FEDERAL COURT OF AUSTRALIA

Sealed Air Australia Pty Limited v Aus-Lid Enterprises Pty Ltd [2018] FCA 31

ORDERS

THE COURT ORDERS THAT:

1.    The third respondent’s interlocutory application dated 25 October 2017 be dismissed.

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

REASONS FOR JUDGMENT

KENNY J:

1    This is an application by the third respondent, Mr Ashlyn De Souza, to be permitted to represent the first respondent, Aus-Lid Enterprises Pty Ltd (ACN 082 053 316) (Aus-Lid Enterprises), in these proceedings. Also in his application, Mr De Souza indicated that he was seeking leave on the company’s behalf to file an amended statement of defence. At the hearing, he did not press this latter part of his application.

2    In support of his application, Mr De Souza relied on his own affidavit dated 24 October 2017. Mr De Souza agreed that an affidavit sworn by Mr David Newman on 19 October 2017, which was filed and served on the parties pursuant to an order of the Court of 20 October 2017, and Mr De Souza’s responsive affidavit of 24 October 2017 were also relevant to his application.

Some background

3    The background to these proceedings is well-known to the parties and it is unnecessary to set it out in any detail in these reasons.

4    In his affidavit, Mr Newman, who is a solicitor and partner of the firm Maddocks, deposed that he was engaged to act for Aus-Lid Enterprises from about December 2016 until around 13 October 2017. According to the ASIC records to which he referred, as at 19 October 2017, the two directors of Aus-Lid Enterprises were Mr Robert Herbert and Mr Vladimir Vaupotic and there were three members of the company, holding share capital in equal shares. These company members were Mr Vaupotic, Mr Herbert and Stanborough Pty Ltd, a company controlled by Mr De Souza. Mr De Souza had been a director of Aus-Lid Enterprises until his resignation on 27 July 2017.

5    Mr Newman referred to a company meeting of 12 October 2017, which was apparently called by Mr De Souza and Mr Vaupotic. This meeting is referred to in the affidavit evidence of Mr De Souza, who has claimed that he was re-appointed a director at that meeting. Mr Newman stated that he did not express a view about the validity of the meeting or the resolutions said to have been passed at the meeting.

6    Mr Newman deposed that he was initially retained by Mr Vaupotic and Mr Herbert to act for Aus-Lid Enterprises “for the purpose of investigating and pursuing any claims it may have against Operations and/or Mr Desouza” and that subsequently he was retained to act for Aus-Lid Enterprises in these proceedings. According to Mr Newman, he received a letter dated 13 October 2017 from Aus-Lid Enterprises terminating his retainer. The letter was signed by Mr De Souza and Mr Vaupotic. He accepted that his retainer was ended and subsequently, on 25 October 2017, filed a notice of ceasing to act as lawyer for Aus-Lid Enterprises.

7    Mr De Souza’s affidavit of 24 October 2017 filed in support of his present application included the following statements.

1.    He is authorised to make the affidavit on his own behalf and on behalf of Aus-Lid Enterprises.

2.    He is the co-inventor of the patented lid. The other co-inventor is listed as Mr Vaupotic.

3.    He has been responsible for raising capital for Aus-Lid Enterprises and has been involved “in all aspects of the company since inception”.

4.    A dispute arose in December 2016 about the management of Aus-Lid Enterprises and Auslid Operations Pty Ltd (Auslid Operations). Mr Herbert and Mr Vaupotic sought more control and questioned the financial returns. Mr Herbert was responsible for the statutory demand issued to Auslid Operations.

5.    Auslid Operations went into liquidation on 7 June 2017. Maddocks acted for Aus-Lid Enterprises in the liquidation.

6.    On 20 July 2017, Mr Newman filed a notice that Maddocks was to act for Aus-Lid Enterprises in the current proceedings.

7.    On 27 July 2017, Mr De Souza resigned as a director of Aus-Lid Enterprises as his relationship with the other directors had broken down.

8.    On 2 September 2017, the liquidator of Auslid Operations issued a report. There was a creditors’ meeting on 19 September 2017.

9.    The dispute between Mr De Souza and Mr Herbert has continued. At a company meeting on 12 October 2017 several resolutions were passed against Mr Herbert’s wishes.

10.    On 16 October 2017 a notice of termination of lawyer’s retainer terminated the services of Maddocks for Aus-Lid Enterprises in these proceedings.

the relevant rule

8    Rule 4.01 of the Federal Court Rules 2011 (Cth) (the Rules) provides that:

(1)    A person may be represented in the Court by a lawyer or may be unrepresented.

(2)    A corporation must not proceed in the Court other than by a lawyer.

Note 1: Corporation and lawyer are defined in the Dictionary.

Note 2: A notice of address for service for a corporation must be filed by a lawyer―see rule11.02.

Note 3:    The Court may dispense with compliance with this rule—see rule 1.34.

