
The primary judge refused to make orders with respect to a second category of documents relating to the Computershare notices.
Judgments
Over the course of the matter, the primary judge delivered 13 judgments. It is convenient to address these in short compass, in turn, below.
Interlocutory judgments
Frigger (No 1), concerned the appellants’ interlocutory application seeking to compel Mrs Trenfield to retract a letter that she sent to CommSec on 28 August 2019. The appellants also sought orders requiring Mrs Trenfield to send a letter to ASX Settlement Pty Ltd with the effect of changing the holder status of the Clearing House Electronic Sub-register System holder identification number associated with the CommSec portfolio so that shares can be traded on the Australian Securities Exchange, and that Mrs Trenfield make good any loss to the fund. Each of these proposed orders was refused.
The primary judge made a number of observations with respect to the evidence relied upon in support of the appellants’ interlocutory application which are worth noting. Importantly, to succeed at trial, the primary judge identified that Mr and Mrs Frigger needed to:
(1)point to an objectively manifested intention on their part (or the part of any other relevant entity) that the shares were to be held on trust for another person, which may be inferred from all the circumstances (Frigger (No 1) at [44]); and
(2)to establish that, at the commencement of their bankruptcy on 20 July 2018, the shares in the portfolio either did not belong to or were not vested in them, or if they were, they were held on trust for another person (Frigger (No 1) at [17]).
This was particularly pertinent in circumstances where one would expect that more specific evidence of the requisite intention would be easy to adduce (Frigger (No 1) at [45]).
As will be discussed in due course (see [247]–[257] below) the importance of objectively manifested intention is the need to prove acts undertaken that are sufficient to permit the conclusion that assets were or became part of a trust fund (the FSF). The acts to be proven, are acts or facts in the world that are done or exist that carry with them the inference that the appellants’ intention which was effected by the acts was to have the assets form part of the FSF.
In analysing the evidence, the primary judge noted that there were “uncertainties” (Frigger (No 1) at [43]), including that the evidence was at a “high level of generality” (Frigger (No 1) at [44]) and “at best equivocal” (Frigger (No 1) at [45]) or was “little more than a broad assertion” (Frigger (No 1) at [44]). Similar comments in relation to the evidence were repeated in later published reasons, which will be discussed below. No direct evidence was adduced of any share registry having noted the beneficial ownership of shares in their records (Frigger (No 1) at [45]). A further example was the FSF balance sheet, which was prepared by Mrs Frigger at an undisclosed time for an undisclosed purpose (Frigger (No 1) at [46]). Neither was any evidence adduced revealing exactly when nor how the appellants’ children, Jessica and Michael Frigger, were appointed as trustees. Similarly, there was no evidence adduced to support the contention that the nature of the security interest that was registered over the Main Portfolio in the name of an entity called “Frigger Super Fund” was in ‘the beneficial ownership’ of the FSF, nor why the registrations were lodged (Frigger (No 1) at [49]). The appellants also failed to explain the fact that none of the shares appeared to have been acquired in the name of HAF. The primary judge noted that Mrs Frigger’s evidence may be supported by holder identification statements or other share registry records; however, these were not produced (Frigger (No 1) at [50]). Finally, there was no evidence explaining why the shares that were held at the time when the appellants were replaced as trustees had not been transferred into the name of the new trustee, despite that being a requirement of the FSF Trust Deed cl 167 (Frigger (No 1) at [51]). Although there was a serious question to be tried, it was this kind of evidentiary uncertainty that ultimately persuaded the primary judge to refuse the orders sought by the appellants: Frigger (No 1) at [52].
The second judgment, Frigger (No 2), has been relevantly summarised above save with respect to the appellants’ interlocutory application for summary judgment, which was ultimately refused. At this stage it is also worth noting comments made by the primary judge with respect to the evidence adduced in support of the interlocutory applications for summary judgment and discovery. As his Honour had said in Frigger (No 1), to succeed at trial, the appellants would need to establish that, at the commencement of their bankruptcy, the BOQ1 and BOQ2 accounts either did not belong to or were not vested in them, or if they were, they were held on trust for another person (Frigger (No 2) at [15]). The appellants alleged that this was established on the evidence as a result of transactions by which the trustee of the trust exchanged other trust assets for BOQ1 and BOQ2. However, as pointed out by the primary judge, the appellants would need evidence establishing that at the point when the funds first became subject to the trust, there was an objectively manifested intention to that effect (Frigger (No 2) at [17]). Critically, his Honour noted that Mr and Mrs Frigger’s application for summary judgment hinged upon the extent to which the evidence they adduced could establish that BOQ1 and BOQ2 were FSF assets at the time of commencement of the bankruptcy (Frigger (No 2) at [22]). His Honour drew particular attention to the fact that BOQ1 was in Mr Frigger’s name and BOQ2 was in Mrs Frigger’s name (Frigger (No 2) at [15]).
Regarding the FSF itself, the primary judge noted that the evidence adduced was, again, “at a high level of generality”, stating that “documentation of [certain] contributions or any specific evidence to establish that [these contributions] were transferred to the Friggers in their capacity as trustee of the FSF are absent from the affidavits” (Frigger (No 2) at [26]). The primary judge also made the following observations:
(1)The deed of amendment of the FSF as to when the appellants ceased to be trustees made no mention of 21 July 2018, being the date Mrs Frigger claimed this change of trustee occurred, and was dated 1 July 2018, the date to which Mrs Frigger claimed the removal was backdated (Frigger (No 2) at [25]).
(2)The notification of change of trustee to the Australian Business Register filed on 21 July 2018 removing the appellants as individual trustees and replacing them with HAF stated that these changes were to take effect from 1 July 2018 did not necessarily support a finding that the appellants were trustees of the fund at the time that BOQ1 was opened (Frigger (No 2) at [25]).
(3)Although being potentially probative (albeit without the benefit of cross-examination and the context of a full hearing), his Honour could make no finding about when (or whether) the change of trustees occurred based on a minute of meeting of the FSF trustees dated 21 July 2018, recording resolutions that the four individual trustees be removed and replaced with HAF, as relied upon by the appellants (Frigger (No 2) at [25]).
Regarding BOQ1, there was also no evidence as to when the account was given the FSF designation (Frigger (No 2) at [32]). The most that was provided was a number of internet banking printouts that merely possessed the label ‘Frigger Super Fund’ beneath a heading ‘Account Name’, but did not disclose who gave it this denotation, or when or how this came about: Frigger (No 2) at [32]. As there was no further evidence in support, the primary judge placed no weight on this evidence: Frigger (No 2) at [32]. Although the appellants adduced an email dated 13 July 2018 from Mr Frigger providing Bank of Queensland with a TFN for the account, which appeared to be the same for FSF, the primary judge did not find this, by itself to be compelling: Frigger (No 2) at [33].
Regarding BOQ2, a bank statement for this account was in evidence indicating that BOQ1 was opened with a deposit of $50 withdrawn from BOQ2 on 2 July 2018. It made no reference to the FSF. There was also no documentation verifying a claim by Mrs Frigger in her affidavit sworn 25 July 2019 that Bank of Queensland advised her that it was not possible to transfer the funds from BOQ3 to (seemingly) BOQ1 (Frigger (No 2) at [37]).
