FEDERAL COURT OF AUSTRALIA

Frigger v Kitay (No 3) [2020] FCA 650

ORDERS

THE COURT ORDERS THAT:

1.    The applicants are to pay the respondents’ costs of the applications referred to in [1] of the reasons for judgment published today, such costs not to include:

(a)    the respondents’ costs of preparing and filing the amended notice of address for service dated 28 August 2019; and

(b)    the respondents’ costs of preparing and filing their interlocutory application dated 28 August 2019 and the supporting affidavit of Mervyn Jonathan Kitay sworn on 28 August 2019.

2.    Pursuant to r 40.02(b) of the Federal Court Rules 2011 (Cth) the costs awarded in paragraph 1 of these orders are fixed in the sum of $30,000.00.

3.    The respondents are to bear the costs referred to in paragraph 1(a) of these orders.

4.    The costs referred to in paragraph 1(b) of these orders are reserved.

5.    Further consideration of whether the order in paragraph 1 should be enforceable at any time prior to judgment on the originating application is deferred to a date to be fixed.

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

REASONS FOR JUDGMENT

CHARLESWORTH J:

1    On 17 April 2020 the Court delivered judgment on four interlocutory applications: see Frigger v Kitay (No 2) [2020] FCA 497. The Court dismissed the applicants’ application for an order in terms of [1] of their interlocutory application dated 7 January 2019 (as amended) and their application for an order in terms of [3] of their interlocutory application dated 30 May 2019 (also as amended). The respondents’ application dated 1 July 2019 and their interlocutory application dated 28 August 2019 were substantially allowed. The respondents seek an award of costs in respect of those applications on a party-party basis, fixed in the sum of $33,307.00. They seek a further order that the costs be paid within 14 days.

2    These reasons are to be read in conjunction with the reasons in Frigger v Kitay (No 2). As will be apparent from those reasons, there were multiple issues arising on the applications, some of them discrete, some overlapping. The matters were decided against a history of protracted litigation resulting in a costs order against the applicants, the non-payment of which has resulted in their bankruptcies. That history, the nature of the issues and the reasons for judgment will not be repeated here.

SHOULD COSTS FOLLOW THE EVENT?

3    The applicants were unsuccessful in their two interlocutory applications. They were also unsuccessful in defending the respondents’ applications. They also unsuccessfully opposed orders restricting the publication and use of an affidavit, which issue was itself the subject of both oral and written argument. They sought to reopen argument about the admissibility and use of that affidavit, resulting in the preparation of further submissions.

4    Whilst the hearing of the applications persisted for less than one day, a considerable amount of written material was prepared.

5    The applicants accept that in the usual course, the costs of a proceeding should follow the event: see Oshlack v Richmond River Council (1998) 193 CLR 72 at [67] (McHugh J). They assert a number of reasons as to why the usual rule should not apply. They submit that the respondents have engaged in conduct productive of delay and expense and that, accordingly, there should be no order as to costs.

6    The respondents’ applications included an application by the first respondent for the Court’s approval of a costs agreement under s 477B of the Corporations Act 2001 (Cth) (CA) (the approval application): see Frigger v Kitay (No2) at [16] to [17]. The costs agreement relates to the provision of legal services in the whole of this proceeding, being an application for an extension of time in which to appeal from the orders of Colvin J providing for the sequestration of the applicants’ estates.

7    The applicants submit that the costs of making an application for approval under s 477(2B) of the CA may ordinarily be recovered by the liquidator of a company in the winding up in accordance with the priorities ranked in s 556 of the CA. So much may be accepted. However, the costs agreement considered in Frigger v Kitay (No 2) has come into existence for the purposes of defending a legal proceeding that the applicants have commenced.

8    In my view, the costs of preparing and filing the approval application should be reserved pending judgment on the originating application. The question of who should bear the costs of argument on that application from the date that it was filed is a different matter.

9    The applicants’ submissions on costs in relation to the approval application (and the other applications) in some respects seek to revisit the substantive issues that have been decided against them in Frigger v Kitay (No 2), not only as to whether approval was required, but also as to whether the first respondents’ solicitor had authority to commence the security for costs application on behalf of the second respondent on the first respondent’s instructions. The applicants persist in their submission that the second respondent company should not be made a party to a costs agreement, notwithstanding that it is joined as a party in the proceedings. They submit that the company should simply abide the event in these proceedings.

