Frigger v Trenfield (No 8)

Case [2024] FCA 1438

FEDERAL COURT OF AUSTRALIA

Frigger v Trenfield (No 8) [2024] FCA 1438  

File number: WAD 66 of 2021
Judgment of: LOGAN J
Date of judgment: 13 December 2024
Catchwords: BANKRUPTCY AND INSOLVENCY – where the applicants apply to set aside sequestration orders made against them in 2018 on the basis of fraud and, in the alternative, that their bankruptcies be annulled – where the applicants’ allegations of fraud are baseless – where exercise of discretion to sequestrate entailed no error of principle - where the applicants have not cooperated with the trustee of their bankrupt estates – where applicants failed to prove any likelihood of surplus of property divisible amount creditors after payment of creditors and making of expenses of trustee - application dismissed  
Legislation:

Constitution

Bankruptcy Act 1966 (Cth) ss 34A, 52, 58, 110, 153B

Corporations Act 2001 (Cth) s 477

Evidence Act 1995 (Cth) s 140

Judiciary Act 1903 (Cth) s 79

Federal Court Rules 2011 (Cth) r 39.05

Evidence Act 1906 (WA) s 80

Rules of Supreme Court 1971 (WA) O 43, r 3, O 66, r 57
Cases cited:

Briginshaw v Briginshaw (1938) 60 CLR 336

Bulic v Commonwealth Bank of Australia Ltd [2007] FCA 307

Burke v Chesterfield Australia Pty Ltd [2012] FCA 663

Clone Pty Ltd v Players Pty Ltd (In Liq) (2018) 264 CLR 165

Clyne v Deputy Commissioner of Taxation (1985) 5 FCR 1

Frigger v Kitay [2017] FCA 1278

Frigger v Kitay (No 2) [2020] FCA 497

Frigger v Trenfield [2023] HCASL 110

Frigger v Trenfield (No 2) [2021] FCA 1255

Frigger v Trenfield (No 3) [2021] FCA 1471

Frigger v Trenfield (No 3) [2023] FCAFC 49

Frigger v Trenfield (No 6) [2022] FCA 1233

Frigger v Trenfield (No 7) [2023] FCA 654

Frigger v Trenfield (No 10) (2021) 397 ALR 24

Heinrich v Commonwealth Bank of Australia [2003] FCAFC 315

House v The King (1936) 55 CLR 499

Kitay v Frigger[No 2] [2024] WASC 113

Kitay, in the matter of Frigger (No 2) [2018] FCA 1032

Lazarus Estates Ltd v Beasley [1956] 1 QB 702

McCallum v Official Trustee in Bankruptcy [2018] FCA 773

Re Computer Accounting and Tax Pty Ltd; Ex parte Mervyn Jonathan Kitay in his capacity as liquidator of Computer Accounting and Tax Pty Ltd (in liq) [No 4] [2014] WASC 169

Re Ditfort; Deputy Commissioner of Taxation (1988) 19 FCR 347

Re Frank; Ex parte Piliszky (1987) 16 FCR 396

Re Sarina; Ex parte Wollondilly Shire Council (1980) 43 FLR 163

Samootin v Wagner [2009] FCAFC 77

Sarina v Wollondilly Shire Council (1980) 48 FLR 372

Trojan v Corporation of Hindmarsh (1987) 16 FCR 37

Zaghoul v Jewellery & Gift Buying Service Pty Ltd [2020] FCA 1045
Division: General Division
Registry: Western Australia
National Practice Area: Commercial and Corporations
Sub-area: General and Personal Insolvency
Number of paragraphs: 85
Date of last submission/s: 9 December 2024
Date of hearing: 14 – 15 November 2024
Counsel for the Applicants: The applicants appeared in person
Counsel for the…

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AGLC
Frigger v Trenfield (No 8) [2024] FCA 1438
Case
[2024] FCA 1438
Decision Date

CaseChat Overview and Summary

The applicants, Mr and Mrs Frigger, applied to the Court to set aside sequestration orders made against them in 2018, alleging fraud in the proceedings that led to the orders. Alternatively, they sought annulment of their bankruptcies. The original petitioning creditors, Mr Kitay and CAT, opposed the application. The case involved complex procedural history, including an unsuccessful application to set aside a bankruptcy notice and overlapping proceedings in the Supreme Court of Western Australia. The trustee of the bankrupt estates, Mrs Trenfield, took a neutral stance on the annulment but opposed any findings of impropriety in her administration.