Regarding BOQ3, two bank statements for this account were produced but also made no reference to the FSF. Similarly to BOQ1, the internet banking printouts produced also denoted the account name as “Frigger Super Fund”, but no further evidence was produced in support (Frigger (No 2) at [39]). A balance sheet of the FSF “As of June 2018” included a line item that appeared to correspond with the total balance of BOQ3 as at 30 June 2018. However, the document was headed “H & A Frigger atf Frigger Super Fund”, which the primary judge noted appeared to suggest that the balance sheet was generated some time after 1 July 2018, and no evidence was produced as to when it was prepared or by whom (Frigger (No 2) at [41]). The primary judge therefore found that this document had limited use and that it did not establish that the respondents did not have a reasonable prospect of defending against the allegation that the funds in BOQ1 were held on trust on the terms of the FSF: Frigger (No 2) at [41].
Bank statements were also produced in evidence by Mr and Mrs Frigger which seemed to indicate that the source of the funds in BOQ2 came from two HSBC accounts. However, none of those bank statements mentioned the FSF and the only documentary evidence in support of the appellants’ submission that these accounts were held in their respective names as “trustee of the Frigger Super Fund” was a single document. This document was an invoice that was issued on 1 October 2017 for rent from the Hobart property, headed “Angela and Hartmut Frigger atf Frigger Super Fund”, directing payment to one of the HSBC accounts: Frigger (No 2) at [44]. Although relevant, the primary judge found that it alone was hardly conclusive: Frigger (No 2) at [44].
Regarding BW1, which was asserted to be (at least in part) the “start of the trail” of transfer of funds, that account also made no reference to the FSF. The one invoice in evidence which directed payment to this account which was issued by HAF as trustee for the FSF is dated 5 February 2019. The primary judge found that this invoice provided little support to Mr and Mrs Frigger’s case as it post-dated the sequestration order: Frigger (No 2) at [46]. The only other two pieces of evidence in support of the BW1 account being an asset of the FSF was a statement to that effect in Mrs Frigger’s first affidavit and a second statement in another affidavit of Mrs Frigger. The first statement was found by the primary judge to be a statement made “at a high level of generality”: Frigger (No 2) at [47]. The second statement was to the effect that the appellants had provided evidence and explanations to the Official Trustee, after which it determined the account was superannuation funds. However, the primary judge did not find there to be any documentary evidence provided as to what Mrs Frigger alleged to be the Official Trustee’s conclusion: Frigger (No 2) at [48]. The primary judge also found that an audit report which was annexed to Mrs Frigger’s first affidavit of 6 March 2019 did not contain any financial statements nor did it establish any other information pertaining to what the assets of the trust were at the time that affidavit was made, let alone at the time of the bankruptcy in 2018: Frigger (No 2) at [49].
The primary judge found that the evidence detailed above was sufficient to establish a prima facie case that the ultimate source of funds in BOQ1 and BOQ2 was the BW1 account. The primary judge also concluded that this finding was not the same as a finding that there was a prima facie case that the respondents had no reasonable prospect of defending the claim that the funds are held on trust on the terms of the FSF Trust Deed, to allow the summary judgment application: Frigger (No 2) at [62].
Specifically, his Honour provided two main reasons for this. First, as highlighted above, the evidence consisted of little more than “assertions”, without any documentary evidence or persuasive testimony in support of their application: Frigger (No 2) at [63]. Second, despite some evidence which was given little to no weight, there was an “almost complete absence of any objective manifestation of an intention that BOQ1 is held on the terms of the FSF”: Frigger (No 2) at [64]. More pointedly, the primary judge noted how the relevant “BOQ” accounts as well as BW1, were opened in Mrs Frigger’s name only, and this pointed “objectively in the opposite direction” of manifesting an intention that these accounts be part of the FSF: Frigger (No 2) at [65]. The cumulative effect of this was that the evidence failed to establish a pattern of the trustees of the FSF moving funds from one account in their names (as trustees) to another in their names (as trustees): Frigger (No 2) at [66]. The documentary evidence fell short of proving that the funds were subject to the terms of the FSF Trust Deed.
Although the appellants did not seek summary judgment concerning the declarations about the ownership of the Residential Properties, the evidence was relevant to the respondents’ application for discovery. The primary judge made the following observations about the relevant evidence:
(1)The declarations of trust over the relevant properties noted that the powers of the trustee over the land are contained in the FSF Trust Deed, despite Mrs Frigger being named as the trustee (Frigger (No 2) at [72]).
(2)The lease for the Como property notes that the owner is Mrs Frigger as trustee for the FSF, but is both undated and unsigned; therefore, little weight could be placed on it (Frigger (No 2) at [73]).
(3)There is no documentary evidence of the alleged ‘in specie contributions’ of the Residential Properties (Frigger (No 2) at [75]).
(4)The evidence was not clear as to whether the land at the property (the address of which is unnecessary to specify for the purposes of this judgment) at South Western Highway, Armadale was sold at 11 February 2016 or any other time (Frigger (No 2) at [76]).
(5)The invoices for rent and other charges for the Residential Properties and the Hobart property issued in the name of HAF as trustee for the FSF were dated from February and March 2019, well after the bankruptcy (Frigger (No 2) at [78]).
Regarding the Residential Properties, the primary judge observed that such evidence was probative, though the documents that post-dated the sequestration orders must be treated with caution (Frigger (No 2) at [78]–[79]).
The primary judge found that there were “real doubts” about the source of the funds in the BW1 account, and there was a lack of any documentary evidence of any objective manifestation of intention that the funds in any of the bank accounts were held on trust on the terms of the FSF (Frigger (No 2) at [81]).
The third judgment, Frigger v Trenfield (No 3) [2020] FCA 150, involved the appellants’ application for leave to amend the originating application to add a claim for non-economic damages for defamatory imputations. This arose in relation to a letter published by Mrs Trenfield to the Australian Financial Complaints Authority on 27 September 2019. The application was relevantly dismissed.
The fourth judgment, Frigger v Trenfield (No 4) [2020] FCA 797, mainly concerned the date at which the calculation of the alleged losses with respect to the Main Portfolio ought to be fixed. The primary judge ordered that the trial be confined to the issues in the then third amended originating application which did not claim losses (other than certain minor losses).
The fifth judgment, Frigger v Trenfield (No 5) [2020] FCA 827 (Frigger (No 5)), involved the appellants’ interlocutory application seeking orders that Mrs Trenfield is guilty of three counts of contempt of court, and an order for punishment for the alleged contempt. The appellants alleged that Mrs Trenfield had breached an implied undertaking to the Court not to use certain documents obtained in the course of those proceedings other than for the purposes of those proceedings. The appellants also sought summary judgment with respect to final relief for Mrs Trenfield’s removal as trustee in bankruptcy, and a separate order that the administration of the bankrupt estates be returned to the Official Trustee. The interlocutory application was ultimately dismissed. His Honour held that Mrs Frigger was not compelled to file an affidavit annexing the two documents that were the subject of the charges either by reason of a rule of court or a specific order of the court or otherwise: Frigger (No 5) at [10], [14]–[18]. After examining the divergent lines of authority concerning whether production must be compulsory for the implied undertaking to arise, the primary judge ultimately found that it was not necessary to decide this issue as Mrs Frigger’s affidavit of 6 March 2019 was sworn and filed voluntarily: Frigger (No 5) at [59]–[60]. Ultimately, the primary judge found that no relevant element of compulsion was present, no implied undertaking attached and Mrs Trenfield was not guilty of the three charges of contempt of court: Frigger (No 5) at [64]–[65].
