Simto Resources Ltd v Normandy Capital Ltd
[1993] FCA 468
•29 JUNE 1993
SIMTO RESOURCES LIMITED v. NORMANDY CAPITAL LIMITED and GINO VITALE; NORMANDY
CAPITAL LIMITED v. SIMTO RESOURCES LTD, JOHN VINCENT CARUSO and ANTHONY
ROYSTON HYDE
No. WAG9 of 1991
FED No. 468/93
Number of pages - 10
Corporations - Practice And Procedure
COURT
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
FRENCH J
CATCHWORDS
Corporations - proceedings - legal representation - leave to proceed without legal representation - relevant criteria - whether sufficient reason - motion dismissed.
Practice And Procedure - legal proceedings - representation - corporation - representation other that by solicitor - relevant criteria - sufficient reason.
Federal Court Rules
Arbuthnot Leasing International Ltd v Havelet Leasing Ltd (1991) 1 All ER 591
Bay Marine Pty Ltd v Clayton Country Properties Pty Ltd (1986) 11 ACLR 326
Tritonia Ltd v Equity and Law Life Assurance Society (1943) AC 584
Re G.J. Mannix Ltd (1984) 1 NZLR 309
Battle v Irish Art Promotion Centre Ltd (1968) IR 252
Peters v Australian Institute of Food Science and Technology Ltd (1986) 10 ACLR 547
Molnar Engineering Pty Ltd v Burns (1984) 3 FCR 68
HEARING
PERTH, 28 June 1993
#DATE 29:6:1993
Counsel for the Applicant: Mr J.V. Caruso, a Director of
the Applicant appeared by leave on the motion.
Counsel for the Respondents: Mr M.J. McCusker QC and
Mr J. Gilmour
Solicitor for the Respondents: Pullinger Sanderson and
Workman
ORDER
The Court Orders that:
The applicant be granted leave pursuant to O.4 r.14 to carry of the proceedings otherwise than by a solicitor for the purpose of resisting the respondents' motion to strike our the application and for the purpose of directions as to the future conduct of the proceedings.
The applicant's motion be otherwise dismissed.
The Applicant pay the respondents' costs of the motion.
Note: Settlement and entry of Orders is dealt with in Order 36 of the Federal Court Rules.
JUDGE1
REASONS FOR JUDGMENT ON MOTION BY CORPORATION FOR LEAVE TO PROCEED WITHOUT SOLICITOR
Introduction
FRENCH J The present proceedings have been on foot since February 1991. The trial of the action, estimated to take three months, commences on 5 July 1993. It has been listed since June 1992. The action involves a claim for some $31 million in damages for misleading or deceptive conduct in relation to the arranging of project finance for a major mineral sands project. It will involve complex questions of fact and law. Less than two weeks prior to the commencement of the trial, the corporate applicant has terminated the retainer of its solicitors and counsel. The company now seeks leave to proceed without a solicitor and to be represented by one of its directors. The Court is asked to grant leave under O.4 r.14 of the Federal Court Rules.
Factual Background
2. By proceedings instituted on 5 February 1991, Simto Resources Ltd ("Simto") claims damages against Normandy Capital Ltd ("Normandy") and one of its directors, Gino Vitale. The damages, exceeding $31 million, are alleged to have been suffered as the result of misleading or deceptive conduct on the part of Normandy Capital. The conduct complained of comprises various representations said to have been made by Normandy in relation to its proposal to arrange project finance for a mineral sands mining and processing project being undertaken by Simto at Wonnerup near Bunbury. Various of the representations, allegedly made orally, are said only to have been made by Gino Vitale, the executive director of Normandy, to John Vincent Caruso, a director of Simto, and Anthony Royston Hyde, that company's secretary. Normandy Capital cross-claims against Simto, Mr Caruso and Mr Hyde. By the cross-claim it seeks recovery of unpaid fees of $39 000 said to be owed to it by Simto. It also claims damages of $100 000 being the difference between an agreed fee of $50 000 and a figure of $150 000 which Normandy says it would have negotiated as its fee but for certain assurances given by Simto, Mr Caruso and Mr Hyde.