10    The applicants may have reason to be concerned that unreasonable costs may be incurred by the company participating in these proceedings in circumstances where Colvin J found that the debt specified in the creditor’s petition was referrable to the first respondent. But that of itself cannot deny the company the capacity or entitlement to enter into a contract for legal services relating to this proceeding. Whether costs have been unreasonably incurred by the second respondent in the proceedings is to be determined upon a taxation or other procedures for the assessment of quantum.

11    For the purposes of the indemnity principle, I am satisfied that the second respondent incurred costs and expenses associated with its successful defence of the applicants’ application for an order striking out a notice of appearance filed on its behalf and their application for orders setting aside an order for security for costs made for its joint benefit. It was not improper for the company to jointly defend those applications. It should have its costs in doing so.

12    The applicants then submit that the retrospective grant of approval was an indulgence of the Court for which the respondents should bear the costs. That submission belies the fact that the applicants caused the respondents to incur additional expense by opposing the application on grounds which have been found to be lacking in merit. The application might otherwise have been determined on the papers without delay, additional expense or controversy. The applicants should be ordered to pay the respondents’ costs of the approval application incurred after it was filed.

13    Next it was submitted that the respondents should bear the costs of the amendment made to their notice of address for service. I accept that submission. However, it does not follow that the respondents should not have their costs of successfully defending the application to strike the amended notice out. Whatever may have been the motivation for seeking to strike out the notice of address for service in the form in which it was originally framed, the filing of the amended notice did not cause the applicants to soften their position in any respect. To the contrary, the applicants doubled down on their assertion that the second respondent had no entitlement to be directly represented in the proceedings by a solicitor, and they added an allegation that the costs agreement had been fraudulently backdated. I have concluded that the assertion of fraud was made without proper evidentiary foundation: Frigger v Kitay (No 2) at [58].

14    The filing of the amended notice of address for service may well have been the impetus for the respondents amending their application for an order varying the security for costs order made by McKerracher J on 6 May 2019. By that amendment the applicants sought to have the security for costs order set aside insofar as it benefited both the company and the first respondent, whereas they had previously sought to vary the order so as to remove any reference to the second respondent company. The applicants might well have succeeded had they adopted a more moderate position, but instead they asked the Court to find that no security should be paid in respect of either respondent. In the circumstances described I am satisfied that the applicants should compensate the respondents for their costs of defending that application.

15    Next it was submitted that the costs of the interlocutory applications could have been avoided had the respondents disclosed the existence of the costs agreement shortly after it was entered into and had a notice of address for service not been filed on behalf of the first respondent only. I do not accept that submission. The submissions of the applicants in relation to the legitimacy of both respondents’ legal representation went well beyond their mere entitlement to be represented on this appeal on the terms set out in the costs agreement. As discussed in Frigger v Kitay (No 2), much of the applicants’ submissions went to the merits of issues decided against them in earlier proceedings in this and other courts. Much of their affidavit material was directed to the issue of whether the costs order ultimately leading to their bankruptcy was correctly made. In large part, those issues were irrelevant to the matters arising for determination on the interlocutory applications.

16    The applicants then submit that the respondents’ application for an order fixing a date by which the security for the respondent’s costs should be paid was unnecessary. They assert that there was nothing in their conduct to warrant that application.

17    I have made a declaration to the effect that these proceedings are stayed by the operation of the order of McKerracher J made on 6 May 2019. The stay was lifted for the purpose of hearing and determining the four interlocutory applications and consequential questions as to costs. In the circumstances, it is not correct to say that the applicants have not engaged in conduct to warrant the springing order application. Rather than pay the security, the applicants brought an unmeritorious application by which they sought to have the security order set aside. They did not inform the Court at any time that if those applications were unsuccessful they would not oppose an order fixing a date by which the security should be paid. Instead, they put the respondents to the costs of preparing written and oral submissions in support of the application. It was of course appropriate to determine the applicants’ interlocutory application for an order setting aside the order for security for costs, before turning to consider the respondents’ application for a springing order. But it does not follow that the respondents’ application for the springing order was unnecessary or wasteful of costs. Payment of the security within a reasonable time after McKerracher J’s order would have obviated the need for that application.