In the sixth judgment, Frigger (No 6), the primary judge considered a number of interlocutory applications which were brought by each of the parties.
The appellants filed an application for leave to amend their originating application in terms of a minute of fourth amended application.
The first respondent filed applications for the joinder of certain parties as additional respondents, leave to file a cross-claim out of time and for discovery. The appellants’ application was partly refused.
Three changes were proposed:
(a)to make clear that the appellants were suing in their capacity as trustees of the FSF;
(b)to amend certain declarations sought so that assets that are the subject of the declarations are no longer described as being held by the appellants as “bare” trustees; and
(c)to seek additional orders requiring the first respondent to remove a “stop” said to have been placed on a bank account which appears to be associated with a share portfolio that is in issue in the proceeding, and to seek “pre-judgment statutory interest” on the money in that account: Frigger (No 6) at [4].
The first change was permitted without objection from the first respondent: Frigger (No 6) at [5]. The second change was also permitted, as the primary judge did not consider that the removal of the word ‘bare’ would affect the substance of the issue raised by the declaration sought: Frigger (No 6) at [7]. The third change was ultimately refused, as the primary judge found that a powerful factor militating against granting leave was that the first respondent offered to undertake that if the shares in the Main Portfolio are found to be FSF assets, she would write to the bank asking that the freeze be removed, in return for the application for leave to amend be withdrawn: Frigger (No 6) at [14]. This represented the best possible outcome for resolving a relatively minor issue without involving the court: Frigger (No 6) at [14]–[15]. As the appellants rejected the offer “for no good reason”, leave was refused: Frigger (No 6) at [17].
The first respondent’s joinder application was refused save with respect to granting leave to amend the originating application to identify that the appellants were suing in their capacities as trustees as well as their capacities as regulated debtors, and joining HAF as a party. The first respondent sought to join Mr and Mrs Frigger to the proceeding as respondents in their capacity as trustees of the FSF as well as HAF and the appellants’ adult children: Frigger (No 6) at [18]. As the primary judge granted leave to amend the originating application to make clear that the appellants were suing in their capacity as trustees as well as in their capacity as regulated debtors, the first part of the joinder application was refused: Frigger (No 6) at [31]. The joinder application with respect to HAF was granted as the company was an immediate former trustee of the FSF at relevant times and the appellants were its directors and shareholders: Frigger (No 6) at [38]. With respect to the appellants’ adult children, the primary judge did not consider it appropriate to grant leave. This was because the orders sought by the appellants were held not to affect them in any prejudicial way: Frigger (No 6) at [39]. Moreover, if an order in favour of the appellants was made, it would not be detrimental to the appellants’ adult children, rather they would benefit from it: Frigger (No 6) at [40]. Lastly, among other reasons, the primary judge found that the possibilities that the appellants’ adult children are still trustees, or will be able to commence their own proceedings to re-agitate the issues before that proceeding, were not more than theoretical: Frigger (No 6) at [46].
The remainder of the first respondent’s interlocutory applications dealt with in Frigger (No 6) met with mixed success. With respect to the application for leave to cross-claim, although the primary judge found that there was a close connection between the subject matters of the proceeding and of the proposed cross-claim (Frigger (No 6) at [50]), his Honour also found that prejudice was likely to arise Frigger (No 6) at [51]. With respect to the application for particular discovery, orders were subsequently made, as discussed at [25]–[33] above. Regarding the first category of documents sought, the primary judge found that evidence produced by Mrs Frigger gave rise to a possibility that another CommSec portfolio was used by the trustee of the FSF to trade shares held in that capacity. The primary judge considered that such evidence could therefore shed light on whether the shares in the Main Portfolio had also been held in that capacity Frigger (No 6) at [58]. Regarding the second category of documents, the primary judge ultimately held that notices from Computershare were wholly uninformative and would not likely have any relevance to the proceeding Frigger (No 6) at [62]. Finally, regarding the third category of documents, the primary judge noted that:
(1)the name under which the St George account was registered may have been relevant in the proceeding, given that it was claimed to be the source of trust funds traceable into other accounts. Specifically, although the St George account had already been the subject of the discovery orders of 29 November 2019, that occurred on the assumption that it was in Mrs Frigger’s name, whereas evidence had been produced showing that it was in Jessica Frigger’s name: Frigger (No 6) at [63]–[64]; and
(2)the appellants incorrectly resisted discovery of the other pages of a Citibank statement from November 2018. Although the Citibank account was not listed specifically in the discovery orders of 29 November 2019, the relevant order had not been limited to the specified accounts, it actually extended to “accounts held in the name of any or all of the applicants and the trustees (including the former trustees)”: Frigger (No 6) at [65]. The appellants merely made a “bald assertion” that the Citibank accounts were not relevant in resisting discovery: Frigger (No 6) at [65].
The seventh judgment, Frigger v Trenfield (No 7) [2020] FCA 1740 (Frigger (No 7)), involved the appellants’ application to re-open the trial hearing. It was filed after the trial had ended and judgment was reserved. It also included a list of orders sought by the appellants, in the event that leave to re-open be granted. The purpose of the re-opening application was to give the appellants the opportunity to object to parts of, and exhibits to, certain affidavits that had already been received into evidence, as well as to seek to adduce further evidence in support of those objections and additional affidavits sworn by Mr and Mrs Frigger respectively. Specifically, the appellants submitted that:
(1)a large part of the affidavit evidence of the first respondent that had been admitted should be excluded as it had been obtained improperly or unlawfully: Frigger (No 7) at [2]; and
(2)the first respondent should be ordered to write to various share registries and retract the letters that she sent to them on 24 April 2020 and 29 September 2020, on the alleged basis that they included falsehoods: Frigger (No 7) at [3].
The appellants submitted that this arose in the context where they misapprehended the above claimed facts and law, and only became aware of this when served with the first respondent’s affidavit of 16 September 2020. As such, they were unable to object to the first respondent’s evidence during the trial or prior to its commencement. It is further worth noting that, in response to the appellants’ allegation that the letter of 3 September 2020 sent by the first respondent to Just SMSF Audits was false, the primary judge informed the appellants of the provisions of s 138 of the Evidence Act 1995 (Cth) (Evidence Act).
The application was ultimately dismissed on the basis that the appellants failed to demonstrate any good reason to re-open the trial given that the parties had already closed their cases, both Mrs Frigger and Mrs Trenfield were cross-examined on the basis of the evidence that had been admitted up to that point, and judgment had been reserved: Frigger (No 7) at [26]. With respect to the claimed inability to object to the first respondent’s evidence, the primary judge noted that the letters the appellants referred to were all in evidence in applications well before the trial started, and that the 3 September 2020 letter had also been obtained during the course of the trial: Frigger (No 7) at [27]. Further, it was noted that the appellants had always been “alive to their ability to allege impropriety against Mrs Trenfield on [the basis that Mrs Trenfield’s letter of 28 August 2019 to CommSec was an ‘abuse of process’]”: Frigger (No 7) at [29]. While they might not have known the precise terms of s 138 of the Evidence Act, they had sufficient knowledge to claim that the evidence should be excluded because it was obtained by Mrs Trenfield abusing her power as was actually claimed by Mrs Frigger in her affidavit filed on 18 September 2020: Frigger (No 7) at [30].
