Kitay v Frigger [No 2]

[2024] WASC 113

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   KITAY -v- FRIGGER [No 2] [2024] WASC 113

CORAM:   HILL J

HEARD:   30 NOVEMBER 2022

DELIVERED          :   10 APRIL 2024

PUBLISHED           :   10 APRIL 2024

FILE NO/S:   COR 131 of 2021

BETWEEN:   MERVYN JONATHAN KITAY

First Plaintiff

COMPUTER ACCOUNTING AND TAX PTY LTD (IN LIQUIDATION)

Second Plaintiff

AND

ANGELA CECELIA THERESA FRIGGER

First Defendant

HARTMUT HUBERT JOSEF FRIGGER

Second Defendant

Catchwords:

Corporations - Winding up - Retainers and costs agreements entered into between liquidator and solicitors - Whether agreements require approval of court under s 477(2B) of the Corporations Act 2001 (Cth) - Whether liquidator entitled to take steps in proceedings on behalf of company in liquidation - Whether agreement between a liquidator and solicitors confers authority on solicitors to act on behalf of company in liquidation - Whether any approval required for agreements should be given retrospectively

Practice and procedure - Profession and trades - Legal practitioners - Difference between retainer and costs agreement with legal practitioners - Whether liquidator and/or company retained solicitors to act in various proceedings - Requirements for costs agreement with liquidator

Limitation period - Whether any relief sought by plaintiffs subject to a limitation period - When actions seeking declaratory relief accrue - Whether any claims are statute barred - Relevance of delay in seeking relief

Legislation:

Corporations Act 2001 (Cth) s 477, s 556, s 1322(4)
Insolvency Practice Schedule (Corporations) (sch 2 to the Corporations Act 2001 (Cth)) s 90-15
Judiciary Act 1903 (Cth) s 79, s 80
Legal Profession Act 2008 (WA) s 252, s 260, s 263, s 281, s 283
Legal Profession Uniform Law (WA) s 170
Limitation Act 2005 (WA) s 13, s 27
Rules of the Supreme Court 1971 (WA) O 1 r 4A, r 4B
Supreme Court (Corporations) Rules 2004 (WA) r 2.2(3)
Supreme Court Act 1935 (WA) s 25(6)

Result:

Declarations made
Approval under s 477(2B) (to the extent required) given nunc pro tunc

Category:    B

Representation:

Counsel:

First Plaintiff	:	Mr B W Ashdown
Second Plaintiff	:	Mr B W Ashdown
First Defendant	:	In person
Second Defendant	:	In person

Solicitors:

First Plaintiff	:	Herbert Smith Freehills
Second Plaintiff	:	Herbert Smith Freehills
First Defendant	:	In person
Second Defendant	:	In person

Cases referred to in decision:

Ainsworth v Criminal Justice Commission [1992] HCA 10; (1992) 175 CLR 564

Aussie Airlines Pty Ltd v Australian Airlines Ltd (1996) 68 FCR 406

Australian Securities and Investments Commission v Marco (No 6) [2020] FCA 1781

Beach Petroleum NL v Abbott Tout Russell Kennedy (1999) 48 NSWLR 1

Cameron v Cole (1944) 68 CLR 571

Chen v Kornucopia Pty Ltd (No 1); Madgwicks v Efektiv Pty Ltd [2019] VSC 756; (2019) 59 VR 305

Computer Accounting & Tax Pty Ltd v Professional Services of Australia Pty Ltd [2008] WASC 133

Deputy Commissioner of Taxation v ACN 154 520 199 Pty Ltd (in liq) [No 2] [2017] FCA 755

Equuscorp Pty Ltd v Glengallen Investments Pty Ltd [2004] HCA 35, (2004) 218 CLR 471

Frigger v Kitay (in his capacity as liquidator of Computer Accounting and Tax Pty Ltd (ACN 009 470 491) (in liq)) [No 2] [2020] FCA 497; (2020) 143 ACSR 655

Frigger v Kitay [2017] FCA 1278

Halliday v High Performance Personnel Pty Ltd (in liq) (formerly SACS Group Pty Ltd) (1983) 113 ALR 637

Hancock Prospecting Pty Ltd v Hancock [No 3] [2016] WASC 423

Hastie Group (in liq) v Multiplex (No 3) [2022] FCA 1280, (2022) 410 ALR 531

Kitay (in his capacity as liquidator of Computer Accounting & Tax Pty Ltd (in liq) v Frigger [No 2] [2018] FCA 1032

Kitay as liquidator of ACN 009 009 072 Pty Ltd v Chaucer Syndicates Ltd (CRN 184915) as managing agents for Chaucer Syndicate 1084 [2021] WASC 450

Larussa v Carr (as Administratrix of the Estate of Larussa) [2024] WASCA 16

Lewis (liquidator), Re Concrete Supply Pty Ltd (in liq) [2020] FCA 841; (2020) 145 ACSR 459

McCabe, Re Sargon Capital Pty Ltd (Receivers and Managers Appointed) (in liq) [2023] FCA 345

McKenzie v Director-General of Conservation and Natural Resources [2001] VSC 220

Nezovic v Minister for Immigration and Multicultural and Indigenous Affairs [No 2] [2003] FCA 1263 (2003) 133 FCR 190

One T Development Pty Ltd v Krejci (in his capacity as liquidator of ENA Development Pty Ltd) [2023] NSWCA 120

Pascoe; Re Matrix Group Ltd (in liq) [2011] FCA 1117

Professional Services of Australia Pty Ltd (Administrator Appointed) v Computer Accounting and Tax Pty Ltd [No 3] [2010] WASC 93

Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd [2008] WASCA 222

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] [2009] WASCA 183 (S)

Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd [No 2] [2010] WASC 113

Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd [No 3] [2011] WASCA 80

Re 7 Steel Distribution Pty Ltd (in liq) (Receivers and Managers Appointed) [2013] NSWSC 669

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 GA Listing and Maintenance Pty Ltd (1994) 15 ACSR 308

Re Hawden Property Group Pty Ltd (in liq) (ACN 003 528 345) [2018] NSWSC 481; (2018) 125 ACSR 355

Re McDermott and Potts [2019] VSCA 23

Re Mudgee Dolomite & Lime Pty Ltd (in liq) (No 4) [2021] NSWSC 393

Re Naidenov, AJW Interiors and Constructions Pty Ltd (in liq) [2024] FCA 25

Re Newtronics Pty Ltd [2007] FCA 1375

Re Octaviar Ltd (in liq) [2015] NSWSC 1621; (2015) 110 ACSR 72

Re Ralan Property Services Pty Ltd (Receivers and Managers Appointed) (in liq) [2023] FCA 738

Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83

Stevenson v Zafra Pty Ltd [2021] WASCA 181

Sydney Recycling Park Pty Ltd v Cardinal Group Pty Ltd (in liq) [2016] NSWCA 329

Templeton (Registrar of Titles (Vic)) v Leviathan Pty Ltd [1922] VLR 90; (1921) 30 CLR 34

Temwood Holdings Pty Ltd v Western Australian Planning Commission [2023] WASCA 112

The Bell Group Ltd (in liq) v Westpac Banking Corporation [No 10] [2009] WASC 107

Wentworth v Rogers [2002] NSWSC 709

Wyloo Metals Pty Ltd v Quarry Park Pty Ltd [2021] WASC 356

HILL J:

1. By originating process dated 3 August 2021, Mr Kitay, in his capacity as liquidator of Computer Accounting and Tax Pty Ltd (in liquidation) (CAT), and CAT seek a series of orders in respect of various retainers and costs agreements entered into with two law firms, Herbert Smith Freehills (HSF) and Lenhoff & Hotz.  Prior to the final hearing, the originating process was amended on a number of occasions.  The relief sought by the plaintiffs at the final hearing was that set out in the further amended originating process filed 5 October 2022 (originating process).

2. The plaintiffs' primary submission is that they were not required to seek the approval of the court under s 477(2B) of the Corporations Act 2001 (Cth) (Act) to enter into these agreements. As this issue has been raised by the defendants in a multitude of proceedings, the plaintiffs seek declarations to this effect. If they are wrong in their primary contention, the plaintiffs seek, in the alternative, approval to enter into the agreements effective from the date the agreements were entered into, as well as relief under s 1322(4)(a) of the Act.

3. The defendants oppose any orders being made by the court on a number of grounds.  These include the contention that the defendants should not have been joined to the proceedings, the court does not have jurisdiction to make the declarations sought in proceedings commenced under the Supreme Court (Corporations)(WA)Rules 2004 (WA) (Corporations Rules), and that the relief sought by the plaintiffs is statute barred. In so far as the plaintiffs seek approval under s 477(2B) of the Act for the agreements nunc pro tunc, the defendants submit that no approvals should be given by the court, including because each of the alleged retainers and agreements between Mr Kitay and HSF are 'deceptive shams'.[1]

   [1] Defendants' submissions filed 22 November 2022 [33].

4. For the reasons set out below, it is my view that:

   (a)Mr Kitay was not required to seek approval of the court under s 477(2B) of the Act to enter into the costs agreement with HSF dated 8 February 2010;

   (b)Mr Kitay was not required to seek approval of the court under s 477(2B) of the Act to retain HSF to act on his and (where relevant) CAT's behalf in advising him in relation to the conduct of the liquidation of CAT, in Supreme Court action COR 2 of 2010, in Supreme Court action CIV 2765 of 2010, or in relation to these proceedings;

   (c)Mr Kitay was not required to seek approval of the court under s 477(2B) of the Act to retain HSF to act on his and CAT's behalf in issuing a bankruptcy notice to the defendants, in Federal Court proceedings WAD 428 of 2016, to issue a creditors petition to the defendants, or in Federal Court Proceedings WAD 616 of 2017;

   (d)to the extent that Mr Kitay was required to seek the approval of the court under s 477(2B) of the Act to enter into the costs agreement with HSF dated 23 August 2019 and to retain HSF to act on his and CAT's behalf on the application to have Mrs Frigger committed for contempt and associated orders in Supreme Court Action COR 2 of 2010, approval for this agreement (and the associated retainer) ought be given nunc pro tunc;

   (e)to the extent that Mr Kitay was required to seek the approval of the court under s 477(2B) of the Act to enter into the costs agreement with HSF dated 9 November 2020 and to retain HSF to act on his and CAT's behalf to defend the application by the first defendant to set aside the orders of Acting Master Chapman dated 17 January 2012 and Master Sanderson dated 15 May 2014, approval for the agreement (and the associated retainer) ought be given nunc pro tunc;

   (f)to the extent that Mr Kitay was required to seek the approval of the court under s 477(2B) of the Act to retain Lenhoff & Hotz to act on his and CAT's behalf in Federal Court Proceedings WAD 40 of 2021, approval ought be given nunc pro tunc from December 2020 (the date on which Lenhoff & Hotz were first instructed by Mr Kitay); and

   (g)approval ought be given nunc pro tunc for the plaintiffs under s 477(2B) of the Act to enter into the costs agreement with Lenhoff & Hotz dated 26 July 2021 and to retain Lenhoff & Hotz to act in Supreme Court Action CIV 2765 of 2010.

Evidence on the application

1. In support of the plaintiffs' application, Mr Kitay relied on four of his affidavits filed in the proceedings: two affidavits filed 3 August 2021 (one of which is confidential); a second non-confidential affidavit filed 27 August 2021; and an affidavit filed 11 October 2022.

