MERVYN JONATHAN KITAY in his capacity as liquidator of COMPUTER ACCOUNTING AND TAX PTY LTD (In Liq) and COMPUTER ACCOUNTING AND TAX PTY LTD (In Liq)
[2022] WASC 350
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: MERVYN JONATHAN KITAY in his capacity as liquidator of COMPUTER ACCOUNTING AND TAX PTY LTD (In Liq) and COMPUTER ACCOUNTING AND TAX PTY LTD (In Liq) [2022] WASC 350
CORAM: ALLANSON J
HEARD: 6 & 8 APRIL 2021
DELIVERED : 25 OCTOBER 2022
PUBLISHED : 25 OCTOBER 2022
FILE NO/S: COR 2 of 2010
BETWEEN: MERVYN JONATHAN KITAY in his capacity as liquidator of COMPUTER ACCOUNTING AND TAX PTY LTD (In Liq) and COMPUTER ACCOUNTING AND TAX PTY LTD (In Liq)
Applicants
ANGELA CECILIA THERESA FRIGGER
Interested Party
Catchwords:
Practice and procedure - security for costs - turns on own facts
Legislation:
Corporations Act 2001 (Cth)
Rules of the Supreme Court 1971 (WA)
Supreme Court (Corporations) (WA) Rules 2004
Result:
Order that the applicant by interlocutory process filed 19 October 2020 give security for costs to the hearing of the application to set aside the interlocutory process in the sum of $15,000
Category: B
Representation:
Counsel:
| Applicants | : | D W John |
| Interested Party | : | In person |
Solicitors:
| Applicants | : | Herbert Smith Freehills |
| Interested Party | : | In person |
Cases referred to in decision:
Brundza v Robbie & Co (No 2) [1952] HCA 49; (1952) 88 CLR 171
Ernst & Young (Reg) v Tynski Pty Ltd [2003] FCAFC 233
Frigger v Trenfield (No 12) [2022] FCA 900
Frigger, in the matter of Computer Accounting & Tax Pty Ltd (in liq) (No 4) [2021] FCA 487
Global Finance Group Pty Ltd (in liq) v Marsden Partners [2004] WASC 52
Kitay v Frigger [2022] WASC 284
Kitay, in the matter of Frigger (No 2) [2018] FCA 1032
KP Cable Investments Pty Ltd v Meltglow Pty Ltd [1995] FCA 76; (1995) 56 FCR 189
Marsh v Baxter [No 2] [2016] WASCA 51
Noye v Robbins [2010] WASCA 83
PS Chellaram & Co Ltd v China Ocean Shipping Co [1991] HCA 36; (1991) 65 ALJR 642
Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57
ALLANSON J:
Introduction
These proceedings began in 2010 by originating process for the winding up of the company, Computer Accounting & Tax Pty Ltd. The current application relates to just one of several offshoots in the following 10 years.
Proceeding COR 2 of 2010 was commenced in this court by an originating process on 8 January 2010, by which Professional Services of Australia Pty Ltd sought an order for the winding up of Computer Accounting & Tax at the behest of a creditor.
On 6 May 2010, Master Sanderson ordered that Computer Accounting & Tax be wound up in insolvency: see Professional Services of Australia Pty Ltd (Administrator Appointed) v Computer Accounting and Tax Pty Ltd [No 3] [2010] WASC 93. Mr Kitay was the court appointed liquidator of the company.
The Master's orders of 6 May 2010 that Computer Accounting & Tax be wound up and Mr Kitay appointed as liquidator have never been the subject of any appeal.
On 17 October 2019, Mr Kitay brought interlocutory process in the matter seeking orders that Ms Angela Frigger be committed for contempt. It is unnecessary to set out the details of the contempt application for the purposes of the present matter.
On 19 October 2020, Mrs Frigger filed interlocutory process, supported by an affidavit sworn 16 October 2020, seeking orders pursuant to O 58 r 23 of the Rules of the Supreme Court 1971 (WA) and s 90‑15 of Schedule 2 Insolvency Practice Schedule (Corporations) of the Corporations Act 2001 (Cth), or in the Court's inherent jurisdiction. The orders were sought against Mr Mervyn Kitay, as liquidator of Computer Accounting & Tax.