Even though the primary judge acknowledged that the four established classes of reasons for re-opening a matter are not closed, the circumstances were such that they did not justify such an outcome: there was a “lack of a satisfactory explanation for why the objection was not raised during the trial”: Frigger (No 7) at [32]. Neither did the appellants present clear evidence of serious illegality or impropriety by another party to justify re-opening the matter: Frigger (No 7) at [34], [41]. The appellants also failed to explain why they did not raise an objection to the evidence they sought to exclude on the basis that it was adduced solely to impugn Mrs Frigger’s credibility: Frigger (No 7) at [45]. Furthermore, were the objections upheld, a large volume of documentary evidence and a significant quantity of oral evidence would have to have been excluded. This would have posed significant implications and illustrated “why objections of that kind need to be made and determined during the trial rather than after it”: Frigger (No 7) at [47].
The appellants also sought leave to re-open for the purpose of producing further evidence, namely, Mr Frigger’s (at that time) new affidavit of 27 October 2020. The primary judge acknowledged that the affidavit, which attached an email dated 28 September 2020 from one of the share registries, answered questions concerning a potentially significant issue in the proceeding: Frigger (No 7) at [50]. Even so, the attached email was merely a “general statement … unlikely to assist the court” concerning the dates on which an unspecified TFN was entered on the respective share registry’s system across different holdings: Frigger (No 7) at [50]. Mr Frigger’s affidavit concerned matters that were clearly in issue at the trial, which could have been adduced then. Similarly, the primary judge therefore held that there was no good reason to allow the appellants to adduce that evidence after the trial had finished: Frigger (No 7) at [51]. The same reason was given for rejecting leave to re-open for the purpose of putting into evidence an affidavit which Mrs Frigger swore on 17 September 2020: Frigger (No 7) at [52].
It is worthwhile addressing, at this point, two other applications for leave to re-open that had been submitted during the course of the trial on both 7 and 9 September 2020 and 21 September 2020 respectively. Each related to the issue of the reliability of certain financial statements and annual returns, as noted above.
As to the first application on 7 and 9 September 2020, the primary judge gave the appellants leave to re-open their case to tender certain documents. The application was not opposed and the documents were admitted into evidence. The appellants made several submissions in support of their re-opening application, including:
(1)to establish that FSF continued to be a regulated and complying fund after 30 June 2018 (Transcript 2020-09-07 T.723; but see T.729);
(2)that “the BOQ account specifically only came into existence after the end of the financial year 30 June 2018 … [a]nd so, it doesn’t appear in any financial statement which is in evidence in the court” (Transcript 2020-09-07 T.723);
(3)“to prove that the Bank of Queensland bank account was held in the [FSF]” (Transcript 2020-09-07 T.724);
(4)to negate the first respondent’s allegation the appellants advised various share registries of the FSF’s TFN only in September 2019 (Transcript 2020-09-07 T.724); and that
(5)there was not effectively a 50 per cent withholding tax on the dividends (Transcript 2020-09-07 T.725).
The reason for granting leave was that his Honour was satisfied that the documents were arguably relevant for the purpose of establishing that BOQ1 and BOQ2 were FSF assets and that the TFN for the FSF had been notified to share registries before September 2019: Liability Judgment at [260].
As to the second application on 21 September 2020, the primary judge refused to grant leave. The appellants sought leave after counsel for the first respondent had delivered his oral closing submissions and on the same day on which the appellants made their closing submissions. The basis of the application were the following purposes:
(1)to admit into evidence an account transaction list for the FSF which Mrs Frigger had obtained from the Australian Taxation Office (ATO) Business Portal;
(2)to admit into evidence a copy of the 2017 annual return for the FSF which, Mrs Frigger said, she had posted to the ATO as a paper return; and
(3)to recall Mrs Frigger as a witness to respond to what she described as “numerous false allegations of substantial wrongdoing against the [appellants], which allegations effectively amounted to tax fraud”.
Mrs Frigger’s affidavit dated 17 September 2020 in support of this application listed some 40 “false allegations”. The primary judge noted that this list appeared to have been based on Mrs Frigger’s contemporaneous notes and presumed for the purposes of the application that it was accurate: Liability Judgment at [263].
The affidavit provided more succinctly the “essential basis” of Mrs Frigger’s application to be recalled as a witness pursuant to s 46 of the Evidence Act:
6.At no time during cross-examination was it put to me that:
6.1No financial statements had been prepared by me for FSF prior to sequestration date;
6.2All financial statements were prepared after sequestration date;
6.3All annual returns were audited and lodged after sequestration date;
6.4My husband and I decided after sequestration date what assets we would allege are trust assets and what assets are not;
6.5The valuations of Hobart and Perth in June 2017 were falsely understated.
It is worth noting that many of these grounds were substantially repeated in Ground 9(g) of the appellants’ amended notice of appeal.
As submitted and accepted by the primary judge, these documents appeared to be relevant to the question of when the financial statements and annual returns were prepared, an important issue in the proceeding: Liability Judgment at [265].
Notwithstanding this, the application was nevertheless dismissed. The critical reason for this was that the appellants had been well and truly on notice, even spanning back before the trial, of the importance of such documents and that this would be in issue and that the appellants had ample opportunity to adduce evidence before they closed their case: Liability Judgment at [266]. As summarised above, these issues and the importance of their and the FSF’s financial records were raised as early as the first interlocutory judgment in Frigger (No 1). These issues and the lack of complete documentation were further raised and addressed comprehensively in the first respondent’s written opening submissions filed 12 July 2020, 15 days before the commencement of the trial, and noted that the evidence was either “generally unreliable”, “should be given no weight”, “they were prepared by Mrs Frigger with no explanation as to when they were prepared”, “they were likely prepared after the sequestration order”, and “were full of inconsistencies and accurate information such that they cannot be relied on as a source”: Liability Judgment at [268]. Mrs Frigger was also extensively cross-examined on this issue during the trial: Liability Judgment at [269]. Similar to the reasons given in Frigger (No 7), the evidence the appellants sought to adduce at this stage could have been produced during the trial: Liability Judgment at [271]. The primary judge relevantly said that “[the appellants] were seeking to plug a gap in their case which the first respondent highlighted in closing submissions”: Liability Judgment at [274]. Furthermore, the primary judge held that there was no other good reason why the interests of justice required the case to be re-opened: Liability Judgment at [271]. As such, leave to recall Mrs Frigger under s 46 of the Evidence Act was refused.
The eighth judgment, Frigger v Trenfield (No 8) [2021] FCA 569, concerned a subsidiary interlocutory application brought by Mrs Trenfield responding to the appellants’ stay application (which is summarised immediately below) to set aside a notice to produce that had been served by the appellants under r 30.28 of the Federal Court Rules 2011 (Cth) (Rules). Orders were made pursuant to r 1.34 of the Rules dispensing with any requirement for the first respondent to comply with this notice to produce.