18    It is then alleged that the respondents’ solicitor engaged in misconduct by signing a notice of address for service on behalf of the first respondent in circumstances where it had entered into a costs agreement on behalf of both respondents. I have determined that the existence of a retainer between the solicitor and the first respondent was sufficient of itself to authorise the solicitor to commence an application for security for costs on behalf of both respondents: Frigger v Kitay (No 2) at [76]. It may be accepted that the disclosure of the costs agreement at a later time caused the applicants to press their argument that the agreement was not in fact in existence at the time the security for costs application was argued. I have considered the applicants’ assertions in that regard and have firmly rejected them: Frigger v Kitay (No 2) at [58].

19    Once the costs agreement was disclosed, the applicants persisted in their application to set aside the orders for security for costs and in their application to strike out the notice of address and in their opposition to the application for the springing order and their opposition to the application for approval of the costs agreement. I do not accept the assertion that had the costs agreement been disclosed earlier the costs of the interlocutory applications could have been avoided.

20    Next it was submitted that the respondents were wrong to assert that approval of the costs agreement was not required. That submission misstates the respondents’ position on the approval application. The approval application was contingent on this Court finding that approval of the agreement was required, because the respondents had insisted it was. In the result, the Court approved the agreement to the extent that it was an agreement to which s 477(2B) applied. As explained in Frigger v Kitay (No 2), the Court adopted that approach to prevent any continuing controversy about the entitlement of the respondents’ solicitor to represent both respondents in this particular proceeding. In addition, I have determined that even in the absence of a costs agreement to which the second respondent company was privy, it was open to the liquidator to instruct his solicitor to take steps on the company’s behalf in the proceedings. The solicitor was entitled to charge the liquidator for legal services in that regard, and the liquidator was entitled in turn have his expenses paid from the property of the second respondent. The existence of that entitlement does not preclude the respondents from seeking an order that their costs be paid by the applicants, nor from making an application for security for costs.

21    Except in the two minor respects I have identified at [8] and [13] above, there are strong considerations favouring an order that the applicants pay the respondents’ costs following the events I have described. The applicants’ proposal that there should be no order as to costs is rejected.

QUANTUM

22    In their written submissions, the applicants deny that the respondents genuinely owe any obligation to pay legal fees to their solicitor pursuant to the costs agreement.

23    The respondents rely on the affidavit of Mr David William John sworn on 24 April 2020 in support of their application for an order that costs be awarded on a lump sum basis and in support of the amount claimed. Mr John deposes to a liability in the respondents to pay their solicitor for legal services provided in connection with the interlocutory applications. The applicants have pointed to nothing in that unchallenged evidence to suggest that there is no costs liability vis a vis the respondents and their solicitor to which a costs order against them can attach, and they have filed no other evidence in connection with the issue. I have otherwise rejected the applicants’ arguments about the legitimacy of the costs agreement and the second respondent’s participation as a party in the proceeding.

24    The Court may make a lump sum costs order in respect of an interlocutory hearing: Federal Court Rules 2011 (Cth), r 40.02; Vantage Holdings Pty Ltd v Huang (No 2) (2015) 232 FCR 556. The power in r 40.02 is to be exercised in a way that best promotes the overarching purpose of the Court’s civil practice and procedure provisions, namely to facilitate the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible: Federal Court of Australia Act 1976 (Cth), s 37M. In Avetmiss Easy Pty Ltd v Australian Skills Qualifications Authority (No 2) (2014) 315 ALR 131 (at [30]), Mortimer J exercised the power where:

…  To proceed to a taxation of costs even though the proceeding itself has not involved complex issues or many stages would nevertheless involve significant further time, trouble, delay, expense and aggravation, disproportionate to the complexity of the proceeding and inconsistent with the overarching purpose set out in s 37M(1) of the Act.  …

25    Awards of costs fixed in a lump sum have been made in circumstances where there has been a protracted history of litigation, where a party has shown a tendency not to comply with costs orders such that the additional costs associated with a formal assessment are unlikely to be recovered: see Salfinger v Niugini Mining (Aust) Pty Ltd (No 5) [2008] FCA 1119 and Keen v Telstra Corporation Limited (No 2) [2006] FCA 930 (Rares J) where his Honour said (at [6]) that there would be “utility in the court cutting the Gordian knot of protracted fights about costs”. See also Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119 at 120 (von Doussa J).