The primary legal issue before the Court was whether the applicants had established that the sequestration orders ought not to have been made, either on the basis of fraud or for other reasons. This required determining whether the applicants had discharged the burden of proving their claims on the balance of probabilities, considering the nature and gravity of the allegations. The Court also had to consider whether the exercise of the discretion to sequestrate entailed any error of principle.

The Court found that the applicants' allegations of fraud were baseless and not supported by the evidence. It was noted that a heavy burden rested on the applicants to prove their case, particularly given the seriousness of the allegations. The Court emphasised that the standard of proof could not be greater than that dictated by the relevant statutory provisions and the nature of the allegations. The Court concluded that there was no error of principle in the exercise of the discretion to sequestrate. Additionally, the applicants had not cooperated with the trustee and had failed to demonstrate any likelihood of a surplus of property divisible among creditors after expenses. The application was dismissed.

The Court's decision was based on the failure of the applicants to meet the required standard of proof and to demonstrate any grounds for setting aside or annulling the sequestration orders. The applicants' allegations of fraud were found to be unsubstantiated, and there was no evidence of any error of principle in the original sequestration decision. The Court also noted the applicants' lack of cooperation with the trustee and their inability to show a potential surplus for creditors. Consequently, the application was dismissed, and no orders were made in favour of the applicants.

Orders

Orders of the court

1. The application be dismissed.

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

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

In a separate proceeding in the Full Court to which Mr and Mrs Frigger were parties (Frigger v Trenfield (No 3) [2023] FCAFC 49), the Full Court cited, at [309] and [311] and without elaboration, both s 34A of the Act and s 140 of the Evidence Act 1995 (Cth) (Evidence Act) as the basis for a requirement in a civil claim under the Act that it must be proved on the balance of probabilities. There is no antipathy between s 34A of the Act and s 140(1) of the Evidence Act as to there being such a requirement. However, s 140(2) adds a qualification not overtly found in s 34A:(2)Without limiting the matters that the court may take into account in deciding whether it is so satisfied, it is to take into account:(a) the nature of the cause of action or defence; and(b) the nature of the subject matter of the proceeding; and(c) the gravity of the matters alleged. Yet even in the absence of such an express qualification in s 34A, a like position would prevail, having regard to the observations made by Dixon J in Briginshaw v Briginshaw (1938) 60 CLR 336, at 362:… reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters "reasonable satisfaction" should not be produced by inexact proofs, indefinite testimony, or indirect inferences. An allegation of fraud or, for that matter, a blameworthy lapse in the discharge of a bankruptcy trustee’s duties, would require attention either to s 140(2) or to the observations just quoted. As can be seen, in practice it makes no difference as to whether s 34A of the Act governs the standard of proof or whether s 140 of the Evidence Act is also applicable. Being the more specific, my preference is that s 34A of the Act governs the subject but, truly, for the reasons just canvassed, the point is of academic interest only. One way or the other, it is clear that the allegations of fraud made by Mr and Mrs Frigger and, insofar as they carry an element of blameworthiness in an alleged failure by Mrs Trenfield to discharge her duties as trustee, those allegations also ought not to be regarded as proved by inexact proofs, indefinite testimony, or indirect inferences. I should add that it has in the past been stated that a person seeking an annulment bears a heavy burden: McCallum v Official Trustee in Bankruptcy [2018] FCA 773 (McCallum), at [12]. However, and with respect, in terms of the standard of proof, that standard cannot be any greater than that dictated by s 34A of the Act and the nature of the allegations made in a given case. Perhaps the better explanation is that, even apart from fraud, a sequestration order will not be one which ought not to have been made unless the court was bound not to have made that order: Re Frank; Ex parte Piliszky (1987) 16 FCR 396, at 403; Burke v Chesterfield Australia Pty Ltd [2012] FCA 663, at [7]; McCallum, at [10]; Bulic, at [12(4)]; Zaghoul v Jewellery & Gift Buying Service Pty Ltd [2020] FCA 1045, at [11]; Samootin v Wagner [2009] FCAFC 77, at [11]; cf Re Ditfort; Deputy Commissioner of Taxation (1988) 19 FCR 347, at 366 (doubt but not disapproval expressed in obiter by Gummow J). Insofar as the making of a sequestration order entailed the exercise of a discretion, a heavy burden would indeed be entailed in proving that the order ought not to have been made. It would be insufficient if the court hearing the annulment application may not have exercised the discretion so as to sequestrate. It would be necessary to be persuaded that the court which made the order was bound not to exercise the discretion in favour of making the sequestration order. An error of principle akin to those described in House v The King (1936) 55 CLR 499 (House v The King), at 504-505, would have to be demonstrated. In that sense, there is indeed a heavy burden.

