FEDERAL COURT OF AUSTRALIA

ACN 656 077 020 Pty Ltd v Li [2024] FCA 770

ORDERS

THE COURT ORDERS THAT:

1.    The application of Ms Manlin Li to represent MLI Accounting and Taxation Services Pty Ltd (ACN 674 562 915) is dismissed.

2.    Costs be reserved.

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

REASONS FOR JUDGMENT

DOWLING J

INTRODUCTION

1    In this proceeding the plaintiffs, A.C.N 656 077 020 Pty Ltd and Oakwood Partners Pty Ltd, allege that Ms Manlin Li, the first defendant and a former employee of Oakwood, has breached statutory, fiduciary and contractual duties owed by her to the plaintiffs. The plaintiffs also allege that, MLI Accounting and Taxation Services Pty Ltd, the second defendant and a company of which Ms Li is the sole shareholder, secretary and director, knowingly received information and knowingly assisted in Ms Li’s fiduciary breach, and was accessorily liable for Ms Li’s statutory breach.

2    The plaintiffs seek interlocutory and final restraints against the defendants, together with orders for compensation and damages.

3    The statutory breach relied upon by the plaintiffs is said to be a breach of s 183(1) of the Corporations Act 2001 (Cth). They allege that Ms Li was under an obligation not to use information she obtained as a director of the first plaintiff, A.C.N. 656 077 020 Pty Ltd, to improperly gain advantage for herself or someone else or to cause detriment to the first plaintiff. The plaintiffs allege that Ms Li used information that included: the first plaintiff’s client list; requests from clients to the first plaintiff to perform services; the fees charged by the first plaintiff; the details of the services provided by the first plaintiff; and the first plaintiff’s professional relationships with clients (the confidential information). The plaintiffs allege that Ms Li used the confidential information to compete with the first plaintiff.

4    The fiduciary breach relied upon by the plaintiffs is said to arise as the result of Ms Li having been a director of the first plaintiff. The plaintiffs allege that Ms Li was in a position that gave her a special opportunity to exercise her powers or discretions and use knowledge gained by virtue of that directorship to the detriment of the first plaintiff or to adversely affect the first plaintiff. They allege that Ms Li used the confidential information in breach of her fiduciary duty.

5    The contractual breach relied upon by the plaintiffs is said to be the result of an employment contract entered into between Ms Li and Oakwood. That contract is said to include a term that Ms Li would not use confidential information for any purpose other than the benefit of Ms Li’s employer. The plaintiffs allege that Ms Li used the confidential information in breach of that contractual term.

6    On 8 May 2024, Ms Li filed a defence purportedly on behalf of both defendants. The defence appears to deny that the confidential information belonged to the first plaintiff because the first plaintiff had “received information from the respondent”. The defence denies the breaches of s 183 of the Corporations Act, the fiduciary duty and the contractual term as a result of the use of the confidential information. It is not explained how the fact that the confidential information was “received” by the first plaintiff from Ms Li establishes that it was not confidential.

7    On 20 May 2024, Ms Li wrote to my chambers making a request to represent the second defendant. On 21 May 2024, Ms Li filed an affidavit stating that it was “in support of the application to represent [the] second defendant MLI Accounting and Taxation Servies Pty Ltd”.

8    The matter was before me for a case management hearing on 14 June 2024. At that case management hearing I granted leave for Ms Li to represent MLI at that hearing only. I ordered that Ms Li provide any material and submissions she wished to rely on in support of her application to represent MLI by 19 June 2024, and for the plaintiffs to provide any material and submissions in response to Ms Li’s application by 21 June 2024. I advised the parties that I would determine Ms Li’s application on the papers. Neither party objected to that course. Ms Li filed a further affidavit in support of her application on 17 June 2024. The plaintiffs filed submissions opposing Ms Li’s application on 21 June 2024. I have had regard to that material.

9    At the case management hearing I also listed the matter for an urgent mediation. That mediation took place on 24 June 2024. The plaintiffs did not object to Ms Li representing both defendants at the mediation. The mediation did not resolve the matter. The plaintiffs now seek the hearing of their application for interlocutory orders on a date not before 30 July 2024. I have listed that application for hearing on 31 July 2024.

10    For the reasons that follow, I refuse Ms Li’s application to represent MLI. I do not propose to waive the requirements contained in the Federal Court Rules 2011 (Cth) that MLI must not proceed in the Court other than by a lawyer.

PRINCIPLES

11    It is r 4.01(2) of the Rules that provides that a corporation must not proceed in the Court other than by a lawyer.

12    The overarching policy of r 4.01(2) is clear. Ordinarily, a corporation, such as MLI, will be required to be represented by a lawyer: see Termi-Mesh Australia Pty Ltd v Josu Manufacturing Pty Ltd [1999] FCA 1241 at [13] and 5G Developments Pty Ltd (in liq) v Massie, in the matter of 5G Developments Pty Ltd (in liq) (No 3) [2021] FCA 1211 (Stewart J) at [14].

13    Rule 1.34 of the Rules provides that the Court can dispense with any of its Rules. Whilst special circumstances are not required to dispense with the Rules, the Court must have some reason to do so: see Termi-Mesh at [13].