The ninth judgment, Frigger v Trenfield (No 9) [2021] FCA 652, involved the appellants’ application for a stay of the delivery of judgment in the proceeding, which at the time of the application had been reserved. The basis for the stay application was that the appellants had commenced a separate proceeding in the court for the annulment of their bankruptcies. The application was ultimately dismissed.
Liability judgment
The final judgment, (the Liability Judgment), comprehensively addressed the substantive issues in the proceeding below. It numbers some 751 paragraphs across 226 pages. For the sake of brevity, only those elements pertinent to the procedural history of the proceeding below and this appeal will be summarised.
The trial judge helpfully grouped the relevant issues as follows (which will also be dealt with in turn here):
(1)whether the disputed assets (i.e. the BOQ1 and BOQ2 accounts, the Main Portfolio, and the Residential Properties) are property divisible amongst the creditors of the bankrupt estates;
(2)issues concerning orders relating to costs that were made by the Court of Appeal of Western Australia; and
(3)whether the first respondent should be removed as trustee of the appellants’ bankrupt estates.
Costs judgments
The eleventh judgment, Frigger v Trenfield (No 11) [2022] FCA 326 (Frigger (No 11)), concerned orders sought by the first respondent relating to the costs of the proceeding, following the delivery of the Liability Judgment. From a high level, the appellants were ordered to pay the first respondent’s costs of the proceedings on a party-party basis.
Relatedly, the twelfth judgment, Frigger v Trenfield (No 12) [2022] FCA 900 (Frigger (No 12)), determined the quantum of costs that are to be payable as ordered in Frigger (No 11).
Finally, the thirteenth judgment, Frigger v Trenfield (No 13) [2022] FCA 906, involved an interlocutory application that was brought by the appellants to suspend the judgments in Frigger (No 11) and Frigger (No 12). The primary judge dismissed the application.
The witnesses
For the sake of completeness, it is worth repeating the primary judge’s observations as to the reliability of the evidence provided by the two witnesses: Mrs Frigger and Mrs Trenfield. Mr Frigger did not give evidence.
With respect to Mrs Frigger, the primary judge concluded that she had knowingly altered documents which she put into evidence, in order to create a false impression that the documents supported the appellants’ case: Liability Judgement at [51]. His Honour relied upon the following evidentiary issues to reach this conclusion.
First, the St George Bank statement annexed to Mrs Frigger’s affidavit sworn 6 March 2019 included the notation “Frigger Super Fund” beneath the account name “Mrs A Frigger”. Yet, an identical bank statement bearing the same account number and identical transactions annexed to Mrs Frigger’s affidavit sworn 20 April 2020 included the notation “Jessica Ann Frigger” beneath the account name “Miss J Frigger”. An email exchange between Mrs Trenfield’s staff and Westpac Banking Corporation annexed to Mrs Trenfield’s affidavit sworn 22 May 2020 noted that the account was “not held under Hartmut Hubert Josef Frigger and Angela Cecilia Therese Frigger”: Liability Judgment at [58]. In cross-examination, Mrs Frigger explained that the account was not in her name and that she included the ‘Frigger Super Fund’ notation herself: Liability Judgment at [60]–[62]. The primary judge found Mrs Frigger’s explanations implausible and were provided “in an attempt to dispel the obvious inference … that Mrs Frigger altered the document … in an attempt to persuade the court that it was an asset of the FSF”: Liability Judgment at [65].
Secondly, similar to the St George Bank statement, the ‘Financial Year Summary’ from CommSec showing the value of the Main Portfolio as at 30 June 2018 annexed to Mrs Frigger’s affidavit sworn 6 March 2019, also included a similar notation to the FSF. Yet, the same document obtained by Mrs Trenfield and annexed to her affidavits sworn 11 September 2019 and 22 May 2020 did not bear this notation. This inconsistency was further expounded by other CommSec financial year summaries from different accounts which did include references to the FSF. The primary judge found Mrs Frigger’s explanations to be similarly implausible for a similar purpose: Liability Judgment at [83]–[84].
Thirdly, other matters concerning Mrs Frigger’s credibility were also canvassed: Liability Judgment at [86]–[87]. Most particularly, the primary judge found her demeanour in the witness box to be unconvincing: Liability Judgment at [88]. The totality of the above evidence led to the primary judge concluding that Mrs Frigger was not a truthful witness: Liability Judgment at [89].
Conversely, the primary judge concluded that, unlike Mrs Frigger whose credibility was central to the proceeding being the party with the onus of proof and most of the contentious evidence, Mrs Trenfield presented as an experienced professional in the witness box, although could have been more forthcoming in some circumstances: Liability Judgment at [92]–[95].
The primary judge’s general or overarching findings of credit against Mrs Frigger and specific findings of credit against her affecting inferences drawn or not drawn, together with places where the primary judge declined to make an adverse finding against Mrs Frigger were as follows:
Finding Pinpoint in Liability Judgment General / overarching findings as to credit Mrs Frigger [51], [86]–[89] Specific findings as to credit: inference drawn / refused to be drawn or evidence not accepted related to adverse credit Mrs Frigger’s alteration of the St George Bank statement [52]–[72] Mrs Frigger’s alteration of the CommSec statement [73]–[85], [383], [385] Mrs Frigger’s reliance on adverse tax consequences in support of inference that the funds in BOQ1 were part of the FSF [156] Mrs Frigger’s evidence about the dates when various trustees of the FSF were appointed [181]–[182], [195], [196(3)] Authenticity of the 2014 Minutes [183], [468]–[472] False submission of Mrs Frigger as to no notice of contravention being received from FSF auditors [235], [238] Mrs Frigger’s evidence as to the value of the assets in the FSF [247] The handwritten 2018 annual return [248]–[251] The applicants’ tracing exercise (First Reconciliation) [307]–[310], [313], [316] Mrs Frigger’s explanation of the moneys in the Main Portfolio [372], [373(3)] Mrs Frigger’s evidence about the ability to inform CommSec whether shares are held beneficially or not [386]–[388], [403]–[404] Mrs Frigger’s evidence regarding the use of the Main Portfolio [394]–[397] Mrs Frigger’s evidence regarding date of notification of TFN to share registries [427], [439] Mrs Frigger’s evidence about income earned from the Residential Properties [480]–[481] Mrs Frigger’s evidence that she and Mr Frigger have conducted a business of investment in real property since 1985 [521] Instances where the primary judge declined to make an adverse credit finding Whether particular BW1 account statement was deliberately altered by Mrs Frigger [223] Whether Citibank statements were deliberately altered by Mrs Frigger [289] Authenticity of the 2014 Declarations [466]–[467] Conclusions as to evidence
As a general observation, the primary judge acknowledged that it can be inherently difficult to prove the requisite manifestation of intention: Liability Judgment at [155]. Notwithstanding, the appellants’ case was made more onerous given the lack of “any verbal statements of any kind, written or spoken, formal or informal, expressing an intention that the disputed assets be part of the FSF at relevant times” (original emphasis). The most that was provided were the 2014 Declarations and some internet banking statements, which have already been alluded to above, and assertions by Mrs Frigger.
After making relevant findings as to who was a trustee of the FSF and when, the primary judge went on to consider the more important threshold issue of whether the FSF was a regulated superannuation fund within the meaning of the SIS Act. Ultimately, it was held that the FSF was a regulated superannuation fund at all material times, and that it could only cease to be in the event of fundamental defects in its constitution such that it no longer complied with the requirements of s 19 of the SIS Act: Liability Judgment at [198]–[209], [654].