9    By virtue of r 4.01(2) a corporation must not proceed in the Court other than by a lawyer, although acting under r 1.34 the Court may dispense with this requirement. The Court will not dispense with the r 4.01(2) requirement, however, unless the corporation wishing to act otherwise than by a lawyer demonstrates a “sufficient reason” to be permitted to do so: see Re Molnar Engineering Pty Ltd v Burns (1984) 3 FCR 68 at 74-75 (Smithers J); AA Shi Pty Ltd v Avbar Pty Ltd (No 4) [2010] FCA 878 at [15] (Collier J); Pharm-a-Care Laboratories Pty Ltd v Commonwealth of Australia (No 12) [2012] FCA 289 at [9]-[21] (Flick J); Ecopave Australia Holdings Pty Ltd v Adbri Masonry Group Pty Ltd [2012] FCA 1156 at [4] (Tracey J); and Hurd v Zomojo Pty Ltd [2013] FCA 145 at [1] (Marshall J).

10    The current application is made by Mr De Souza and, according to Mr De Souza, on behalf of Aus-Lid Enterprises. I note that there is limited evidence concerning Mr De Souza’s authority to make such an application on the corporation’s behalf. Mr De Souza deposed that he ceased to be a director of Aus-Lid Enterprises on 27 July 2017 and a search of ASIC’s records as at 19 October 2017 showed that Mr Herbert and Mr Vaupotic were that company’s directors. Mr De Souza has asserted that he was reinstated as a director at the meeting on 12 October 2017, although he has adduced no other evidence to support this assertion. I note that a question arose as to the validity of that meeting and the resolutions allegedly passed at it.

11    Apart from Mr De Souza’s assertion, there is therefore no independent evidence that Mr De Souza is currently a director of Aus-Lid Enterprises and/or that he has the company’s authority to make this application. I am not presently persuaded that Mr De Souza has the authority he claims to make this application.

12    It is true Aus-Lid Enterprises is now unrepresented in the proceedings. This is a matter for the company and the persons through whom it may properly make decisions of this kind.

13    Even if Mr De Souza is properly authorised by Aus-Lid Enterprises to make this application, I would be disinclined to permit Mr De Souza to represent it in these proceedings.

14    In Basetec Services Pty Ltd v CPB Contractors Pty Ltd (formerly Leighton Contractors Pty Ltd) [2017] FCA 510 at [8], White J helpfully summarised the relevant principles as follows:

The exercise of the Court’s discretion pursuant to r 1.34 in relation to r 4.01(2), is to be exercised by reference to “all relevant considerations”: Pharm-a-Care Laboratories Pty Ltd v The Commonwealth (No 12) [2012] FCA 289 at [18]. The authorities indicate the variety of matters which may bear upon the exercise of the discretion in a given case. These include:

(a)    the financial capacity of the company and those standing behind it and whether a lack of financial capacity would inhibit a company from obtaining legal representation: Deputy Commissioner of Taxation v Compumark Pty Ltd [2012] FCA 583 at [19]-[20]; Termi-Mesh Australia Pty Ltd v Josu Manufacturing Pty Ltd [1999] FCA 1241 at [13]; Worldwide Enterprises Pty Ltd v Silberman [2009] VSC 165 at [20];

(b)    the factual complexities of the case and the capacity of the proposed representative to conduct it effectively having regard to the skills, training, qualifications and experience of that representative: Damjanovic v Maley (2002) 55 NSWLR 149 at [77]; Compumark at [19], Termi-Mesh at [13];

(c)    the overarching purpose of the civil practice and procedure provisions specified in s 37M of the Federal Court of Australia Act 1976 (Cth) (the FCA Act) and the effect on the achievement of that purpose if the company proceeds with, or without, legal representation: Australian Competition and Consumer Commission v Adata (Vic) Pty Ltd (No 2) [2015] FCA 272; Compumark at [20]; Silberman at [20];

(d)    the ability of the proposed representative to exercise the objectivity expected of a legal practitioner: Pacific Air Freighters (Qld) Pty Ltd v Toller [2000] FCA 0343; (2000) 171 ALR 519 at [11];

(e)    whether a lack of available disciplinary measures in relation to the persons seeking to represent the company will affect the administration of justice: Compumark at [20]; Damjanovic at [76];

(f)    the manner in which the case has progressed to date and the manner in which it may progress without the party having legal representation: Compumark at [20]; Silberman at [20];

(g)    when the company in question is a respondent, a more liberal approach to the exercise of the discretion may be warranted: Termi-Mesh at [14].

15    In that case White J refused the applications for dispensation from the requirements of r 4.01(2), among other reasons, because of the lack of evidence regarding the corporation’s financial capacity and because his Honour did not have the confidence that “the proceedings would be conducted in an objective and dispassionate way so as to facilitate the efficient determination of the appeal” (at [13]).

