FEDERAL COURT OF AUSTRALIA

Frigger v Banning (No 9) [2019] FCA 1611

ORDERS

THE COURT ORDERS THAT:

1.    All costs orders made to date in favour of the respondents in these proceedings be varied to provide for those costs to be assessed and paid forthwith.

2.    The respondents' application for an order dismissing these proceedings be adjourned to a date to be fixed after the determination of the application in matter WAD 492 of 2018 by the applicants for an extension of time in which to appeal and any appeal brought by the applicants if an extension of time is granted.

3.    Costs of today be reserved.

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

REASONS FOR JUDGMENT

COLVIN J:

1    These proceedings were commenced by Mr and Mrs Frigger in October 2015. They were commenced as an application for orders that the respondents pay to Mr and Mrs Frigger the amount of costs ordered to be paid in various court proceedings. Many of those proceedings concerned Computer Accounting & Tax Pty Ltd (CAT) and its affairs, including orders for the appointment of a provisional liquidator and for the winding up of CAT. CAT is a company that had been controlled by Mr and Mrs Frigger prior to the orders for its winding up. Those orders were made on 6 May 2010.

2    On 20 July 2018, sequestration orders were made against the estates of Mr and Mrs Frigger on the petition of the liquidators of CAT and CAT. I was the judge who made those orders. In November 2018, Mr and Mrs Frigger commenced an application, it would appear, for an extension of time in which to bring an appeal against the decision to make the sequestration orders. It may be that there was separately an application to appeal those orders, which might have been out of time. In any event, there have been steps taken by Mr and Mrs Frigger with a view to challenging the sequestration orders that I made.

3    Nevertheless, by reason of their bankruptcy, a statutory stay came into effect in relation to the taking of further steps by Mr and Mrs Frigger in these proceedings. That stay operated subject to the provisions of s 60(4) of the Bankruptcy Act 1966 (Cth). That provision provides, relevantly for present purposes, that a bankrupt may continue in his or her own name an action in respect of any personal injury or wrong done to the bankrupt. Mr and Mrs Frigger maintain that these proceedings fall within the terms of s 60(4). They seek to continue with these proceedings and propose a further version of a new pleading for that purpose. Currently, there is no statement of claim in the proceedings. That is because the original pleading has been abandoned in favour of proposed new pleadings and leave had been refused to allow the filing of any of those proposed pleadings. It is not relevant for present purposes to review in detail that history. However the Court has found, amongst other problems with the proposed pleadings, that in a number of respects the pleadings proposed by Mr and Mrs Frigger would be an abuse of process if they were allowed to stand.

4    Mr and Mrs Frigger maintain, nevertheless, that they are in a position, if they were able to continue with these proceedings, to articulate a statement of claim which would not be an abuse of process and would respect the previous decisions of this Court.

5    On 21 August 2019, I made orders dismissing an application for leave to file a statement of claim in terms of a minute of amended statement of claim in these proceedings: Frigger v Banning (No 8) [2019] FCA 1319. The minute had been delivered after the sequestration orders had been made and proposed substantial revisions to the claim as originally formulated and sought relief that differed from that sought in the application as then before the Court. I found that s 60(4) did not apply to the proceedings and there was a statutory stay by reason of the bankruptcy of Mr and Mrs Frigger.

6    The respondents now bring an application for an order dismissing these proceedings. They say that by reason of the history of the proceedings it is appropriate that they be dismissed. They are concerned, in particular, to obtain a dismissal order so that costs orders that have been made in their favour in the course of the proceedings to date may be enforced by reason of the event of the dismissal. However, on the submissions advanced for the respondents, the application is also made in the interests of bringing these proceedings to a close. It is said that they have been delayed and have been advanced for quite some time without a pleading being able to be put on in a form that the Court would allow. Therefore, so it is submitted, it is appropriate for these proceedings to be dismissed.

7    The respondents have foreshadowed that if the proceedings were dismissed, then they would propose to seek access to the amounts that have been provided pursuant to orders for security for costs in these proceedings. They say that the security will be insufficient, but they should have the benefit of costs orders made to date, given the history of the matter, and unless and until the proceedings are dismissed those orders, being orders that are dependent upon the event of the conclusion of these proceedings, are orders which cannot presently be enforced.