In June 1992, trial dates were allocated, being sixty days commencing on 5 July 1993. The action has proceeded through various interlocutory processes. A preliminary issue relevant to the cross-claim has been heard and determined. A large number subpoenas have been issued by the respondents and made returnable in advance of the trial to allow for inspection of documents thereby produced. It is apparent from the nature of the pleadings and the extent of the interlocutory processes the trial of the action will raise complex issues of fact and law. On 23 June 1993, less than two weeks before the commencement of the trial, the applicant Simto, and Mr Caruso, who is named as second cross-respondent to the cross-claim, filed a Notice of Removal of their solicitor of record pursuant to O.45 r.6 Mr Caruso now moves pursuant to O.4 r.14, for an order that Simto be granted leave to carry on the proceedings otherwise than by a solicitor and that he be given leave to appear on behalf of the company.
Simto's motion is supported by an affidavit sworn by Mr Caruso. In the affidavit he says that despite making every attempt and exploring every avenue to fund the trial of the proceedings, Simto is unable to expend the large amount of money to pay counsel and solicitors. Because neither Simto nor Mr Caruso is able to "expend these monies at the present time" the retainers of senior and junior counsel have been determined. The company has also determined the authority of its solicitors to act because it cannot provide them with the funds to run the case. Mr Caruso says that he has approached the office of the Commonwealth Attorney-General for Legal Aid and has spoken to an officer of the Trade Practices Commission in that regard. He considers however, that it is most unlikely that any funds will come from that source. At para.6 of his affidavit, he says:
"6. The current recession and the failure of the Wonnerup Mineral Sands Project, which is central to this case, have made it difficult to continuously fund the case since its inception, but a considerable amount of money has been expended on the case to date by parties other than the Applicant and myself, and being other companies owned and controlled by other members of the Caruso family. The financial position of the Applicant and myself makes it impossible to come up with the large amount of money required to take the case through to completion with legal representation, and the parties who have funded the action to date cannot and will not provide further funds at present, although there would be a good prospect of them being willing and able to come up with further funds at a later stage."
Mr Caruso says that he has an intimate knowledge of the proceedings, the issue and the relevant documentations. Much of the evidence involved in the defence to the cross-claim is also relevant ti Simto's claim. He exhibited to his affidavit a resolution of the company authorising him to act on its behalf in the proceedings. That was a resolution of a meeting of directors comprising himself and his brother, Mark. There is a third director of the company, another brother, Joseph Anthony Caruso. Since August 1992, the principal shareholder in Simto has been Zurich Bay Holdings Pty Ltd which is controlled by Joseph and another relative, Peter Caruso. That company operates as trustee of a discretionary trust of which Simto is a beneficiary. The trust is known as the Minesite Construction Services Trust. The other shareholders in Simto are Mr Caruso, his brothers, Mark and Joseph, Christopher Victor Caruso and Simto Pty Ltd as trustee for the Simto Australia Unit Trust.
Mr Caruso maintains that if the order he seeks is not granted, Simto will be forced to abandon its claim. The affidavit evidence upon which he relies is notably light in detail given the asserted importance of the order sought to the progress of the application. And as emerged in cross-examination, the picture it paints is not complete. In particular, it fails to disclose that some eight weeks ago the costs of continuing the action to and including trial were estimated by Simto's solicitors to be in the order of $270 000 on the basis of representation by junior counsel only and allowing about $60 000 for the cost of expert witnesses. Up to that time, some $200 000 had been expended in legal costs and the provisions of expert reports. $50 000 was provided by Simto from the sale of its assets. Some $80 000 was received from Zurich Bay Holdings in consideration of the assignment to it of an earthmoving contract arranged by Simto with a company called AMC Mineral Sands Ltd. There was some evidence to suggest that the consideration for the contract was substantially less than the value it would have had on an arms length basis. Simto, it should be noted, was also the beneficiary of a distribution of $330 000 from the Minesite Construction Services Trust as at 30 June 1992. Other distributions from other Trusts brought the total income from trust distributions to $399 941 for the year ended 30 June 1992. This distribution was evidently to be applied to reduce a debt owing by Simto to Simto Pty Ltd as trustee of the Simto Australia Unit Trust, being a sum of $1.3 million.