2. The confidential affidavit of Mr Kitay annexed a copy of the costs agreement entered into with Lenhoff & Hotz dated 26 July 2021, which is the subject of the application for approval.  A redacted copy of this affidavit was served on the defendants, and was provided to the court at the hearing of the originating process.

3. The first defendant filed a number of affidavits in opposition to the originating process, being affidavits filed 8 September 2021, 10 September 2021, 15 September 2021, 25 October 2022 and 3 November 2022.  The defendants also sought leave to rely on an affidavit of the first defendant filed 22 November 2022.  The plaintiffs did not object to the defendants relying on this affidavit.[2]  On this basis, leave should be granted to the defendants to rely on this affidavit for the purpose of the originating process.

   [2] ts 219.

4. The plaintiffs objected to the affidavit of Mrs Frigger filed 25 October 2022 on the basis that it attached documents which were annexures to the confidential affidavit of Mr Kitay filed on 11 January 2012 in COR 2 of 2010 (Confidential Affidavit).[3]  This affidavit is the subject of orders made by Acting Master Chapman and Master Sanderson as set out below.  These orders have not been set aside or varied and, as such, are binding on the defendants.  Unless and until either of these things occur, the defendants cannot use or attempt to use the Confidential Affidavit or its annexures.

   [3] Plaintiff's submissions filed 8 November 2022 [132] - [133]; ts 213.

5. Counsel for Mr Kitay sought an order that the affidavit of Mrs Frigger filed 25 October 2022 be removed from the court record.[4]  It was and is my view that the more appropriate order is that the annexures to this affidavit which were originally annexed to the Confidential Affidavit (annexures 'AF2', 'AF3' and 'AF4') should be excised from the affidavit.  To allow the defendants to refer to or use these annexures would be a breach of previous orders of the court.  However, the remaining annexures of Mrs Frigger's affidavit filed 25 October 2022 were not annexed to the Confidential Affidavit.  As such, it is and was my view that these documents could be adduced by the defendants and should form part of the evidence on the originating process.[5]

Waiver of confidentiality and privilege

[4] ts 213 - 214.

[5] ts 216.

1. The defendants contended that the reference by Mr Kitay in his submissions of his intention to rely on a confidential affidavit for the purposes of the hearing was a waiver of any confidentiality and/or privilege that might otherwise exist in the contents of that affidavit. 

2. I do not agree.

3. The plaintiffs did not, in their submissions, refer to the substance of the confidential affidavit, but only to its existence.  A reference to the existence of a confidential affidavit is not inconsistent with a contention that the contents of the affidavit are and remain confidential.  It is only where the contents of the affidavit are disclosed in circumstances which do not seek to protect or maintain the confidentiality that it can be said the conduct of a party is inconsistent with the maintenance of the claim for confidentiality.[6] 

   [6] This is consistent with the position in respect of legal professional privilege as summarised by Wheeler J in Temwood Holdings Pty Ltd v Western Australian Planning Commission [2023] WASCA 112 [20].

4. At the hearing of the originating process, the plaintiffs sought orders for confidentiality over the redacted portions of the confidential affidavit of Mr Kitay filed 3 August 2021.  The confidential affidavit annexes an unredacted copy of the costs agreement entered into between Mr Kitay and Lenhoff & Hotz dated 26 July 2021 (annexure 'MJK14'), which is the subject of orders sought in these proceedings.  I was and am satisfied that the redacted portions of Mr Kitay's affidavit filed 3 August 2021 are commercially confidential and sensitive, and should be protected by confidentiality orders.  I made orders to this effect at the hearing.[7]

   [7] ts 141.

Relevant factual background

1. The proceedings between the plaintiffs and defendants have a long and involved history.  Before turning to the specific evidence and issues raised in these proceedings, it is useful to give a brief summary of the genesis of the current dispute.

2. Since about September 2003, CAT, a company of which the defendants were and are directors and members, Professional Services Australia Pty Ltd (PSA), and Mr Banning (and later, the executor of his estate) have been in dispute.  The original dispute concerned a claim by CAT for misleading and deceptive conduct in respect of the purchase of a property in Armadale, Western Australia.  This claim was ultimately transferred to the Supreme Court (CIV 2265 of 2006) and heard by Simmonds J between November 2007 and February 2008.  His Honour delivered reasons for his decision on 9 July 2008 upholding the claim by CAT.[8]  Orders were made requiring PSA to pay to CAT damages of approximately $1.1 million, together with interest and costs to be taxed.

   [8] Computer Accounting & Tax Pty Ltd v Professional Services of Australia Pty Ltd [2008] WASC 133.

3. In July 2008, PSA and Mr Banning filed a notice of appeal and subsequently sought a stay of the judgment, pending the hearing and determination of the appeal.  The application for a stay was refused.[9] 

   [9] Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd [2008] WASCA 222.

4. In June 2009, PSA and Mr Banning paid to CAT the damages that had been ordered by Simmonds J.[10]

   [10] Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd [No 2] [2009] WASCA 183 (S) [13].

5. The appeal was heard in July 2009, with reasons for decision delivered in October 2009. The Court of Appeal allowed the appeal and reduced the award of damages by almost $700,000.[11]  On 7 December 2009, orders were made by the Court of Appeal to give effect to their reasons for decision.  The orders included orders that CAT repay PSA and Mr Banning an amount in excess of $760,000 as well as 80% of the taxed costs of the appeal.[12]  An application by CAT for leave to appeal to the High Court was refused.[13]

   [11] Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd [No 2] [2009] WASCA 183.

   [12] Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd [No 2] [2009] WASCA 183 (S) [21].

   [13] Professional Services of Australia Pty Ltd & Anor (P47/2009).

6. CAT has not paid to PSA the amounts ordered by the Court of Appeal.[14]

   [14] Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd [No 3] [2011] WASCA 80 [2].

7. On 12 December 2009, the members of CAT resolved to voluntarily wind up CAT and to appoint a liquidator.[15]

   [15] Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd [2010] WASC 38 [14].

8. On 8 January 2010, PSA, and the executor of the estate of Mr Banning filed an originating process in this court seeking orders for the winding up of CAT and for the appointment of a provisional liquidator (COR 2 of 2010).[16]  On 21 January 2010, orders were made appointing Mr Kitay (who was then a principal of Crowe Horwath) as provisional liquidator of CAT.[17]  After his appointment, Freehills (the predecessor firm to HSF) appeared for Mr Kitay in COR 2 of 2010.[18]

   [16] Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd [2010] WASC 38 [17].

   [17] Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd [2010] WASC 38 [95]. Mr Kitay is now a principal of Worrells Solvency and Forensic Accountants (see Affidavit of Mervyn Jonathan Kitay filed 3 August 2021 [3]).

   [18] In these reasons, I refer to both Freehills and Herbert Smith Freehills as HSF.

9. The application to wind up CAT was heard by Master Sanderson on 28 April 2010.  The application was opposed by Mr and Mrs Frigger, who appeared and were heard in relation to the application.  Orders were made by Master Sanderson on 6 May 2010 for CAT to be wound up in insolvency and for Mr Kitay to be appointed as liquidator.[19]  

   [19] Professional Services of Australia Pty Ltd (Administrator Appointed) v Computer Accounting and Tax Pty Ltd [No 3] [2010] WASC 93.

10. In November 2010, Mr and Mrs Frigger commenced proceedings against Mr Kitay in his capacity as liquidator of CAT (CIV 2765 of 2010) seeking relief in respect of funds held on deposit with St George Bank.  In January 2011, CAT was joined as a party to these proceedings.[20]  Since 17 January 2012, Holborn Lenhoff & Massey (and the subsequent firms of which Mr Lenhoff has been a partner, namely, Lenhoff & Associates and Lenhoff & Hotz) have acted for Mr Kitay and CAT in these proceedings, which were described by Mr Kitay in his evidence as the 'Main Proceedings'.[21]

    [20] Affidavit of Mervyn Jonathan Kitay filed 3 August 2021 [15].

    [21] Affidavit of Mervyn Jonathan Kitay filed 3 August 2021 [16], [26].

1. On 6 January 2012, HSF, on behalf of Mr Kitay and CAT, filed an interlocutory application in COR 2 of 2010 seeking orders under s 477(2B) of the Act for approval for the entry into three agreements.[22]  The Confidential Affidavit was filed in support of the application and annexed, among other things, two letters of advice Mr Kitay had received from HSF.  Mr Kitay's evidence is that at that time, he knew the application was filed on behalf of both himself and CAT.  When he gave instructions to HSF to bring the application, Mr Kitay did not turn his mind to the question of whether he gave these instructions in his capacity as liquidator of CAT, as agent on behalf of CAT, or both.[23]

   [22] Affidavit of Mervyn Jonathan Kitay filed 11 October 2022, 'MJK22'.

   [23] Affidavit of Mervyn Jonathan Kitay filed 11 October 2022 [5].

2. The interlocutory application was heard by Acting Master Chapman on 17 January 2012 who made orders in terms of the application, including an order that:[24]

   The Confidential Affidavit of Mervyn Kitay dated 5 January 2012 (Confidential Affidavit) and the annexures thereto remain in the court file in a sealed envelope marked 'confidential', such Confidential Affidavit not to be accessed by any person without order of this Honourable Court.

   [24] Orders of Acting Master Chapman dated 17 January 2012.

3. After this order was made, Mrs Frigger obtained access to the Confidential Affidavit.

4. On 25 November 2013, HSF, on behalf of both Mr Kitay and CAT, filed an application in COR 2 of 2010 for orders in respect of the Confidential Affidavit.[25]  Mr Kitay's evidence is that at that time, he knew the application was filed on behalf of both himself and CAT and relied upon HSF to prepare the application in the names of the appropriate applicants.  When he gave instructions to HSF to bring the application, Mr Kitay did not turn his mind to the question of whether he gave these instructions in his capacity as liquidator of CAT, as agent on behalf of CAT or both.[26]

   [25] Affidavit of Mervyn Jonathan Kitay filed 11 October 2022, 'MJK23'.

   [26] Affidavit of Mervyn Jonathan Kitay filed 11 October 2022 [9].

5. The application came before Master Sanderson for hearing on 17 March 2014.  On 15 May 2014, Master Sanderson delivered his reasons for decision and made orders in respect of the Confidential Affidavit.  The orders included orders that:[27]

   [27] Orders of Master Sanderson dated 15 May 2014.

   1.Within 7 days of the date of this order, Angela Cecilia Theresa Frigger (Mrs Frigger) and Hartmut Frigger (Mr Frigger) do deliver up to the Applicants all hard copies of the Confidential Affidavit of Mervyn Jonathan Kitay sworn on 5 January 2012 and any of the annexures thereto, which was filed herein (Confidential Affidavit).

   2.Within 7 days of the date of this order, Mr and Mrs Frigger do each provide a written statement to the solicitors of the Applicants:

   (a)that they have not retained any copies of the Confidential Affidavit or any of the annexures thereto;

   (b)that they have permanently deleted any electronic copies of the Confidential Affidavit and any of the annexures thereto in their possession;

   (c)setting out each and every person, whether as solicitor, or counsel, or otherwise (Third Parties), to whom they have provided a copy of the Confidential Affidavit or any of the annexures thereto, whether in hard copy or electronically;

   (d)confirming that they have had returned to them, for return to the Applicants, all copies of the Confidential Affidavit and any of the annexures thereto which were provided to Third Parties; and

   (e)confirming that these Third Parties have confirmed to them in writing that they have permanently deleted any electronic copies of the Confidential Affidavit and any of the annexures thereto in their possession.

