FEDERAL COURT OF AUSTRALIA

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

ORDERS

THE COURT ORDERS THAT:

1.    There be a sequestration order under the Bankruptcy Act 1966 (Cth) against the estates of Angela Cecilia Theresa Frigger and Hartmut Hubert Josef Frigger.

2.    The costs of the first applicant, including reserved costs, be assessed by a Registrar of this Court and be paid from the bankrupt estates of Angela Cecilia Theresa Frigger and Hartmut Hubert Josef Frigger in accordance with the provision of the Bankruptcy Act.

3.    There be liberty to the supporting creditors to apply for orders for costs.

The Court notes that the date of the act of bankruptcy is 8 November 2017.

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

REASONS FOR JUDGMENT

COLVIN J:

1    Mervyn Jonathon Kitay in his capacity as liquidator of Computer Accounting and Tax Pty Ltd (in liq) (CAT) and CAT both petition the court for sequestration orders in respect of the estates of Angela Cecilia Theresa Frigger (Mrs Frigger) and Hartmut Hubert Josef Frigger (Mr Frigger). There are a number of intervening creditors who support the petition and who seek to be substituted in the event that there is any reason why Mr Kitay and CAT are unable to obtain orders on their petition. The intervening creditors claim to be owed amounts totalling many hundreds of thousands of dollars under various costs orders against Mr and Mrs Frigger.

2    Mr Kitay and CAT rely upon an alleged debt in an amount of $61,000.42 as assessed upon taxation of a bill of costs by a Registrar of the Supreme Court of Western Australia pursuant to an order for indemnity costs made by Master Sanderson of that court. Under Order 66 rule 57 of the Rules of the Supreme Court 1971 (WA), the costs allowed by the taxing officer on any interim or final certificate of taxation shall be deemed to be a judgment of the Court, and shall be recoverable accordingly. A provision of that kind has the effect of creating a judgment without any further action being required: Calandra v Murden [2015] NSWCA 231 at [5].

3    The petition was presented in December 2017. Affidavits and grounds of opposition were filed and written submissions were exchanged. The petition was listed for hearing on 5 June 2018. A number of the grounds of opposition raised by Mr and Mrs Frigger seek to go behind the order relied upon by the petitioners. On 29 May 2018, I made orders that that the hearing on 5 June 2018 proceed as a hearing to determine the following preliminary questions:

(1)    whether there is reason for questioning whether there is really a debt pursuant to the order for indemnity costs made by Master Sanderson on 12 June 2014; and

(2)    if not, whether a sequestration order should be made in respect of the estates of each of Mr and Mrs Frigger:

see Kitay, in the matter of Frigger [2018] FCA 817.

4    For the following reasons, there is no reason to question whether there is really a debt behind the indemnity costs order because there is not a substantial question as to whether the debt is owed. None of the other grounds raised in opposition to the petition are reasons why sequestration orders should not be made. The other requirements for a creditor's petition have been demonstrated. Therefore, sequestration orders should be made in respect of the estates of Mr and Mrs Frigger.

Grounds of opposition

5    In their written grounds, Mr and Mrs Frigger raised five grounds of opposition. Mr Frigger raised an additional ground to the effect that the costs order did not properly reflect the fact that it was made only against Mrs Frigger.

6    In further written submissions dated 1 June 2018, Mr and Mrs Frigger claimed that by reason of the manner in which the taxation process was undertaken there was a fraud. They also raised other claims about the costs agreement with Herbert Smith Freehills (HSF) in respect of the costs that were taxed.

7    HSF acted in the proceedings that resulted in the indemnity costs order and on the costs assessment pursuant to that order. Mr and Mrs Frigger say there was no liability on the part of Mr Kitay to pay costs and therefore no entitlement to recover costs from Mr and Mrs Frigger. In support of that claim, they say HSF has not issued valid tax invoices to Mr Kitay or CAT relying on various aspects of the evidence concerning the invoices. They also say that as to CAT, the cost agreement with HSF was unenforceable because it had not been approved pursuant to s 477(2B) of the Corporations Act 2001 (Cth).

8    In oral submissions, Mrs Frigger claimed, in addition, that in the proceedings that had resulted in the indemnity costs order she and her husband were acting as trustees for the Frigger Superannuation Fund. They are entitled to access the Fund to meet any liability for costs but they have chosen not to do so because they dispute the debt.

9    Then, in the course of oral argument in reply, Mrs Frigger claimed for the first time that there was a set-off in respect of an amount of $80,000 being held in a term deposit in the St George Bank. In her affidavit, Mrs Frigger had said that the amount of $80,000 was owned by the Frigger Superannuation Fund. In oral submissions she claimed that was a mistake and made a number of statements about the amount from the bar table. In response to my inquiry, counsel for Mr Kitay and CAT said that they were content to treat the submissions as a statement made on affidavit provided they had an opportunity to respond. They have been given that opportunity.

10    At the end of the hearing of the preliminary issues Mr Frigger made oral submissions in reply. However, Mrs Frigger sought an opportunity to file further written submissions in reply to the oral submissions made for Mr Kitay and CAT at the hearing of the preliminary issues. I made orders for those submissions. They have been filed and in them Mrs Frigger seeks to raise for the first time a claim that there was further set-off of $15,953.15. It was said in her written submissions that the claim was allowed by me to be raised. That is not correct. I could not consider the claim without convening a further hearing to receive any further evidence and submissions. Even if the set-off for $15,953.15 raised at this very late stage was to be established it would be for an amount substantially less than the amount of the debt relied upon. Mr and Mrs Frigger make no proposal to pay the balance of the costs if the set-off of $15,953.15 is upheld. No purpose would be served by considering the claim. I refuse leave to raise the claim concerning the amount of $15,953.15.

11    Therefore, in all, there are 11 grounds of opposition raised. They are:

(1)    Mr and Mrs Frigger are able to pay their debts but they choose not to because in truth and reality there is not a debt owing to Mr Kitay or CAT;

(2)    the solicitors who issued the bankruptcy notice on behalf of CAT did not have authority to do so;

(3)    there was no liability to pay costs pursuant to the indemnity costs order because the terms of engagement of HSF as solicitors in the matter in which the costs order was obtained meant that the indemnity principle in respect of claims to costs was not satisfied;

(4)    the costs order was obtained by Mr Kitay allegedly swearing a false affidavit;

(5)    Mr and Mrs Frigger have a counterclaim set-off or cross-demand, being a claim reinstated by order of Allanson J of the Supreme Court of Western Australia which is for damages against Mr Kitay and CAT in the amount of $3,764,759.29 as at 8 May 2018;

(6)    the costs were incurred by Mr and Mrs Frigger in their capacity as trustees of the Superannuation Fund and they have recourse to the Fund but have chosen not to do so because they dispute the amount claimed;

(7)    there was fraud in the taxation process by which the amount due was assessed;

(8)    there have not been valid tax invoices issued by HSF;

(9)    the agreement between CAT and HSF was not valid and enforceable because it was not approved pursuant to s 477(2B) of the Corporations Act;

(10)    Mr and Mrs Frigger have a set-off in respect of the amount of $80,000 held in a St George bank account; and

(11)    in the case of Mr Frigger, he was not liable under the indemnity costs order.

Affidavits

12    At the hearing on 5 June 2018, counsel appearing for four intervening creditors supporting the petition sought to rely upon affidavits of Mr Eastwood, a solicitor. Amongst other things they deposed to other cost orders said to be unpaid by Mr and Mrs Frigger. I initially allowed the affidavits to be read. Mrs Frigger had foreshadowed an application to cross-examine Mr Eastwood. Before dealing with that application, I invited Mr and Mrs Frigger to advance their oral submissions in opposition to the petition. In those submissions they did not deal with the affidavits of Mr Eastwood. I then invited Mrs Frigger to explain the reason why cross-examination of Mr Eastwood was required. It emerged that she sought to cross-examine Mr Eastwood about matters that were said by Mrs Frigger to support a claim that the cost orders obtained by the supporting creditors had been obtained without the requisite authority. As those matters did not relate to the debt allegedly owed to Mr Kitay and CAT as the petitioning creditors, I inquired of their counsel whether the affidavits of Mr Eastwood were relied upon by them in support of the petition and was told that they were not so relied upon.

13    In the circumstances, I indicated that I would not refer to the affidavits of Mr Eastwood for the purposes of dealing with the preliminary issues and declined to allow cross-examination of Mr Eastwood. I reserved liberty to the intervening creditors to seek to make application to be substituted as creditors at a later time should they seek to do so and reserved their costs of the hearing on 5 June 2018.

14    Otherwise, I received affidavits sworn by Mr Kitay, Ms Shepherd and Mr Di Marco in support of the petition.

15    I received an affidavit sworn by Ms Pallister, filed on behalf of a number of supporting creditors which produced a transcript of a means inquiry of Mrs Frigger. However, no submissions were advanced on behalf of the petitioning creditors by reference to that affidavit and therefore I have not taken it into account.

16    I also received affidavits sworn by Mrs Frigger dated 14 February 2018 and 1 June 2018 (June Affidavit).

17    Finally, in the course of the hearing, I noted that there had not been compliance with the requirements of r 4.06 of the Federal Court (Bankruptcy) Rules 2016 (Cth). Counsel advised that compliance had been overlooked. I gave leave for the petitioning creditors to file those affidavits within three days. They have since been filed. I find those requirements to be satisfied.

Principles to be applied where judgment debt disputed on a creditor's petition

18    A number of the grounds of opposition to the petition seek to go behind the judgment created by the costs assessment and claim that, for various reasons, there was no debt owed by Mr and Mrs Frigger in the amount assessed to be due pursuant to the order for indemnity costs. The principles to be applied in such instances were considered by the High Court in the recent decision in Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 28. The plurality emphasised that a Bankruptcy Court hearing a petition for a sequestration order has a statutory duty under s 52 of the Bankruptcy Act 1966 (Cth) to be satisfied as to the existence of the petitioning creditor's debt: at [54]. Further, the scrutiny required by s 52 as to whether there is, in truth and reality, a debt owing to the petitioning creditor serves to protect the interests of third parties, particularly other creditors of the debtor who were not parties to proceedings that resulted in a judgment debt in favour of the petitioning creditor: at [55].

19    The question raised by s 52 is not whether there is a judgment, but rather whether there is a debt. The Bankruptcy Court has a discretion whether to accept a judgment as the required proof of the debt: Wren v Mahony (1972) 126 CLR 212, 224, 236 approved by the plurality in Ramsay Health Care at [42]-[48], [65]. Although a debt merges in a judgment, s 52 directs attention back to whether there is a debt and does so to protect other creditors whose claims are only to be administered in insolvency if there is a debt that is proved to be still owing to the petitioning creditor and the court is satisfied as to the proof of the debt (and otherwise satisfied that a sequestration order should be made having regard to the other provisions in s 52).

20    The nature of the inquiry as to whether the Bankruptcy Court should 'go behind' the judgment and decide whether there was a debt before the judgment was explained in Corney v Brien [1951] HCA 31; (1951) 84 CLR 343, 358. The question is whether there was 'an obligation not of record before there was an obligation of record'. If, after some preliminary investigation, there is found to be merit in the attack then there is no alternative but to re-try the whole case. 'The matter to be decided is the existence or non-existence of a debt antecedent to the judgment'.

