Federal Court of Australia

Lucky v Ives [2023] FCA 1571

ORDERS

THE COURT ORDERS THAT:

1.    Grant leave to the plaintiff pursuant to s 237 of the Corporations Act 2001 (Cth) to:

(a)    appoint Polczynski Robinson as solicitor for the second respondent (Company) on behalf of the Company in Federal Court proceedings number NSD 1063 of 2021 (Marketlend Proceeding) and to instruct Polczynski Robinson to engage junior counsel on behalf of the Company;

(b)    give instructions on behalf of the Company to Polczynski Robinson to file a Defence in the Marketlend Proceeding in substantially the same form as set out in Schedule A to the originating process filed in this proceeding 7 December 2023; and

(c)    give instructions on behalf of the Company to seek leave to file a cross-claim in the Marketlend Proceeding in substantially the same form, including any amendment to make allegations concerning the policy for the prior year, as set out in Schedule B to the originating process filed in this proceeding on 7 December 2023.

2.    Until further order, grant leave to the plaintiff pursuant to s 237 of the Corporations Act 2001 (Cth) to give instructions on behalf of the Company to Polczynski Robinson concerning the conduct of the conduct of the Company’s defence of, and prospective cross-claim in, the Marketlend Proceeding.

3.    Until further order, order pursuant to s 242 of the Corporations Act 2001 (Cth) that the Company pay the reasonable costs and expenses incurred in relation to the steps taken in accordance with orders 1 and 2.

4.    Pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth), the Court orders that there be no publication or other disclosure of the documents at pages 175 to 179, 199 to 200, 209 to 234, 239 to 257, 262 to 263, 266 to 271 and 274 to 317 of Confidential Exhibit UL-2 to the affidavit of Uta Lucky sworn 6 December 2023, save between the parties to these proceedings, their legal representatives, and the Court, until the final determination of the proceedings numbered NSD 1063 of 2021 and any appeals therefrom.

5.    Order that the first respondent pay the costs of and incidental to today’s hearing.

6.    Grant liberty to the parties to apply to vary or discharge these orders on cause shown on 3 days’ notice.

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

REASONS FOR JUDGMENT

(REVISED FROM TRANSCRIPT)

JACKMAN J:

1    This is an application by the plaintiff, one of two directors of the second respondent (Company), seeking leave pursuant to s 237 of the Corporations Act 2001 (Cth) (the Act) to take steps on behalf of the Company in defence of proceedings NSD1063/2021 (Marketlend Proceedings), to which it is now the sole respondent. The application is made in circumstances where the Company faces an application for default judgment in the Marketlend Proceedings this morning, in about 15 minutes time, in the event that it does not retain a lawyer and have them file a notice of acting under r 4.03 of the Federal Court Rules 2011 (Cth).

2    There is no dispute between the parties that ss 236 and 237 of the Act apply to steps to be taken in defence of proceedings on behalf of a company, a point which is evident from the terms of s 237(3) itself. Leave under s 237 must be given if the criteria in s 237(2) are satisfied. There is no dispute between the parties as to those criteria being satisfied in the present case.

3    The salient facts are as follows. The Company is an insurance broker. It has two directors who are its joint managing directors, the plaintiff and Mr Ben Ives. From June 2017, the plaintiff, on behalf of the Company, provided insurance broking services to Marketlend Pty Ltd (Marketlend) in respect of trade credit insurance coverage. The plaintiff arranged trade credit insurance for Marketlend with BCC Trade Credit Pty Ltd (BCC). Marketlend provided trade credit finance for a Singaporean company which was not successful and subsequently entered liquidation. Marketlend sought in the first instance to recover its losses from BCC, but BCC denied cover.

4    On 13 October 2021, Marketlend instituted the Marketlend Proceedings against BCC and Tokio Marine. On 9 September 2022, the Company was joined to the proceedings. The Company filed a defence to Marketlend’s claim on 7 November 2022. On 27 March 2023, Marketlend discontinued the proceedings against BCC and Tokio Marine. On 1 June 2023, Marketlend obtained leave to file and serve a further amended statement of claim, to which the Company was the sole respondent.