8    In the course of argument, the alternative possibility that there might be a variation to the costs orders to provide that they be payable forthwith without the proceedings being dismissed was raised. Counsel for the respondents recognised that there were two separate issues and one way in which the matter might be approached was to deal separately with the concern in relation to being able to obtain payment for costs incurred to date. Nevertheless, counsel pressed for orders that these proceedings be dismissed.

9    Mr and Mrs Frigger submit that I should make no dismissal order because of the pending application for an extension of time in which to appeal the sequestration orders. If that application is successful and the appeal is successful, then they will be able to revive these proceedings and seek to persuade the Court to accept a further version of a statement of claim that they now place before the Court as an annexure to an affidavit sworn on the present application.

10    Mr and Mrs Frigger have also applied to vary or set aside the orders that I made in these proceedings on 21 August 2019. They say they are entitled to proceed with this action, even if they are not successful in challenging the sequestration orders as to their estates. Mr and Mrs Frigger maintain that there are arguable grounds upon which they could continue these proceedings. They claim amongst other things that there have been steps which amount to the tort of malicious prosecution. They sought to support that claim by reference to an affidavit which had not been filed in support of the application but nevertheless appeared to be available within the Court record.

11    There was objection taken to certain of the annexures to that affidavit on the basis that they had been, allegedly, obtained in breach of court orders made by the Supreme Court of Western Australia. That contention was disputed by Mr and Mrs Frigger, who maintain that the annexures constitute material that is in the public domain. Having regard to the applications that have been brought by Mr and Mrs Frigger in respect of the orders that I have made in these proceedings concerning the last version of the pleading and the view that these proceedings are the subject of a statutory stay, I took the view that it was not appropriate for me in the course of the present application to form a view about the merits of the claims made in these proceedings while those applications were pending. I indicated to the parties in the course of argument that I would proceed on the basis that, given the current state of disputation between the parties as to the matters relied upon to support some aspects of the claims that Mr and Mrs Frigger wish to advance in these proceedings, I would accept for present purposes that there was arguable merit as to some part of the claims that Mr and Mrs Frigger seek to bring in these proceedings.

12    Nevertheless, there remained an issue, having regard to the history of the matter and the course the proceedings have followed, as to whether nevertheless there should be a dismissal of the proceedings.

13    Mr and Mrs Frigger also submit that there is merit in their appeal against the sequestration orders. They rely in particular upon a claim that the solicitors for the liquidator of CAT and CAT had no authority to bring the bankruptcy petition against them. They claim that there was a need to obtain leave under s 477(2B) of the Corporations Act 2001(Cth) before those solicitors entered into a cost agreement. They say that the significance of the point has been conceded because an interlocutory application seeking orders nunc pro tunc under s 477(2B) has been brought in the proceedings in which Mr and Mrs Frigger seek an extension of time in which to appeal or otherwise advance an appeal against the sequestration orders.

14    The written submissions made to the Court by Mr and Mrs Frigger for the present application were to the effect that the sequestration order will be successful by reason that it has been conceded that there was no authority to bring the bankruptcy proceedings. What was not provided to the Court at the time that submission was made was the terms of an affidavit that had been filed in support of that application. By reason of the nature of the submissions advanced by Mr and Mrs Frigger I examined the Court file on that application. I did so over the objection of Mr and Mrs Frigger. The affidavit is in the following terms:

1.    I am a partner of the specialist insolvency firm Worrells, Solvency & Forensic Accountants.

2.    I have been practising primarily as an insolvency practitioner for 31 years. I became registered as a liquidator in 1993 and an official liquidator in 1998.

3.    The facts to which I dispose to hereafter are to my knowledge true and correct as stated by me.

4.    In the case of facts obtained from other sources, I verily believe those facts to be true to the best of my knowledge, information and belief.