   3.Any solicitors or counsel acting for Mr and Mrs Frigger who have had access to the Confidential Affidavit, or any of the annexures thereto, cease to act for Mr and Mrs Frigger in relation to Supreme Court proceedings CIV 2765 of 2010 unless they have the prior consent of Mervyn Jonathan Kitay.

   4.Mr and Mrs Frigger be restrained from disclosing the contents of the Confidential Affidavit or any of the annexures thereto to any person, including, any solicitor or counsel acting for them in the future.

6. An order was also made for Mrs Frigger to file any submissions as to the costs of the application.  On 12 June 2014, Master Sanderson ordered that Mr and Mrs Frigger pay the costs of the applicants (namely Mr Kitay and CAT) on an indemnity basis.[28]  These costs were subsequently taxed in the amount of $61,000.42.[29]  At the time the bill of costs was filed, Mr Kitay knew it had been filed on behalf of both himself and CAT.  His evidence was that he relied upon HSF to prepare the application in the names of the appropriate applicants.  When he gave instructions to HSF to file the bill of costs, Mr Kitay did not turn his mind to the question of whether he gave these instructions in his capacity as liquidator of CAT, as agent on behalf of CAT or both.[30]

   [28] Affidavit of Mervyn Jonathan Kitay filed 27 August 2021, 'MJK17'.

   [29] Affidavit of Mervyn Jonathan Kitay filed 3 August 2021 [37]; Affidavit of Mervyn Jonathan Kitay filed 11 October 2022, 'MJK25'.

   [30] Affidavit of Mervyn Jonathan Kitay filed 11 October 2022 [14].

7. Mr and Mrs Frigger did not pay the taxed costs.  Bankruptcy notices were issued against each of them by HSF on behalf of Mr Kitay and CAT.[31]  Proceedings were commenced in the Federal Court by Mr and Mrs Frigger (WAD 428 of 2016) to set aside the bankruptcy notices and, subsequently, to review the registrar's decision to dismiss their application to set aside the bankruptcy notices.  HSF appeared for Mr Kitay and CAT in these proceedings, which was unsuccessful.[32]

   [31] Affidavit of Mervyn Jonathan Kitay filed 11 October 2022, 'MJK27'.

   [32] Frigger v Kitay [2017] FCA 1278.

8. A creditors petition was issued by HSF on behalf of Mr Kitay and CAT against Mr and Mrs Frigger on 5 December 2017.[33]  Mr Kitay's evidence is that at the time he knew the creditors petition was prepared on his instructions as liquidator of CAT.[34]

   [33] Affidavit of Mervyn Jonathan Kitay filed 11 October 2022, 'MJK28'.

   [34] Affidavit of Mervyn Jonathan Kitay filed 11 October 2022 [21] - [22].

9. Sequestration orders were sought and obtained by HSF on behalf of Mr Kitay and CAT from the Federal Court of Australia against Mr and Mrs Frigger (WAD 616 of 2017).[35]  As a result, on 20 July 2018, Mr and Mrs Frigger were made bankrupt.[36]

   [35] Kitay (in his capacity as liquidator of Computer Accounting & Tax Pty Ltd (in liq) v Frigger [No 2] [2018] FCA 1032.

   [36] Affidavit of Mervyn Jonathan Kitay filed 3 August 2021 [12].

10. On 9 October 2019, Mr Kitay and CAT filed a notice of motion in COR 2 of 2010 seeking the punishment of Mrs Frigger for contempt.[37]  The particulars of the contempt contend that in breach of the orders of Acting Master Chapman and Master Sanderson, Mrs Frigger has sworn and filed affidavits in three proceedings (one in the District Court and two separate Federal Court proceedings) which annexe a copy of the Confidential Affidavit.[38]  HSF acts for Mr Kitay and CAT on this application.  At the time the application was filed, Mr Kitay knew it was being filed on behalf of both himself and CAT.  When he gave instructions to HSF to bring the application, Mr Kitay did not turn his mind to the question of whether he gave these instructions in his capacity as liquidator of CAT, as agent on behalf of CAT or both.[39]

    [37] Affidavit of Mervyn Jonathan Kitay filed 11 October 2022, 'MJK24'.

    [38] Affidavit of Mervyn Jonathan Kitay filed 11 October 2022, 'MJK24', Notice and particulars of contempt [9] - [12].

    [39] Affidavit of Mervyn Jonathan Kitay filed 11 October 2022 [12].

11. In about December 2020, Mr Kitay retained Mr Lenhoff of Lenhoff & Hotz to seek leave under s 58(3) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) to pursue the counterclaim in CIV 2765 of 2010. At that time, Mr Kitay knew the counterclaim involved claims by both him as liquidator of CAT as well as CAT against Mr and Mrs Frigger. His evidence is that he instructed Mr Lenhoff in his capacity as both liquidator of CAT and as agent on behalf of CAT to bring the originating application in WAD 40 of 2021 on 3 March 2021.[40]

    [40] Affidavit of Mervyn Jonathan Kitay filed 11 October 2022 [23] - [25], 'MJK29'.

12. Mr Kitay's evidence is that since orders were made by the court on 17 January 2012 to approve his entry into the agreement with Holborn Lenhoff & Massey, he has made various applications to the court in respect of this agreement.  On 22 November 2016, orders were made approving entry into a costs agreement with Lenhoff & Associates, which reflected Mr Lenhoff's departure from his previous firm.[41] 

    [41] Affidavit of Mervyn Jonathan Kitay filed 3 August 2021 [53] - [55], 'MJK12'.

13. On 1 January 2019, Mr Lenhoff commenced practice as a partner of Lenhoff & Hotz.  At that time, due to what Mr Kitay describes as an oversight, no new costs agreement was entered into with Lenhoff & Hotz.  However, Mr Lenhoff continued to act for Mr Kitay and CAT in CIV 2765 of 2010 prior to a costs agreement being entered into on 26 July 2021.[42]  Mr Kitay's evidence is that this occurred under an oral retainer and that Mr Lenhoff has informed him that he does not seek to recover the costs of this work.[43]

    [42] Affidavit of Mervyn Jonathan Kitay filed 3 August 2021 [56] - [58]; Confidential affidavit of Mervyn Jonathan Kitay filed 3 August 2021, 'MJK14'.

    [43] Affidavit of Mervyn Jonathan Kitay filed 3 August 2021 [58] - [60].

Background to application

1. Mr Kitay's evidence is that from July 2021, Mr and Mrs Frigger have filed applications for summary relief in four separate proceedings being:[44]

   (a)Federal Court action WAD 66 of 2021, in which Mr and Mrs Frigger seek orders for their bankruptcies to be annulled;

   (b)Supreme Court proceedings CIV 2765 of 2010 in which relief is sought by Mr and Mrs Frigger in relation to funds held on deposit with St George Bank, as well as a number of real property assets registered in the name of CAT.  Mr Kitay and CAT have filed a counterclaim against the Friggers in these proceedings;

   (c)the Notice of Motion for Contempt in respect of Mrs Frigger filed in COR 2 of 2010; and

   (d)an amended application filed by Mrs Frigger (both in her personal capacity and as trustee of the Frigger Super Fund) in COR 2 of 2010 on 22 June 2021 to set aside the orders of Acting Master Chapman and Master Sanderson.

   [44] Affidavit of Mervyn Jonathan Kitay filed 3 August 2021 [9] - [23], 'MJK4', MJK6', 'MJK7'; Affidavit of Mervyn Jonathan Kitay filed 27 August 2021 [12] - [19], 'MJK16'.

1. The basis for the relief in each of these applications by Mr and Mrs Frigger is that because no approval has been obtained from the court pursuant to s 477(2B) of the Act for the retention of the solicitors acting in each of these proceedings or applications, they are a nullity.[45]  Mr Kitay contends that because a common question is raised by each of the applications, it was appropriate to commence these proceedings to address this common issue.[46]

   [45] Affidavit of Mervyn Jonathan Kitay filed 3 August 2021 [9].

   [46] Affidavit of Mervyn Jonathan Kitay filed 3 August 2021 [10].

2. The defendants deny this is the case and say that these applications should be determined separately in each of these proceedings.[47]

   [47] ts 184 - 186.

3. The issues raised for determination in these proceedings requires consideration of:

   (a)the costs agreement between Mr Kitay and Freehills (the predecessor firm to Herbert Smith Freehills) dated 8 February 2010 (the First HSF Costs Agreement);

   (b)the costs agreement between Mr Kitay and HSF dated 23 August 2019 (the Third HSF Costs Agreement);

   (c)the costs agreement between Mr Kitay and HSF dated 9 November 2020 (the Fourth HSF Costs Agreement);

   (d)the costs agreement between Mr Kitay and Lenhoff & Hotz dated 26 July 2021;

   (e)the retainer by Mr Kitay of HSF to act on his and/or CAT's behalf to provide advice in relation to the conduct of the liquidation of CAT; to act in Supreme Court proceedings COR 2 of 2010, CIV 2765 of 2010, and these proceedings (COR 131 of 2021); to issue a bankruptcy notice to the defendants; to defend Federal Court Proceedings WAD 428 of 2016; to issue a creditors petition to the defendants; to act in Federal Court proceedings WAD 616 of 2017; to act on the application to have Mrs Frigger committed for contempt of court and associated orders in Supreme Court proceedings COR 2 of 2010; to defend the application to set aside the orders of Acting Master Chapman dated 17 January 2012 and Master Sanderson dated 15 May 2014; and

   (f)the retainer by Mr Kitay of Lenhoff & Hotz to act on his and/or CAT's behalf from December 2020 in Federal Court proceedings WAD 40 of 2021 and, from 26 July 2021, Supreme Court proceedings CIV 2765 of 2010.

Terms of the retainers and costs agreements

1. On 8 February 2010, HSF sent a letter to Mr Kitay as Principal of WHK Horwath setting out the terms of their engagement and the basis on which HSF proposed to charge Mr Kitay (First HSF Costs Agreement).[48]  Relevantly, the letter states under the heading 'Our engagement', that HSF was:[49]

   [T]o provide you with legal advice and representation with respect to the provisional liquidation of CAT. At this stage, our engagement is limited to:

   • assisting you in determining the assets and liabilities of CAT, including CAT's application for special leave to appeal to the High Court of Australia P47 of 2009;

   • advising in relation to issues arising out of allegations made by Mrs Frigger; and

   • representing you in Mr and Mrs Friggers' application to the court dated 5 February 2010.

   Please let me know if you do not agree with our description of the scope of our engagement.

   If you wish to change the scope of your instructions or provide us with new instructions at any time, we will discuss those changes or new instructions with you and may need to carry out further enquiries before we can continue to act or agree to act in relation to the new instructions.

   [48] Affidavit of Mervyn Jonathan Kitay filed 3 August 2021, 'MJK1'.

   [49] Affidavit of Mervyn Jonathan Kitay filed 3 August 2021, 'MJK1' p 21.

2. The letter stated that the offer contained in the letter of engagement could be accepted by 'Mr Kitay, Principal of WHK Horwarth' (sic) signing a copy of the letter and returning it to HSF, or by Mr Kitay instructing or continuing to instruct HSF after receipt of the letter and terms of engagement.[50]  The copy of the First HSF Costs Agreement adduced in evidence has not been signed by Mr Kitay.

   [50] Affidavit of Mervyn Jonathan Kitay filed 3 August 2021, 'MJK1' cl 9.

