In the matter of Sovereign Lawyers Pty Ltd

[2018] NSWSC 695

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Sovereign Lawyers Pty Ltd [2018] NSWSC 695
Hearing dates:	15 May 2018
Decision date:	15 May 2018
Jurisdiction:	Equity - Corporations List
Before:	Black J
Decision:	The Originating Process filed by Mr Nicolopoulos on 14 May 2018 be dismissed with costs. By noon on 16 May 2018, Mr Nicolopoulos deliver a copy of the Originating Process and his affidavit dated 14 May 2018 to the Law Society of New South Wales, and advise the Law Society that he is doing so pursuant to the orders made today. By noon on 16 May 2018, Mr Marlon Potts deliver a copy of his affidavit dated 15 May 2018 to the Law Society of New South Wales, and advise the Law Society that he is doing so pursuant to the orders made today.
Catchwords:	CORPORATIONS – membership, rights and remedies – derivative action – application for grant of leave by former officer to bring proceedings in name of company under Corporations Act 2001 (Cth) s 237 – whether in the best interests of company that applicant be granted leave
Legislation Cited:	- Corporations Act 2001 (Cth) ss 236, 237
Texts Cited:	- Austin & Black's Annotations to the Corporations Act
Category:	Principal judgment
Parties:	Panteli Nicolopoulos (Plaintiff) Marlon Potts and Sovereign Lawyers Pty Ltd (Defendants)
Representation:	Counsel: P Nicolopoulos (Plaintiff – self-represented) Mr J Choy (Solicitor - Defendants)   Solicitors: P Nicolopoulos (self-represented) JCL Legal (Defendants)
File Number(s):	2018/150815

Judgment – ex tempore (revised 16 may 2018)

1. By Originating Process filed on 14 May 2018, the Plaintiff, Mr Nicolopoulos, brought an application under s 237 of the Corporations Act 2001 (Cth) for leave, by way of a statutory derivative action, to bring proceedings in the name of an incorporated legal practice, Sovereign Lawyers Pty Ltd ("Company"), against the principal and a director of that practice, Mr Marlon Potts.

2. Mr Nicolopoulos, contrary to what might have been expected of a person who is a practicing solicitor, pressed for the application to be determined on the first day on which it was made returnable, after short service was granted on the previous day, and notwithstanding that I had indicated that, on the evidence as it stood, it was likely that the application would be determined without calling on the solicitor, Mr Choy, who appeared at short notice for the Company and Mr Potts. That approach was odd, to say the least. However, where Mr Nicolopoulos pressed that approach, I determined the application, on the evidence as it stood, and without having heard from Mr Choy.

3. It appears that Mr Nicolopoulos has standing to bring the application, since standing is available under s 236 of the Corporations Act to a person who is a former officer of the Company. Mr Nicolopoulos has led evidence that he was formally a director of the Company, and that evidence is supported by a company extract which records his holding that position from 12 May 2015 to 24 April 2018.

4. The circumstances in which the Court may grant leave under s 237 of the Corporations Act are well established, and have been dealt with in numerous cases. Given this application is being determined late in the day, I will not refer to the authorities in detail, but note that they have been summarised in, for example, Austin & Black's Annotations to the Corporations Act [2F.237]. The Court must grant leave under s 237 of the Corporations Act if it is satisfied of five specified matters, and must not grant such leave if it is not satisfied of all of those matters.

5. The first of those matters is that it is probable that the Company will not bring the proceedings, and that is likely to be established in the present case. The second of those matters is that the applicant is acting in good faith, and I will assume that matter, without reaching an affirmative determination of that matter. It may be that Mr Nicolopoulos, as his affidavit suggests, contemplates that the proceedings will provide a vehicle for protecting his entitlements on redundancy or extracting an undertaking from the Company that would do so, but those are not necessarily objectives that would deprive the application of good faith.

6. The third and fourth requirements, which it is convenient to deal with together in this application, are that it is in the best interests of the Company that Mr Nicolopoulos be granted leave and that there is a serious question to be tried. I cannot be satisfied of the first of these matters, in the circumstances in which the application has been brought on and where Mr Nicolopoulos has pressed for its determination today without fuller evidence. The immediate difficulty is that the only substantive relief to be sought by Mr Nicolopoulos for the Company is an injunction restraining Mr Potts from causing files to be transferred away from the Company without first paying or making proper provision for the payment of the Company’s debts. That is an injunction restraining future conduct, which is sought on a final basis.