21    After reviewing the authorities, the plurality in Ramsay Health Care said at [68]:

For the purposes of s 52 of the Act, a judgment may usually be taken to be sufficient evidence of a debt in that a judgment against a debtor in favour of a creditor obtained after a trial is, generally speaking, a reliable indication of the true state of indebtedness as between creditor and debtor. Indeed, such a judgment can usually be expected to provide the most reliable statement of the debt humanly attainable because the ordinary processes of the adversarial system provide a practical guarantee of reliability. The testing of the relative merits of a claim and counterclaim under the rigours of adversarial litigation will usually establish the true state of accounts as between the parties to the proceedings. Accordingly, a Bankruptcy Court will usually have no occasion to investigate whether the judgment debt is a true reflection of the real debt. But where the merits of a claim and counterclaim have not been tested in adversarial litigation, a judgment debt will not have this practical guarantee of reliability.

22    The plurality then quoted, with apparent approval, observations in Petrie v Redmond [1943] St R Qd 71, 75-76 that the Bankruptcy Court 'is entitled to go behind the judgment and inquire into the validity of the debt where there has been fraud, collusion or miscarriage of justice' and that 'the court looks with suspicion on consent judgments and default judgments'. It does not examine every judgment debt. 'Special circumstances must be established before it will do so. It is impossible to lay down any general rule'.

23    It was then observed that a concern that third party creditors may be disadvantaged may arise where 'the judgment was obtained in circumstances which suggest a failure on the part of the judgment debtor to present his or her case on its merits in the litigation that led to the judgment': at [70]. Ultimately, the plurality found that the unexplained failure to present and rely upon particular evidence was consistent with the possibility that the judgment was obtained in circumstances where there was a failure by the judgment debtor to present his case on the merits. While that possibility remained uncontradicted it was apt to suggest that the debt was not truly owing: at [71]. In those circumstances, the Full Court below had been correct to conclude that 'there was a substantial question as to whether the debt … was owing': at [72].

24    So, the decision of the plurality in Ramsay Health Care rests upon the uncontradicted possibility that there was a failure in the proceedings in which judgment was obtained to present the merits of the case as to whether there was a debt.

25    In a separate agreeing judgment, Edelman J stated that the circumstances which enliven the discretion to go behind the judgment are not constrained to any categories: at [110]. Where a judgment debt has been obtained after the testing of the merits in adversarial litigation, then in the absence of some evidence of fraud, collusion, or miscarriage of justice, a court exercising bankruptcy jurisdiction will rarely have substantial reasons to investigate whether the debt which merged in the judgment was truly owed: at [111]. Gageler J, in dissent, noted that aside from Wren v Mahony (a case defended only on a point of law that was not upheld) the researches of the legal representatives of the parties in Ramsay Health Care had unearthed no case since Corney v Brien in which a court exercising bankruptcy jurisdiction had exercised its discretion to 'go behind' a judgment entered after a trial on the merits: at [86].

26    The authorities considered in Ramsay Health Care deal with cases where the debt that is claimed to be still owing is one that has been adjudicated by a court to be due and which has merged in the judgment. So, in Wren v Mahony, Mr Wren and a company had covenanted to indemnify Mr Mahony against certain income tax that may become payable by Mr Mahony alone or together with a Mr Swann. The Commissioner assessed Mr Mahony and Mr Swann. Accordingly, there was a statutory debt. Before any tax was paid, Mr Mahony sued and obtained judgment for the amount of the tax after a plea by Mr Wren was struck out. Therefore, in that case the character of the question was whether there was a debt antecedent to the judgment.

27    In Corney v Brien the debt that had been adjudicated was a claim that monies were due under a hire purchase agreement. In the Bankruptcy Court it was said that there had been no agreement, only an offer which had never been accepted. Again the issue was whether there was a debt before the judgment.

28    Likewise, in Ramsay Health Care there had been a judgment in respect of an alleged underlying debt said to arise under a guarantee. The claim was unsuccessfully defended on the basis of a non est factum defence. No issue was raised as to the quantum claimed under the guarantee which was the subject of a certificate of debt under a clause of the guarantee: at [7]-[10]. The claim made on the hearing of the bankruptcy petition was that a proper reconciliation of competing claims between the parties meant that nothing was owed by Mr Compton: at [18].

29    The historical analysis by Edelman J in Ramsay Health Care demonstrates how the jurisdiction of a court exercising bankruptcy jurisdiction to go behind a judgment arises from a requirement to prove a debt in a manner that was acceptable to a Court of equity. It would reject proof of a debt by a judgment if it was a judgment that equity would not enforce.

30    One such instance was where there were substantial reasons to question whether in truth and reality there was a debt. Other instances concerned where there was fraud, collusion or miscarriage of justice.

The nature of the judgment in the present case

31    The present case is concerned with a failure to pay the assessed amount pursuant to a costs order made in proceedings where the assessment takes effect as a judgment.

32    An award of costs is discretionary, but must be exercised judicially, that is according to relevant considerations and taking account of the contextual features and facts of the litigation: Kazar (Liquidator) v Kargarian; In the matter of Frontier Architects Pty Ltd (In Liq) [2011] FCAFC 136; (2011) 197 FCR 113 at [4]. Settled principle guides the exercise of the discretion: Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at [38]. Generally, the discretion is exercised in favour of the successful party: Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56; (2007) 234 CLR 52 at [25]. So, a cost order usually follows the event, but need not do so.

33    If the event is success on a monetary claim then proof of a debt arising from the costs order may be said to require proof of the underlying debt because costs follow the event on that claim. It is not necessary to consider whether this is so in this instance because the claim before Master Sanderson did not involve the adjudication of any claim in debt, or indeed any claim to a monetary award of any kind. Rather, the costs order relied upon by the petitioning creditors forms part of a judgment in proceedings in which orders were made concerning a confidential affidavit. The costs order is not any part of a determination in respect of an underlying debt.

34    The result is that the debt relied upon by the petitioning creditors has no antecedent aspect in the sense that arose in the cases to which I have referred. Rather, the claimed liability was brought into existence solely by the costs order. Then the quantum of the debt was established by the assessment made by the Registrar in taxing the bill presented to the court. Upon that assessment a judgment in the assessed amount was brought into existence by operation of O 66 r 57 of the Rules of the Supreme Court.

35    So, the petitioning creditors in this case do not rely upon the judgment of Master Sanderson to prove an underlying debt. They rely upon the making of the order and the assessment of the bill of costs presented pursuant to that order as the debt. Accordingly, care must be taken in simply assuming the existence of a broad jurisdiction to 'go behind' the decision of the court in which the costs order was made on the basis of the line of authorities considered in Ramsay Health Care. The question is whether a debt has been proved, not whether there should be some review of the exercise of the discretion to make the indemnity costs order or a reconsideration of the assessment undertaken on taxation of the bill of costs presented pursuant to that order.

36    One aspect of costs orders is what is known as the indemnity principle. Costs orders are made by courts to enable a party to recoup from an unsuccessful party actual legal costs incurred, or at least some part of those costs. A party who does not have a liability to the solicitor on the record for costs cannot recover costs against the unsuccessful party: Adams v London Improved Motor Coach Builders Ltd [1921] 1 KB 495.

37    However, where a solicitor is on the record for a party then, 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: Marsh v Baxter [No 2] [2016] WASCA 51 at [37]; Halliday v Sacs Group Pty Ltd (Unreported, VSC, 25 October 1991); and Ernst & Young (Reg) v Tynski Pty Ltd [2003] FCAFC 233 at [35]. In Noye v Robbins [2010] WASCA 83 at [300]-[303], Owen JA cited authority to the effect that it was a matter to be inferred in the absence of evidence when making costs orders.

38    As costs orders operate as an indemnity they depend upon the existence of a liability to pay costs on the part of the party in whose favour the order is made. An issue may be raised as to whether the indemnity principle is met at the time when a cost order is made. In effect, an unsuccessful party can claim that the presumption should not be applied. Broadly speaking, if there is no liability on the part of the successful party to pay legal costs then there will be no basis for a costs order.

39    Further, if a costs order is made and a costs assessment is undertaken then a party must demonstrate to the taxing officer or assessor that there is an actual liability in respect of the costs claimed of a kind that satisfies the indemnity principle. This is especially so where, as in the present case, the order for costs is itself to provide an indemnity in respect of all costs reasonably incurred. So, the costs assessment or taxation process is a further point at which an issue may be raised as to whether there is an underlying liability.

40    A costs order creates an obligation to indemnify in respect of costs incurred (which is why the indemnity principle must be met before such an order can be made or enforced). No debt can arise from that obligation unless there is a liability on the part of the party who has the benefit of the costs order to pay legal costs in respect of the conduct of the proceedings. In those circumstances, an assessment of costs on taxation is an adjudication that there is a debt which, by operation of the costs order, there is a liability to pay by way of indemnity.

41    So, a taxation involves an assessment as to whether there is indeed a debt at all. If there has been a determination by the court in adversarial proceedings that the indemnity principle was satisfied (rather than the application of the presumption) or an assessment process in which both parties participated in which there was a consideration of the question then it would be expected that a court exercising bankruptcy jurisdiction would act upon the reliability afforded by such adjudications.

42    However, if neither of those steps has occurred and there is evidence in the bankruptcy proceedings raising a real question as to whether the indemnity principle was met then that may be a substantial reason why the court would not accept the judgment arising upon assessment pursuant to a costs order as proof of the existence of a debt for the purposes of s 52 of the Bankruptcy Act. Certainly, if a party was seeking to obtain a sequestration order on the basis that a certificate of a taxing officer took effect as a judgment, but it was known to that party that the indemnity principle had not be satisfied then that would be a substantial reason why a court exercising bankruptcy jurisdiction would not allow the judgment to be enforced.

43    Some of the complaints raised by Mr and Mrs Frigger question whether Mr Kitay or CAT or both of them were liable to pay costs to HSF. Others are not of that character. In assessing whether particular grounds provide a reason for this Court to refuse to make sequestration orders on the petition, the above principles must be born in mind. The question is whether there is a debt and whether the judgment arising from the certificate of the taxing officer should be accepted as proof of the debt in these bankruptcy proceedings. Beyond that, this Court does not go back and revisit the history of the litigation between the parties. In particular, in the absence of fraud, collusion or miscarriage of justice this Court does not go behind the judgment as to aspects that do not concern whether there was an antecedent debt. It does not undertake a review of the assessment of costs on taxation or the exercise of discretion as to the making of the costs order.

Proceedings giving rise to the alleged judgment debt

44    The following account is taken from the June affidavit of Mrs Frigger and documents annexed to that affidavit, court documents attached to the affidavit of Mr Di Marco and the reasons of Master Sanderson delivered on 15 May 2014: Re Computer Accounting & Tax Pty Ltd (in liq); Ex parte Kitay [No 4] [2014] WASC 169.

45    On 21 January 2010, Simmonds J of the Supreme Court of Western Australia appointed Mr Kitay as the provisional liquidator of CAT. On 6 May 2010, Master Sanderson made orders that CAT be wound up and appointed Mr Kitay as liquidator.

46    In January 2012, an application was brought in the winding up proceedings (COR 2 of 2015) by Mr Kitay in which ex parte orders were sought under s 477(2B) of the Corporations Act. Section 477(2B) 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 if the term of the agreement or its discharge by performance may be more than three months after the agreement is entered into, even if the term may end, or the obligations may be discharged, within those three months.