3. Mr Kitay's evidence is that he subsequently retained HSF to act for him on the terms of the First HSF Costs Agreement 'in a wide range of issues and disputes arising in the conduct of the liquidation of CAT'.  These include, 'but are not limited to':[51]

   [51] Affidavit of Mervyn Jonathan Kitay filed 3 August 2021 [25(a) - (f)].

   (a)addressing issues arising out of the application by Mr and Mrs Frigger dated 5 February 2010 to terminate the provisional liquidation of CAT.  Mr Kitay filed affidavits on 17 February 2010, 26 February 2010 and 27 April 2010 in COR 2 of 2010. These affidavits recorded both the status of his investigations and the legal costs of almost $90,000 he had incurred with HSF by the time the third affidavit was filed in the proceedings;

   (b)acting for CAT in:

   (i)LPA 36 of 2008 (a solicitor-client taxation between CAT and its former solicitors, Bowen Buchbinder Vilensky); and

   (ii) Magistrates' Court action PER GCLM 2493/2009 (a claim by CAT against a legal firm which had represented it in LPA 36 of 2008);

   (c) undertaking investigations into CAT's title to certain assets, including real property assets, which Mr and Mrs Frigger contended were owned by CAT in its capacity as trustee of the Frigger Super Fund;

   (d) acting for Mr Kitay and subsequently for CAT in CIV 2765 of 2010, including the preparation of a defence and counterclaim and provision of advice as to prospects;

   (e) acting for Mr Kitay and CAT in the application for leave under s 477(2B) of the Act to enter into litigation funding, costs and indemnity agreements for CIV 2765 of 2010 (including the retainer of Holborn Lenhoff & Massey); and

   (f) the application in these proceedings (COR 131 of 2021).

4. Mr Kitay's evidence is that at the time he entered into the First HSF Costs Agreement, he understood that the costs agreement was (and any associated retainers were) between him, in his capacity as liquidator of CAT, and the solicitors.  On this basis, he did not consider it was necessary to obtain leave under s 477(2B) of the Act to enter into the agreement (and associated retainers), even though he believed both would 'invariably last more than three months'.  He deposes that the basis of this belief was because the costs agreement was between him (in his capacity as liquidator) and his solicitors, and not the company in liquidation and the solicitors.  He believed this to be the case, even if he was instructing the solicitors on behalf of the company, including where the company was involved in any litigation the subject of the costs agreement.[52]  Mr Kitay's evidence is that while this continues to be his understanding, given the various applications filed by Mr and Mrs Frigger, he considers the issue 'needs to be resolved in an efficient manner'.[53]

   [52] Affidavit of Mervyn Jonathan Kitay filed 3 August 2021 [27].

   [53] Affidavit of Mervyn Jonathan Kitay filed 3 August 2021 [28].

5. Mr Kitay deposes that he drew a distinction between his engagement of HSF to assist him in the conduct of the liquidation of CAT (where HSF would charge an hourly rate), and his engagement of Holborn Lenhoff & Massey to assist in the conduct of CIV 2765 of 2010 (where Holborn Lenhoff & Massey, and Mr Lenhoff's subsequent firms, acted on a litigation funded basis).  Mr Kitay explained the distinction was that in CIV 2765 of 2010, he believed he was potentially dealing with an asset of CAT (as, if successful, some of the costs of Holborn Lenhoff & Massey would be paid out of the proceeds of CAT's counterclaim).  As a result, Mr Kitay believed it was necessary to obtain approval under s 477(2B) of the Act to enter into the agreement with Holborn Lenhoff & Massey, but not the agreement with HSF.[54]

   [54] Affidavit of Mervyn Jonathan Kitay filed 3 August 2021 [30].

6. On 29 October 2013, HSF sent a further letter to Mr Kitay, as Principal of Crowe Horwath, setting out the terms of their engagement and the basis on which HSF proposed to charge Mr Kitay for the engagement described in the letter (Second HSF Costs Agreement).[55]  The schedule to the letter states, under the heading 'Scope of our legal services', that the scope of the engagement constituted:[56]

   [55] Affidavit of Mervyn Jonathan Kitay filed 3 August 2021, 'MJK2'.

   [56] Affidavit of Mervyn Jonathan Kitay filed 3 August 2021, 'MJK2' p 29 - 30.

   (a)drafting and issuing a letter to Mrs Frigger demanding that:

   • she deliver up or destroy all copies of the Confidential Affidavit;

   • any solicitor acting for her who has had access to the Confidential Affidavit cease acting for her in the Proceedings; and

   • she does not disclose the contents of the Confidential Affidavit to any person, including any solicitor, in the future; and

   (b) on the assumption that we will not receive a satisfactory response, seek orders from the Court to the effect set out at (a) above (Application).

7. The copy of the Second HSF Costs Agreement adduced in evidence is signed by Mr Kitay (Principal, Crowe Horwath) and dated 30 October 2013.[57]

   [57] Affidavit of Mervyn Jonathan Kitay filed 3 August 2021, 'MJK2' p 27.

1. On 29 November 2013, HSF, on behalf of Mr Kitay and CAT, filed an interlocutory application in COR 2 of 2010 seeking orders to protect the confidentiality of the Confidential Affidavit.[58]  This application was successful, and orders were made on 15 May 2014 requiring Mr and Mrs Frigger to deliver up all copies of the Confidential Affidavit, provide confirmation they had permanently deleted all electronic copies, and not to disclose it to any person in the future.[59]

   [58] Affidavit of Mervyn Jonathan Kitay filed 3 August 2021 [33].

   [59] Affidavit of Mervyn Jonathan Kitay filed 3 August 2021, 'MJK8'; 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.

2. Mr Kitay's evidence is that he subsequently retained HSF to act for him on the terms of the Second HSF Costs Agreement to recover the taxed costs of the application referred to at [48] above. Specifically, this included a retainer to pursue the bankruptcy of Mr and Mrs Frigger. Ultimately, this involved the following:[60]

   (a) the issue of a bankruptcy notice;

   (b) defending an application by Mr and Mrs Frigger (WAD 428 of 2016) to set aside the bankruptcy notice, which was dismissed by Registrar Trott;

   (c)defending the application by Mr and Mrs Frigger (in WAD 428 of 2016) to review the decision of Registrar Trott;

   (d)the issue of a creditors petition; and

   (e)obtaining sequestration orders against Mr and Mrs Frigger (in WAD 616 of 2017).

   [60] Affidavit of Mervyn Jonathan Kitay filed 3 August 2021 [38 (a) - (e)].

3. Mr Kitay's evidence is that at the time he entered into the Second HSF Costs Agreement, he did not consider that he was required to obtain approval under s 477(2B) of the Act to enter into the agreement (and associated retainers) because the costs agreement was between him (in his capacity as liquidator) and his solicitors, and not the company in liquidation and the solicitors.  He believed this was the case even if he was instructing the solicitors on behalf of the company, including where the company was involved in any litigation the subject of the costs agreement.[61]

   [61] Affidavit of Mervyn Jonathan Kitay filed 3 August 2021 [35].

4. On 23 August 2019, HSF sent a further letter to Mr Kitay as liquidator of CAT, setting out the terms of their engagement on the proposed application for contempt and the basis on which HSF proposed to charge Mr Kitay for this engagement (Third HSF Costs Agreement).[62]  The covering letter refers to the engagement to act for Mr Kitay and CAT in relation to the proposed application to the Supreme Court for orders arising out Mrs Frigger's apparent breach of the orders of Master Sanderson dated 15 May 2014.

   [62] Affidavit of Mervyn Jonathan Kitay filed 3 August 2021, 'MJK3'.

5. The letter provided that Mr Kitay could accept the offer by returning a signed copy of the letter to HSF or continuing to instruct HSF on the matter.  The copy of the letter adduced in evidence is not signed but provides for a signature of 'Mervyn Kitay, Liquidator of Computer Accounting & Tax Pty Ltd'.[63]

   [63] Affidavit of Mervyn Jonathan Kitay filed 3 August 2021, 'MJK3' p 39.

6. The schedule to the letter states, under the heading 'Scope of our legal services', that the scope of the engagement was to:[64]

   1 pursue an application against the Friggers for contempt; and

   2 to seek orders (similar to the Orders) which address the damage caused by the Friggers' ongoing use of the Confidential Affidavit.

   [64] Affidavit of Mervyn Jonathan Kitay filed 3 August 2021, 'MJK3' p 41.

7. Mr Kitay's evidence is that at the time he entered into the Third HSF Costs Agreement, he did not consider that he was required to obtain approval under s 477(2B) of the Act to enter into the agreement (and the associated retainer) because he believed the costs agreement was between him (in his capacity as liquidator) and his solicitors, and not the company in liquidation and the solicitors.  He believed this was the case even if he was instructing the solicitors on behalf of the company, including where the company was involved in the litigation the subject of the costs agreement.[65] 

   [65] Affidavit of Mervyn Jonathan Kitay filed 3 August 2021 [43].

8. On 9 November 2020, HSF sent a further letter to Mr Kitay, liquidator of CAT, setting out the terms of their engagement on the application by Mrs Frigger to set aside the orders of Acting Master Chapman of 17 January 2012 and the orders of Master Sanderson of 15 May 2014 (Fourth HSF Costs Agreement).  This letter referred to HSF acting for 'you [ie Mr Kitay] and [CAT]' in relation to the engagement.  The copy of the Fourth HSF Costs Agreement adduced in evidence was signed by 'Mervyn Kitay, Liquidator of Computer Accounting & Tax Pty Ltd' on 10 November 2020.[66]  The schedule to the letter states, under the heading 'Scope of our legal services', that the scope of the engagement was to:[67]

   • defend the application by Mrs Frigger to set aside the Confidentiality Orders; and

   • apply for security for costs of the application.

   [66] Affidavit of Mervyn Jonathan Kitay filed 27 August 2021, 'MJK15'.

   [67] Affidavit of Mervyn Jonathan Kitay filed 27 August 2021, 'MJK15' p 12.

9. Mr Kitay's evidence is that at the time he entered into the Fourth HSF Costs Agreement, he did not consider that he was required to obtain approval under s 477(2B) of the Act to enter into the agreement (and retainer) because the costs agreement was between him (in his capacity as liquidator) and his solicitors, and not the company in liquidation and the solicitors.  He believed this was the case even if he was instructing the solicitors on behalf of the company, including where the company was involved in any litigation the subject of the costs agreement.[68] 

   [68] Affidavit of Mervyn Jonathan Kitay filed 27 August 2021 [20].

10. Mr Kitay's evidence is that in December 2020 he 'orally retained' Lenhoff & Hotz to seek leave from the Federal Court under s 58(3) of the Bankruptcy Act on his, and to the extent necessary, CAT's behalf to pursue the counterclaim in CIV 2765 of 2010 (WAD 40 of 2021).[69]  Mr Kitay deposes that no costs agreement was entered into at that time because Lenhoff & Hotz proposed to charge 'scale rates'.[70]

    [69] Affidavit of Mervyn Jonathan Kitay filed 3 August 2021 [45].

    [70] Affidavit of Mervyn Jonathan Kitay filed 3 August 2021 [47].

11. Mr Kitay's evidence is that at the time he entered into the oral retainer, he did not consider that he was required to obtain approval under s 477(2B) of the Act to enter into the retainer because it was between him (in his capacity as liquidator) and his solicitors, and not the company in liquidation and the solicitors.  He believed this was the case, even if he was instructing the solicitors on behalf of the company, including where the company was involved in any litigation the subject of the costs agreement.[71]

    [71] Affidavit of Mervyn Jonathan Kitay filed 3 August 2021 [48].