14    The exercise of the Court’s discretion to waive compliance with r 4.01(2) is to be exercised by reference to all relevant considerations: see Basetec Services Pty Ltd v CPB Contractors Pty Ltd (formerly Leighton Contractors Pty Ltd) [2017] FCA 510 (White J) at [8], Pharm-a-Care Laboratories Pty Ltd v The Commonwealth (No 12) [2012] FCA 289 (Flick J) at [18].

15    In Termi-Mesh at [13]-[14], French J set out a number of relevant factors that should guide the Court’s discretion to waive compliance with r 4.01(2): see also Cooper (Receiver), in the matter of Green Grain Processing Technologies Pty Ltd (Receivers Appointed) [2024] FCA 628 (O’Sullivan J). Those factors included: the financial capacity of the corporation and those standing behind it; the effect of diverting company resources to pay legal expenses; the nature of the company’s undertaking and its financial structure; the corporation’s ability to retain and pay its staff; the identity and spread of its shareholders; the factual complexities of the case; and the capacity of the proposed representative to conduct litigation effectively.

16    In Termi-Mesh, French J held at [14] that three considerations were decisive. They were:

(a)    The potential factual complexity of the case;

(b)    The failure to provide any detailed financial information about the company or those who stand behind it and their ability to engage legal representation; and

(c)    The obvious difficulty [the proposed representative] will have in dealing efficiently with the legal and factual issues involved.

17    Those same three factors are decisive in this case.

18    Additionally, I consider there are two further relevant factors:

(d)    The overarching purpose of civil practice and procedure under s37M of the Federal Court of Australia Act 1976 (Cth) to facilitate the proceeding as quickly, inexpensively, and efficiently as possible: see Basetec at [8(c)]; and

(e)    That when the company is a respondent a more liberal approach to the exercise of the discretion may be warranted: Termi-Mesh at [14] and Basetec at 8(g).

DISPOSITION OF THE APPLICATION

Potential factual complexity of the case

19    The plaintiffs submit that factually complex questions may arise from this proceeding. As identified above the plaintiffs’ claims against MLI are:

(a)    That MLI knowingly received confidential information and knowingly assisted the breach of the fiduciary duty; and

(b)    That MLI is accessorily liable for Ms Li’s breach of s 183(1) of Corporations Act.

20    In all the circumstances of this case, as presently pleaded, the establishment of whether MLI knowingly received confidential information and knowingly assisted the breach of the fiduciary duty, has the potential to give rise to complex legal and factual questions. Likewise, the establishment of accessorial liability for Ms Li’s breach of s 183(1) of the Corporations Act (including whether MLI had knowledge of the essential elements of the contravention) has the potential to give rise to complex legal and factual questions.

21    This factor weighs heavily against dispensing with the requirement of r 4.01(2).

Failure to provide any detailed financial information

22    Ms Li has deposed that she is financially incapable of engaging a lawyer to represent her or MLI. Ms Li has provided an ASIC Search showing that she is the sole director and shareholder of MLI.

23    Ms Li has not provided any detailed financial information about MLI (or her detailed financial position as its sole director and shareholder) that demonstrate MLI’s inability to engage legal representation.

24    There is also no detailed information that addresses the other matters raised by French J in Termi-Mesh; namely, the financial capacity of the corporation generally, the effect of diverting company resources to pay legal expenses, the nature of the company’s undertaking and its financial structure, and the corporation’s ability to retain and pay its staff.

25    Ms Li’s position as a sole director and shareholder might in some circumstances favour the exercise of the discretion. However, in the present circumstances, Ms Li’s failure to provide detailed financial information means that the Court has no detailed documentary evidence about MLI’s capacity to engage a lawyer or the consequences on the business of MLI engaging a lawyer. In those circumstances those matters cannot weigh heavily in favour of the exercise of the discretion.

Difficulty in dealing efficiently and effectively with the legal and factual issues involved

26    Whilst I have no reason to doubt Ms Li’s skills as a Certified Practising Accountant and tax agent, on the material filed to date, Ms Li, has not demonstrated that she is able to deal efficiently and effectively with the legal and factual issues involved in this proceeding.

27    Further, I do not presently have the necessary confidence that Ms Li will be capable of running the proceeding on behalf of MLI in an objective and dispassionate way to facilitate the efficient determination of this proceeding: see Basetec at [13].

28    This factor weighs against dispensing with the requirements of r 4.01(2).

Position as a defendant

29    Given that MLI is a defendant to this proceeding, a more liberal approach might be taken to the application of the Rule: Termi-Mesh at [14] and Basetec at 8(g). However, even taking a more liberal approach, I do not consider it is appropriate to dispense with r 4.01(2) in this case.

30    In Termi-Mesh, French J stated at [14]:

There is no doubt that those who chose to carry on their businesses through corporate structures enjoy advantages that those carrying on business on their own account do not enjoy. They also acquire disabilities and obligations. One of the disabilities is that which is imposed by the Rules of Court under consideration in this case.

31    Ms Li has chosen to establish MLI rather than operate solely on her own account. That election carries benefits but also responsibilities. In this case, given the complexity of the case, the lack of detailed financial evidence provided by Ms Li, and the Court’s lack of confidence in Ms Li being able to deal efficiently, effectively and objectively on behalf of MLI, the appropriate course is to require MLI to comply with the Rules and be legally represented.

CONCLUSION

32    For all those reasons Ms Li’s application to represent MLI is dismissed.

Associate:

Dated:    16 July 2024