47    The application under s 477(2B) concerned three agreements:

(1)    a proposed litigation funding agreement to fund the defence of proceedings that had been commenced in November 2010 by Mr and Mrs Frigger against Mr Kitay and CAT (Frigger Proceedings) and to pursue a counterclaim against Mr and Mrs Frigger;

(2)    a costs agreement to be entered into between Holborn Lenhoff Massey solicitors and CAT; and

(3)    an indemnity agreement between CAT and Banning Holdings Pty Ltd.

48    In support of the application, Mr Kitay relied upon three affidavits sworn by him in the winding up proceedings. In addition he provided a further affidavit (Fourth Affidavit) in which he described certain issues that had arisen in the liquidation, the issues raised in the Frigger Proceedings and a description of the essence of the claim in those proceedings and the nature of a proposed counterclaim. It also set out details of formal or informal proofs and the fact that they had not been adjudicated. He said that he had not called for proofs of debt from the creditors of CAT and the creditors and amounts may be different if creditors were asked to formally prove their debts.

49    The reasons for seeking litigation funding and the benefits to creditors were then set out in the Fourth Affidavit. The affidavit concluded with a claim to confidentiality in respect of the contents of a separate affidavit (Confidential Affidavit). The Confidential Affidavit attached, amongst other things, two detailed letters of advice regarding potential claims against Mr and Mrs Frigger.

50    It is important to note that the Fourth Affidavit described in an open way the reasons for the application and the nature of the claims to be brought and why they needed to be funded. Further, the Fourth Affidavit made clear that there was a claim to confidentiality, the reasons for the claim and that an order was sought that the Confidential Affidavit be placed in a sealed envelope marked confidential, not to be accessed by any person without order of the court.

51    On 17 January 2012, Acting Master Chapman made orders to the effect that the Confidential Affidavit and the annexures were to 'remain confidential in the court file in a sealed envelope marked confidential, such confidential affidavit not to be accessed by any person without order of [the court]'.

52    Leave was granted under s 477(2B) and Mr Kitay as liquidator of Kitay entered into the funding agreement and pursued the counterclaim in the Frigger Proceedings.

53    A dispute arose in the Frigger Proceedings as to whether Mr Kitay as liquidator and CAT were, in light of the terms of the funding agreement, entitled to an award of costs in relation to an interlocutory application by Mr and Mrs Frigger which had failed. In order to avoid the risk that the terms of the litigation funding agreement precluded such an award of costs, Mr Kitay made a further application under s 477(2B) to vary the funding agreement.

54    Notice of the intended application was given to Mr and Mrs Frigger on 26 June 2013.

55    Orders were made by McKechnie J authorising the variation of the funding agreement. In the course of the hearing before McKechnie J on 26 July 2013, his Honour could not locate a copy of the Confidential Affidavit on the court file. In the words of Master Sanderson, 'While the fact the confidential affidavit was missing was at the time thought strange and unfortunate, nothing sinister was suspected'.

56    On 7 August 2013, Mrs Frigger swore an affidavit in the Frigger Proceedings in which she attached a copy of the Confidential Affidavit. In her affidavit she did not refer to the circumstances in which the affidavit was obtained. She did say that she and her husband were seeking advice, as parties affected, as to whether they should seek to have the orders made on 12 January 2010 in COR 2 of 2010 'set aside based on the material non-disclosure by Mr Kitay'. The affidavit went on to list material that Mrs Frigger believed had been 'deliberately withheld' by Mr Kitay from the court. The matters listed have the character of conclusionary claims and allegations rather than evidence of matters that were not disclosed. Some of them concern matters that were dealt with in the Fourth Affidavit which could not be a reason to support access to the Confidential Affidavit in any event.

57    Mr Kitay made inquiries of the Supreme Court Registry concerning the Confidential Affidavit.

58    On 23 October 2013, Allanson J made an order that the affidavit of Mrs Frigger sworn 7 August 2013 be marked confidential and be kept on the court file sealed in an envelope marked to show that it is not to be available for access to any person except by order of the court.

59    On 25 November 2013, a document entitled 'Interlocutory Process for Orders Regarding Confidential Affidavit' was filed in COR 2 of 2010 (Interlocutory Application). It was filed by HSF on behalf of 'the Applicants'. The applicants in the proceedings were Mr Kitay as liquidator of CAT and CAT. The details of the application stated that 'Kitay, as the first named Applicant, in his capacity as the liquidator of the second named Applicant, Computer Accounting and Tax Pty Ltd (In Liquidation), applies for the following orders'. I note that, as a result, there is some uncertainty on the face of the application as to whether it was brought by Mr Kitay (as liquidator of CAT) or by both Mr Kitay and CAT.

60    The orders sought were to the effect that Mr and Mrs Frigger do 'deliver up to the Applicants all hard copies of the Confidential Affidavit'. Also, a written statement be provided that they have not retained any copies, and have deleted electronic copies, and dealing with any disclosures to third parties. An order restraining Mr and Mrs Frigger from disclosing the contents of the Confidential Affidavit to any person was also sought. It was clear that the application was brought against both Mr and Mrs Frigger.

61    On 4 December 2013, HSF wrote to Mrs Frigger in response to an earlier letter from Mrs Frigger. Amongst other things, the HSF letter said:

I confirm your advice to Master Sanderson, at the hearing on 2 December 2013, that your husband, Mr Harmut Frigger, has not seen the Confidential Affidavit nor, presumably, your Disclosing Affidavit. As you are aware, despite numerous attempts to obtain information from you regarding the extent of the disclosure of confidential information, you did not, at any time, explain to us:

•    who had seen the Confidential Affidavit; nor

•    in what circumstances such disclosure had occurred.

As a consequence, it was entirely appropriate for us to assume that your husband had seen the Confidential Affidavit in circumstances where the Disclosing Affidavit was filed by you in proceedings to which your husband was a party and where your Disclosing Affidavit records that it is filed on behalf of the Plaintiffs. In any event, we confirm that if, as proposed by Master Sanderson, your husband were to swear an affidavit to the effect that he has never seen the Disclosing Affidavit, nor the Confidential Affidavit, then (subject to the terms of that affidavit), our client would not to pursue the Application against Mr Frigger.

62    On 5 December 2013 a direction was made for Mr and Mrs Frigger to file any affidavit in opposition to the application by 31 January 2014. The parties were directed to provide unavailable dates for a special appointment. The matter was listed on 17 March 2013.

63    Mrs Frigger filed an affidavit dated 11 February 2014 in the Interlocutory Application. Like the application itself, the heading to the affidavit described Mr Kitay as liquidator of CAT and CAT as 'Applicants'. The affidavit was described as 'Affidavit of Angela Frigger opposing orders in Interlocutory Application dated 25 November 2013'.

64    The affidavit began by stating 'I am one of the parties against whom orders are sought as detailed in the applicants' interlocutory process dated 25 November 2013'. (The same language appears in a supplementary affidavit dated 12 March 2014). Mrs Frigger then deposed that based on the evidence in the affidavit she believed that she was entitled to use the 'Confidential Affidavit and its annexures in any proceeding that involve the liquidator of our company … CAT … and I seek an order to that effect'.

65    Mrs Frigger then deposed as follows:

6.    On 26 June 2013 Mr Lenhoff a solicitor who represents Mr Kitay in CIV2765/20 l 0 ("the Liquidator Proceeding") advised me that the applicants had obtained Court approval to enter into a litigation funding agreement which funding would fund the Liquidator Proceeding. Attached and marked "AF1" is copy of the letter.

7.    Sometime during July 2013 I had to attend Central Office to inspect a trial transcript in CIV2265/2006.

8.    I asked one of the ladies on the counter if I could inspect the Court file in these proceedings at the same time.

9.    Both files were handed to me and I sat at one of the booths in Central office and inspected both files.

10.    There were two affidavits sworn by Mr Kitay dated 5 January 2012 arid [sic] I obtained photocopies. I did not have time to read the affidavits as my barrister urgently required the transcript referred to in paragraph 7, of which I also obtained photocopies.

11.    When I arrived home I read the ·affidavits and realised that there were numerous false statements in those affidavits, which I expand on later in this affidavit.

12.    I decided to put those affidavits before His Honour Justice Allanson in the Liquidator Proceedings. I was unaware what a "confidentiality" affidavit meant. From my experience in litigation during the past 10 years, I understood that once an affidavit has been used in any application, it may be used by any party who is affected by the affidavit. For reasons set out below, my husband and I are adversely affected by the affidavit and wish to instruct our barrister and obtain advice.

13.    The affidavit and its annexures are relevant to issues in CIV 2765/2010 and other proceedings in which the liquidator of CAT Mr Kitay intends to give evidence which will be adverse to my husband's and my interests.

66    Also, Mrs Frigger deposed to her view that all of the matters in the first advice annexed to the Confidential Affidavit were already known to 'my husband and me' and that the matters in the second advice had not been acted upon by Mr Kitay.

67    Significantly, there is no statement in the affidavit to the effect that Mr Frigger was not aware of the contents of the Confidential Affidavit. Nor is there any affidavit from Mr Frigger. So, as at the time of Mrs Frigger's February affidavit the position being advanced was that:

(1)    the copy of the Confidential Affidavit had been provided to her by officers at the Registry;

(2)    she was unaware that its description as confidential meant that she could not access the affidavit and take a copy;

(3)    she believed that she was entitled to use the Confidential Affidavit;

(4)    Mr and Mrs Frigger were aware of the information in the Confidential Affidavit from other communications;

(5)    Mr and Mrs Frigger were seeking an order that they be entitled to use the information in the Confidential Affidavit; and

(6)    Mr and Mrs Frigger were pressing to be able to retain access to the Confidential Affidavit and retain it so that they could use it for the purposes of the Frigger Proceedings.

68    At the hearing on 17 March 2014, Mrs Frigger applied for an adjournment. The application was refused.

69    Mrs Frigger was given until 16 April 2014 to file any written submission and leave was given to file an affidavit subject to certain limitations as to what the affidavit may contain.

70    On 22 April 2014, Mrs Frigger filed a further affidavit and an interlocutory process. The affidavit was headed 'In Opposition to Interlocutory Process dated 25 November 2013 and In Support of Interlocutory Process dated 22 April 2014'. The interlocutory process was an application by both Mr and Mrs Frigger as well as CAT to be permitted to use the Confidential Affidavit in the Frigger Proceedings, in certain District Court proceedings and in a new proceeding that Mr and Mrs Frigger intended to bring complaining about matters described in the affidavit. The April affidavit of Mrs Frigger did not deal with matters relating to the circumstances in which a copy of the Confidential Affidavit had been obtained.

71    Also on 22 April 2014, a document entitled 'Mr & Mrs Frigger's Submissions Opposing the Orders sought by Mr Kitay and in Support of Interlocutory Process' and signed by Mrs Frigger on behalf of Mr and Mrs Frigger was filed on the Interlocutory Application. The submissions sought leave to use the Confidential Affidavit on the basis that legal professional privilege in the advice had been displaced because it was used for the allegedly improper purpose of bringing proceedings against Mr and Mrs Frigger. A claim of that kind fundamentally misunderstands the nature of the application that was brought to approve the litigation funding agreement.