26    In light of the history of I have described in Frigger v Kitay (No 2) I am satisfied that an order fixing costs in a lump sum under r 40.02(b) of the Rules is appropriate. It is in the interest of all parties to avoid a further protracted course of litigation that might follow from a formal taxation of the respondents’ costs.

27    The Court may adopt a broad brush approach to fixing the lump sum, provided that the approach taken is logical, fair and reasonable: Seven Network Ltd v News Ltd [2007] FCA 2059 at [29] (Sackville J); Beach Petroleum NL at 124.

28    Mr John has verified the matters requiring verification under the Federal Court Costs Practice Note (GPN-costs). The affidavit identifies the manner in which the lump sum of $33,307.00 has been calculated. The broad brush method employed in those calculations is not the subject of discrete challenge by the applicants, nor are the quantities themselves. I accept that the methodology is appropriate and that the scope of work is reasonable having regard to the nature and variety of the disputed issues. As the methodology is not challenged, I otherwise do not consider it necessary to repeat the content of the affidavit here.

29    From the amount claimed I will make a deduction of $2,496.00, being the amount attributable to the preparation of the approval application and supporting affidavit and a deduction of $510 referable to the filing fee.

30    The costs of amending the notice of address for service are not included in the respondents’ calculations and I accordingly make no deduction from the claimed amount in respect of it. As I have said, the costs of making that amendment are to be borne by the respondents.

31    I make a further deduction of $250 from the amount attributable to the preparation of the costs application and accompanying submissions to account for the circumstance that I have made the deductions referred to above. The amount deducted from that item is proportionate, having regard to the total costs claimed and the total to be ordered. The reduced sum will be rounded down to the nearest $100. The amount payable is $30,000.00.

32    The costs forming the subject of the deductions in [29] and [31] of these reasons are costs reserved in the proceedings. Subject to any further order to the contrary, they will be costs following the event in the originating application itself: see r 40.03 of the Rules.

33    The respondents have not sought an order that any particular costs be attributable as between the first and second respondents. I have not been addressed on how the terms of the costs agreement might bear on that issue. Whether anything turns on that in the winding up of the second respondent or in the administration of the applicants’ bankrupt estates is unclear. In the absence of objection supported by submissions on the question, the order will be expressed to benefit the respondents jointly on the basis that the obligations owed to their solicitor are joint and several. Should an interested person assert that it is in the interests of justice to vary the order to specify the sums attributable to each respondent, it will be necessary for that party to persuade the Court that there is utility in doing so and that the attribution is consistent with the costs agreement. Any future agitation of that issue should not distract the parties from the prompt progression of the originating application to hearing, provided that it is not otherwise dismissed.

TIME FOR PAYMENT

34    On the evidence presently before me, I am not satisfied that it is appropriate to order that the respondents’ costs be payable within 14 days from today. The utility in that order is presently not apparent, especially having regard to the applicants’ status as bankrupts and the likely diversion of resources and attention that might result should enforcement proceedings occur in parallel with the progression of the originating application to a hearing.

35    If the respondents seek to agitate that question further, they should specify the utility in departing from the usual course that enforcement of the Court’s costs orders should await the finalisation of the proceedings and specify the consequences for this proceeding should the order be breached, having regard to the applicants’ status as bankrupts.

36    I otherwise make no finding as to the financial capacity of the applicants to satisfy the costs order, whether from the assets or income that are not presently vested in their trustee in bankruptcy or otherwise.

37    The proceedings remain stayed pending the payment of security for the respondents’ costs.

Associate:

Dated:    14 May 2020