5    The Company prepared its defence to the further amended statement of claim, which was agreed to by both directors, but it was not filed. The Company had the benefit of a professional indemnity insurance policy, but the insurer has denied coverage of any liability the Company is found to have to Marketlend on the basis that the Company did not disclose circumstances that might give rise to the claim at an earlier time. On 31 July 2023, the shareholders of the Company, being corporations related to the directors, resolved that the Company should make a contingent cross-claim against the insurer.

6    The solicitor then acting for the Company prepared a cross-claim which positively pleaded that the Company was not aware of the relevant circumstances at the time. Also included in that cross-claim were two superfluous subparagraphs to the effect that the plaintiff did not disclose his dealing with Marketlend to the other director, and that his dealings were unauthorised and not attributable to the Company. The plaintiff disputed the factual correctness of those subparagraphs, with documentary support, and proposed that they be deleted. The other director disagreed.

7    As a result of the Company’s deadlock on this issue, the solicitor for the Company filed and served a notice of ceasing to act on 12 October 2023. Following repeated default of orders requiring the Company to retain a lawyer and have them file a notice of acting, Stewart J has listed the matter for a case management hearing this morning at 9.30 am, and indicated that he will entertain an application for default judgment if the Company remains in default. Despite correspondence on the issue, the Company has not appointed a lawyer to act.

8    It is obviously imperative that the Company appoint a lawyer, and there is now no dispute that the firm Polczynski Robinson should be appointed to act at least for the purpose of filing the defence and cross-claim, which have been provided to me in draft form, and to represent the Company at this morning’s hearing before Stewart J.

9    The legal representative for Mr Ives has proposed that the orders appointing that firm of solicitors for the Company be expressly limited to the filing and serving of the defence and cross-claim, although that was later extended to a proposal that they be appointed to act for the purpose of this morning’s directions hearing before Stewart J.

10    It appears to me that, in a situation of deadlock between the directors, where a number of steps may have to be taken in the short term in the Marketlend Proceedings in order to act in the Company’s best interests, leave which I should grant to the plaintiff pursuant to s 237 of the Act should not be limited in that way. In my view, the plaintiff should be granted leave to appoint Polczynski Robinson as solicitor for the second respondent in those proceedings (the Company) and to instruct that firm to engage junior counsel on behalf of the Company, and also to give instructions on behalf of the Company to file a defence and cross-claim and to represent the Company in the proceedings unless and until there is a variation or discharge of that order. It seems to me that the orderly conduct of the proceedings on behalf of the Company requires that that leave be granted on an indefinite basis so that the proceedings can be conducted efficiently, and also to avoid the need to return to the Court for specific authorisation for particular steps beyond those which counsel for Mr Ives has proposed this morning.

11    Mr Ives should have an opportunity to challenge the leave that I will grant, and I will make provision for that in the orders which I make this morning by granting liberty to the parties to apply to vary or discharge these orders on cause shown, on three days’ notice. I emphasise that any such application must be supported by affidavit evidence. Accordingly, I make orders in accordance with the draft short minutes of order provided by the plaintiff, deleting the draft order 6 and replacing it with the following: “grant liberty to the parties to apply to vary or discharge these orders on cause shown, on three days’ notice”.

12    In relation to costs, it seems to me that the application was reasonable and appropriate, and it was necessary for the plaintiff to approach the Court given the stance which had been taken by Mr Ives. On the evidence before me, that stance was not reasonable and the plaintiff was acting in the Company’s best interests in making the application. I do not regard it as appropriate to reserve costs, as the matter may in the future come before a different judge, whether by way of allocation to a docket judge or by way of application to the duty judge, and it would be unnecessarily onerous to force that judge to make an assessment of the appropriate costs order without having heard the initial application. Accordingly, I will make order 5 as proposed by the plaintiff.

Associate:

Dated:    11 December 2023