72    The April submissions did no more than express allegations by Mr and Mrs Frigger as to why they disputed the claim the subject of the advice annexed to the Confidential Affidavit. It used flamboyant and colourful language and it also employed legal jargon, but it lacked any substantive articulation of support for the claim to waiver of privilege. The fact that Mr and Mrs Frigger did not like the claim being made and disputed a number of the matters stated in the advice afforded no basis for the allegations in the submissions that the Confidential Affidavit was 'prepared for the furtherance of, and in preparation for … proceedings [which] were instituted for improper, illegal and collateral purposes'.

73    The orders sought by Mr and Mrs Frigger by filing the papers on 22 April 2014 were described by Mrs Frigger in the following terms in her affidavit:

I seek an order that CAT and the Friggers are permitted to use the Confidential Affidavit and the Privileged Materials in CIV2765/2010, District Court CIV 1221/2011 and in a new proceeding the Friggers intend to commence against the Combined Parties for damages resulting from the Abusive Proceedings as follows:

a.    Magistrates Court Proceedings against Vogt Graham $57,000 plus interest from December 2008;

b.    Solicitor/client taxation against BBV $135,000 plus interest from February 2008;

c.    Costs, expenses and compensation in freezing orders ~$300,000 plus interest from 4 December 2009;

d.    Interest lost on St George Term Deposit $5000, plus interest from date of payments;

e.    Payments to Stuart Forbes in Review ~$48,000 plus interest from date of payments - see ''AF 13";

f.    Taxing fee plus legal costs paid in CIV2265/2006 $30,000 plus interest from 2 June 2009;

g.    Difference in sale price of BP service station/Armadale property of $600,000 plus interest from 4 December 2013;

h.    Legal costs in Abusive Proceedings of ~$350,000 from date of payments;

i.    Aggravated damages of $250,000 each for the Friggers and for CAT for loss of reputation, distress and inconvenience in relation to dealing with the Abusive Proceedings.

74    Significantly, the orders sought on 22 April 2014 went well beyond the claim already made that the orders sought on the Interlocutory Application should not be made and there should instead be orders permitting use of the Confidential Affidavit.

75    On 15 May 2014, Master Sanderson gave reasons on the Interlocutory Application which concluded at [22]:

This matter has gone on long enough. As soon as it was pointed out to Mrs Frigger she had obtained a copy of the confidential affidavit she was not entitled to possess, she should have returned it to the liquidator's solicitors. That is the beginning and the end of the matter. There can be no possible justification for her retaining possession of any copies of the confidential affidavit and the orders I will make are designed to so far as is possible put the situation to rights. Mrs Frigger should pay the costs of this application including all reserved costs. I will hear the parties as to whether those costs ought be payable on an indemnity basis.

76    In the course of those reasons, Master Sanderson formed the view that the April affidavit went beyond the terms of the order he had made allowing a further affidavit and he did not consider the affidavit in making his decision. However, he stated expressly that he considered the submissions: at [17].

77    Ultimately, the April submissions were described by Master Sanderson as a 'series of wild allegations', none of which was of any substance and that 'the allegations are so wild and incoherent as to not warrant detailed analysis': at [19]. Master Sanderson also noted, correctly, that the question on the application for orders for delivery up of the Confidential Affidavit 'was not strictly speaking a question of privilege': at [20]. In the Frigger Proceedings and any others where the contents of the Confidential Affidavit was relevant, the advice would be discovered, no doubt subject to a claim for privilege. At that time, the question of privilege may be challenged as part of the discovery process. The question on the application before the Court was what orders should be made given that contrary to the orders of the Court, a copy of the Confidential Affidavit had been given to Mr and Mrs Frigger and they had then sought to adduce a copy of the Confidential Affidavit before Allanson J in the Frigger Proceedings.

78    By those reasons, the Master dealt with the general claim by Mr and Mrs Frigger that the orders for the return of the material should not be made because they should be allowed to use the material in other proceedings.

79    As to the application that Mr and Mrs Frigger sought to raise by the papers dated 22 April 2014, Master Sanderson found at [21]:

Subsequent to the hearing in this matter, Mrs Frigger purported to make a further application. It was titled 'Interlocutory process for orders regarding Mr Kitay's confidential affidavit dated 5 January 2012'. It seeks certain orders and declarations in relation to the confidential affidavit. Mrs Frigger was insistent this interlocutory application ought be listed at least for mention before determination of the liquidator's application. The lodging of the application was improper. It seeks to reventilate matters which were the subject of the special appointment. For that reason the interlocutory process was not listed and will be dismissed.

80    It can be seen that the application was considered, but it was described as one that sought to re-ventilate matters the subject of the special appointment. To the extent that the application was for orders permitting Mr and Mrs Frigger to have access to the information in the Confidential Affidavit, that was a matter that had been raised in the February affidavit and was dealt with by Master Sanderson. The only additional aspect was the claim that an order should be made that allowed the information to be used for nominated proceedings including proposed new proceedings.

81    The findings by Master Sanderson as to what happened in relation to obtaining the Confidential Affidavit are at [11] of the reasons and are expressed as follows:

On 9 September 2013, the Principal Registrar advised the liquidator's solicitors it appeared Mrs Frigger had obtained a copy of the confidential affidavit from the court file. Inquiries had not revealed how this happened. There was no record of the Registry staff providing copies of any affidavit to Mrs Frigger. Numerous requests were made to Mrs Frigger asking her how she came to be in possession of the confidential affidavit. She did not respond. Finally, in an affidavit of February 2014 Mrs Frigger explained that after she received the letter from Holborn Lenhoff Massey advising her of the application to enter into the amended litigation funding agreement, she requested an opportunity to inspect the court file. She says the confidential affidavit was on the file. She read it and requested a copy from the court staff. This was provided. At no time did she understand what was meant by 'confidential affidavit': see par 12 of Mrs Frigger's affidavit of 14 February 2014.

82    Holborn Lenhoff Massey were solicitors then acting for Mr Kitay as liquidator and who were on the record in the Frigger Proceedings. The Master then noted two points at [12]-[13]:

First, this application is not concerned with any breach by Mrs Frigger of the confidentiality orders. It must be said there are real questions about her conduct. The confidential affidavit is so entitled. There was on the file a copy of the confidentiality orders. Further and perhaps most importantly, in their letter of 26 June 2013 to Mrs Frigger, the liquidator's solicitors advised Mrs Frigger confidentiality orders had been made and she was not entitled to access the affidavit. Yet in these circumstances Mrs Frigger maintains when she came across the affidavit on the file she was unaware it was not available for inspection.

Second, the liquidator acknowledges that in the main the damage occasioned by inspection of the confidential affidavit and access to the privileged materials cannot be undone. The orders sought seek to limit the damage occasioned to the liquidator so far as possible.

83    On 15 May 2014 formal orders were made and sealed orders issued on 16 May 2014. The formal orders stated that they were made on the application 'of the Applicants by Interlocutory Process dated 25 November 2013' and were expressly directed to both Mr and Mrs Frigger. Further, on 17 June 2014, each of Mr and Mrs Frigger signed a minute of consent orders inserting some additional words into one of the orders made on 15 May 2014.

84    There was no appeal against the orders.

85    On 31 May 2014, a document entitled 'Mr & Mrs Frigger's Submissions in relation to Costs of Mr Kitay's Application dated 25 November' signed by Mrs Frigger on behalf of Mr and Mrs Frigger was filed. It began as follows:

These submissions oppose any costs orders being made in favour of Mr Kitay in relation to his application against the Friggers dated 25 November 2013.

86    Like all the documents that were filed in the proceedings by Mr and Mrs Frigger, the submissions correctly reflected the position that the application was brought against both Mr and Mrs Frigger.

87    The submissions then set out a number of reasons why there should be no order for costs in favour of Mr Kitay. The submissions included a claim of apprehended and actual bias on the part of Master Sanderson in the reasons. They complained about the directions that had been made as to the filing of affidavits and submissions and the listing of the hearing of the Interlocutory Application. They complained about the dismissal of the application by Mr and Mrs Frigger for an order that they could use the Confidential Affidavit without reading the supporting affidavit by concluding that it involved 'wild and incoherent allegations'. It observed that no indemnity costs were sought in the Interlocutory Application. It concluded by saying that costs were only made 'in exceptional circumstances' and the 'only exceptional circumstance in this proceeding is the bias of the Master'.

88    On 4 June 2014, HSF in an email to the Associate to Master Sanderson, copied to Mrs Frigger, confirmed that 'our client seeks an order for indemnity costs against Mr and Mrs Frigger' and inquired whether it was necessary or appropriate to provide a responsive outline of submissions 'setting out the basis on which our client considers he should be entitled to indemnity costs'. A response was received from the Associate to the effect that submissions were not needed.

89    On 12 June 2014, Master Sanderson gave short ex tempore reasons on the question of indemnity costs as follows:

The outstanding issue in this matter is the question of costs. I've called for submissions after delivering reasons in which I found that without any just cause, the applicants had failed to deliver up an affidavit to which they should never have had access. The parties, whom I might call the Frigger interests have filed submissions. With respect, those submissions don't take the matter any further.

I won't repeat what I said in the judgment, but I can say this: there was no justification for the Frigger interests resisting the application to deliver up copies of the affidavit. There was an order of the court that it was confidential. Once that was clarified for the Frigger interests, they should have cooperated with the liquidator and delivered the copies of the affidavit forthwith. They should also have given undertakings that the liquidator sought in relation to the use of that affidavit.

In my view, the circumstances of this case are such that an indemnity costs order is warranted against the Frigger interests. I've taken into account what's said in the submissions, but they really don't address the central issue. In my view, there is no question but that in this case the Frigger interests should pay the costs, including the reserved costs of the liquidator on a full indemnity basis, save insofar as those costs have been properly incurred. That will be the costs order.

90    On 17 June 2014, a formal order for indemnity costs was made in the following terms:

UPON THE APPLICATION of the Applicants by Interlocutory Process dated 25 November 2013, IT IS ORDERED THAT:

1.    Angela Cecilia Theresa Frigger (Mrs Frigger) and Hartmut Frigger (Mr Frigger) should pay the costs, including the reserved costs of the Applicants on a full indemnity basis, save insofar as those costs have been properly incurred.

91    It is to be noted that the order was made in favour 'of the Applicants'.

92    On 19 January 2015, a bill of costs was filed by the applicants. On 27 February 2015, the Supreme Court allocated a date for the taxation of the bill, being 9 April 2015.

93    The Supreme Court issued a letter to HSF which stated:

I refer to the applicant's bill of costs filed in this matter on 19 January 2015. The Registrar has instructed me to advise you that the bill will be listed for a taxation of costs as follows:

DATE    :    Thursday, 9 April 2015

TIME    :    10:30 am

PLACE    :    Mediation Room, Level 15, 111 St George's Terrace, Perth

The service copy of the bill is enclosed. In accordance with the practice direction, you must serve this on the paying party together with a copy of this letter.

94    Mrs Frigger deposed that she attended at the specified address (Level 15) and there was no one there from whom she could seek directions so she went to reception on Level 13. After 10 minutes she was told that the taxation was taking place on a different level to the one indicated on the notice. She went to that level where Registrar Boyle informed her that she had completed the taxation and Mrs Frigger was not permitted to make oral objections. Mrs Frigger was given a copy of the costs agreement on which the taxation had occurred.

95    Mrs Frigger then deposed:

I believe that Registrar Boyle gave some time to the parties to lodge written objections. I did not lodge written objections within the time allowed. I was traumatised by the conduct of the Master and Registrar Boyle and was overwhelmed with the 7 legal proceedings in which my husband and I were parties.