The next critical issue for consideration was whether the disputed assets were part of the FSF, as a regulated superannuation fund, such as to exempt the appellants under the Bankruptcy Act s 116(2)(d)(iii)(A).
However, as a preliminary issue, and despite the appellants seeking no declaration that the BW1 account was an asset of the FSF, the primary judge noted that the ultimate issue turned upon whether BW1 was an asset of the FSF: Liability Judgment at [211]. This was because the appellants claimed it to be the main operating account of the FSF and that the securities in the Main Portfolio were purchased using funds in BW1. Further, the first respondent accepted that the funds in BOQ1 could be traced back to BW1.
As was highlighted previously, evidentiary uncertainties proved to be a significant barrier, including with respect to BW1. In the primary judge’s own words, the evidence was “simply a mess … [and] a morass in which no sure footing can be found”: Liability Judgment at [220]. For example, a balance sheet for the FSF as at 30 June 2019, signed by the appellants and dated 19 June 2020, was likely to be self-serving given that it was prepared by Mrs Frigger after the commencement of the litigation: Liability Judgment at [226]. The unqualified audit report of the 2019 balance sheet also gave the Court little comfort as to the balance sheet’s correctness: Liability Judgment at [229]. Similar findings were made with respect to other balance sheets (see, e.g., Liability Judgment at [232]–[241]). Not a single balance sheet in evidence was found to have been reliably dated as having been produced before the sequestration date, as such the primary judge found that the balance sheets were not reliable evidence: Liability Judgment at [243]. Similar concerns over the reliability of the annual returns produced were also expressed (Liability Judgment at [244]–[251]), as these returns were either likely produced after the sequestration date or had large variations in figures or inconsistencies between versions. The appellants also produced documents concerning the registration of BW1 on the PPSR: Liability Judgment at [277]. However, explanations concerning a number of issues with the registration document were unsatisfactory (Liability Judgment at [278]–[280]) or the document itself was adverse to the appellants’ case: Liability Judgment at [281]. The registration was held simply not to convey the necessary manifestation of intention that BW1 was to be held by the appellants subject to the trusts established by the FSF Trust Deed.
By sub-ground (a), the appellants submit that the first respondent should not have signed consent orders for the payment out of moneys paid into court as security for costs without calling for and adjudicating on proofs of debt pursuant to s 83 of the Bankruptcy Act.
By sub-ground (b), the appellants further submit that the first respondent failed to set off claims against:
(1)Mervyn Jonathan Kitay in the amount of $1,000,000 claimed in Federal Court of Australia proceeding WAD 674 of 2015 against the $25,000 paid out consequent on the first respondent’s consent in Supreme Court of Western Australia proceeding CACV45/2015;
(2)Law Mutual (WA) in the amount of $2,000,000 against $62,500 paid out to Law Mutual (WA) consequent on the first respondent’s consent in Supreme Court of Western Australia proceeding CACV62/2014 and CACV56/2014.
By sub-ground (c), the appellants contend that the primary judge erred by conflating a secured creditor’s claim with an asset secured for the secured creditor’s benefit.
By sub-ground (d), the appellants contend that the primary judge erred by finding that the costs judgments in the Western Australia Supreme Court proceedings were not proceedings relating to provable debts.
By sub-ground (e), the appellants contend that the primary judge erred by finding at [544] of the Liability Judgment that the appellants did not suffer loss caused by the first respondent’s conduct in not applying set-offs to the alleged costs judgments, contrary to s 86 of the Bankruptcy Act.
By sub-ground (f), the appellants submit that the first respondent’s duty pursuant to s 86 of the Bankruptcy Act is not abrogated by a secured creditor’s claim that has not been admitted by the first respondent.
Ground 6 and the sub-grounds (a) to (f) must be rejected for the reasons that follow.
Upon a court’s making of an order for security for costs, a defendant, although having no proprietary interest in the amount constituting the security, nonetheless has a right in the nature of an equitable charge allowing recourse to the fund to satisfy the terms of the judgment after a costs order has been made and the costs are assessed or agreed: G E Dal Pont, The Law of Costs (5th ed, LexisNexis, 2021); Duncan (as trustee for the bankrupt Estate of Garret) v National Australia Bank Ltd [2006] SASC 239; 95 SASR 208 at [41]; Technomin Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd (No 4) [2014] WASC 405 (Technomin) at [23]–[24]; Benjamin v GB Franchising Australia Pty Ltd [2011] ACTCA 26 at [18] per Refshauge J.
If the defendant is successful at trial, the defendant is in effect a secured creditor. In Jackson v Sterling Industries Ltd (1986) 12 FCR 267 (Jackson v Sterling Industries Ltd), the Full Court of the Federal Court (Bowen CJ, Woodward and Jackson JJ) considered whether orders directing a respondent to “provide security in the sum of $3,000,000” ought to have been made. Justice Jackson (though in dissent on the primary issue of the Court’s power to order a Mareva injunction) considered the nature and effect of such an order in view of a detailed examination of the relevant authorities, including in the specific context of bankruptcy. His Honour said (at 295–297):
In such cases, however, where security is given or money is paid into court, either voluntarily (as an offer in satisfaction of a claim, with or without a denial of liability) or involuntarily (as a compliance with a condition of leave to defend) the effect of the provision of security is to make the party in whose favour it is given a secured creditor if the party ordered to provide the security later becomes bankrupt or, if a company goes into liquidation.
Thus in Ex parte Banner; Re Keyworth (1874) LR 9 Ch App 379 money had been paid into court as condition of leave to defend and to “abide the event.” It was held that the defendant’s trustee in bankruptcy was not entitled to the money on the bankruptcy but that the money belonged to the party who was successful in the litigation. In Re Gordon; Ex parte Navalchand [1897] 2 QB 516 is a leading case in the field and Vaughan Williams J there held that where money had been paid into court with a denial of liability the plaintiff became a secured creditor in the subsequent bankruptcy of the defendant, saying at pp 519–20:
As to the money paid into court with a denial of liability, I take it that the plaintiff, though out of time to accept in satisfaction the sum paid in, would, apart from bankruptcy, be entitled to get an order to withdraw his reply, and to give notice accepting the money paid in in satisfaction. I see nothing in the bankruptcy proceedings to prevent his so doing. But if he does this, he of course would not be entitled to prove for any balance of the debt. If, on the other hand, the plaintiff does not elect to take the money out of court in satisfaction, I think that his proper course is to tender a proof in bankruptcy for the full amount of his claim…I am clearly of the opinion that if the proof is admitted, or to the extent to which it is admitted, the plaintiff is a secured creditor by reason of the payment into court. The money paid into court, even with a plea denying liability, has become subject to the plaintiff’s claim by the act of the defendant, who thereby agrees that the sum paid in shall remain in court subject to the conditions of Order XXII, r 6. It is not a question of execution at all, but of the effect of a conventional charge. It is in effect a conditional payment to the plaintiff. The money is to be the money of the plaintiff if he succeeds in establishing his title to it: Re Moojen …
Those decisions were followed by Wright J in Re Ford; Ex parte the Trustee [1900] 2 QB 211; see, too, Re a Debtor; Ex parte Petitioning Creditors (1932) 101 LJ Ch 372; Ex parte Bouchard; Re Moojen (1879) 12 Ch D 26 and the decision of the Court of Appeal in Dessau v Rowley [1916] WN 238.