5.    On 21 January 2010, pursuant to orders of the Supreme Court of Western Australia made by His Honour Justice Simmonds in action COR 2 of 2010, I was appointed the provisional liquidator of the second named Respondent, Computer Accounting and Tax Pty Ltd (In Liquidation) (CAT).

6.    On 6 May 2010, Master Sanderson of the Supreme of Western Australia made orders that CAT be wound up and that I be appointed the liquidator of CAT. Annexed hereto and marked 'MJK-1' is a true copy of those orders.

7.    Annexed hereto and marked 'MJK-2' is a true copy of an ASIC search for CAT dated 27 August 2019.

8.    On or about 7 November 2018, by way of an email from the then solicitors for the Applicants to my solicitors, Herbert Smith Freehills (HSF), I was served with the application commencing the proceedings herein dated 7 November 2018 (Application).

9.    By the Application, the Applicants sought to extend the time within which to appeal from the decision of Colvin J, in Kitay, in re Frigger (No 2) [2018] FCA 103 (Bankruptcy Decision), making sequestration orders against the Applicants. That sequestration order had been made in proceedings in which CAT and I were the applicants.

10.    In order to enable me (and CAT) to defend the Application through solicitors, I entered into a costs agreement with HSF (who had also acted for me (and CAT) in relation to the proceedings in which the sequestration orders had been obtained, being the proceedings which resulted in the Bankruptcy Decision). Annexed hereto and marked 'MJK-3' is a true copy of the costs agreement between me and HSF (Costs Agreement).

11.    At that time, my understanding was that when entering into a costs agreement as a liquidator, with solicitors who were to assist me in the conduct of a liquidation, that such a costs agreement would be between myself, as the liquidator, and my solicitors. As a consequence, I did not consider that it was necessary to obtain leave under section 477(2B) of the Corporations Act to enter into the Costs Agreement (even though the Costs Agreement would invariably last more than three months). That is, a costs agreement is between me and my solicitors, not between the company in liquidation and the solicitors (even if I was giving instructions to the solicitor on behalf of the company, including where the company was involved in litigation). This approach was consistent with decisions made in other disputes with the Applicants, namely:

(a)    the decision of Martino J which is Annexure ALGT4 to the Affidavit of Adam Lindsay Gordon Tucker, dated 19 August 2019, which has been filed herein; and

(b)    the Bankruptcy Decision at [128] - [138].

12.    That continues to be my understanding, but it has become apparent, as a consequence of the Interlocutory Applications made by the Applicants herein dated January 2019 and July 2019 (and the documents filed in support of those applications), that there is an issue as to whether or not I ought to have obtained leave under section 477(2B) of the Corporations Act prior to entering into the Costs Agreement.

13.    In such circumstances, and with a view to avoiding unnecessary argument, and in case my understanding is incorrect, I have made the accompanying application for approval of entry into the Costs Agreement (and subsidiary orders) nunc pro tunc, to the extent that the Court may consider that it is necessary for me to obtain such approval under section 477(2A) of the Corporations Act.

14    I consider that it is appropriate for the Costs Agreement to be with HSF, as HSF acted for me in the proceedings which resulted in the Bankruptcy Decision, which decision is the subject of the proposed appeal (ie if leave to extend the time in which to appeal is given to the Applicants). As a consequence, HSF have significant background knowledge of the relevant facts and circumstances of the matters likely to arise in the course of the Application, both as a consequence of acting for me and CAT in the proceedings which resulted in the Bankruptcy Decision and also from acting for me in the liquidation of CAT, since I was appointed provisional liquidator, and then liquidator, in 2010.

15.    Further, in my experience, the proposed rates which HSF has proposed that it will charge, as set out in the Costs Agreement, are reasonable, having regard to the complexity and history of the matter.

15    Therefore, it is plain that there has been no concession of the kind claimed by Mr and Mrs Frigger. So, there is nothing before me as to the merits of the proposed grounds of appeal against the sequestration order. Nevertheless, given that I was the judge that made the order, the merits of that application is not a matter upon which I would be prepared to express a view at this time. The application brought for an extension of time or otherwise to progress an appeal against the sequestration orders has been listed for hearing before another judge of this Court next month.