96    On 5 July 2015, Registrar Boyle signed the certificate in respect of the bill of costs in the amount of $61,000.42 and gave a copy to Mrs Frigger.

97    Mrs Frigger says that on 24 May 2016 she sent written objections to Registrar Boyle requesting the taxation be re-opened and she believes that Registrar Boyle refused to consider her objections. Given that the submissions were more than a year late that is hardly surprising.

98    However, it is of some significance that the objections were made for both Mr and Mrs Frigger and raised no objection to the effect that the costs were only ordered against Mrs Frigger.

99    The claim made in the objections was that there was no enforceable costs agreement because no approval had been obtained as required under s 477(2B) of the Corporations Act. Then, on the basis that there was no enforceable costs agreement, it was claimed that the bill should have been taxed to scale and there was no order lifting the scale items and the bill referred to an originating motion or summons when the application had in fact been an interlocutory process for which the maximum under the scale item was one-sixth of the overall bill.

100    On 14 May 2018, Mrs Frigger sent the following email to the Associate to Master Sanderson:

I refer to costs orders extracted on 17 June 2014 in the above matter. It has come to the attention of the writers that costs orders were extracted against both Mr & Mrs Frigger, whereas the original judgment contained a judgment that only Mrs Frigger should pay the costs of the proceeding.

Accordingly, we wish to re-open the matter and have the costs orders correctly reflect the original judgment [2014] WASC 169 @ [22], because the Supreme Court Registry provided the Confidential Affidavit to Mrs Frigger only and Mr Frigger did not read the affidavit nor took any part in the proceeding.

101    This appears to be the first time any such issue was raised. The claim is based upon the statement at the end of the substantive judgment of Master Sanderson (quoted above) to the effect that Mrs Frigger should have returned the affidavit and that 'Mrs Frigger should pay the costs of this application including all reserved costs'. After those reasons were delivered orders were made against both Mr and Mrs Frigger for the return of the Confidential Affidavit, they both signed a consent order varying those orders and they both filed submissions on the question whether there should be indemnity costs ordered.

102    The Supreme Court inquired whether HSF consented to the matter being relisted before Acting Master Strk.

103    HSF responded on 14 May 2018 stating that the request was a waste of court time and resources and conducive to unnecessary cost, recounting part of the history and stating that their client 'is satisfied for the matter to be re-listed before Acting Master Strk, but invites the Court to consider the materials set out above in assessing whether such a step is necessary'.

104    This Court has not been notified of any change to the indemnity costs order. As noted at the end of these reasons, since the petition was heard the matter has been relisted before Master Sanderson on 17 July 2018 at the request of Mr and Mrs Frigger.

105    There is no suggestion that there has been an application by Mr and Mrs Frigger to review the assessment by Registrar Boyle. The certificate of taxation of 5 July 2015 continues to take effect.

Affidavit of Mr Frigger

106    Mr Frigger provided an affidavit dated 24 May 2018 in which he said:

3.    I refer to the judgment of Master Sanderson dated 15 May 2015 [2014] WASC 169 at paragraph 22 and say that I am not named as the person liable to pay the costs of that matter. In those circumstances, I believe the orders extracted by Mr Kitay ordering me to pay his alleged costs was a slip error which may be rectified by the Supreme Court. I was unaware of this judgment until my wife Angela Frigger brought it to my attention when preparing for this proceeding.

4.    On 14 May 2018 my wife wrote to the Associate Master Sanderson requesting that the orders be amended so they correctly reflect the judgment. Attached and marked HF1 is copy of the email string.

5.    The final email from acting Master Strk dated 16 May 2018 indicates the matter will be brought to the attention of the master on his return from leave on 5 June 2018.

Ground 1: The alleged ability of Mr and Mrs Frigger to pay their debts

107    Section 52(2) of the Bankruptcy Act provides that if a Court is satisfied by the debtor that he or she is able to pay his or her debts then the Court may dismiss the petition. It is for the debtor to satisfy the court as to the ability to pay debts: Sanders v Knudsen & Yates t/as Hargreaves Practice [2004] FCAFC 305 at [14]. It must be demonstrated that there are assets that are available to be realised and that they are capable of ready realisation: Australia & New Zealand Banking Group Ltd v Foyster [2000] FCA 400 at [17]. Where it is shown that there are assets to which a judgment creditor might readily resort under civil judgment enforcement proceedings then it is those processes which should be followed, not sequestration.

108    However, as the language indicates, even if the ability to pay debts is demonstrated, the Court retains a discretion whether to make a sequestration order. In Sarina v Wollondilly Shire Council (1980) 48 FLR 372, 377 the Full Court (Bowen CJ, Sweeney & Lockhart JJ) stated:

The power conferred upon the court by s 52(2) is permissive, not mandatory, although it seems that the occasions on which the discretion not to dismiss the petition might be exercised would not be frequent. It may, in a proper case, require the refusal of a sequestration order, yet permit the adjournment of the petition rather than its dismissal. The variety of circumstances that may arise in particular cases renders plain the undesirability of seeking to define parameters of the exercise of the power.

109    A number of cases have considered the application of s 52(2) in circumstances where the debtor has access to funds against which a creditor is unable to levy execution. In Trojan v Corporation of Hindmarsh (1987) 16 FCR 37, 47-48 the Full Court (Northrop, Jenkinson & Burchett JJ) stated:

If, in the present case, the respondent had been remitted to its rights of recovery in respect of its judgments by means other than bankruptcy, it would have faced enormous difficulties in enforcing those rights so as to recover from the appellant who, so far as the respondent is concerned, is indebted to the full amount of the judgments. In those circumstances, as distinct from a case where ample assets were available upon which to levy execution, the principle laid down in the Sarina case would not necessarily be satisfied by a sterile demonstration of an ability to achieve a payment which was not in reality at all likely to be compelled. Section 52(2)(a) envisages a situation which will probably bear fruit in payment.

110    In support of their first ground of opposition, Mr and Mrs Frigger rely upon matters deposed to by Mrs Frigger in an affidavit dated 19 January 2018 exhibited to her first affidavit (but excluding its own exhibits). The exhibited affidavit was a copy of an affidavit that had been filed in other proceedings in this Court.

111    At the beginning of the exhibited affidavit, Mrs Frigger says that she is authorised to swear the affidavit 'on the plaintiffs' behalf ', the plaintiffs being Mr and Mrs Frigger. Mrs Frigger then says that she swears the affidavit 'to prove that my husband and I will be able to pay any costs this court may order and we are not impecunious'.

112    The affidavit lists various assets said to total $18,283,470 (para 3). With the exception of a residence in Applecross valued at $1,850,000, all of the assets are said to be assets of the Frigger Superannuation Fund. Mrs Frigger says that approximately 84% of the assets are non-concessional contributions which they can withdraw at any time (para 4).

113    Mrs Frigger also identifies a number of contingent assets that 'we have' being claims the subject of three separate court proceedings being brought by Mr and Mrs Frigger (para 5). The basis for those claims is not the subject of evidence before the court. Copies of pleadings are annexed, but there is no evidence to substantiate the claims.

114    Mrs Frigger then says in para 6 of her affidavit:

We currently have liabilities as follows:

(a)    COR2/2010 $61,000.42;

(b)    CIV2265/2010 $31,599.72 & $42,000;

(c)    Law Mutual Insurance $100,000 (approximately)

(d)    H & A Frigger Pty Ltd $2,450,050

(e)    BankWest credit card $44,167

(f)    Total liabilities $2,728,816

(emphasis in original)

115    Mrs Frigger then states why the amounts in (a) (being the debt upon which the present petition is based), (b) and (c) are disputed and that the credit card liability will be paid. The amount in (d) is said to be a loan payable as agreed between the parties. Even accepting these statements, there is a shortfall between the value of the residence and the loan. There is no attempt to demonstrate the merits, if any, of the alleged contingent assets being the claims in other court proceedings. Even so, claims of that kind are not readily realisable and are not relevant to the assessment to be made as to whether there is an ability to pay debts.

116    There is no attempt to demonstrate that the residence is susceptible to liquidation to enable debts to be paid. This is not surprising for two reasons.

117    First, in the proceedings in which the affidavit of 19 January 2018 was filed (being proceedings brought by Mr and Mrs Frigger against Mr Kitay in his capacity as liquidator of CAT), I had to consider their financial position. In evidence was a mortgage over the residence: Frigger, in the matter of Computer Accounting & Tax Pty Ltd (in Liq) (No 2) [2018] FCA 612 at [15]. Further, the Court of Appeal of Western Australia has expressed concern that the mortgage formed part of a transaction that the mortgage was registered with the effect (and in circumstances where it was open to infer with the intention) of putting assets out of the reach of Mr and Mrs Frigger's creditors: Frigger v Kitay [2016] WASCA 173.

118    Second, Mr Kitay and CAT relied upon findings made in other proceedings between the parties in this court concerning the bankruptcy notice to show that they had been unsuccessful in attempting to enforce the judgment debt of $61,000.14 pursuant to a property seizure and sale order over properties including the residence: Frigger v Kitay [2017] FCA 1278. In those proceedings, the court made findings that the residence was encumbered and the properties the subject of the order were modestly furnished with nothing of real significant commercial value and the Deputy Sheriff could not see much chance of success until all matters on the real properties had been resolved: at [12]-[16].

119    In any event, there is no evidence on the application before me to the effect that the residence can be readily realised and there is no current evidence of the personal financial position of Mr and Mrs Frigger.

120    Therefore, on the evidence, the only source of funds that might be applied to meet the judgment debt is the monies in the Frigger Superannuation Fund which, on the evidence, are substantial and most of which can be the subject of immediate distribution to Mr and Mrs Frigger. Further, a considerable amount of those funds are held as cash or in assets that could be readily realised.

121    As to the Fund, the petitioning creditors rely upon the decision in Dunn, in the matter of Dunn v Vangsnes [2000] FCA 1051. In that case, the judgment debtor opposed a creditor's petition on the ground, amongst others, that he was solvent because of funds to which he was entitled from his superannuation fund. Hely J found that Mr Vangsnes was solvent and was able to pay his debts because of his entitlement to a distribution from the fund (or his rights under an unpresented cheque that had been sent to him in respect of those entitlements), but that there remained a discretion whether to make a sequestration order. His Honour referred to Trojan v Corporation of Hindmarsh at 48 where the Full Court said 'The principle laid down in the Sarina case would not necessarily be demonstrated by a sterile demonstration of an ability to achieve a payment which was not in reality at all likely to be compelled'.

122    In Vangsnes, an attempt at garnishment had been made but had been unsuccessful because member's benefits in a regulated superannuation fund must not be cashed in favour of a person other than the member: at [19]. In those circumstances, his Honour found that because the petitioning creditor was not able by process of garnishment or execution or other legal remedy to access benefits to which Mr Vangsnes was entitled under his superannuation, that was a reason why the discretion should be exercised in favour of the making of the sequestration order: at [20].

123    There was no attempt by Mr and Mrs Frigger to claim that some form of execution could be levied against the monies in the Frigger Superannuation Fund. Rather, the submission advanced concerning the decision in Vangsnes was that the judgment debt was incurred by Mr and Mrs Frigger as trustees of the Frigger Superannuation Fund and they are entitled to a right of indemnity out of the Fund, but they have a duty not to resort to the Fund if they dispute the claim, which they do. Therefore, although they could resort to those funds they choose not to do so for what they consider to be good reason. The reasons advanced are those raised by other grounds and are dealt with in the balance of these reasons.