7. Mr Potts' evidence, as to which Mr Nicolopoulos did not seek to cross examine, and did not lead evidence to contradict, is that all files held by the Melbourne office of the Company have already been transferred to another legal practice, Providence Lawyers, two weeks ago, since the Company no longer held a practicing certificate. Mr Potts also refers to the deregistration of the Company as an incorporated legal practice, and refers to the fact that neither Mr Potts nor the Company now have the capacity to deal with the relevant files.

8. As I understand that evidence, it has the consequence that some files, at least in respect of the Melbourne practice, have already been transferred to another practice, and that the Company is not presently in a position where it can provide legal services in respect of those files. It appears that those files relate to current clients. It does not seem to me that it could be in the Company's interests to pursue a claim for an injunction restraining the transfer of those files to, for example, a practice or solicitor who would be authorised to conduct them, pending compliance with the condition that is sought by Mr Nicolopoulos. First, an injunction would not be granted in that form to restrain conduct that, in respect of files held in the Company’s Melbourne office had occurred some time ago. Second, it seems to me highly unlikely that the Court would grant such an injunction, in respect of any files that had not yet been transferred to another firm, where the Company could not provide legal services in respect of those files to the relevant clients and, if the condition was not complied with, the injunction sought would place the clients in a position that they could not obtain legal services from the Company and the Company could not release their files if they sought to obtain legal services from another solicitor which was able to provide them.

9. In those circumstances, it seems to me that it is unlikely to be in the best interests of the Company to permit Mr Nicolopoulos to bring an application in its name, where the Court is unlikely to grant the only relief that is sought. It is therefore not necessary to determine whether there is a serious question to be tried. I should add that, in any event, Mr Nicolopoulos has not offered an indemnity for the costs of the Company in the proceedings, and I did not request one from him, given the other difficulties with the application. The case law indicates that a party seeking leave to bring derivative proceedings in respect of a company will often need to provide such an indemnity in order to establish that the proceedings are in that company’s best interest.

10. The final requirement for the grant of leave is that notice has been given to the Company, at least 14 days before the application, or it is otherwise appropriate to grant leave. Had I otherwise been satisfied that leave should be granted, I would not have withheld leave on the basis of absence of such notice, given the suggested urgency of the matter.

11. For these reasons, I am satisfied that Mr Nicolopoulos' application should be dismissed with costs. I have regard, in reaching this result, to the fact that the matter raises matters of public importance, so far as that there are allegations that the Company, which is a legal practice, has ceased its business without discharging its tax obligations and this may not be the first such occurrence. I do not reach any determination as to those matters, since the manner in which Mr Nicolopoulos brought the application, and pressed for its determination today, means that the Defendants have not had an opportunity to lead full evidence in response. I have had regard to the fact that those matters of public interest can better be addressed, not by the Court in dealing with an application under s 237 of the Corporations Act, but by the Law Society of New South Wales as the relevant professional body. I recognise that the Law Society of New South Wales has the capacity to seek appropriate relief, including, in a proper case, the appointment of a receiver to a legal practice. I will direct that the parties deliver the affidavit evidence led in this application, by noon tomorrow, to the Law Society of New South Wales so that it can consider any relief that it should seek, in appropriate proceedings, in respect of the matters in issue in this application.

12. Accordingly, I make the following orders:

1.    The Originating Process filed by Mr Panteli Nicolopoulos on 14 May 2018 be dismissed with costs.

2.    By noon on 16 May 2018, Mr Panteli Nicolopoulos deliver a copy of the Originating Process and his affidavit dated 14 May 2018 to the Law Society of New South Wales, and advise the Law Society of New South Wales that he is doing so pursuant to the orders that I have made today.

3.    By noon on 16 May 2018, Mr Marlon Potts deliver a copy of his affidavit dated 15 May 2018 to the Law Society of New South Wales, and advise the Law Society of New South Wales that he is doing so pursuant to the orders made today.

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Decision last updated: 16 May 2018