16    In the present case, there is very little evidence about the financial position of Aus-Lid Enterprises and no evidence about the financial position of those standing behind the corporation.

17    A letter to my associate dated 16 October 2017 was annexed to Mr De Souza’s affidavit as “AGD9” and included the statement that:

The first respondent company does not trade and has not done for 10 years, all costs that the first respondent incurred were met by the second Respondent, however the First respondent has wound up the second Respondent company for reasons that will be dealt with at a later stage, and the company is now in liquidation, all income that the group received is tied up in the liquidation.

18    Mr De Souza re-iterated these assertions at the hearing. They were not supported by independent evidence. Even if I were to accept them as correct, there is no evidence about the financial position of the individuals behind the company, such as Mr De Souza or Mr Vaupotic.

19    Annexure AGD8 to Mr De Souza’s affidavit is a statement of account addressed to Aus-Lid Enterprises from Maddocks dated 16 October 2017, showing an outstanding amount of $31,057.29. In his affidavit, Mr De Souza deposed (at [28]) that a Mr Long had received this statement of account and that $22,115.10 of the $31,057.29 that remained outstanding related to “the defence in these proceedings”. If Mr De Souza was intending to refer to the defence of Aus-Lid Enterprises, then this is not consistent with the “particulars” noted on the statement of account itself, which referred to “Claim against Auslid Operations”. In the end, I am unassisted by this annexure.

20    As Mr Drew, counsel for the applicant, observed at the hearing today, the issues in dispute are factually complex. There is not simply the applicant’s claim against Aus-Lid Enterprises and others. Aus-Lid Enterprises has a cross-claim in which it seeks damages for the loss it suffered through the lost opportunity of making and selling the patented lid to Dean Foods and other customers. Whether or not Aus-Lid Enterprises will pursue this cross-claim at trial is unclear. In his affidavit in response to Mr Newman, however, Mr De Souza stated:

Respondent one in the proceedings has a genuine cross claim not being agitated, and at the General Meeting held on the 27th September 2017, it was resolved that the directors had to stop the company incurring any further debt it could not meet, coordinate a defence and provide certainty in any coordinated action, I was to represent the company and seek leave from this Honourable Court to act for Aus-lid Enterprises Pty Ltd and this was communicated to Maddocks in a letter dated 13th October 2017 …

21    The factors that militate in favour of dispensing with the requirement in r 4.01(2) of the Rules include the fact that the proceedings are at a relatively advanced stage and that lawyers were representing Aus-Lid Enterprises until mid-October last year. There is, however, still much to be done to prepare the matter for trial and, as Mr Drew noted, there will be the matters of cross-examination and procedural issues at trial, which Mr De Souza is not qualified to address. Whilst Mr De Souza is a respondent in the proceeding and may as such represent himself, I am not persuaded that he has sufficient capacity to represent the corporation effectively, notwithstanding some familiarity with the underlying factual matters giving rise to the dispute. Furthermore, having regard to the history of the dispute and the affidavit material filed by Mr De Souza, it seems unlikely that Mr De Souza will be able to approach such a task with anything like the objectivity expected of a legal representative of a party to a proceeding.

22    There is, moreover, a real possibility that a conflict of interest will arise between Aus-Lid Enterprises and Mr De Souza in circumstances where the applicant claims that Mr De Souza directed and caused the Aus-Lid corporations (including Aus-Lid Enterprises) to contravene the Australian Consumer Law, and aided or was directly or indirectly knowingly concerned in the contraventions by the Aus-Lid corporations of provisions of the Australian Consumer Law. Mr De Souza denied this possibility; but it seems to me that his failure to appreciate the risk only serves to heighten it. As Kiefel J said in Australian Competition and Consumer Commission v Dataline.net.au Pty Ltd [2004] FCA 1361 at [3] (in relation to the person seeking to represent the corporation):

Then there is the question of his position in the action. In relation to the contraventions against the first, second and third respondents, it is sought to make him liable as an accessory, or as being knowingly concerned in the contraventions. It could hardly be a satisfactory state of affairs to have him as a witness in his own defence and also making submissions and presenting evidence for the companies.

23    Additionally, I would not discount the possibility that the lack of available disciplinary controls in connection with Mr De Souza has the capacity to affect the administration of justice.

24    Having regard to the foregoing, the considerations to which s 37M of the Federal Court of Australia Act 1976 gives rise tells against dispensing with the requirement in r 4.01(2) in order that Mr De Souza might represent Aus-Lid Enterprises. Dispensation from this requirement would not, in my view, assist in the efficient, timely and cost-proportionate resolution of the proceedings and be in the interests of justice overall.

25    For the forgoing reasons, I would dismiss Mr De Souza’s interlocutory application.

Associate:

Dated:    30 January 2018

SCHEDULE OF PARTIES