124    The claim that Mr and Mrs Frigger incurred the indemnity costs liability as trustees of the Frigger Superannuation Fund appeared to be made on the basis that the inspection of the documents at the Registry and the request for the copy of the Confidential Affidavit was made for the purposes of the pursuing the Frigger Proceedings in which they were seeking to make claims as trustees for the Frigger Superannuation Fund. Before me was a version of a pleading in that action. Even assuming, for present purposes, that the claims in those proceedings are advanced solely as trustees of the Fund (which does not appear to be the case), that does not mean that there was not a personal liability in respect of the conduct in relation to the Confidential Affidavit. Indeed, even if they were acting as trustees of the Fund they would still have a personal liability in respect of their conduct in relation to the Confidential Affidavit. Individuals who are trustees do not have a corporate personality like a company. Generally speaking, they have a personal liability for their actions as trustees and a right of indemnity against the trust fund in certain circumstances.

125    Further, the proceedings on the Interlocutory Application sought orders against Mr and Mrs Frigger personally. The indemnity costs orders were made against them personally. There is no reference in the affidavits filed by Mrs Frigger in the proceedings before Master Sanderson that the liability in respect of the Confidential Affidavit was a liability incurred on behalf of the Fund. Therefore, there is no legal or factual merit in the claim.

126    I find that by reason of the funds available to Mr and Mrs Frigger from the Frigger Superannuation Fund, they are able to pay their debts. However, those are the only funds available to a creditor. The petitioning creditors are unable to resort to the monies in the Frigger Superannuation Fund. The petitioning creditors have sought to levy execution, but have been unsuccessful in doing so. In those circumstances, even though I am satisfied that Mr and Mrs Frigger are able to pay their debts I decline to dismiss the petition under s 52(2) of the Bankruptcy Act.

Ground 2: The validity of the bankruptcy notice

127    An application by Mr and Mrs Frigger to set aside the bankruptcy notice was brought on 20 September 2016 and dismissed by Deputy District Registrar Trott on 28 February 2017. An application to review that decision was heard by Siopis J on 15 June 2017. The application was refused: Frigger v Kitay [2017] FCA 1278. The matter was not taken on appeal. The validity of the bankruptcy notice was finally determined by the decision of Siopis J. This ground is not a reason to refuse to grant the petition.

Ground 3: Mr Kitay's liability to HSF

128    In evidence was a letter of engagement from HSF to Mr Kitay dated 29 October 2013. It was signed as being accepted by Mr Kitay. The letter was headed 'Frigger - Confidential affidavit - Application'. It stated that the schedule to the letter set out the engagement terms. The terms set out the scope of the work. It began by stating that HSF had been providing Mr Kitay advice with respect to the liquidation of CAT. It set out some of the events that had occurred in relation to the Confidential Affidavit. It then described the scope of the review which included seeking orders of the kind that ultimately were sought from Master Sanderson.

129    The engagement terms then had a section headed 'Costs'. The section began by stating that HSF had agreed to do the work set out in the scope on the basis set out below 'which means that if you are unsuccessful … or succeed, but do not recover costs from Mrs Frigger, we will not seek recovery from you of our professional fees'. It then stated that if there was a successful outcome and Mr Kitay recovered certain of your costs 'we may seek to recover our professional fees in those limited circumstances described in the section below titled 'If you have a successful outcome and receive legal costs from the other side' (Relevant Section).

130    The Relevant Section was expressed as follows:

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.

131    Importantly, in the previous section headed 'Costs' there was a further statement that:

We need to tell you that the law requires us to send you a bill for our legal costs. We will, however, waive payment of those costs except in the circumstances described below.

132    Those words provide important context for construing the Relevant Section. If attention is confined to the Relevant Section there is perhaps an ambiguity in the second paragraph of the Relevant Section as to whether a bill will only be sent if one of the three listed matters occur or whether those three matters qualify when HSF will ask Mr Kitay to pay any bill. However, when those words are read in the context of the earlier statement that HSF is required to send a bill, but payment will be waived if the circumstances 'described below' occur there is no real ambiguity.

133    In determining the meaning of the Relevant Section (being part of a commercial contract) it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That enquiry will require consideration of the language used by the parties, the circumstances addressed and the commercial purpose or objects to be secured by the terms of engagement. Unless a contrary intention is indicated, a court is entitled to approach the task on the assumption that the parties intended to produce a commercial result: Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104 at [46]-[51] (French CJ, Nettle & Gordon JJ).

134    A reasonable person would not construe the agreement on the basis that the parties intended that, despite the express reference to payment if there was a costs order, there could never be payment if there was a costs order because a bill could only be rendered once there was a costs order (meaning there could be no recovery). A circularity of that kind was plainly not intended by HSF and Mr Kitay given the language they used.

135    In those circumstances, the letter and terms of engagement provided for HSF to undertake for Mr Kitay the work that was the subject of the indemnity costs order and the assessment by Registrar Boyle. It provided for HSF to send a bill for that work. However, HSF would only ask for payment of that bill in one of the three numbered circumstances listed in the section quoted above.

136    Contrary to the submissions advanced by Mr and Mrs Frigger, there was a liability on the part of Mr Kitay to pay costs that existed throughout. In those circumstances, if any issue was taken about whether there was an actual liability to pay costs, the Supreme Court of Western Australia would conclude that the indemnity principle was satisfied: Marsh v Baxter [No 2] at [37] and Noye v Robbins at [295]ff. This is not a case where the solicitor's right to claim costs was expressed in terms where there was no liability to pay unless and until there had been recovery of costs: see the review of the relevant cases in Mourik v Von Marburg [2016] VSC 601. Nor is it a case where the right of the solicitor to render an account was conditional upon a successful outcome or depended upon an alteration of the terms of engagement after the work had been undertaken on a pro bono basis to then allow an account to be rendered. In such cases, issues may arise as to whether there was an obligation to pay costs at the time the costs order was sought: Wentworth v Rogers [2006] NSWCA 145; (2006) 66 NSWLR 474; King v King [2012] QCA 81; and LM Investment Management Ltd (Administrators Appointed) v The Members of the LM Managed Performance Fund [2014] QSC 54. In this case the three conditions qualified the circumstances in which HSF could take steps to enforce payment of its account, not the issuing of the account.

137    On the evidence before me, the costs agreement was before Registrar Boyle who provided a copy to Mrs Frigger. A costs assessor has a jurisdiction to consider and interpret the terms of engagement relied upon to support a costs assessment: Wentworth v Rogers [1999] NSWCA 403 at [55]. However, even assuming that there was no consideration of the question whether the indemnity principle had been satisfied as part of the taxation process or the assessment lacked the requisite assurance as to proof of the underlying debt because Mr and Mrs Frigger did not make submissions as part of the taxation, the matters raised by this ground are not a substantial reason to exercise the discretion to not accept the costs certificate (taking effect as a judgment) as proof of the debt because they lack merit. Irrespective of whether it was considered by Registrar Boyle, the evidence as to the terms would not have led to a different outcome.

138    Therefore, the evidence as to the terms of the agreement between HSF and Mr Kitay is not a reason to go behind the costs assessment.

Ground 4: Alleged false affidavit

139    Mr and Mrs Frigger say that there were matters stated by Mr Kitay in the Confidential Affidavit which were 'riddled with falsehoods'.

140    However, the truth of the contents of the Confidential Affidavit was not in issue before Master Sanderson. When the terms of the order for confidentiality became known to each of Mr and Mrs Frigger they had an obligation to respect the terms of that order and take the steps that they were ultimately ordered by Master Sanderson to take. They were obliged to take those steps irrespective of the content of the affidavit.

141    Further, the assessment of costs by Registrar Boyle (which took effect as the judgment on which the petitioning creditors rely) did not depend upon whether the contents of the Confidential Affidavit were true. The question whether an amount of $61,000.42 due as a debt depended upon a determination that there was a liability on the part of the petitioning creditors to HSF. As to the quantum of the debt, it also depended upon the material produced on the taxation to support the claim.

142    Whether the Confidential Affidavit was false in any respect is irrelevant to whether there is a debt now due and is not a basis upon which the court should decline to make the orders sought on the petition.

Ground 5: Alleged counterclaim, set-off or cross demand

143    Mr and Mrs Frigger say that they have a claim against Mr Kitay and CAT in the Frigger Proceedings in the Supreme Court for damages in the amount of $3,764,759.29 as at 8 May 2018.

144    The existence of a claim that has not yet been determined may provide a basis upon which a judgment debtor may demonstrate that there is 'other sufficient cause' as to why a sequestration order ought not be made and the petition dismissed: s 52(2)(b) of the Bankruptcy Act and Totev v Sfar [2006] FCA 470. It is a different question to that which arises in considering whether a bankruptcy notice should be set aside: Totev v Sfar at [35].

145    Where, as here, the claim is for damages, the question is whether there is sufficient validity in the claim to justify a dismissal or adjournment of the petition. It must be a claim against the petitioning creditor rather than a third party. It is relevant to consider whether the debtor is well advanced with the litigation. The evaluation is informed by the view that it is not in the public interest for a debtor to be forced into bankruptcy by reason of a state of insolvency of likely short duration: as to these matters, see Re Schmidt; Ex parte Anglewood Pty Ltd (1968) 13 FLR 111 at 115-116; Ling v Enrobook Pty Ltd [1997] FCA 226; (1997) 74 FCR 19 and Maddestra v Penfolds Wines Pty Ltd (1993) 44 FCR 303.

146    The evidence as to the claim in Mrs Frigger's February affidavit was confined to a minute of proposed further re-amended statement of claim in the Frigger Proceedings. Those proceedings were commenced in 2010.

147    In the June affidavit there was reference to the proceedings having been the subject of a dismissal for failure to comply with a springing order in respect of the provision of security for costs. However, the proceedings were said to have been reinstated by Allanson J of the Supreme Court on 19 December 2017. The order doing so was conditioned upon Mr and Mrs Frigger complying with the order for security for costs and paying outstanding costs orders.

148    Before me, there was no coherent demonstration of any merit in the claims in the Frigger Proceedings. What was in evidence was that much of the pleading relates to claims brought on behalf of the Frigger Superannuation Fund alleging that CAT has been administered in insolvency in a manner that has failed to recognise that many assets held by CAT are assets of the Fund and the steps taken to realise assets.

149    Having regard to how long the claim has been proceeding and the other matters I have stated, I am not satisfied that the existence of the Frigger Proceedings is a sufficient cause to refuse the petition before me.

Ground 6: Liability for costs allegedly incurred as trustees

150    The claim made is that Mr and Mrs Frigger's access to the Confidential Affidavit was undertaken as trustees of the Frigger Superannuation Fund and therefore they are not personally liable for the costs which are to be recovered by recourse to the Fund which they have chosen not to do.

151    There are three problems with this ground.

152    First, there is no evidence before me to support a conclusion that the case before Master Sanderson was conducted on anything other than the basis that the orders were sought against Mr and Mrs Frigger personally and defended on that basis by them.

153    Second, as I have explained in dealing with ground 1, there is no separate legal personality where individuals act in a trustee capacity. Mr and Mrs Frigger are personally liable for their activities as trustees.