16    In the circumstances, I proceed on the basis that there is some prospect that there may be a successful challenge to the sequestration orders and that, within a relatively short period of time, at least the outcome of the application by Mr and Mrs Frigger to enable them to be able to advance that appeal will be known.

17    In my earlier decision I dealt with the principles to be applied where an order for dismissal is sought in respect of proceedings that have been stayed by reason of bankruptcy: Frigger v Banning (No 8) at [27]-[34].

18    In addition, on this application reference has been made to the decisions in Finikiotis v Knight Frank (SA) Pty Ltd [2001] FCA 1733 and Goodman v Thomas Maloney & Partners Pty Ltd trading as Charter Keck Cramer [2011] FCA 97. Those decisions concern the approach that the Court should adopt where there has been a sequestration order but there are pending steps to appeal that order, particularly the approach that courts should adopt where a party seeks to have proceedings brought by the bankrupts dismissed at a time when the outcome of an appeal is not known. Those authorities support the approach that, rather than dismissing the proceedings at that point in time, an order should be made to the effect that those proceedings are held in abeyance pending the outcome of the challenge to the sequestration orders.

19    But for the challenge to the sequestration orders, it would be necessary to consider whether it would be appropriate to make a dismissal order where the dismissal might result in the loss of a cause of action that might otherwise be pursued. Various submissions were advanced to the effect that there would or would not be such a consequence. Mr and Mrs Frigger maintained that limitation points may arise. Counsel for the respondents urged me to the view that, having regard to the nature of the claims as had been formulated in the past and as were described in oral argument, I could not reach that conclusion and that there were various difficulties with these proceedings. In the end, in my view, it is not necessary for me to form a view as to these matters because of the pending proceedings disputing the sequestration order. Until the outcome of those proceedings are known, in my view, it would not be appropriate to make an order dismissing these proceedings.

20    For those reasons and in the particular circumstances of this case, where there are ongoing proceedings seeking to challenge the sequestration order, I am not prepared to make an order dismissing the proceedings at this point in time. However, I am satisfied there should be orders that will enable the respondents to proceed to have their costs assessed pursuant to costs orders that have been made to date and thereby seek to access the security for costs that have been provided.

21    These proceedings have been on foot for a considerable period of time. Mr and Mrs Frigger have been afforded considerable indulgence in relation to repeated attempts to articulate a case in a form that would enable these proceedings to go forward. Mr and Mrs Frigger say that delays have been occasioned in part by time taken for the delivery of a decision on one interlocutory application and in part by delay by the respondents in bringing any application to dismiss the proceedings. The latter of those two matters was explained to some extent in the course of the application that was the subject to the reasons that I delivered on 21 August 2019. As noted in my earlier reasons steps were taken to deal with the position of one respondent in those proceedings, to account for the death of a party and the executor and the replacement of that party, and orders to that effect were made at that time. Neither of these matters accounts for the main extent of delay in the proceedings.

22    Even if the application in relation to costs was not being advanced, having regard to the events relating to the sequestration orders made against Mr and Mrs Frigger I consider, in all the circumstances, that it is appropriate to revisit the costs orders by reason that these proceedings have not progressed beyond the state of their commencement because of the numerous failed attempts to properly plead any case against the respondents and other unsuccessful applications that have been brought by the applicants. Those steps which fall at the feet of Mr and Mrs Frigger, even allowing for the fact that they have had difficulties in obtaining legal representation on the submissions that they advance before the Court, mean that the costs orders now take effect in a different context where a considerable amount of time has passed and there is no imminent prospect of these proceedings being concluded.

23    I also bring to account the repeated findings of this Court concerning abuse of process in relation to proposed pleadings and the fact that Mr and Mrs Frigger now propose a further new pleading, if they were able to proceed with the matter, as well as the prejudice to the respondents in the continuing delay in these proceedings being brought to their finality.