Mrs Frigger sought:
(1)an order setting aside the ex parte orders of 17 January 2012 (by which the Acting Master approved Mr Kitay entering into a litigation funding agreement, a costs agreement with the firm Holborn Lenhoff Massey, and an indemnity agreement, all of which were declared to be confidential);
(2)an order discharging order 4 dated 15 May 2014 (which, relevantly, required Mrs Frigger to deliver up all hard copies she held of a confidential affidavit sworn by Mr Kitay on 5 January 2012);
(3)an order that Mr Kitay is personally liable for the costs of the interlocutory processes dated 6 January 2012 and 25 November 2013 and is not entitled to be reimbursed by the Company (the process which resulted in the above orders); and
(4)an order declaring that Mr Kitay indemnify Mrs Frigger and her husband, Hartmut Hubert Josef Frigger, for the costs ordered to be paid by them to the defendant for the defendant's interlocutory process dated 25 November 2013.
The application has been running in parallel with the contempt proceedings before Hill J.
On 28 October 2020, I ordered Mrs Frigger to file and serve a statement of the grounds on which she relies for each order sought, and for Mr Kitay to bring his foreshadowed application for security for costs of the proceedings in the interlocutory process.
The statement of grounds filed on 11 November 2020 contains numerous allegations including fraud on the court, abuse of power, abuse of process, and reliance on sham agreements. The factual allegations go back at least 10 years.
On 27 November 2020, in accordance with the orders of 28 October 2020, Mr Kitay filed a chamber summons for orders that Mrs Frigger give security for the Respondent's costs of defending the application the subject of the interlocutory process dated 19 October 2020 by paying the amount of $15,000 into court within 14 days of the date of the Order.
In support of the application, Mr Kitay filed the affidavit of Sakura Kajimura, solicitor, sworn 27 November 2020. The costs which are now sought are not for the full cost of defending the action but for the cost of an application to set aside the proceedings.
Paragraph 3 of consolidated practice direction 4.7.1 provides that as a general rule, where an order for costs is to be made against a party in interlocutory proceedings, the costs will be fixed and ordered to be paid forthwith or by a particular date. That direction recognises that, in exercising a discretion that is not otherwise confined, the usual practice of the court is to order that costs of interlocutory applications will be paid forthwith.
The evidence
In support of the application, Mr Kitay filed the affidavit of Sakura Kajimura, solicitor, sworn 27 November 2020. Ms Kajimura deposes to searches performed into the financial position of Mrs Frigger. Relevantly:
(1)Mrs Frigger is the registered owner, or joint owner, of properties in Como, Applecross, and Bayswater.
(2)Each property is subject to mortgage in favour of H & A Frigger Pty Ltd, dated 1 July 2012 and registered 7 April 2014.
(3)Each title has property seizure and sale orders registered on it.
(4)A caveat has been registered on each title by the trustees in bankruptcy of Mr and Mrs Frigger.
(5)PPSR Certificates record that Mrs Frigger has granted security over personal property which Mrs Frigger owns or purports to own, including motor vehicles and bank accounts.
A sequestration order was made against Mrs Frigger on 20 July 2018. She has now been discharged from bankruptcy.
Ms Kajimura refers to earlier orders in this court, and the Federal Court, in which orders were made for security for costs (and where the security ordered was not paid), and where costs orders were made which Mrs Frigger has refused to pay, asserting a right to set off her claim against Mr Kitay.[1] It is a matter of record that in other proceedings I made an order for security for costs against Mrs Frigger which she did not immediately pay, and only later paid as a condition of setting aside judgment granted pursuant to a springing order.
[1] Affidavit of Sakura Kajimura, sworn 27 November 2020, SK 20.
Mrs Frigger filed two affidavits in response, on 30 November 2020 and 19 January 2021.