As from eight weeks ago it appears that Zurich Bay Holdings was prepared to fund the action on the basis of junior counsel only. Subsequently however, Simto's solicitors indicated that senior counsel should be retained for the trial and that overall costs, including that retainer, would be closer to $600 000, a figure which, according to Mr Caruso, neither the company nor those interested in supporting could meet. He was however unable to say that Zurich Bay Holdings could not meet the funding of the action on the reduced basis of representation by junior counsel only. His evidence on these and other matters on which he was cross-examined was vague and lacking detail and raised a doubt about the seriousness with which he and the company are approaching the conduct of these proceedings generally. That doubt is deepened in the light of Simto's failure to discover until the last minute a number of obviously relevant documents, its failure to issue any subpoenas at all thus far and its failure to make any arrangement to have present as a witness in its own case the third cross-respondent, Anthony Royston Hyde. Mr Hyde, who is said to have been present when oral representations pleaded were made, is, on any view, a witness whose evidence would be of great importance to Simto's case. He has, however, gone overseas and will not be back until the end of August. Specific orders in relation to the hearing of the cross-claim against him were made to take this into account without any demur on the part of Simto. Simto has also apparently taken no steps to inspect the large quantity of documents produced into this Court under the various subpoenas issued by Normandy. The dates for the trial of the action have been known to all parties for about a year.
There is affidavit evidence from Normandy that Mr Caruso told an officer of Normandy on 22 June that he would arrange for subpoenas to be served on a number of its top executives and would keep them sitting in the back of the Court for weeks and that much time would be wasted. He allegedly said that such a waste of time would be avoided if the matter would be settled. Although he denied, under cross-examination, making a threat in those terms, Mr Caruso conceded that he had argued that time would be wasted for all concerned if the action were to proceed to a hearing. The respondent's construction of the conversation was borne out to some degree by a letter dated 16 June from Simto's solicitors to Normandy's solicitors in which it was said that Simto believed there to be further documents in the possession of various person connected with Normandy to do with the involvement of those persons in the Wonnerup Mineral Sands project. The letter said:
"We would propose to issue Subpoenas in respect of the following parties:
(1) Steven Dean
(2) Robert de Crespigny
(3) E.J. Malone
(4) Keith Harvey
(5) Roy Swan"
The lack of detail of the documents sought and the failure to pursue their disclosure by Normandy through the discovery process lends support to the inference that the letter was written in an attempt to put pressure on Normandy with a view to a settlement of the action.
I am not satisfied that those who stand to benefit from the proceedings brought by Simto are not in a position to fund legal representation at least to the level of solicitors and junior counsel. And while not expressing a concluded view about the matter, there is a distinct possibility, which I am unable to exclude, that at least in recent times, Simto has been less concerned with co-operating in the pre-trial process and preparing for trial than with maintaining pressure on Normandy in order to secure a settlement. That possibility, I should say, does not impinge on the merits of the action which can only be assessed after consideration of all the evidence. It is however, relevant to the question whether the Court is satisfied that this is an appropriate case in which to make the order sought by Simto.
It is also a relevant factor, although not conclusive, that the presentation of Simto's case, which involves complex questions of fact and law and is likely to take the allotted time of sixty days, will be almost unmanageable if unaided by skilled legal representation. It is with no disrespect to Mr Caruso, that I say that his submissions in support of the motion do not inspire confidence to adequately present evidence and deal with legal and other argument.
The Legal Framework
11. Order 4 r14 provides:
"14 (1) Subject to sub-rule (2) and to Order 43 (which relates to disability), any person may proceed in the Court by a solicitor or in person.
(2) Except as provided by or under any Act, a corporation may not, without the leave of the Court, commence or carry on any proceeding otherwise than by a solicitor.