12. Mr Kitay entered into a costs agreement with Lenhoff & Hotz on 26 July 2021 to act for him and CAT in respect of CIV 2765 of 2010.[72]  Approval for entry into this agreement is one of the orders sought in these proceedings.[73]

    [72] Affidavit of Mervyn Jonathan Kitay filed 3 August 2021 [56].

    [73] Further amended originating process dated 5 October 2022 [14].

13. With this factual background, I turn then to the legal issues raised in these proceedings.  Given that approval (if required) is sought for both costs agreements and their associated retainers, it is useful to start with the question as to whether there is a distinction between them.

Is there a distinction between a retainer and a costs agreement?

1. The short answer to this question is yes.  Ultimately, it did not appear that there was a dispute between the parties that there is a distinction between a retainer, which is a contract for legal services, and a costs agreement, which sets out the basis on which costs will be charged for the provision of legal services.[74]  However, the defendants denied that, on the facts of this case, this distinction could be drawn.[75]

   [74] Defendants' submissions filed 22 November 2022 [29] - [30].

   [75] See for example defendants' submissions filed 22 November 22 [35].

2. The distinction was explained by Barrett J (by reference to the Legal Profession Act 1987 (NSW)) in Wentworth v Rogers as follows:[76]

   A 'costs agreement', as defined, is not the same as a contract for the provision of legal services. This is evident not only from the description and definition of 'costs agreement' in s173(1), s184(1) and s184(3) but also from s184(5):

   A costs agreement may form part of a contract for the provision of legal services.

   A contract for the provision of legal services may thus exist independently of a costs agreement. It follows that there can be a contractual obligation on the part of a lawyer to provide legal services and a contractual right on the part of a client to the rendering of such services even if there are no express terms as to costs. Putting this in perhaps more familiar terminology, there can be a retainer despite there being no agreement of the kind the Act designates a 'costs agreement'.

   [76] Wentworth v Rogers [2002] NSWSC 709 [17] - [18].

3. A similar distinction (between a costs agreement and a retainer) is drawn in both the Legal Profession Act 2008 (WA) (Legal Profession Act) and in the Legal Profession Uniform Law (WA) (Uniform Law).

4. There are, however, some important distinctions between a retainer and a costs agreement.  These include that a retainer and a client's liability to pay fees under the retainer can be implied by conduct, as well as the presumption that arises as to the existence of retainers.  As Pritchard J stated in Hancock Prospecting Pty Ltd v Hancock [No 3]:[77]

   [O]nce it is established that a solicitor was acting for a client with the client's knowledge and assent, it will be presumed that the retainer existed, and that the client is liable to his or her solicitors for the solicitors' costs. The presumption that a retainer exists is a strong one. So strong is the presumption that it has sometimes been equated to a 'deemed retainer'.  (footnotes omitted)

   [77] Hancock Prospecting Pty Ltd v Hancock [No 3] [2016] WASC 423 [21]. See also Halliday v High Performance Personnel Pty Ltd (in liq) (formerly SACS Group Pty Ltd) (1983) 113 ALR 637, 639 and McKenzie v Director-General of Conservation and Natural Resources [2001] VSC 220 [54].

5. This can be contrasted to a costs agreement which is required to be in writing or evidenced in writing.[78]

   [78] Legal Profession Act 2008 (WA) s 282(2); Legal Profession Uniform Law (WA) s 180(2).

6. Once the existence of a contract for the provision of legal services or retainer has been proved, it is necessary to determine what legal services the solicitor has agreed to provide.[79]

   [79] Beach Petroleum NL v Abbott Tout Russell Kennedy (1999) 48 NSWLR 1 [208].

7. The defendants contend that under s 260 of the Legal Profession Act (which was the relevant legislation at the time the costs agreements were entered into), the solicitors were required to advise the plaintiffs as to the basis on which fees would be charged. There was no evidence that these disclosures had been given. For this reason, the defendants say there was no valid retainer by the plaintiffs of HSF or Lenhoff & Hotz.

8. I do not accept this submission for two reasons. First, it is not in dispute that Mr Kitay is a liquidator. For this reason, pursuant to s 263(2)(c)(iv) of the Legal Profession Act, the obligations of disclosure under s 260 did not apply to any of the retainers or agreements the subject of these proceedings. In addition, there was no obligation on HSF or Lenhoff & Hotz under s 267 of the Act for them to update any disclosure, as no disclosure obligation arose under pt 10, div 3 of the Legal Profession Act.

9. Second, even if HSF or Lenhoff & Hotz were required to provide the disclosure under s 260 of the Legal Profession Act, any failure to do so does not invalidate the retainer. The consequence of the failure to provide the disclosure mandated by the Legal Profession Act is that there is no obligation for the client to pay the solicitors' costs unless the costs have been assessed under div 8 of the Legal Profession Act.[80]

Was approval of the court required under s 477(2B) of the Act for Mr Kitay's retention of solicitors or entry into costs agreements?

[80] Legal Profession Act 2008 (WA) s 268.

1. Mr Kitay's primary submission is that each of the retainers and agreements the subject of the originating process (apart from the agreement with Lenhoff & Hotz) were entered into by him as liquidator as CAT and not as agent for or on behalf of CAT. For this reason, he contends none of these retainers or agreements required approval under s 477(2B) of the Act. In addition, Mr Kitay says that as liquidator of CAT, he has the power and authority under s 477(2)(b) of the Act to cause CAT to retain HSF (or Lenhoff & Hotz) to appear and act on behalf of CAT in the various proceedings referred to, and that his retainer of HSF or Lenhoff & Hotz (as the case may be) in this capacity also did not require approval under s 477(2B) of the Act.

2. Section 477 of the Act sets out the powers of a liquidator. These powers include the ability of the liquidator to:[81]

   (a) bring or defend any legal proceeding 'in the name and on behalf of the company'; and

   (b) appoint a solicitor to assist them in their duties.

   [81] Corporations Act 2001 (Cth) s 477(2)(a) and (b).

3. Where a liquidator enters into an agreement to retain a solicitor, the liquidator is liable to pay the solicitor in accordance with the terms of the retainer and, where relevant, any costs agreement. Any expenses incurred by the liquidator under the terms of any costs agreement can be claimed by the liquidator from the company in priority over the company's other debts and claims under s 556(1)(a) or s 556(1)(dd) of the Act, whichever applies. However, the liquidator's obligation to pay the solicitor arises whether or not there are sufficient assets in the company for the liquidator to be reimbursed under s 556 of the Act.

4. Section 477(2B) of the Act addresses the ability of a liquidator to enter into long-term contracts on behalf of the company and provides that:

   Except with the approval of the Court, of the committee of inspection or of a resolution of the creditors, a liquidator of a company must not enter into an agreement on the company's behalf (for example, but without limitation, a lease or an agreement under which a security interest arises or is created) if:

   (a)without limiting paragraph (b), the term of the agreement may end; or

   (b)obligations of a party to the agreement may, according to the terms of the agreement, be discharged by performance;

   more than 3 months after the agreement is entered into, even if the term may end, or the obligations may be discharged, within those 3 months.

5. The purpose of this section is to ensure that any transaction entered into on behalf of the company is for the proper realisation of the company's assets or assists in its winding up,[82] and that entry into any proposed long-term agreement is justified even though it is likely to prolong the duration of the winding up.[83]

   [82] Re GA Listing and Maintenance Pty Ltd (1994) 15 ACSR 308, 311.

   [83] Re Naidenov, AJW Interiors and Constructions Pty Ltd (in liq) [2024] FCA 25 [118].

6. This section, as well as s 477(2A) of the Act, constrains the powers of a liquidator. As was stated by Brereton J in Re Octaviar Ltd (in liq):[84]

   [Section 477(2A) and (2B) of the Corporations Act 2001 (Cth)], operate as a constraint on the powers of a liquidator as such. That is, qua liquidator, the liquidator is not entitled or empowered to bind the company to agreements of the kind described in those provisions without the requisite approval; the grant of approval completes the liquidator's power.  (citation omitted)

   [84] Re Octaviar Ltd (in liq) [2015] NSWSC 1621; (2015) 110 ACSR 72 [22].

7. Where approval has not been obtained under s 477(2B) of the Act, the agreement is not binding as between the liquidator and the company.  However, the prevailing view is that the absence of such approval does not have any impact on third parties, including the other contracting party.  That is, the absence of approval under s 477(2B) of the Act does not mean the liquidator can refuse to perform their obligations under the agreement, unless the contract is conditional on this approval.  The absence of approval is only relevant to the liquidator's position against the company in liquidation and not to the existence of the agreement between the contracting party and the liquidator personally.[85]

   [85] Re Octaviar Ltd (in liq) [24].

8. The issue raised for determination by the originating process was whether s 477(2B) of the Act only applies to agreements entered into by a liquidator specifically on behalf of the company or whether it can also apply to agreements entered into by a liquidator in their own name.  The resolution of this issue depends on the proper construction of s 477(2B) of the Act. 

9. The principles applicable to statutory interpretation are well established and were recently summarised by the Court of Appeal in Larussa v Carr (as Administratrix of the Estate of Larussa) as follows:[86]

   The task of statutory construction involves attribution of meaning to statutory text. It begins and ends with the statutory text as a whole. The text must be considered in its context (referring to 'context' in its widest sense) and having proper regard to the purpose of the provision. The purpose of legislation must be derived objectively from the statutory text and not from any assumption about the desired reach or operation of the provision. The primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute.

   A construction that would promote the purpose or object underlying the statutory provision is to be preferred to a construction that would not promote that purpose or object.  (footnotes omitted)

   [86] Larussa v Carr (as Administratrix of the Estate of Larussa) [2024] WASCA 16 [59] - [60].

10. The text of s 477(2B) of the Act refers to entry into agreements by a liquidator 'on the company's behalf'.  The ordinary and natural meaning of this phrase is 'in the name of', 'as the agent',[87] or 'as representative of'.[88]  On its face, the text of s 477(2B) requires approval for agreements entered into by the liquidator as agent for or representative of the company, as well as agreements in the name of the company.  Approval is not required for agreements entered into by the liquidator personally.  On this construction, approval would not be required for the retainer of legal practitioners to provide advice to the liquidator as to the conduct of the liquidation or their duties, or retainers entered into by the liquidator in their own name. 

    [87] Oxford English Dictionary.

    [88] Macquarie Dictionary.

11. This construction of s 477(2B) is consistent with the provisions of both s 477(2)(a), which empowers a liquidator to bring or defend any proceedings, including in the name of and on behalf of the company, and s 477(2)(b), which empowers a liquidator to appoint solicitors to assist them. Neither of these sections include a requirement that the liquidator obtain the approval of the court (or the committee of creditors) prior to the commencement of proceedings or filing of an appearance, or the retention of solicitors. This is notwithstanding the fact that it will commonly be the case that the retention of solicitors or involvement in proceedings will not be completed within a three-month period.

12. This construction is also consistent with a number of decisions of single judges of the Federal Court.[89]  As a matter of judicial comity, I should follow these decisions unless I consider they are plainly wrong, which I do not.[90]

    [89] McCabe, Re Sargon Capital Pty Ltd (Receivers and Managers Appointed) (in liq) [2023] FCA 345 [43]; Lewis (liquidator), Re Concrete Supply Pty Ltd (in liq) [2020] FCA 841; (2020) 145 ACSR 459 [17] - [20]; Frigger v Kitay (in his capacity as liquidator of Computer Accounting and Tax Pty Ltd (ACN 009 470 491) (in liq)) [No 2] [2020] FCA 497; (2020) 143 ACSR 655 [47] - [50]; Kitay (in his capacity as liquidator of Computer Accounting & Tax Pty Ltd (in liq) v Frigger [No 2] [177] - [183].