Decision

Reasons for decision

The sequestration judgment was, in turn, a sequel to an unsuccessful application to the Court by Mr and Mrs Frigger to set aside the bankruptcy notice, non-compliance with which grounded the act of bankruptcy upon which the petition presented against them was based: Frigger v Kitay [2017] FCA 1278 (Siopis J) (bankruptcy notice judgment). That these proceedings have not fallen for final determination until now is explained by an overlap of issues with proceedings instituted by Mr Kitay against Mr and Mrs Frigger on 3 August 2021 in the Supreme Court of Western Australia (COR 131 of 2021). That led to a stay of these proceedings, pending the determination of COR 131 of 2021: see Frigger v Trenfield (No 2) [2021] FCA 1255; Frigger v Trenfield (No 3) [2021] FCA 1471; Frigger v Trenfield (No 6) [2022] FCA 1233 and Frigger v Trenfield (No 7) [2023] FCA 654. COR 131 of 2021 has now been resolved: Kitay v Frigger[No 2] [2024] WASC 113 (Hill J) (WASC approval judgment). Mrs Trenfield, who is the trustee of the bankrupt estates of Mr and Mrs Frigger, took a neutral stance as to whether their bankruptcies should be annulled or the sequestration order set aside. However, insofar as the case for annulment advanced by Mr and Mrs Frigger entailed a solicitation that findings as to impropriety in her administration of their bankrupt estates should be made, she denied that there was occasion for any such finding. The original petitioning creditors, Mr Kitay and CAT, opposed the annulment application and the claim that the sequestration order should be set aside on the basis of fraud. Section 153B(1) of the Act materially provides:Annulment by Court(1)If the Court is satisfied that a sequestration order ought not to have been made … the Court may make an order annulling the bankruptcy. As a matter of construction, confirmed by authority, an annulment application under s 153B(1) of the Act entails, at least potentially, a two-step process. The first step, flowing from the conditional clause which opens the subsection, entails answering a question as to whether, in the case of a sequestration order made on the presentation of a creditor’s petition, that sequestration order ought not to have been made? If, and only if, that question is answered affirmatively, does it then become a matter for the exercise of a judicial discretion as to whether, in the circumstances, an order annulling the bankruptcy should be made. As to authority, the Full Court put the position thus in Heinrich v Commonwealth Bank of Australia [2003] FCAFC 315 (Heinrich), at [20]:The Court must first consider whether the sequestration order ought not to have been made. If it so finds, then the Court must consider whether, in the exercise of its discretion, the bankruptcy should be annulled: Re Deriu (1970) 16 FLR 420. Later evidence of previously unknown facts may disclose matters which show that the sequestration order ought not to have been made. That is, the Court is entitled to consider not only the case as disclosed at the time when the sequestration order was made, but also those facts now known then to have existed. The Court excludes those facts which have occurred since the order was made. Later evidence of previously unknown facts may disclose matters which show that the sequestration order ought not to have been made: Re Frank; Ex parte Piliszky (1987) 16 FCR 396; Stankiewicz v Plata [2000] FCA 1185 at [19]; Re Williams (1968) 13 FLR 10 at 23; Re Ditfort; Ex parte Deputy Commissioner of Taxation (1988) 19 FCR 347.

