National Futrax Pty Ltd v Australian Securities Commission and Australian Securities Commission v National Futrax Pty Ltd

[1997] FCA 1555

FEDERAL COURT OF AUSTRALIA

PRACTICE AND PROCEDURE - Leave for a company to appear otherwise than through a solicitor - whether “sufficient reason” shown

Federal Court Rules O 4 r 14, O 9, r l(3)

Molnar Engineering Pty Ltd v Burns (1984) 3 FCR 68 (Applied)
VN International Video Pty Ltd v West End HK TVB Video (1996) 14 ACLC 1308 (Applied)

NATIONAL FUTRAX PTY LIMITED ACN 057 799 667 (APPLICANT) v AUSTRALIAN SECURITIES COMMISSION (RESPONDENT) AND AUSTRALIAN SECURITIES COMMISSION (CROSS-CLAIMANT) v NATIONAL FUTRAX PTY LIMITED ACN 057 799 667 (CROSS-RESPONDENT)
QG 3016 OF 1996

FINN J
BRISBANE

27 NOVEMBER 1997

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	QG 3016  of   1996

BETWEEN:	NATIONAL FUTRAX PTY LIMITED ACN 057 799 667 APPLICANT
AND:	AUSTRALIAN SECURITIES COMMISSION RESPONDENT
AND BETWEEN:	AUSTRALIAN SECURITIES COMMISSION CROSS-CLAIMANT
AND:	NATIONAL FUTRAX PTY LIMITED ACN 057 799 667 CROSS-RESPONDENT
JUDGE:	FINN J
DATE OF ORDER:	27 NOVEMBER 1997
WHERE MADE:	BRISBANE

THE COURT ORDERS THAT:

1. The hearing of the application and the cross-claim is adjourned;  the parties have leave to seek a new hearing date from the District Registrar on reasonable notice to each other.

1. The applicant/cross-respondent to pay the respondent/cross-applicant’s costs thrown away by the adjournment.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	QG 3016 of 1996

BETWEEN:	NATIONAL FUTRAX PTY LIMITED ACN 057 799 667 APPLICANT
AND:	AUSTRALIAN SECURITIES COMMISSION RESPONDENT
AND BETWEEN:	AUSTRALIAN SECURITIES COMMISSION CROSS-CLAIMANT
AND:	NATIONAL FUTRAX PTY LIMITED ACN 057 799 667 CROSS-RESPONDENT
JUDGE:	FINN J
DATE:	27 NOVEMBER 1997
PLACE:	BRISBANE

REASONS FOR JUDGMENT

National Futrax Pty Ltd (“NF”), which is both the applicant and the cross-respondent in these proceedings, has sought leave under O4 r14(2) and O9 r1(3) of the Federal Court Rules variously, to carry on its application and to defend the cross-claim otherwise than by a solicitor.  The Australian Securities Commission (“the ASC”) is the respondent and cross-claimant.  The leave sought was refused.  I indicated at the time that I would later provide brief reasons for my so doing as I now do.

The application and the cross-claim overlap in considerable degree.  For present purposes it is sufficient to refer only to the cross-claim as it raises issues additional to those in the application.

NF owns the copyright in a computer software program which it makes available for purchase or licence. While there is significant disagreement between the parties as to the capacity and function of the program, it is the ASC’s case that when operated according to its instructions, it provides (i) recommendations as to whether to buy, sell or hold particular shares on the Australian Stock Exchange; and (ii) an analysis or report about securities. In consequence it claims that NF (a) carries on an investment advice business within the meaning of s 77 of the Corporations Law, but in contravention of s 781 of that Act; and (b) carries on a securities business within the meaning of s 93 of the Corporations Law but in contravention of s 780. Additionally the ASC claims that NF engaged in conduct which is misleading or deceptive contrary to s 995(2) of the Corporations Law and s 52 of the Trade Practices Act 1974 (Cth). The conduct alleged relates to representations (express and implied) made by NF in its brochure and in oral communications with members of the public in relation to claims made concerning the proven history of the program, the results achieved by it, and the returns likely to be produced by it in the future.

It is clear that there are factual issues of some complexity to be determined in this. More significant though for present purposes, the claims under s 781 and s 780 of the Corporations Law raise a novel and difficult question of law. I can put it inexactly this way in relation to the s 781 claim. Where a company markets software which itself is capable of providing a service, in what circumstances can the company’s business be said to be the provision of that service? This is not a matter upon which I could or would expect assistance from the agent of the company in the event of leave being granted. I should add that I have been provided with NF’s outline of arguments in this matter. They support the expectation I have noted.