    [90] Nezovic v Minister for Immigration and Multicultural and Indigenous Affairs [No 2] [2003] FCA 1263 (2003) 133 FCR 190 [52] (French J).

1. In Kitay (in his capacity as liquidator of Computer Accounting & Tax Pty Ltd (in liq) v Frigger [No 2], Colvin J considered whether approval was required under s 477(2B) of the Act for what is described in these proceedings as the Second HSF Costs Agreement.  His Honour concluded that approval was not required for the following reasons:[91]

   However, s 477(2B) only applies where a liquidator enters into an agreement on behalf of the company. It does not apply to agreements made by a liquidator personally in his capacity as liquidator. It is common for liquidators to seek legal advice as to the discharge of their responsibilities as liquidator.

   Therefore, in the circumstances of the present case, no such approval was required because, as I have found, the agreement was between HSF and Mr Kitay. CAT was not a party to the agreement. In accordance with common practice, Mr Kitay engaged HSF in his capacity as liquidator of CAT. As Mr Kitay had been an applicant for orders based upon the Confidential Affidavit and he had prepared the affidavit in the discharge of his responsibilities as liquidator he was entitled to bring the application for orders as to the use of the Confidential Affidavit in his capacity as liquidator.

   Accordingly, liability for the costs the subject of the indemnity costs order was incurred by Mr Kitay as liquidator, not by CAT. The application that was determined by Master Sanderson was brought by Mr Kitay. Orders were made on the application of Mr Kitay. Those orders provided for an order for indemnity costs in favour of both Mr Kitay and CAT as applicants in the substantive winding-up proceedings (being the proceedings in which the interlocutory application was made for orders concerning the Confidential Affidavit).

   [91] Kitay (in his capacity as liquidator of Computer Accounting & Tax Pty Ltd (in liq) v Frigger [No 2] [178] - [180].

2. In Frigger v Kitay (in his capacity as liquidator of Computer Accounting and Tax Pty Ltd (ACN 009 470 491) (in liq)) [No 2], Charlesworth J did not reach a concluded view as to whether, in respect of a separate costs agreement between Mr Kitay and HSF, approval was required under s 477(2B) of the Act.  This was because:[92]

   [O]n the facts of the case, the terms executed by Mr Kitay make it clear that the costs agreement takes the form of a contract to which CAT appears (at least arguably) to have the status of a party. It is that latter circumstance that gives rise to a question as to whether the costs agreement is one to which requirements of s 477(2B) apply. In my view, that question only arises insofar as Mr Kitay has entered into the agreement on CAT's behalf or otherwise caused CAT to enter into the agreement.

   [92] Frigger v Kitay (in his capacity as liquidator of Computer Accounting and Tax Pty Ltd (ACN 009 470 491) (in liq)) [No 2] [50].

3. In Lewis (liquidator), Re Concrete Supply Pty Ltd (in liq), White J also did not express a concluded view as to whether approval was required under s 477(2B) of the Act for the liquidator to enter into a retainer agreement with solicitors on behalf of Concrete Supply.  His Honour gave three reasons for this, being:[93]

   (a) it is at least reasonably arguable that, by entering into the retainer in their capacity as joint and several liquidators of Concrete Supply, the applicants made it plain that they were doing so as agents for the company;

   (b) the very nature of the services to be provided under the retainer would, at least for the most part, be to, or for the benefit of, Concrete Supply, and not to the applicants personally; and

   (c) on this ex parte application, it is appropriate for the Court to act out of an abundance of caution.

   [93] Lewis (liquidator), Re Concrete Supply Pty Ltd (in liq) [20].

4. In that case, while the retainer was sent to the liquidators and was said to be in their capacity as joint and several liquidators of Concrete Supply, the letter advised that court approval for entry into the agreement under s 477(2B) of the Act was required.[94]

   [94] Lewis (liquidator), Re Concrete Supply Pty Ltd (in liq) [9] - [11].

5. In Re Mudgee Dolomite & Lime Pty Ltd (in liq) (No 4), Williams J accepted a submission by counsel for the liquidators that the 'better view is that the costs agreement to be entered into by the Liquidators in the name of and on behalf of MDL is an agreement to which s 477(2B) applies'.[95]  In that case, the costs agreement was addressed to the company in liquidation, MDL.[96]

   [95] Re Mudgee Dolomite & Lime Pty Ltd (in liq) (No 4) [2021] NSWSC 393 [51].

   [96] Re Mudgee Dolomite & Lime Pty Ltd (in liq) (No 4) [49].

6. In Re Ralan Property Services Pty Ltd (Receivers and Managers Appointed) (in liq), the liquidators sought approval for entry into a number of agreements, including retainers and costs agreements between the liquidator and their solicitors.  Stewart J, after referring to the above authorities, stated that these authorities provide a reason to make the orders sought and that '[a]s tempting as it may be, it is unnecessary for me to reach a concluded view on this point'.[97]

   [97] Re Ralan Property Services Pty Ltd (Receivers and Managers Appointed) (in liq) [2023] FCA 738 [37].

7. A similar approach was taken by Cheeseman J in Re Naidenov, AJW Interiors and Constructions Pty Ltd (in liq).  Her Honour, after noting that this issue was unresolved and that the application had proceeded on the basis that approval was required, approached the application 'with a view to framing any orders made under s 477(2B) with the qualification that such orders, if made, are made to the extent necessary'.  Having considered this question, her Honour ultimately concluded that '[o]n the approach taken by the plaintiffs, it is not necessary to determine whether entry into the costs agreement requires approval under s 477(2B) of the Act'.[98]

   [98] Re Naidenov, AJW Interiors and Constructions Pty Ltd (in liq) [93].

8. In each of these decisions (apart from the decision of Colvin J), the court proceeded on the assumption made by the moving party that approval under s 477(2B) of the Act was required.  Where necessary, the court reviewed the substance of the relevant costs agreement to consider whether the agreement was entered into by the liquidator personally in discharging their responsibilities or as an agent of the company, whether the company was a party to the agreement or appeared to have the status of a party under the agreement, and who received the benefit of the services provided under the agreement.  Where the company appeared to have the status of a party to the agreement and received the benefit of the agreement, the courts (without expressing a final conclusion as to whether approval was required under s 477(2B) of the Act) went on to consider whether approval should be granted.

9. In my view, the approach that has been taken in these decisions is consistent with the purpose and context of s 477(2B) of the Act.  As has been held by the courts previously, the purpose of this section is not limited to a consideration of who has direct financial liability for any contractual obligations.  It also concerns whether the contract assists with the winding up or proper realisation of the company's assets.  This approach is also consistent with the broader context of the Act, which draws a distinction between actions which can be taken by a liquidator or external administrator in their own right (such as applications for examinations under s 596A and s 596B of the Act, or in respect of voidable transactions under s 588FF of the Act), and those which must be brought in the name of the company (such as claims for breaches of directors' duties,[99] or an application under s 601AG of the Act[100]).

   [99] The Bell Group Ltd (in liq) v Westpac Banking Corporation [No 10] [2009] WASC 107.

   [100] Kitay as liquidator of ACN 009 009 072 Pty Ltd v Chaucer Syndicates Ltd (CRN 184915) as managing agents for Chaucer Syndicate 1084 [2021] WASC 450.

10. On this basis, I consider that approval under s 477(2B) of the Act is required for agreements entered into by the liquidator as agent for or representative of the company, as well as agreements in the name of the company.  However, approval is not required for entry into agreements by the liquidator in their own name.  In determining whether the agreement has been entered into by the liquidator as agent for or representative of the company or in their own name, it is necessary to consider the substance of the agreement, whether the company is a party to the agreement or appears to have the status of a party under the agreement, and who receives the benefit of the services provided under the agreement.

11. Given this conclusion as to the proper construction of s 477(2B) of the Act, I turn then to consider each of the relevant costs agreements and retainers.

First HSF Costs Agreement and associated retainers

1. The defendants accept that the First HSF Costs Agreement was entered into between HSF and Mr Kitay personally and did not require approval under s 477(2B) of the Act.[101]  In my view, this concession correctly reflects the position in relation to this agreement. 

   [101] Defendants' submissions filed 22 November 2022 [37] - [38]. 

2. The First HSF Costs Agreement concerns the provision of legal services to Mr Kitay in relation to the provisional liquidation of CAT.  CAT is not a party to the agreement, nor is it mentioned as being the recipient or beneficiary of any of the advice to be provided.  The scope of the agreement set out in the letter are all matters which concerned Mr Kitay as liquidator of CAT.  On this basis, I find that Mr Kitay did not require leave of the court under s 477(2B) of the Act to enter into the First HSF Costs Agreement. 

3. Consistent with this conclusion, I find that Mr Kitay did not require leave under s 477(2B) of the Act to retain HSF to provide him with advice in relation to the conduct of the liquidation.  As was noted by Colvin J in considering the Second HSF Costs Agreement, it is common for liquidators to seek legal advice as to the discharge of their responsibilities as liquidator.[102]  The retention of solicitors to provide advice to a liquidator does not, in my view, fall within the terms of s 477(2B) of the Act.

   [102] Kitay (in his capacity as liquidator of Computer Accounting & Tax Pty Ltd (in liq) v Frigger [No 2] [178].

4. The defendants have raised four contentions in relation to the First HSF Costs Agreement namely:

   (a)Mr Kitay has claimed and been paid more than the estimate of $19,800 in the letter;

   (b)the amounts paid by the defendants to CAT are identical to the amounts that have been paid to HSF;[103]

   (c)Mr Kitay has 'used the defendants' funds and CAT's funds' to pay the costs he has been charged under the First HSF Costs Agreement; and

   (d)HSF has invoiced Mr Kitay (who has paid these invoices from the funds of CAT, which were provided by the defendants) for services not falling within the express terms of the First HSF Costs Agreement.

   [103] Affidavit of Angela Frigger filed 8 September 2021, 'AF8' p 79.

5. The defendants also say there is no evidence that any of the retainers referred to by the plaintiffs at [2(b)] of the originating process were undertaken under the terms of the First HSF Costs Agreement or that CAT was not a client of HSF in respect of any of these retainers.  They also contend that Mr Kitay has 'allowed' Mr John of HSF to, in effect, have the conduct of the liquidation of CAT and that, as a consequence, any arrangements between Mr Kitay and Mr John are a sham.

6. For the following reasons, I reject each of these contentions.

7. First, the First HSF Costs Agreement expressly provides that the amount of $19,800 is an estimate only and not a quote.  Under the First HSF Costs Agreement, it was clear that the parties could agree to change the scope of the instructions, fees were time based and, if extra work was undertaken, the work would be undertaken on the terms of the First HSF Costs Agreement.[104]  Given these terms, HSF was entitled to render invoices for an amount or amounts greater than the estimate set out in the First HSF Costs Agreement. 

   [104] Affidavit of Mervyn Jonathan Kitay filed 3 August 2021, 'MJK1' p 21 - 22 (cls 1, 4).