154    Third, even if it were relevant, there is no evidence that the access to the affidavit was undertaken solely for the purposes of the Frigger Superannuation Fund. Mr and Mrs Frigger appeared to claim that it was for that purpose because the affidavit was placed before the Supreme Court in the Frigger Proceedings which were advanced as trustees of the Fund. The difficulty with that argument is that Mrs Frigger also claims that an amount of $80,000 in a St George bank account (being one of the matters in issue in the Frigger Proceedings) is a basis for a setoff on the part of Mr and Mrs Frigger (see below). The factual inconsistency in the positions is manifest.

Ground 7: Alleged fraud in the taxation process

155    Mr and Mrs Frigger claim that the manner in which the taxation process was conducted is a reason why the petition should not be granted. At the outset, it must be noted that this is a complaint that could only go to the quantum of the judgment debt. The liability under the costs order for Mr and Mrs Frigger to pay costs on an indemnity basis would be unaffected by the manner in which the taxation proceeded.

156    Further, this claim does not involve a consideration as to whether there is a reason to look behind a judgment to see whether there is, in truth and reality, a debt. Rather, it involves a consideration as to whether there has been fraud, collusion or a miscarriage of justice in the manner in which the assessment was undertaken (which takes effect as a judgment).

157    On the evidence, Mr and Mrs Frigger were given notice of the hearing at which the taxation occurred. The hearing took place on a different floor to that stated in the notice. As a result Mrs Frigger was late. A hearing which takes place at a location which is not the notified location is not any hearing at all or, at best, is an ex parte hearing. The taxation of costs could then proceed ex parte. Therefore, the hearing at that time occurred without affording procedural fairness to Mr and Mrs Frigger. If that had been all that occurred then there would have been a miscarriage of justice, provided that Mr and Mrs Frigger could demonstrate that there was some matter that they were deprived of raising.

158    However, Registrar Boyle did not allow the taxation that had occurred in the absence of Mr and Mrs Frigger to stand. Rather, on Mrs Frigger's own evidence, she was given a copy of the costs agreement with HSF that was relied upon to support the claim to indemnity costs and was permitted to file written objections.

159    As to the scope of objections that might have been raised, the principles applicable to the assessment of costs in Western Australia were considered in Flotilla Nominees Pty Ltd v Western Australian Land Authority [2003] WASC 122 (S); (2003) 28 WAR 95, a case relied upon by Mr and Mrs Frigger. In Western Australia, if there is no agreement concerning costs, then an order for indemnity costs results in an assessment according to the Supreme Court scale of costs, which is the same scale to be applied as between party and party, provided the hourly rates charged do not exceed the scale rates (established by cost determinations): at [13]-[15]. Further, if costs exceed the scale, it is open to a party to seek a special costs order to have the scale limits lifted if they are considered to be insufficient: at [19]. If there is an enforceable costs agreement establishing a higher rate then costs ordered to be paid on an indemnity basis will not be automatically taxed on the basis of the hourly rates provided for in the costs agreement. The test of reasonableness will apply even where there is a costs agreement: at [28], applied in Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129 (S) at [17]. As these statements make clear, if there is a costs agreement then it is the terms of that agreement and not the scale (and the relevant costs determinations) that govern the amount to which a party will be entitled, limited by the overall test of reasonableness: Rodwell v Hutchinson [2010] WASCA 197 at [24] and Dream Money Pty Ltd v Bernhard [2016] WASCA 193 at [35].

160    So, before Registrar Boyle there were only two issues: (a) was there a liability for the amount claimed under the terms of the costs agreement; and (b) were the charges reasonable.

161    The bill that was presented by HSF was not long. It comprised seven items identified by reference to items in the scale. The main item claimed was $47,334 for an originating motion, originating summons or originating application.

162    The application in relation to the Confidential Affidavit was not brought as an originating procedure, but rather as an application within the original winding up proceedings. Therefore, the appropriate item may have been that for a proceeding in chambers where the scale limit is much lower. However, the amount claimed was above either scale limit.

163    A schedule to the bill was provided setting out the details of the actual work done for the application, the hours of work undertaken and the amounts charged. As to the main item, the schedule was about two pages long. Irrespective of whether the claim was made under the item for an originating process or a proceeding in chambers, the task was to consider the nature of the application, consider whether the charges were made in accordance with the agreement and make an overall evaluation as to whether they were reasonable. The task was not complex and depended for the most part upon the experienced evaluation to be undertaken by the Registrar rather than anything that might be advanced by way of submissions.

164    In those circumstances, it was entirely reasonable for Registrar Boyle to proceed by providing Mr and Mrs Frigger with a copy of the written costs agreement and an opportunity to file written submissions. An oral hearing was not required unless something was raised by the written submissions that required such a hearing as a matter of fairness. Mr and Mrs Frigger were given from 9 April to 5 July 2015 before the certificate on the bill was signed. They filed no submissions.

165    Mrs Frigger's explanation was that she was traumatised by the conduct of Master Sanderson and Registrar Boyle and was overwhelmed by the seven legal proceedings in which Mr and Mrs Frigger were parties. This is not an explanation that would mean that there was a miscarriage of justice. Mr and Mrs Frigger had eight weeks to provide written submissions. They could have sought a review of the decision, but did not. They did nothing in relation to the taxation process for over a year. Even then, the only claim made was that the costs agreement with HSF was not enforceable. No issue was raised as to reasonableness at that time.

166    Most importantly, there was no matter presented to me to support any claim or reasonable argument that the charges raised by HSF under its agreement with Mr Kitay which were included in the bill of costs were unreasonable. The other matters raised by Mr and Mrs Frigger as to why there was a fraud in the assessment of costs concerned (a) whether the bill was assessed by reference to the correct scale item (which I have dealt with); (b) whether HSF's terms of engagement were enforceable (which I have rejected for reasons I have given in relation to other grounds); and (c) whether the indemnity costs should have been ordered in circumstances where Master Sanderson did not have the HSF costs agreement before him when making the order. There is no merit in the last point for the following reasons.

167    In Flotilla, Pullin J expressed the opinion that if a party wishes to seek an indemnity costs order to allow costs to be taxed at the rates stated in a cost agreement, then the terms of the costs agreement should be disclosed to the judge who is being asked to make the order and not be left to emerge at taxation: at [30]. However, that aspect of his Honour's reasoning does not create a condition which must be met before there can be a valid order for costs. Rather, the appropriate emphasis is upon the discretionary nature of an award of indemnity costs: see, for example, Johnson v Denwest Nominees Pty Ltd (t/as Cunderdin Roadhouse) [2017] WASCA 200 at [111]-[114]. Generally, an indemnity costs order will not be made unless it is demonstrated that some part of the costs will not be recovered by a special costs order: Unioil International Pty Ltd v Deloitte Touche Tohmatsu (a firm) (1997) 18 WAR 190, 193. That circumstance may be demonstrated by producing a costs agreement that allows for charging at rates above those allowed for in the scale (and costs determinations). However, it is not a pre-condition. Indeed, the Court of Appeal in Western Australia has made an indemnity costs order against Mr and Mrs Frigger without requiring the terms of the costs agreement to be disclosed: Frigger v Kitay [No 2] [2017] WASCA 139.

168    In Dream Money Pty Ltd v Bernhard there was a claim for indemnity costs under the terms of an agreement that provided for indemnity costs. In considering an appeal from a decision that the amount could not be quantified for the purposes of assessing an offsetting claim on an application for a winding up order, Newnes and Murphy JJA found that an amount could be assessed. In doing, they held that as there was no evidence of a costs agreement, the indemnity costs were to be assessed by reference to the costs of the scale: at [35]. However, that approach was adopted because, in the unusual circumstances of the particular case, the court was itself undertaking the assessment of the quantum of the indemnity costs.

169    In the above circumstances, the fact that the HSF costs agreement was not produced to Master Sanderson is not a reason, of itself, for questioning the making of the costs order. In any event, for reasons I have given, this court has no jurisdiction to revisit the exercise of the discretionary decision to make the indemnity costs order. There is no debt behind that order which is relied upon by the petitioning creditors. Rather, the question for this court is whether there has been some fraud, collusion or a miscarriage of justice in the manner in which the costs assessment (which takes effect as a judgment) was obtained. Even assuming that includes the circumstances in which the indemnity costs order was obtained, it has not been demonstrated by Mr and Mrs Frigger that there is a reason of that kind in relation to the making of the order for indemnity costs.

Ground 8: The validity of the HSF tax invoices

170    In response to a request from Mr and Mrs Frigger, copies of four tax invoices were produced in respect of work undertaken for Mr Kitay under the costs agreement with HSF. Three invoices were for work done by HSF. The fourth invoice was for a filing fee on the bill of costs.

171    There had been no request for the invoices prior to the taxation nor during the subsequent period during which Mr and Mrs Frigger could have filed written submissions by way of objection. It appears the request was only raised this year after the petition was presented.

172    In a letter to Mrs Frigger dated 23 May 2018, Mr Kitay said there was an account dated 27 June 2014 for $56,227.51 which related to work undertaken from 22 October 2013 to 18 June 2014 (Primary Invoice). The bill of costs was filed on 19 January 2015. It claimed $59,512.60 which included $3,500 for drawing the bill and $2,100 as an estimate for the taxation hearing and preparation. So, the additional amounts above the Primary Invoice appear to relate to the taxation process. Mr Kitay's letter said that he received an account for those items dated 23 May 2018 for $6,160. Further, also on that date he received an account for $3,033.27 for work prior to 22 October 2013 which he had been advised by HSF was inadvertently not included in the original invoice.

173    Mr and Mrs Frigger denied that the Primary Invoice had been issued on 27 June 2014. The evidence establishes that it was issued. They said it was issued to Crowe Horwath. It was addressed to that firm for the attention of Mr Kitay. It was headed provisional liquidation of Computer Accounting and Tax Pty Ltd. In the context of the terms of engagement with HSF, the invoice was for work in respect of the proceedings that were heard by Master Sanderson concerning the Confidential Affidavit. The copy produced was not signed. That did not mean there was no signed invoice. However, even if there was not a signed invoice, that did not mean there was not a liability to pay costs to HSF in the amount assessed. HSF could issue a new signed invoice if required. None of these matters provide a foundation to go behind the assessment of costs on the taxation.

174    The existence of the Primary Invoice and the invoice as to the fee paid on taxation taken together with the terms of engagement with HSF were sufficient basis to satisfy the indemnity principle in respect of the costs claimed in the bill of costs.

175    Mr and Mrs Frigger say that the two invoices dated 23 May 2018 have been issued to Worrells Solvency & Forensic Accountants (being the practice of which Mr Kitay is now a member) which is conducted by a trustee on behalf of a unit trust that was not in existence at the time of the taxation. These submissions misapprehend the requirements of the indemnity principle and nature of Mr Kitay's position. As to the indemnity principle, all that is required to claim the costs is a liability for those costs. The Primary Invoice, plus the participation in the taxation in the context of the terms of the HSF terms of engagement which meant that Mr Kitay would be liable for the time spent by HSF solicitors in the taxation process was sufficient to satisfy the indemnity principle. As to Mr Kitay's position, the costs claimed are in his capacity as liquidator and are not claimed by the accounting practice where he works.