(3) Sub-rule (2) does not apply to an organisation."
Also to be noted for present purposes is O.9 r.1 which provides in the relevant parts:
"1 (1) A respondent may enter an appearance and may defend a proceeding by a solicitor or in person.
. . .
(3) Notwithstanding sub-rule (1) and subject to any Act, a corporation may not without the leave of the Court or a Judge enter an appearance of defend any proceeding except by a solicitor."
The Rules of the Supreme Court 1965 (Eng) reflect long standing practice in England in Order 5 r6(2) which provides:
"Except as expressly provided by or under any enactment, a body corporate may not begin or carry on any such proceedings otherwise than by a solicitor."
The General Rules ion Civil Procedure Proceedings 1986 (Vic), provide a similar formulation in O.1 r.1.17:
"Except where otherwise provided by or under any Act or these Rules, a corporation, whether or not a party, shall not take any step in a proceeding save by a solicitor."
Part 4 r.4(2) of the Supreme Court Rules 1970(NSW) provides:
"Except as provided by or under any Act, a corporation may not commence or carry on any proceedings otherwise than by a solicitor."
See also O.4 r3(2) of the Rules of the Supreme Court 1971 (WA) which follows the words of the English rule.
The authorities in relation to the English Rules were recently reviewed by Scott J in Arbuthnot Leasing International Ltd v Havelet Leasing Ltd (1991) 1 All ER 591. That case involved a corporate defendant which sought to appear by one of its directors to vary a Mareva injunction against the company. Scott J observed that the relevant rule (there RSC O.12 r.1(2)) prohibited a body corporate from taking a step in a proceeding otherwise than by a solicitor. The court, however, had an inherent power to permit any advocate to appear for a litigant "if the exceptional circumstances of the case so warrant". No limit could be placed on what might constitute sufficient exceptional circumstances. Subject to any exceptional circumstances that might require a particular individual in the interest of justice to be allowed to appear as an advocate, the general practice of the court, as explained by his Honour, was that bodies corporate could not appear by their directors but only by solicitors or counsel (pp 597-598). A similar approach had been taken to the equivalent rules of the Supreme Court of Appeal in Bay Marine Pty Ltd v Clayton Country Properties Pty Ltd (1986) 11 ACLR 326. Kirby P, although not expressly formulating a test for the exercise of the court's inherent power, referred to the circumstances of that case as "sufficiently extraordinary" and the needs of justice as "sufficiently plain" that the court should exercise its discretion. (at 331). Kirby P was dissenting on the result of the motion them before the court. Samuels JA at 333 saw the court's discretion to dispense with its own rules about representation as one to be exercised "only with the most meticulous care" and in exceptional circumstances. Mahoney JA determined against representation by the director on the basis that it was not shown that he had authority form the company to act.
The high threshold of exceptional or special circumstances which applies to the exercise of the discretion under the English Rules and similarly formulated rules in Australia, no doubt derives form the characterisation of the discretion as a dispensing power. This will be coupled with the rationale for the restriction which in large part is related to the proposition that persons should not be represented in superior courts other than by legally qualified agents who only possess the relevant skills to conduct litigation but also are bound to observe certain duties to the court itself. Of course, any natural person may represent himself. But a company being a fictitious legal person must always be represented by another. And that attracts the application of the principle that representation by an agent should be limited to legally qualified persons subject to the inherent and residual discretion of the court to waive the requirement in appropriate circumstances. The rationale to which I have referred emerges from such authorities as Tritonia Ltd v Equity and Law Life Assurance Society (1943) AC 584; Re G.J. Mannix Ltd (1984) 1 NZLR 309 and Bay Marine Pty Ltd v. Clayton Country Properties Pty Ltd (supra). It has been said that the restriction is "an infirmity of the company which derives from its very nature" - Battle v. Irish Art Promotion Centre Ltd (1968) IR 252 at 254. That rationale may have been overtaken by the statutory abolition of the doctrine of ultra vires in relation to companies and the conferring on them of the legal capacity of natural persons (Corporations Law s.161) - Peters v Australian Institute of Food Science and technology Ltd (1986) 10 ACLR 547. The correctness of the latter decision however, was doubted in Bay Marine Pty Ltd v Clayton Country Properties Pty Ltd (supra) and certainly that argument was advanced and rejected by the Court of Appeal in New Zealand in Re G.J. Mannix Ltd (supra) at 312 (Cooke J). The position under the Federal Court Rules is not as restrictive as that which applies under the English and various of the State Supreme Court Rules. While the rationale of the restriction is basically the same, the power of the Court to give leave to a corporation to carry on a proceeding otherwise than by a solicitor is expressly conferred as an integral part of the Rule. The English cases and those in other jurisdictions with similar rules, invoke a general dispensing power whose application is ambulatory and to be construed in particular cases by reference to the content and significance of the rule under consideration. The terms of O.4 r.14 itself contemplate that leave may be granted and raise no express threshold requirement of special or exceptional circumstances.