In her first affidavit, Mrs Frigger deposed that:
(1)she believes that her bankruptcy was brought about by a costs order obtained by a fraud on the court in 2010;
(2)no steps have been taken to challenge the mortgages on the grounds that they were registered in order to defeat creditors;
(3)in proceedings in the Federal Court (WAD 674 of 2015) she had filed an application for the removal and replacement of the Liquidator; and
(4)she believes the Liquidator owes her money;
(5)she contends that the Liquidator has never had a liability to pay the legal costs of the solicitors, Herbert Smith Freehills;
the costs sought are disproportionate.
In her second affidavit, Mrs Frigger asserted her belief that Mr Kitay is not liable to pay the costs of the interlocutory process which she has brought against him, and that the application has been brought for the benefit of the solicitors only.
Mrs Frigger argues that she has a claim against Mr Kitay for more than the amount of the costs sought which she would be able to set off against a costs order.
The dispute about the costs agreement with the solicitors requires consideration of further proceedings brought in this court in 2021, on this occasion by the liquidator.
Principles
The Supreme Court (Corporations) (WA) Rules 2004 do not expressly provide for security for costs. Mrs Frigger may not be a plaintiff within the meaning of O 25 of the Rules of the Supreme Court. It has often been recognised, however, that a State Supreme Court has inherent jurisdiction to order security for the costs of proceedings. I am satisfied that I have power to order security for costs in this discrete application. The principles that guide the exercise of the power to order security under the Rules should also guide the exercise of the inherent power.
The discretion to order that a party give security for costs is unfettered. There are several cases which have identified the factors commonly considered in such applications.[2] None of the lists of relevant factors is, or claims to be, exhaustive, and which factors are relevant will vary from case to case. In exercising a discretion, the weight to be given to any circumstance depends not only upon its own intrinsic persuasiveness but upon the impact of the other circumstances which have to be weighed.[3]
[2] See, for example, KP Cable Investments Pty Ltd v Meltglow Pty Ltd [1995] FCA 76; (1995) 56 FCR 189, 196 ‑ 198; Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57 [6].
[3] PS Chellaram & Co Ltd v China Ocean Shipping Co [1991] HCA 36; (1991) 65 ALJR 642, 643.
In the present case, it is not necessary to discuss those factors in any detail.
Mrs Frigger has access to funds. The effect of the encumbrances on her real and personal property has been to frustrate the enforcement of previous orders. But she has previously been able to pay security, and outstanding costs orders, when faced with no other choice. I am not satisfied that she has no capacity to meet an order for security and that such an order would stultify the proceedings. While Mrs Frigger has the capacity to access funds, the task for the defendant in recovering a costs order, should he be successful, would be unreasonably burdensome. Real property is mortgaged, personal property is charged, and Mrs Frigger has frequently demonstrated her resistance to paying costs orders made against her.
In relation to the specific matters raised by Mrs Frigger in her affidavits I make the following observations.
First, the orders made in 2010 to put Computer Accounting & Tax were not appealed. It is not the role of the court on this application for security for costs to attempt to go behind those orders, simply on Mr Frigger's allegation of fraud.
Second, it is not necessary for the court to consider or determine whether the purpose of the mortgages over the Frigger's real property was to defeat creditors. That has proved to be their effect in previous attempts to enforce orders of the court. The court is not now seeking to set aside those securities, but merely to evaluate the likely effect of them on a successful litigant recovering its costs.
Third, on 11 May 2021, Colvin J dismissed the proceedings in the Federal Court seeking the removal of the liquidator and ordered Mrs Frigger to pay the costs of the liquidator.[4]
[4] See Frigger, in the matter of Computer Accounting & Tax Pty Ltd (in liq) (No 4) [2021] FCA 487.
Fourth, Mrs Frigger's statements about why she did not pay previous costs orders disclose an attitude that, notwithstanding orders of the court, she will only pay what she believes to be due. The asserted right of set off is, for the purposes of this application, no more than an assertion. It does, however, demonstrate that it is unlikely that Mrs Frigger will readily comply with future orders of the court for payment of costs.
The submissions of Mrs Frigger raise two further matters which must be considered: first, that she brings the application as trustee of the Frigger Super Fund and would have a right of exoneration against the assets of the fund should an order for costs be made against her; second, the operation of the indemnity principle. They are not the only further matter raised in her submissions. I do not address the numerous allegations - including fraud and dishonesty - that Mrs Frigger has made against various other parties. The allegations have no foundation in the evidence before the court and are scandalous.