Turning to the circumstances occasioning the need to seek leave, NF has enjoyed legal representation from the time its application was filed until the day before this matter was set down for hearing.  On that day NF’s solicitors indicated that certain financial arrangements had to be made before the Queens’ Counsel engaged for the trial would act.  The company considered itself unable to meet the financial demand so made - it involved a payment of $20,000 - and this led to its terminating the services of the firm of solicitors which had been acting for it for most of 1997.

It was only shortly prior to the hearing that the company’s agent - Mr Larry Pickering - became aware that he needed the leave of the court to appear.  When the matter was called on, the burden the company bore was explained to Mr Pickering and the opportunity given for evidence to be adduced on its behalf in seeking leave.

The basis upon which leave was then sought was that the company’s financial circumstances were such as to prevent it from providing the money necessary to secure legal representation.  The sole director of the company, a Ms Robinson, gave such evidence as she could of the company’s circumstances and of her decisions in, and understanding of, NF’s conduct of this litigation.

It is clear that Ms Robinson was the “governing mind and will” of the company in name only.  Her function in this company (as, it emerged, in at least six other companies) seems to border on the purely formal.  Her actual employment is with an unrelated company.

Though she tendered the company’s financial report for the year ending 30 June 1997 (it showed an after tax profit of $99,756) and a bank statement (showing virtually a nil balance) her evidence did little to illuminate the actual financial circumstances of the company and those standing behind it.

The sole shareholder in NF is a company, Interact Business Systems Pty Ltd (“IBS”).  Ms Robinson is its sole director.  Its shareholding in turn is held by two companies.  IBS seems as well to be the parent of a web of other companies (of which as to some number Ms Robinson is sole director) which, as best one can gauge on the scant evidence before me, conduct or (if no longer trading) have conducted software related businesses.  Suffice it to say here that at least two of these companies conduct like business to NF albeit the software programs in question in their cases relate to horse racing.

While I am by no means certain that I have accurately or adequately described what seems a byzantine corporate structure, it does seem clear that the ultimate beneficiaries of the exertions of the group are two family trusts - the one being that of Mr Pickering, the other of a Robinson family.

I am bereft of information concerning the financial circumstances of the group or of the capacity - I say nothing of the willingness - of the Pickerings or the Robinsons to provide financial assistance to NF in this litigation.  I should add that, on the admittedly spare evidence before me, it would appear that in the two years preceding this hearing NF generated something in the order of $3.6 million in revenue from sales of the software in question.  I should also add that just over a month ago the company voluntarily ceased trading - a decision it was said, that was taken because of the need to have the legal questions raised in this proceeding resolved before it continued to market its program.

The authorities of this court dealing with whether “sufficient reason” has been shown to justify the grant of leave under O4 r14 or O9 r1 indicate the significance to be attributed to alleged financial incapacity to meet the cost of legal representation, as also to the circumstances of those standing behind the company and having a real interest in the outcome of the litigation: see Molnar Engineering Pty Ltd v Burns (1984) 3 FCR 68; Simto Resources Ltd v Normandy Capital Ltd, unreported, 29 June 1993, French J; VN International Video Pty Ltd v West End HK TVB Video (1996) 14 ACLC 1308.

I would have to say that in the present matter I am quite unconvinced that NF is unable, because of financial difficulties, to arrange proper and appropriate legal representation for itself in this matter.  The evidence given of its actual financial circumstances is quite unsatisfactory.  Further, I have no evidence at all of the circumstances of the group to which NF belongs other than that at least two companies are trading and that inter-company loans are made and orchestrated by IBS and that NF has been a source of credit in this.

Given the inadequacy of the explanation given by the company for why it seeks leave and the complexity of the question of law raised in the proceeding, this clearly is not a matter in which leave ought be given either to proceed in NF’s own application or to defend the ASC’s cross-claim.

Nonetheless, given that the events giving rise to the need to seek leave occurred only the day before the hearing date, it is appropriate to give NF a reasonable opportunity to consider obtaining appropriate legal representation if it is so minded to do.  To that end I will merely adjourn the hearing of the application and the cross-claim, the parties having leave to seek a new hearing date from the District Registrar on reasonable notice to each other.  I will order the applicant/cross-respondent to pay the respondent/cross-claimant’s costs thrown away by the adjournment.

I should add for the sake of completeness, though it is unnecessary for the purposes of these reasons, that on the ASC’s application I have awarded it interlocutory injunctive relief restraining NF, its servants or agents until the trial of this action or further earlier order from advertising, marketing, selling or distributing the computer software programs the subject of this proceeding.

I certify that this and the preceding four (4) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Finn

Associate:

Dated:            12 December 1997

Counsel for the Respondent:	P Applegarth
Solicitor for the Respondent:	Australian Securities Commission
Date of Hearing:	26 November 1997
Date of Judgment:	27 November 1997