8. Second, the First HSF Costs Agreement specifically contemplated that Mr Kitay could instruct HSF to undertake further work under the terms of the agreement and that HSF could agree to do this work.  The evidence of Mr Kitay is that he gave these instructions.  Specifically, Mr Kitay's evidence is that he retained HSF to assist him (in his capacity as liquidator of CAT) in responding to the application by Mr and Mrs Frigger in COR 2 of 2010 to terminate the provisional liquidation of CAT, in the application before Acting Master Chapman for confidentiality orders and orders under s 477(2B) of the Act in COR 2 of 2010, and for the orders sought in these proceedings (COR 131 of 2021), and that this was done under the terms of the First HSF Costs Agreement.  This evidence was unchallenged and no evidence was adduced which is inconsistent with it.  I accept this evidence in its entirety.  It is not correct, as contended by the defendants, that these are matters of assertion.  Mr Kitay has sworn and filed an affidavit which has been read at the hearing of the originating process.

9. In any event, the objective evidence is entirely consistent with the existence of a retainer between HSF and Mr Kitay in respect of each of these matters.  This evidence comprises the following:

   (a)HSF is recorded in the reasons for decision of Simmonds J as having appeared on behalf of Mr Kitay (as provisional liquidator) on the application by Mr and Mrs Frigger to terminate the provisional liquidation of CAT;[105]

   (b)HSF filed the interlocutory application on 6 January 2012 on behalf of Mr Kitay and CAT for approval of the liquidator's entry into agreements and Mr John, a partner of HSF, appeared before Acting Master Chapman on the hearing of the application;[106] and 

   (c)HSF filed the originating process on behalf of Mr Kitay and CAT in these proceedings and all relevant court documents.

   [105] Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd [No 2] [2010] WASC 113.

   [106] Orders of Acting Master Chapman of 17 January 2012.

10. It is clear from Mr Kitay's evidence that each of these matters occurred with his knowledge and consent.  This is consistent with the preparation and filing of affidavits of Mr Kitay in each of these proceedings.  Each of these matters concern the conduct of the liquidation of CAT and arise out of issues raised by Mr and Mrs Frigger.  As such, each matter falls within the broad scope of the First HSF Costs Agreement.

11. Third, while Mr Kitay was contractually liable to pay HSF under the terms of the First HSF Costs Agreement, he was entitled, pursuant to s 556 of the Act, to be reimbursed for any payments as a priority. Mr Kitay's conduct in paying HSF from the funds of CAT is consistent with his exercise of this statutory entitlement. It does not, as contended by the defendants, constitute theft or fraud.

12. Fourth, in each of these matters, I accept that these steps were taken on behalf of Mr Kitay in discharge of his duties as liquidator of CAT. Specifically, in relation to the application before Simmonds J, HSF is recorded as having appeared only for Mr Kitay and not for CAT. On this basis, it is clear that Mr Kitay was the client and not CAT. In relation to the other applications, each is primarily an application by a liquidator pursuant to s 477(2B) of the Act. As the defendants' acknowledge, it is the liquidator who seeks approval under this section and not the company. Accordingly, I accept that Mr Kitay is the relevant client for the purpose of each of these retainers. While in both the interlocutory application and these proceedings, CAT is joined as a plaintiff to the application or proceeding, this is consistent with the exercise of Mr Kitay's power under s 477(2)(b) of the Act and does not, of itself, mean that he entered into the retainer on CAT's behalf.

13. On this basis, I find that none of these retainers require approval under s 477(2B) of the Act. 

14. In relation to the retention of HSF to act in CIV 2765 of 2010, Mr Kitay's evidence, which I accept, is that initially these proceedings were commenced by Mr and Mrs Frigger against Mr Kitay as liquidator of CAT and that CAT was not a party to these proceedings until January 2011. In these circumstances, I accept and find that Mr Kitay engaged HSF to act in these proceedings in his capacity as liquidator of CAT, which he was entitled to do under s 477(2)(b) of the Act. On this basis, I find that the retainer of HSF in CIV 2765 of 2010 also did not require approval under s 477(2B) of the Act.

15. Finally, in respect of the contention that Mr Kitay has in effect 'allowed' Mr John to make decisions in respect of the liquidation of CAT and that the court should draw an inference to this effect, this contention is misconceived and was made without any evidence to support it.  Nothing in the orders sought in the originating process or the other matters raised by the defendants support an inference to this effect being drawn.  The conduct of Mr John and HSF is entirely consistent with them having been retained as solicitors for Mr Kitay.

Retention of HSF to obtain orders in respect of the Confidential Affidavit

1. In its originating process, the plaintiffs sought a declaration that CAT did not require leave to retain HSF to obtain orders from Master Sanderson in respect of the confidential affidavit.[107]

   [107] Further amended originating process filed 5 October 2022 [4A].

2. Mr Kitay's evidence is that in about August 2013, he became aware that Mrs Frigger had obtained a copy of the Confidential Affidavit.  Following the refusal by Mrs Frigger to voluntarily deliver up copies of the affidavit, Mr Kitay and CAT filed an application for orders in COR 2 of 2010 to protect the confidentiality of this affidavit.[108] The application was listed for hearing before Master Sanderson who made orders on 15 May 2014. Mr Kitay deposes that he 'entered into the Second HSF Costs Agreement and associated retainer',[109] and provides an explanation as to why he engaged HSF, namely that they were familiar with the background to the application.[110]

   [108] Affidavit of Mervyn Jonathan Kitay filed 3 August 2021 [31] - [33].

   [109] Affidavit of Mervyn Jonathan Kitay filed 3 August 2021 [35].

   [110] Affidavit of Mervyn Jonathan Kitay filed 3 August 2021 [36].

3. Mr Kitay's evidence is that he also retained HSF to recover the costs which were the subject of the costs order from Master Sanderson.  This retainer included the issue of a bankruptcy notice and ultimately culminated in the bankruptcy of Mr and Mrs Frigger.[111]

   [111] Affidavit of Mervyn Jonathan Kitay filed 3 August 2021 [38].

4. Once again, the defendants say there is no evidence that any of these retainers were undertaken under the terms of the Second HSF Costs Agreement or that CAT was not a client of HSF in respect of any of these retainers.  In this regard, the defendants rely on the costs orders made in each of these matters to award costs to both Mr Kitay and CAT.

5. I do not agree that there is no evidence of these matters. Once again, it is incorrect to characterise Mr Kitay's evidence as an assertion.  Mr Kitay's evidence is that he retained HSF to act on each of these matters and that this was done under the terms of the Second HSF Costs Agreement.  This evidence is also consistent with the affidavit of Mr John filed in Federal Court proceedings WAD 66 of 2021 that there was no agreement between HSF and CAT, but that HSF represented CAT on Mr Kitay's instructions.[112]  Mr Kitay's evidence was unchallenged and, in my view, no evidence was adduced which is inconsistent with it.  I accept Mr Kitay's evidence in its entirety. 

   [112] Affidavit of Angela Frigger filed 8 September 2021, 'AF33'.

1. The defendants did not object to an order being made in terms of order 6. 

2. In relation to orders 1, 2, 4, 5 and 7, only minor objections were taken by the defendants to the proposed orders.  The defendants object to the inclusion of references to the evidence (for example, the specific exhibits of Mr Kitay's affidavit) in the orders.  In their submission, this is unnecessary where the 'evidence appears in multiple affidavits of each party'.  The defendants also object to any reference in the orders to Freehills being the predecessor firm to HSF, on the basis that this was not a matter raised for determination in these proceedings.

3. The plaintiffs say these orders essentially reflect the preliminary views expressed at [204] of the Reasons, as well as their substance.  In their submission, the addition of references in the orders to the specific exhibits of the cost agreements, which are the subject of the orders, will reduce or remove any need to resort to the Reasons in order to understand the orders of the court.

4. I do not accept the defendants' objections to these proposed orders and, for the following reasons, consider that orders should be made in the terms proposed by the plaintiffs in orders 1, 2, 4, 5 and 7 of the Minute. 

5. First, on my examination of the affidavits, the defendants' assertion that multiple copies of the costs agreements were adduced in evidence at the final hearing is not correct.  Even if this were the case, it would, in my view, strengthen and not weaken the argument that the specific costs agreement the subject of each order should be identified.  Given the history of litigation between the parties, it is important that the orders specifically identify the costs agreements which are the subject of these Reasons to remove any area of unnecessary disputation. 

6. Second, the reference to Freehills as the predecessor firm of HSF reflects both the declaration sought in the plaintiffs' originating process, as well as the evidence of Mr Kitay.[161]  No objection was taken by the defendants at the hearing to the evidence of Mr Kitay and in my view, it is too late to do so at this stage.  There is an evidentiary basis for the declaration sought and this declaration ought be made.

   [161] Affidavit of Mervyn Jonathan Kitay filed 3 August 2021 [7(a)].

7. In respect of order 3, the defendants submit that an order should not be in these terms.  The basis for this submission was similar to the matters raised in their interlocutory application, namely that this does not reflect the orders of Master Sanderson.  In addition to the matters raised in support of their interlocutory process, the defendants drew attention to the difference between the extracted order of Master Sanderson, which refers to the 'applicants' costs' and the taxing certificate, which refers to the 'applicant's costs'. The defendants contend the error in Master Sanderson's extracted order has been corrected by the subsequent order of Registrar S Boyle.

8. I also do not accept this submission and consider, for the following reasons, that an order should be made in terms of order 3 of the Minute. 

9. First, I do not accept that, except for the reference to 17 June 2014 in [29] of the Reasons, there is any factual error in the Reasons. 

10. Second, while there appears to be an inconsistency between the order of Master Sanderson and the costs certificate issued by Registrar S Boyle, this inconsistency cannot be resolved by the making of orders on this application.  It is sufficient for me to observe that if there is an error in the extracted order of the Master, any error cannot be corrected by a taxing certificate issued by a Registrar.  Any correction would need to be the subject of an application under the slip rule (if it is a clerical mistake or error), or on appeal.

11. Third, and in any event, order 3 of the Minute does not concern this application or order.  The application in relation to the Confidential Affidavit is the subject of order 2 of the Minute.  Order 3 of the Minute concerns various proceedings commenced in the Federal Court.  The evidence before the court in respect of these applications is that both defendants were parties to these proceedings.

12. Fourth, the primary issue to which order 3 of the Minute is directed is whether Mr Kitay was required to seek approval of the court to retain HSF to act for him and CAT in respect of each of these matters.  Having found this was not required (as set out at [117] of the Reasons), this declaration reflects that conclusion.

13. On this basis, I consider that orders should be made in terms of orders 1 to 7 of the plaintiffs' minute of proposed orders dated 10 April 2024.

Costs

Parties' submissions

1. The plaintiffs sought an order that the defendants pay their costs of the originating process as amended from time to time (together with reserved costs on 25 January 2022 and 9 September 2022) to be taxed if not agreed.  Counsel for the plaintiffs submitted that they were the successful party on the application and that costs should follow the event.

2. The defendants' primary position was that they should not be required to pay the plaintiffs' costs of the originating process and sought an order that the first plaintiff should pay their costs fixed in the sum of $6,000.  Three reasons were advanced for this submission.  First, in the originating process, the plaintiffs, had not sought costs against the defendants but had sought orders for the costs of the application to be costs in the liquidation of CAT.  Second, in respect of a number of the issues raised in the proceedings, the defendants' (and not the plaintiffs') submissions were accepted by the court.  Third, the plaintiffs were seeking an indulgence from the court (in seeking orders to be made nunc pro tunc) and that, in these circumstances, should not be entitled to a costs order in their favour. 

3. In any event, the defendants said that any order for costs should reflect the fact that the plaintiffs were not successful on all issues raised at the hearing.