I will assume that Mrs Frigger would have a right of exoneration against the assets of the Frigger Super Fund, even though she has brought the claim as only one of two trustees. Should Mr Kitay be successful and seek to enforce the order for costs, the process would be unnecessarily and unreasonably complicated in seeking to enforce a right of subrogation against a superannuation fund. I am not satisfied that the burden of having to proceed in that way should be imposed on a successful party.
The indemnity principle
Costs orders enable a party to recoup, at least in part, the legal costs they have incurred. Costs orders depend upon the existence of a liability to pay costs on the part of the party in whose favour the order is made. If the successful party has no liability to pay legal costs, there will be no basis for a costs order.[5]
[5] The principles and authorities are summarised by Colvin J in Kitay, in the matter of Frigger (No 2) [2018] FCA 1032 [36] ‑ [40]; see also Frigger v Trenfield (No 12) [2022] FCA 900 [9].
Where a party and their solicitor have an agreement that the party will not have to pay the solicitor's costs, the party cannot obtain an award of costs against the unsuccessful party.[6] But where a solicitor is on the record for a party, in the absence of proof to the contrary, in making costs orders there is a presumption that the solicitor can look to the party for costs.[7] The unsuccessful party may raise the issue of whether the indemnity principle is met and claim that the presumption should not be applied.
[6] Noye v Robbins [2010] WASCA 83 [297].
[7] Marsh v Baxter [No 2] [2016] WASCA 51 [37]; Ernst & Young (Reg) v Tynski Pty Ltd [2003] FCAFC 233 [35]; Noye v Robbins [2010] WASCA 83 [300] ‑ [303].
In Kitay, in the matter of Frigger (No 2),[8] Colvin J considered an agreement between Mr Kitay and Herbert Smith Freehills that provided that the solicitors would bill for their fees but would waive payment except in described circumstances. The solicitors would not seek recovery of their professional fees if Mr Kitay was unsuccessful or was successful but did not recover costs from Mrs Frigger. The agreement further provided:
[8] Kitay, in the matter of Frigger (No 2) [129] ‑ [136].
If you are successful in the Application (as described below), you may be able to recover legal costs from another party. These will usually be described as 'taxed costs'.
We will send you a bill and ask you to pay us any amount that you receive from any other party, or parties, for any part of your legal costs which you have not already paid to us. We will do this if:
1.a court makes an order that another pay all of your legal costs; or
2.you reach an agreement with another party that requires them to pay all or part of your legal costs; or
3.you are able to recover all or part of your legal costs from somewhere else eg a statutory fund
...
However, if the amounts recovered from another party or parties do not cover all of our legal costs, we will waive payment of the outstanding costs as long as you do everything you can to help us to recover those costs.
His Honour held that there was a liability on Mr Kitay to pay costs: the three conditions qualified the circumstances in which the solicitors could take steps to enforce payment of its account, not the issuing of the account.
In her second affidavit, sworn 19 January 2021, Mrs Frigger attached four costs agreements made by Herbert Smith Freehills and Mr Kitay.
The first agreement, dated November 2013, is in the terms discussed by Colvin J set out above. I agree with his Honour's conclusion that the agreement imposes a liability on Mr Kitay to pay costs.
The other three agreements are dated July 2016, August 2017, and October 2018. They are in similar terms to each other, but different from the agreement of November 2013. None of them qualifies the liability of Mr Kitay to pay costs incurred.
The agreement between Herbert Smith Freehills and Mr Kitay in relation to the present matter is not in evidence. Mrs Frigger submitted that I should infer it is in similar terms.
There is nothing before me to rebut the presumption that in engaging the solicitors to provide legal services, Mr Kitay is liable for the payment of legal costs. The agreements which are in evidence, assuming a similar agreement applies in this case, are consistent with there being a liability. The other documents to which Mr Frigger referred, are consistent with a deferral of the liability until the liquidator should be in funds.
The indemnity principle is not a reason to decline to make a costs order in this matter. It is not a reason to refuse an order for security for costs.