In Australia Harvey CJ in Eq followed Re Gordon, supra in Re Lapstone Inn Ltd (1931) WN (NSW) 237 and in Victoria the correctness of the decision to which I have referred was sought to be put in issue in Commercial Banking Co of Sydney Ltd v Colonial Financiers of Australia Pty Ltd (1972) 20 FLR 220. It is clear enough in the latter case that Lush J, the only member of the Full Court to deal with the question, preferred the view that a charge was created, although he did not find it necessary to arrive at a concluded view: see at pp 225–6.
…
There seems to me no reason to treat the principles referred to in these cases as not applicable to an order of the nature made by Sheppard J. The use of the term “security” to describe the obligation of the appellant tends in that direction, and the fact that the “security” so provided was not to be dealt with other than by the consent of the parties or in accordance with the order of the court leads to the same conclusion.
I am thus of the view that the effect of the order, if complied with, was to make the respondent a secured creditor of the appellant in the amount of any damages which might be awarded to it at trial.
(Emphasis added.)
In Dwight v Federal Commissioner of Taxation (1992) 37 FCR 178 (Dwight), Hill J considered the taxation liability in respect of interest earned on moneys paid by a plaintiff as security for costs into a bank account established in the name of solicitors for the parties. In holding that the liability was that of the plaintiff in the circumstances, Hill J said (at 186):
In whatever form it is ordered, the property, the subject of the security, will continue to be the general property of the party who has given the security, and once an order for costs has been made in favour of, say, the defendant against the plaintiff, the defendant will become, in all respects, a secured creditor … Pending the resolution of the dispute between the parties and the making of a cost order, the defendant would have no proprietary interest in the property forming the security, but at best would have a right, in the nature of an equitable charge, giving him, after a costs order has been made and the costs taxed or agreed, recourse to the fund to satisfy the terms of the judgment…
(Emphasis added.)
In Pilmer v HIH Casualty & General Insurance Ltd (No 2) [2004] SASC 389; 90 SASR 465 [62]–[115], Mullighan J also discussed the authorities referred to by Jackson J in Jackson v Sterling Industries Ltd and concluded at [70] that:
It may be seen from this line of cases that upon payment in, the other party becomes in the nature of a secured creditor and is entitled to the money, or part of it, upon his or her claim being established …
Justice Mullighan drew from a survey of those and more recent authorities this statement of principle (at [113(3)]):
In circumstances such as the present case, the moneys in court provide security to the party who is to benefit in accordance with the decision of the court as to payment out and that party is in the nature of a secured creditor.
It follows that the successful respondents in each of the three appeals in the Court of Appeal of Western Australia had a security interest by way of an equitable charge or lien over the amounts that had been paid in as security for their costs and as such were secured creditors. The appellants cannot rely on the fact of their bankruptcy to displace the effect of the order for security for costs and the entitlement of the successful respondents on those proceedings.
Contrary to the submission put to the primary judge by the appellants, s 58(3) of the Bankruptcy Act did not operate to stay whatever steps the successful respondents took to have the Court of Appeal of Western Australia quantify their entitlement to costs.
Section 58(3) of the Bankruptcy Act provides:
(3)Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor:
(a)to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt; or
(b)except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding.
Section 58(5) of the Bankruptcy Act provides:
(5) Nothing in this section affects the right of a secured creditor to realize or otherwise deal with his or her security.
Plainly on its terms, s 58(5) of the Bankruptcy Act operates such that the right of a secured creditor to realise or otherwise deal with their security is not affected by s 58(3) of the Bankruptcy Act. As such, the successful respondents in the Court of Appeal of Western Australia proceedings were entitled to realise, or otherwise deal with, the moneys which had been paid into the Court over which they had an equitable charge or lien. The primary judge was correct to reject the appellants’ contention that the costs liability or the security for costs should have been dealt with as a provable debt in the bankruptcies. The primary judge was also correct to find that the manner in which the parties and the Court of Appeal of Western Australia dealt with the costs orders and the security for costs was not “incompetent” for the purposes of s 58: Liability Judgment at [541].
The primary judge was correct to find, in the Liability Judgment at [544], that the appellants had advanced no persuasive evidence that the conduct of the first respondent had caused them loss or damage. The claimed losses are equal to the amounts of security for costs that were paid out to the successful respondents. Order 25 r 7 of the Rules of the Supreme Court 1971 (WA) provides:
Where money has been paid into Court as security for costs and the action has been finally disposed of, the amount of the security shall be paid out to the party for whose security it was furnished to the extent pro tanto that costs are due from the securer to such party, and the Principal Registrar shall pay out the security accordingly unless the Court has otherwise ordered, and the balance (if any) shall be refunded to the securer without the necessity for any special order (emphasis added).
The operation of ord 25 r 7 means that the successful respondents were entitled to have the money paid out of court unless the appellants established that the Court of Appeal should have ordered otherwise: Technomin at [10].
The primary judge was correct to observe in the Liability Judgment at [545], that the only matters which the appellants advanced as a reason why any order otherwise should have been made are the offsetting claims they say they have or had against the successful respondents. The onus of proving loss or damage was, of course, on the appellants and the primary judge found that they provided no evidence which might lead the Court to conclude that there were, in fact, valuable offsetting claims, to establish that a loss had in fact been suffered. Furthermore, the primary judge was correct to hold that the Court below was not the venue to run an argument that the Court of Appeal of Western Australia should have made orders other than for the payment of money out of Court: Liability Judgment at [545].
The primary judge was correct to find that it was not enough for the appellants to say, as they did in the Court below, that they have claims which mean that the money should not have been paid out of Court until those claims had been established: Liability Judgment at [546].
The primary judge was correct to find that on the case advanced by the appellants below, that the appellants needed to establish as facts on the balance of probabilities, that the outcome would have been a judgment in the offsetting claims in their favour in sums sufficient to offset the costs liabilities in their entirety or at least reduced them below the amounts paid as security. As the primary judge correctly observed, unless that outcome was achieved, orders paying the security out to the successful respondents were inevitable. The primary judge correctly observed that the appellants would also have to establish that this outcome would have resulted in a surplus, or a larger surplus, payable to them personally after all the claims of creditors in their bankrupt estates were satisfied. The appellants made no attempt before the primary judge to do so: Liability Judgment [547].
We detect no error in the reasoning of the primary judge that the appellants are not entitled to the orders they seek declaring the consent orders and costs assessments in the Court of Appeal of Western Australia to be “incompetent” pursuant to s 58(3)(b) of the Bankruptcy Act, or the consequential orders requiring the first respondent to pay compensation and to apply for the costs orders to be set aside. It follows that ground 6 and its sub-grounds fails.
Ground 7: the removal of the trustee in bankruptcy
The appellants, by ground 7 of the re-amended notice of appeal, contend that the primary judge erred by failing to remove the first respondent as trustee in bankruptcy. The particulars of the conduct warranting the removal of the first respondent, as identified in the re-amended notice of appeal, are as follows:
(1)The freezing of assets of the appellants and of the FSF worth more than $7.5 million which resulted in the loss of opportunity to earn dividends and capital gains on share trading of the main portfolio and the BOQ1 Fund.