Legal principles

1. Under s 37 of the Supreme Court Act 1935 (WA), the court has a wide discretion to award costs. While the discretion is broad, it is not unfettered and must be exercised judicially.[162]

   [162] Frigger v Lean [2012] WASCA 66 [53].

2. The general rule is that costs should follow the event; that is, the successful party should recover their costs from the opposing party.[163]  The rationale for this general rule is that where a party has unjustifiably brought another party before the court, that party should be liable to compensate the other in costs.[164]  However, if a party's conduct either before or after the commencement of the litigation resulted in costs being unnecessarily or unreasonably incurred, the court may deprive that party of costs either wholly or in part and the court may order that party to pay the costs of an unsuccessful party either wholly or in part.[165]

   [163] Rules of the Supreme Court1971 (WA) O 66 r 1(1).

   [164] Gray v Sirtex Medical Ltd formerly known as Paragon Medical Ltd [2009] WASC 126 [62].

   [165] Rules of the Supreme Court1971 (WA) O 66 r 1(2).

3. It is incumbent on an unsuccessful party to satisfy the court that there are good reasons it should not pay the successful party's costs.  As was noted by the Court of Appeal in Strzelecki Holdings Pty Ltd v Jorgensen:[166]

   What constitutes 'success' in proceedings is to be determined by the reality of the circumstances involved in the case.  The Court may depart from the general rule that costs follow the event and modify a costs order to take into account matters such as any unreasonable conduct of a generally successful party, or to the failure of that party on one or more specific issues.  The exercise of the discretion in that way is recognised by a number of rules in the [Rules of the Supreme Court], together with the practice of the Court, and authority.  So, for example, if the Court is of the opinion that the conduct of a successful party - either before or after the commencement of the litigation - has resulted in costs being unnecessarily or unreasonably incurred, the Court may deprive that party of costs, either wholly or in part, and it may further order that party to pay the costs of an unsuccessful party, either wholly or in part …

   Under O 66 r 1(3) RSC, where a party, though generally successful in an action, has, by the introduction of some issue or issues on which it has failed, increased the costs, the Court may order such party to pay the costs of such issue or issues. It is well-recognised that an order that a successful party recover only a portion of its costs, where it has not been wholly successful, should not be made as a matter of course, for at least two reasons. First, it is often the case that a successful party will not succeed on every issue raised. Secondly, to attempt, in every case, an analysis of which party was successful on which issue would add uncertainty and complexity to the outcome of litigation, and add to the time and cost of costs arguments. Consequently, the power to apportion costs in this way should only be exercised where there are discrete and severable issues on which the generally successful party failed, and which added to the cost of the proceedings in a significant and readily discernible way. Furthermore, while parties should be encouraged to consider carefully what matters they put in issue, justice may not be served if, by too ready a resort to deciding questions of costs according to success on particular issues, parties are dissuaded by the risk of costs from canvassing all issues which might be material to the decision in the case.

   Where the Court decides, in the exercise of its discretion, to modify the usual costs orders to reflect the limited success of the successful party, that power will be exercised broadly, and as a matter of impression, and without any attempt at mathematical precision (which is likely to prove illusory in any event).  That approach reflects the fact that it may be difficult to separate the factual and evidentiary substratum of different issues, the fact that some issues are more important than others, and the fact that some issues are subsidiary to others. (footnotes omitted)

   [166] Strzelecki Holdings Pty Ltd v Jorgensen [2019] WASCA 96; (2019) 54 WAR 388 [50] - [52].

4. Where a court does not accept all of a successful party's arguments at a trial, this does not, of itself, mean that it is appropriate to deal with costs orders on an issue‑by‑issue basis.[167]  The court's discretion to render an award of costs by undertaking an assessment by reference to the issues that have been won or lost at trial should only be exercised in the clearest of cases.[168]  The court's discretion to reduce costs for a successful party is approached as a matter of overall impression, without requiring any higher degree of mathematical precision.[169]

   [167] State of Victoria v Sportsbet Pty Ltd (No 2) [2012] FCAFC 174 [8] (Emmett, Kenny & Middleton JJ).

   [168] KSG Investments Pty Ltd v Open Markets Group Ltd (No 2) [2021] VSC 359 [8] (Nichols J).

   [169] Amaca Pty Ltd v Hannell [2007] WASCA 158 (S) [6]; May v Thomas [2014] WASCA 176 (S) [5].

5. In assessing the success or failure of the parties on the issues in the proceedings, it is generally accepted that greater latitude is given to a successful defendant than a successful plaintiff.  The rationale for this approach was explained by Burchett J in Australian Conservation Foundation Inc v Forestry Commission of Tasmania in the following terms:[170]

   A party against whom an unsustainable claim is prosecuted is not to be forced, at his peril in respect of costs, to abandon every defence he is not sure of maintaining, and oppose to his adversary only the barrier of one hopeful argument: he is entitled to raise his earthworks at every reasonable point along the path of assault.  At the same time, if he multiplies issues unreasonably, he may suffer in costs.  Ultimately, the question is one of discretion and judgment.

   [170] Australian Conservation Foundation Inc v Forestry Commission of Tasmania (1988) 81 ALR 166, 169.

6. The central and overriding principle is that of doing substantial justice to the parties.  In approaching this task, the court is not required to tabulate the 'wins and losses', nor undertake an exercise of assessing the time spent or length of submissions, or reasons devoted to each of the issues.[171] 

   [171] Inpex Operations Australia Pty Ltd v AIG Australia Ltd [No 3] [2023] WASC 332 (S) [21].

7. Order 66 r 1(4) of the Rules deals with the costs of proceedings where a defendant has been joined to proceedings so that they are bound by the judgment or order. Specifically, it provides that:

   Where a plaintiff obtains a judgment or order against a defendant who has been joined in order that all parties interested in the lis shall be bound by the judgment or order, no order for costs shall be made against such defendant if he is not in default, or if he does not contest the plaintiff's claim, and has not made any claim or asserted any right in the lis, but in such case the Court may grant that defendant such sum for costs as will compensate him for expenses necessarily incurred by him and may in doing so exercise the powers hereinafter conferred on it to order costs out of any property or fund with or without a right of recourse against any other party to the action or matter.

8. In Civil Procedure: Western Australia, the commentators at [66.1.12] express the view that this order takes away the discretion of the court to award costs against a defendant joined in the circumstances set out in that subrule so as to ensure that all interested parties may be bound.[172] 

   [172] LexisNexis, Civil Procedure Western Australia, vol 1 (196-08-22).

9. Where costs have been reserved by the court, the position at general law is that the court had expressed no opinion as to how the costs should be borne at all.[173] 

Disposition

[173] How v Winterton (Earl) [No 4] (1905) 91 LT 763, 765.

1. The first issue raised by the parties is who (if anyone) should be entitled to the costs of the originating process. 

2. In the originating process filed 3 August 2021 (and in each of the amendments made to the originating process after that date), the costs order sought by the plaintiffs was:

   The costs of the application be costs in the liquidation of CAT or otherwise be provided for.

3. This order reflects the usual costs order that is made on an application under s 477(2B) of the Act for approval for the entry into an agreement.  This reflects the general position that these applications are generally made ex parte without any other party being heard as to whether orders should be made.  In these circumstances, given the application is brought by the liquidator as a requirement of the Act, it is appropriate that an order be made that the costs form part of the costs in the liquidation of the relevant company.

4. In this case, the application was not heard ex parte as the defendants filed evidence and written submissions and made oral submissions at the hearing.  On this basis, I do not consider the fact that orders for costs were not sought against the defendants in the originating process prevents the plaintiffs from now seeking this order.

1. While I accept the defendants were joined to the proceedings so that they were bound by the orders of the court (as set out at [169] ‑ [171] of the Reasons), this, of itself, does not mean that the plaintiffs are unable to obtain an order for costs against them. This is because, in my view, O 66 r 1(4) of the Rules does not apply to the defendants. On the text of this subrule, O 66 r 1(4) of the Rules only applies where a defendant who is joined so as to be bound to the outcome or orders does not contest the claim made by the plaintiffs. The purpose of this sub‑rule is to ensure that a defendant who does not participate in proceedings and effectively abides the outcome of the court's decision is not at risk for costs and is compensated for any costs they have incurred as a consequence of the plaintiff's desire to bind them to the outcome. In this case, as set out at [57], the defendants participated in the hearing and opposed the orders sought by the plaintiffs. Accordingly, it is my view that the defendants cannot rely on O 66 r 1(4) of the Rules, as they have both contested the plaintiffs' claim and asserted rights and claims in the matter.

2. In this matter, essentially two issues were raised for consideration: first, the circumstances in which a liquidator is required to seek approval under s 477(2B) of the Act to enter into an agreement (whether that agreement is a retainer or a costs agreement) and second, if required, whether approval ought be given nunc pro tunc.  Because of matters raised by the defendants, it was also necessary for the plaintiffs (and the court) to address whether there was a distinction between a costs agreement and a retainer, and whether the claims of the plaintiffs were statute barred. 

3. I accept that in respect of each costs agreement, a number of alternative orders were sought.  However, the plaintiffs were ultimately successful in obtaining orders in respect of each of the costs agreements the subject of this application.  None of the other issues raised by the defendants were resolved in their favour.  On this basis, it is my view that the plaintiffs were the successful party on the application and, as such, are entitled to their costs of the application.  

4. I do not accept that costs should be apportioned to reflect the different orders that have been made in respect of each of the costs agreements the subject of these proceedings.  In my view, the consideration of these costs agreements were a consequence of the issues raised for determination in the application.  In this respect, it is important to note that orders were made to approve entry into the third and fourth HSF Costs Agreement, without expressing a concluded view as to whether approval was required under s 477(2B) of the Act.  The orders sought by the plaintiffs, which they did not obtain, did not involve discrete and severable issues that added to the costs of the application in a discernible way. 

5. The plaintiffs also sought orders that the defendants pay the costs which were reserved on 25 January 2022 and 9 September 2022.

6. Both of these cost orders concerned the defendants' amended interlocutory process dated 17 December 2021.  By this application, the defendants sought leave to re‑open the application for summary judgment to strike out certain paragraphs of the originating process in relation to the Second HSF Costs Agreement.  The defendants were partially successful on this application, with orders being made on 9 September 2022 to strike out portions of these paragraphs.  At the time, I reserved the costs of this application as I considered these costs may be impacted by the ultimate determination of the originating process.[174]

   [174] ts 147 - 148 (9 September 2022).

7. For two primary reasons, I consider that no order should be made in respect of these reserved costs.  This, in effect, means that there will be no order as to the costs of this application.

8. First, ultimately, there was little overlap between the issues raised on the amended interlocutory process and those raised at the final hearing.

9. Second, this costs order reflects the outcome of the interlocutory application, namely that both parties had some success in relation to the application.

Conclusion

1. For these reasons, the orders of the court will be:

   (a)the date in [29] of the Reasons will be amended from 17 June 2014 to 12 June 2014;

   (b)the defendants' interlocutory process dated 13 April 2024 (as amended on 23 April 2024) should otherwise be dismissed;

   (c)orders will be made in terms of orders 1 to 7 of the plaintiffs' minute of proposed orders dated 10 April 2024; and

   (d)the defendants pay the plaintiffs' costs of the originating process (as amended) to be taxed if not agreed, including the costs of the interlocutory process dated 13 April 2024.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

KC
Associate to the Honourable Justice Hill

23 MAY 2024