176    These matters do not provide a ground to dismiss the petition.

Ground 9: The HSF terms of engagement and s 477(2B) of the Corporations Act

177    As I have noted, s 477(2B) of the Corporations Act provides that except with the approval of the Court, of the committee of inspection or of a resolution of creditors a liquidator must not enter into an agreement on behalf of the company in liquidation if obligations of a party to the agreement may be discharged by performance more than three months after the agreement was entered into, even if the term may end or the obligations be discharged within three months.

178    It is common ground that no such approval was obtained in respect of the HSF terms of engagement concerning the conduct of the proceedings relating to the Confidential Affidavit. 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.

179    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.

180    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).

181    The bill of costs was presented by both Mr Kitay and CAT as the applicants. However, the only costs claimed in the bill were costs that had been incurred by Mr Kitay. The claim to the costs in the bill did not depend upon a claim that costs had been incurred by CAT. The indemnity costs order did not apply only to costs jointly incurred by Mr Kitay and CAT. It is an order in favour of each of them. No claim is advanced by the petitioning creditors that the costs that were assessed by Registrar Boyle were incurred by CAT. They rely upon the terms of engagement agreed between Mr Kitay and HSF.

182    Although the petition for sequestration orders is presented by both Mr Kitay and CAT, it is sufficient if Mr Kitay demonstrates that he is a judgment creditor in respect of the costs the subject of the assessment. For reasons I have expressed elsewhere in these reasons, he has done so.

183    Therefore, there is no merit in this ground.

Ground 10: The alleged set-off of $80,000

184    In the course of the hearing, when making oral submissions in reply, Mrs Frigger claimed that a statement in one of her affidavits concerning an amount of $80,000 held in a St George bank account was incorrect. She put the matter in the following way:

I made an error … in the evidence that I put before the court … where I've listed various assets.

…

[O]ne of the assets … is a St George term deposit of $80,000 plus accrued interest. Now Mr John was at pains to tell you that the proceedings before Allanson J is all about assets in our super fund, but in fact, the reason why we are in those proceedings in our personal capacity is because there are a couple of assets that we own personally, and that asset is one of them …

[T]he asset is in my name and the company's name [ie, CAT] jointly. It's a term deposit which was still held by the St George Bank, and it's funds which we say we - which I say I own in my personal capacity, and, unfortunately, I said in that affidavit that they are all owned by the Frigger Super Fund, but I made a mistake. And I wish to correct that, because there is still a question, I believe, this court has to decide: in what capacity the application was brought against my husband and I before the Master, whether it was in our personal capacity or whether it was in our capacity as trustees of the super fund. And we say - and I say that no matter which capacity you find the application should have been brought - and that's one of the reasons we ask you to go behind the judgment - there are assets that we own that is held in the personal capacity or in the capacity of the - as trustees, and that $80,000 is more than the $61,000 that is owing, and that we could use as a set-off.

185    I then asked counsel for the petitioning creditors the following question:

Mr John, are you content to treat those submissions as a statement made on affidavit by Mrs Frigger? That is, her claim that the - that she has - she claims that the $80,000 in the St George term deposit account is claimed to be - though it is in the name of the company and her, that it's her own asset.

186    Counsel stated that he was content with that, but sought an opportunity to make submissions on the matter. Those submissions were provided in writing.

187    The reference to the claim before Allanson J is to the Frigger Proceedings. I have dealt with that claim insofar as it is a claim to damages in dealing with ground 5. The only evidence of the claim (other than the statement quoted above) is the minute of proposed further re-amended substituted statement of claim produced by Mrs Frigger as an attachment to her June affidavit. In that pleading there are claims that:

(1)    CAT asked St George Bank to provide a bank guarantee in favour of BP for $80,000 as security for credit for fuel purchases by a service station being operated by CAT (para 96);

(2)    St George agreed to issue a bank guarantee if CAT or some other person placed $80,000 on term deposit with St George (para 97);

(3)    on or about 1 September 2008, Mrs Frigger paid $80,000 from her own funds to St George to meet the requirement for the guarantee (para 98);

(4)    a term deposit account was established in the joint names of CAT and Mrs Frigger (para 99)

(5)    Mr and Mrs Frigger took over the conduct of the service station business in 2009 (para 101);

(6)    the term deposit was renewed (para 102); and

(7)    the term deposit and interest on the deposit is the property of Mrs Frigger (para 104).

188    On the basis of the statements made by Mrs Frigger at the hearing (to be treated as made on affidavit) and the content of the pleading, any claim to the money is by Mrs Frigger (on the basis that the monies in the term deposit remained her monies), or by CAT (on the basis that the monies were advanced by Mrs Frigger to CAT).

189    There are difficulties with the manner in which the claim was raised. The matters stated in the pleading are not verified in any way by the affidavit of Mrs Frigger. Even if those matters are taken at face value, there is no evidence as to the actual circumstances, particularly those concerning the actual dealings with St George and how it was that Mr and Mrs Frigger were said to have taken over conduct of the service station business. Further, the claim has been raised in proceedings commenced in 2010 in respect of events in 2008 and 2009. There has been ample time for Mrs Frigger to pursue the claim which was only raised at the eleventh hour in the present application.

190    There are also difficulties with the alleged claim insofar as it is a claim to the amount in the bank account. It is not a claim against Mr Kitay as liquidator. It is a claim against CAT. Further, it is a claim by Mrs Frigger alone, not Mr and Mrs Frigger.

191    In all those circumstances, I am not satisfied that the claim is a sufficient reason not to allow the petition.

Ground 11: Mr Frigger's liability for indemnity costs

192    The claim that Mr Frigger was not liable under the indemnity costs order is without merit. It is based upon a reading of a single sentence in the reasons of Master Sanderson divorced from the overall context. It disregards the fact that prior to the application Mr Frigger was given an opportunity to state his position if he claimed not to have been involved in relation to obtaining a copy of the Confidential Affidavit, but did not do so. It disregards the fact that the application was for orders against both Mr and Mrs Frigger, that orders were made against both of them, that Mr Frigger signed a consent to vary those orders as they applied to him, that the indemnity costs order was made against both Mr and Mrs Frigger and the costs assessment was sought against both of them. There is no evidence advanced to support a claim that the order should not have been made against Mr Frigger (even assuming such evidence was relevant to the present application). The order was made in 2015 and the claim that it was only against Mr Frigger was not raised on the application to set aside the bankruptcy notice and was raised for the first time in the course of these proceedings.

Application for leave to reopen and stay delivery of reasons

193    By application dated 26 June 2018, Mr and Mrs Frigger sought orders that I stay delivery of my reasons, give leave to reopen the defence of the petition and allow Mr and Mrs Frigger to adduce further evidence. Mr and Mrs Frigger also sought an order requiring Mr Kitay to produce a costs agreement and a form lodged by Mr Kitay with the Australian Securities and Investment Commission in respect of the affairs of CAT.

194    An affidavit of Mrs Frigger was filed with the application. I heard the application on 11 July 2018 and refused it after hearing from Mrs Frigger. I indicated I would provide my reasons when publishing my decision on the petition.

195    The affidavit filed in support of the application concerned matters raised in an appeal before the Court of Appeal in Western Australia from orders made by Allanson J in the Frigger Proceedings allowing Mr and Mrs Frigger further time to comply with an order to provide security for costs after the time had passed for the provision of the security under the terms of a springing order. Allanson J granted the extension of time to comply on conditions. Mr Kitay and CAT have appealed against that order. Mr and Mrs Frigger sought security for costs in the appeal. Their application for security was heard on 21 June 2018 and refused by the Court of Appeal: Kitay v Frigger [2018] WASCA 100. One of the reasons for refusing the application was stated to be the personal liability of Mr Kitay as liquidator in respect of any costs order in the event that the appeal was not successful. Further, the Court of Appeal was of the view that there was no prospect that the appeal might succeed by Mr Kitay and fail by CAT such that a costs order may only be made against CAT. These are not matters that have any relevance to these proceedings, save that they indicate a possible further difficulty faced by Mr and Mrs Frigger in advancing the Frigger Proceedings.

196    Mr Kitay has provided an affidavit in which he has deposed that the costs agreement and ASIC form have been provided to Mr and Mrs Frigger. Copies of those documents were annexed to his affidavit. Those documents do not relate to the assessed costs under Master Sanderson's order for indemnity costs on which the petition is based. They are not relevant to the issues in the present proceedings.

197    Mrs Frigger sought to call in aid the terms of the costs agreement in the Frigger Proceedings and the reasons of the Court of Appeal to support the arguments already made in these proceedings in respect of compliance with s 477(2)(b) of the Corporations Act in relation to the terms of engagement with HSF. Those arguments depended upon legal propositions and the terms of the agreement with HSF. The matters in the affidavit have no relevance to those arguments which I have dealt with in these reasons.

198    Further, Mrs Frigger sought to claim that the terms of the agreement between Mr Kitay and solicitors engaged in the conduct of the Frigger Proceedings demonstrated that there was some form of sham in relation to the costs agreement. On that basis it was said that the Confidential Affidavit had been afforded the protection of confidentiality when that should not have occurred. The alleged sham was relied upon as a basis on which this Court should go behind the indemnity costs order made in the proceedings in which Mr and Mrs Frigger maintained that they were entitled to retain the Confidential Affidavit despite those confidentiality orders. I have already dealt with that argument and the additional evidence that Mrs Frigger seeks to adduce could have no bearing on the outcome of that claim.

199    After the application for leave to reopen was filed and listed for hearing, Mrs Frigger filed a further affidavit. It stated that the application by Mr and Mrs Frigger to Master Sanderson to amend the order for indemnity costs so that it is only an order as against Mr Frigger (to which I have referred in these reasons) had been listed for hearing by Master Sanderson on 17 July 2018. For reasons I have given, the attempt to amend those orders is entirely without merit. It ignores the entire course of proceedings before Master Sanderson which concerned both Mr and Mrs Frigger. It is raised very late in the day without any explanation of delay. An unmeritorious application to revisit the costs order is not a basis upon which I should stay the determination of the petition.

200    For those reasons, I refused the application for a stay. However, I indicated that I would not deliver my reasons until after the scheduled hearing before Master Sanderson on 17 July 2018. I listed the matter for judgment on 20 July 2018. As to the application for leave to reopen, I considered the matters that Mr and Mrs Frigger sought to raise and found that they were not relevant to the issues on the petition. For those reasons, I refused the application to reopen and adduce the further evidence.

Conclusion

201    The extent of the claims made by Mr and Mrs Frigger in these proceedings reveals an intense unwillingness to accept their liability to meet costs under costs orders. They prefer to find whatever argument they can, irrespective of its merit, not to meet their debts. The indemnity costs orders themselves were made in circumstances where there was a disregard of Court orders as to confidentiality (at least from the time that the obligations in relation to confidentiality were made clear).

202    As to the preliminary questions, for the reasons I have given, there is no reason for questioning whether there is really a debt pursuant to the order for indemnity costs made by Master Sanderson on 12 June 2014. The petitioning creditors have satisfied the statutory requirements for making sequestration orders against the estates of Mr and Mrs Frigger. No other reason has been demonstrated as to why sequestration orders should not be made.

203    Therefore, the petition for sequestration orders against Mr and Mrs Frigger should be granted. As Mr and Mrs Frigger failed to comply with the bankruptcy notice in this matter by 8 November 2017, being the extended date for compliance ordered by Siopis J on 1 November 2017, the relevant act of bankruptcy occurred on 8 November 2017.

Associate:

Dated:    11 July 2018