Ratio Decidendi

Legal Principle Established

Mr Kitay, in his capacity as liquidator of Computer Accounting and Tax Pty Ltd (in liq) (CAT), and CAT successfully petitioned the Court in 2018 for a sequestration order in respect of the estates of Mrs Frigger and Mr Frigger: Kitay, in the matter of Frigger (No 2) [2018] FCA 1032 (Colvin J) (sequestration judgment). In those proceedings, Mr John, a partner in the firm Herbert Smith Freehills appeared for the petitioning creditors. On 31 May 2021, Colvin J made orders dismissing the application against Mr John in the present proceedings. The sequestration judgment was, in turn, a sequel to an unsuccessful application to the Court by Mr and Mrs Frigger to set aside the bankruptcy notice, non-compliance with which grounded the act of bankruptcy upon which the petition presented against them was based: Frigger v Kitay [2017] FCA 1278 (Siopis J) (bankruptcy notice judgment). That these proceedings have not fallen for final determination until now is explained by an overlap of issues with proceedings instituted by Mr Kitay against Mr and Mrs Frigger on 3 August 2021 in the Supreme Court of Western Australia (COR 131 of 2021). That led to a stay of these proceedings, pending the determination of COR 131 of 2021: see Frigger v Trenfield (No 2) [2021] FCA 1255; Frigger v Trenfield (No 3) [2021] FCA 1471; Frigger v Trenfield (No 6) [2022] FCA 1233 and Frigger v Trenfield (No 7) [2023] FCA 654. COR 131 of 2021 has now been resolved: Kitay v Frigger[No 2] [2024] WASC 113 (Hill J) (WASC approval judgment). Mrs Trenfield, who is the trustee of the bankrupt estates of Mr and Mrs Frigger, took a neutral stance as to whether their bankruptcies should be annulled or the sequestration order set aside. However, insofar as the case for annulment advanced by Mr and Mrs Frigger entailed a solicitation that findings as to impropriety in her administration of their bankrupt estates should be made, she denied that there was occasion for any such finding. The original petitioning creditors, Mr Kitay and CAT, opposed the annulment application and the claim that the sequestration order should be set aside on the basis of fraud. Section 153B(1) of the Act materially provides:Annulment by Court(1)If the Court is satisfied that a sequestration order ought not to have been made … the Court may make an order annulling the bankruptcy. As a matter of construction, confirmed by authority, an annulment application under s 153B(1) of the Act entails, at least potentially, a two-step process. The first step, flowing from the conditional clause which opens the subsection, entails answering a question as to whether, in the case of a sequestration order made on the presentation of a creditor’s petition, that sequestration order ought not to have been made? If, and only if, that question is answered affirmatively, does it then become a matter for the exercise of a judicial discretion as to whether, in the circumstances, an order annulling the bankruptcy should be made. As to authority, the Full Court put the position thus in Heinrich v Commonwealth Bank of Australia [2003] FCAFC 315 (Heinrich), at [20]:The Court must first consider whether the sequestration order ought not to have been made. If it so finds, then the Court must consider whether, in the exercise of its discretion, the bankruptcy should be annulled: Re Deriu (1970) 16 FLR 420. Later evidence of previously unknown facts may disclose matters which show that the sequestration order ought not to have been made. That is, the Court is entitled to consider not only the case as disclosed at the time when the sequestration order was made, but also those facts now known then to have existed. The Court excludes those facts which have occurred since the order was made. Later evidence of previously unknown facts may disclose matters which show that the sequestration order ought not to have been made: Re Frank; Ex parte Piliszky (1987) 16 FCR 396; Stankiewicz v Plata [2000] FCA 1185 at [19]; Re Williams (1968) 13 FLR 10 at 23; Re Ditfort; Ex parte Deputy Commissioner of Taxation (1988) 19 FCR 347.