24    In all those circumstances, I consider it appropriate to vary all the costs orders that have been made to date in favour of the respondents, to require those costs to be assessed and paid forthwith. It is submitted by Mr and Mrs Frigger that the Court is not able to vary the past costs orders in the proceedings to make them payable forthwith, because such an order would affect provable debts and could not be made without notice to the trustee in bankruptcy. I am not persuaded the orders in relation to costs that I propose to make would have that consequence. They will provide only that a liability as to costs that had accrued will now fall for payment forthwith upon assessment rather than when these proceedings have been finally determined. It is not an order that alters whether the liabilities under those orders will be provable debts.

25    It is further submitted that the amount held by the Court by way of security for costs incurred by the respondents is an asset of the bankruptcy to which the respondents are not entitled to seek access. Rather it would seem, the submission for Mr and Mrs Frigger would contemplate that any assessed costs would have to be proved in the bankruptcy. There are authorities that deal with the circumstances in which an order for security creates rights of priority as against other creditors. However, it is not necessary to consider those matters for present purposes, because the orders I propose to make will not determine whether upon assessment of costs there may be resort to the amount held by way of security. That is a matter for another day, if an issue arises between the respondents and the trustee in bankruptcy of the estate of Mr and Mrs Frigger. It is not a reason why I should decline to make the costs orders of the kind to which I have referred.

26    The respondents also sought orders for indemnity costs in relation to the proceedings generally, if I was persuaded to make an order that the proceedings should be dismissed. Having concluded that I should not make such an order, it is not necessary for me to consider that application. There remains, however, the application by the respondents for an order that the costs of the application that I determined on 21 August 2019 be assessed on an indemnity basis. The submission in support of that application was expressed in the written submissions in the following terms:

5.    As per the affidavit of Mr Eastwood sworn 4 September 2019 there will be a shortfall of $2,000 - $3,000 if costs are only allowed pursuant to the scale rather than at the rates charged by the practitioners. There does not appear to be any way this can be fixed by an Order e.g. by removing scale limits as in other jurisdictions - see Flotilla Nominees Pty Ltd v W A Land Authority [2003] WASC 122 (S) @ [20] - [24].

6.    There are many well known authorities in relation to indemnity costs and therefore in these submissions the 1st to 4th Respondents only intend to summarise the authorities pertinent to the relatively confined set of relevant and obvious circumstances in this case.

7.    An indemnity costs order is appropriate where a party engages at least in unreasonable conduct in litigation - see Flotilla Nominees case supra. @ [9] and it is not necessary for the party seeking those costs to prove fraud, or, improper collateral purpose in the course or litigation to obtain such an Order - see J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Worker (WA Branch) (No 2) [1993) FCA 70.

27    Those submissions are put in general terms and reflect perhaps the fact that they were advanced to support a general application for indemnity costs. In my view, when one confines the consideration to the application the subject of the reasons on 21 August 2019, those submissions do not demonstrate that the necessary basis for an order for indemnity costs has been made out. The position as to the actual costs incurred and why they exceeded the scale in respect of that particular application has not been demonstrated. There has not been identified any particular respect in which the conduct of that application by Mr and Mrs Frigger should receive the sanction of the Court by an order in relation to indemnity costs: These matters need to be established before an order for indemnity costs may be obtained: Melbourne City Investments Pty Ltd v Treasury Wine Estates Ltd (No 2) [2017] FCAFC 116 at [3]-[5] (Jagot, Yates and Murphy JJ); Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 801; (1993) 46 FCR 225 at 232-234; Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129 (S) at [10].

28    It follows that I would not make any order for indemnity costs. Therefore I will order that as to all costs orders made to this date in favour of the respondents in these proceedings, those orders be varied to provide for those costs to be assessed and paid forthwith. I will make a further order, that the respondents' application for an order dismissing these proceedings be adjourned to a date to be fixed after the determination of the application by Mr and Mrs Frigger for an extension of time in which to appeal and any appeal brought by Mr and Mrs Frigger, if an extension of time is granted. I would propose therefore to reserve the costs of today to be dealt with at the time when the application for dismissal of the proceedings is relisted for hearing.

Associate:

Dated:    2 October 2019