(2)By freezing the main portfolio and the BOQ1 Fund, the first respondent breached the duties imposed upon a Trustee in Bankruptcy by s 19(1)(k) of the Bankruptcy Act to exercise powers and perform functions in a commercially sound way.
(3)The first respondent breached the duties imposed on a Trustee in Bankruptcy by s 19(1)(k) to act in a commercially sound way by failing early in her appointment in August 2018 to interview the appellants regarding set-offs and to adjudicate on alleged secured creditors.
The primary judge, in the Liability Judgment at [550]–[746], analysed the numerous complaints made by the appellants of the conduct of the first respondent as Trustee in Bankruptcy.
The primary judge identified, in the Liability Judgment at [604], that the appellants’ real complaint was that the first respondent should have investigated and adjudicated creditors’ claims, along with the appellants’ offsetting claims, and that, had the Trustee in Bankruptcy done that, she would have concluded that there were no net claims such that she or another Trustee in Bankruptcy, acting commercially, would not have frozen any of the appellants’ or FSF’s assets.
The primary judge accepted the first respondent’s evidence that all of the creditors’ claims were estimates because the likelihood of a dividend was unknown. The first respondent’s evidence, which the primary judge accepted, was that her usual practice was that she would not incur costs of formally calling for proofs of debt and adjudicating on them until there are funds in the bankrupt estates with which to pay a dividend. The primary judge found that this evidence of the first respondent accorded with common sense and was not undermined by cross-examination. The primary judge found that it is elementary that an insolvency administration is unlikely to expend substantial resources in investigating and adjudicating creditors’ claims if there are no assets with which to pay any dividends to creditors. That would be, as the primary judge found, a waste of resources. The first step, was to identify and secure assets and then to value them and otherwise assess how likely they are to be realised: Liability Judgment at [606]–[607].
The primary judge observed that there was an obvious time imperative for investigating assets and, if necessary, preventing their dissipation by a freezing order before investigating creditor claims. The primary judge reasoned that if an asset is identified and steps are not taken to secure it as soon as practicable, it may be lost forever. Creditors’ claims, in contrast, will not be lost if they are not adjudicated right away, and adjudicating may take some time, by which point the assets may be gone. The primary judge concluded that the appellants’ submissions that creditors’ claims should be adjudicated and then assets frozen reverses the usual and sensible order of events. We respectfully agree with the primary judge’s reasoning. We detect no error in the primary judge’s finding that the first respondent acted reasonably in identifying assets; securing those assets by a freezing order before taking any steps to investigate and adjudicate on creditors’ claims: Liability Judgment at [612].
The appellants, in this appeal, have not identified any evidence which would provide a basis to challenge the findings made by the primary judge in the Liability Judgment at [745], where his Honour stated:
It will be recalled that s 90-15(4) of the Insolvency Practice Schedule sets out a number of matters which the court may take into account when making orders under s 90-15, including any order for removal of the trustee in bankruptcy. Judged by reference to those matters:
(a) it has not been established that the first respondent had not faithfully performed her duties;
(b) no contravention of the Bankruptcy Act or the Bankruptcy Practice Rules has been established;
(c) there is no suggestion of any failure to comply with an order of the court;
(d) it has not been established that the bankrupt estates or any person has suffered, or is likely to suffer, loss or damage because of an action or failure to act by the first respondent; and
(e) the shortcomings I have identified have had no significant consequence, and could have no impact on public confidence in registered trustees as a group.
The primary judge concluded, in the Liability Judgment at [746], after an exhaustive analysis of the numerous complaints made by the appellants as to the conduct of the first respondent that:
In my view, while the first respondent's conduct of the administration has fallen short of the ideal, it has not fallen short nearly so far as to warrant her removal. It can be expected that close scrutiny of any insolvency administration of the complexity and difficulty of this one is likely to reveal shortcomings of at least similar magnitude and importance; a magnitude and importance which is insufficient to warrant the drastic step of removing the trustee in bankruptcy.
We detect no error in the primary judge’s reasoning nor do we in any way disagree with the conclusion at Liability Judgment at [746]. For these reasons, ground 7 fails.
Ground 8: the refusal to assess the loss of opportunity to trade
Ground 8 of the re-amended notice of appeal pleads that the primary judge “erred at law when he refused to determine the appellants’ claims for losses caused by freezing of BOQ1 and Main Portfolio, within the meaning of section 22 Federal Court Act [sic], which requires the court to completely and finally determine all controversies between the parties”.
While the nature of the asserted error is not clear from the pleaded ground, the appellants contended that they had made a submission at the trial to the effect that even if the BOQ1 and Main Portfolio were personal assets of Mr and Mrs Frigger, the respondent was nonetheless liable to compensate Mr and Mrs Frigger for losses resulting from the freezing of those assets. It appears that the basis for the respondent’s asserted liability was, in effect, that it was a breach of her duty to act commercially under s 19(1)(k) of the Bankruptcy Act to freeze these assets before quantifying creditors’ proofs of debt because other assets in the control of the respondent were more than sufficient to satisfy Mr and Mrs Friggers’ creditors. The appellants written submissions also indicate that they rely on s 24(1E) of the FCA Act.
Taken together, the appellants’ contention is that the primary judge should not have dismissed Mr and Mrs Friggers’ personal claims for compensation arising from an alleged breach of duty on the part of the respondent. That is, as a consequence of the primary judge’s interlocutory order limiting the issues to be determined at the trial, the primary judge has not determined an issue that arises from the appellants’ originating application.
There is no merit in the appellants’ contentions. The primary judge’s orders of 5 June 2020 had the effect of excluding from the issues to be determined at the trial the orders sought in paragraphs 3 and 14 of the fourth amended originating application. In these paragraphs the appellants sought orders under s 30 of the Bankruptcy Act that the respondent “pay losses incurred by the Frigger Superannuation Fund”.
The appellants had not sought compensation in their personal capacity for alleged losses in connection with the freezes of the BOQ1 account and Main Portfolio. It was not an issue that was before the primary judge and he made no error in not considering it in his reasons for decision or for, in effect, dismissing the appellants’ claims for orders for compensation in paragraphs 3 and 14 of the amended originating application when he made orders dismissing the entire application as these claims for relief depended upon a finding that the funds in the BOQ1 account and securities in the Main Portfolio were assets of the FSF (Liability Judgment at [6]).
Further, and in any event, the primary judge dealt with the factual foundation for the alleged breach of the respondent’s duty in freezing the BOQ1 account and Main Portfolio before quantifying creditors’ proofs of debt in the course of dealing with the issues the appellants raised as grounds for removing the respondent as their trustee in bankruptcy. The primary judge found no fault in those actions of the respondent (Liability Judgment at [598]–[612], [644]–[645]). For the reasons given above when addressing ground 7 of the re-amended notice of appeal, the primary judge made no error in reaching that conclusion.
Ground 8 of the re-amended notice of appeal fails.
Orders
For the above reasons the appeal should be dismissed with costs.
I certify that the preceding six hundred and thirty-seven (637) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Chief Justice Allsop and Justices Anderson and Feutrill. Associate:
Dated: 24 March 2023
SCHEDULE 1
30
21
15