Events after the hearing
On 22 June 2021, Mrs Frigger filed an amended interlocutory process, supported by a further affidavit. The amended process sought orders:
(1)setting aside the ex parte orders of 17 January 2012 on the ground the application was a nullity;
(2)setting aside orders dated 15 May 2014 and cost judgment of 5 July 2015 on the ground the application was a nullity;
(3)an order that the defendant is personally liable for the costs of the interlocutory processes dated 6 January 2012 and 25 November 2013 and is not entitled to be reimbursed by the Company.
Mrs Frigger abandoned the application for an order declaring that the defendant indemnify Mr and Mrs Frigger for the costs ordered to be paid by them for the defendant's interlocutory process dated 25 November 2013.
The application was supported by an affidavit of Mrs Frigger of the same date in which she stated her belief that the retainers and costs agreements between Herbert Smith Freehills and Mr Kitay are void, and the interlocutory process in each of the applications of January 2012 and November 2013 were nullities.
On 3 August 2021, Mr Kitay filed originating process under the Corporations Act 2001 (Cth), in COR 131 of 2021, seeking orders to the following effect:
(1)A declaration that he and, to the extent necessary, Computer Accounting & Tax did not require the leave of the Court, pursuant to s 477(2B) of the Corporations Act, to enter into specified costs agreements with solicitors Herbert Smith Freehills, and to retain Herbert Smith Freehills to act on behalf of the liquidator and/or the company in relation to specified legal services.
(2)In the alternative to, to the extent that the costs agreements and retainers are agreements to which s 477(2B) applies, those agreements are approved, effective as and from when they were made and the dates on which Herbert Smith Freehills were first instructed in each relevant matter.
(3)Pursuant to s 1322(4)(a) of the Act, neither the entry by the liquidator into the costs agreement nor the retainers, are invalid by reason of the liquidator not having obtained approval pursuant to s 477(2B) to entering into them.[9]
[9] Filed in the court as COR 131 of 2021.
It has not been uncommon for matters between these parties to be stalled by interlocutory applications and arguments. The application in COR 131 of 2021 is not an exception. Following a judgment dealing with many of those side issues,[10] the application by the liquidator has been listed for hearing on 30 November 2022.
[10] Kitay v Frigger [2022] WASC 284.
While those proceedings were pending, the court has not proceeded with three actions which are directly affected by the issues there raised: this application, COR 126 of 2020, and CIV 2765 of 2010.
On 14 October 2022, I held a directions hearing to ascertain the wishes of the parties and determine how best to proceed. In short, the respondent in each case submitted I should publish judgments. Mrs Frigger submitted the matters should remain stayed on the expectation that the proceedings before Hill J, and pending proceedings in the Federal Court in relation to her bankruptcy and other matters, would render any decision I might make inutile.
The matters, have, however, been dormant for too long. I have decided that I should publish my reasons.
The amount of security, time for payment, and consequential orders
In making an order for security, the court does not set out to give a complete indemnity to the defendants.[11] The best the court can do is to estimate the sum which it thinks just to order to be secured, having regard primarily to a reasonable estimate of the likely taxable costs of the defendant.[12] The estimate of the amount of security may be conservative, with the court having power under O 25 r 5 to vary the amount from time to time.
[11] Brundza v Robbie & Co (No 2) [1952] HCA 49; (1952) 88 CLR 171, 175.
[12] See, for example, Global Finance Group Pty Ltd (in liq) v Marsden Partners [2004] WASC 52 [56] ‑ [57].
In her affidavit, Ms Kajimura estimates the costs to defend Mrs Frigger's interlocutory process at $18,117. While the amount sought is close to the estimated costs, it is itself a reasonable amount for a discrete step in the proceedings which is likely to require a substantial hearing. I have learned through experience that hearings in matters between these parties rarely proceed smoothly. The hearing of the application for security took more than half a day. In my opinion, it is just to make an order in the amount sought.
The plaintiff is to pay the amount of $15,000 into court as security for costs. Having regard to COR 131 of 2021, I will hear the parties on when that amount is required to be paid.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
KK
Associate to the Honourable Justice Allanson
25 OCTOBER 2022
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