The more flexible approach possible under O.4 r.14 was recognised by the Full Court of the Federal Court on Molnar Engineering Pty Ltd v. Burns (1984) 3 FCR 68. Smithers J at 73 observed of O.4 r.14(2) and O.9 r.3 (presumably a reference to rule 1(3)) that:
"Those rules proceed on the basis that there is a discretion in the court to permit a company to commence and carry on any proceedings other than by a solicitor and to enter an appearance or defend any proceeding without a solicitor and, it would seem, it is a discretion to be exercise by reference to all relevant considerations."
His Honour expressly eschewed the application to the Federal Court Rules of the "inflexibility of the practice in England" and said:
"The discretion being reposed in the court, it is inevitable that it be exercised in favour of a company where there is sufficient reason. According to the strength of the case made as to the existence of such reason, so the weight to be given to the consideration that the court might lack qualified legal assistance, will decline." (at 74)
It was clear from the judgment that his Honour was prepared to consider under the rubric of "sufficient reason" such factors as actual financial incapacity, and the financial difficulties created by diversion to paying legal expenses of funds which might be necessary to meet wider commitments of a company. Factors relevant to the exercise of the discretion to give leave would include the class of company involved, the nature of its undertaking, its financial structure, its ability to retain and pay its staff, the identity of its shareholders and the spread of the shareholding. The fact that a company is the alter ego of a single person who has advantageous educational and technical qualifications might also be important (at 75). Sweeney J did not elaborate upon the principles regulating the discretion but dealt with the case on the basis that the Full Court should not interfere with the discretion of the trial judge. Keely J, who dissented in the result, nevertheless agreed with Smithers J that the discretion was to be "exercised judicially according to the requirements of justice and that it must be exercised in favour of a company where there is sufficient reason". He agreed that "leave should be granted where, having regard to the necessary or reasonable commitments of the company, the appropriate of funds to engage legal practitioners for the litigation in question would create financial difficulties with the company could not - or with which it ought not to be required to - cope and that in this connection the ability of the company to retain and pay its staff may well be relevant" (at 80).
The Present Case
16. In the present case I am not persuaded that leave should be given to Simto to proceed other than by a solicitor. In so concluding, I take into account the following matters. Simto is one of a group of companies related by the family connections of their various directors and interlocking trusts. Its principal shareholder is apparently deriving income from earthmoving work and has supported the proceedings for some time. The principal beneficiaries of the action are Simto Pty Ltd as Trustee of the Simto Australia Unit Trust, which is owned in excess of $1 million by Simto, and Zurich Bay Holdings Pty Ltd. It has not been demonstrated that the latter company is unable to afford to fund legal representations for Simto albeit on a reduced basis of junior counsel and instructing solicitor.
Simto's evidence in support of the motion is surprisingly spare of detail having regard to the importance of the action it seeks to continue. This rather casual approach must be considered along with evidence of a remarkable lack of preparation for the action. There is evidence to suggest that the action may be being kept alive in order to pressure Normandy into a settlement. It is also a relevant factor that the proceedings involved complex and difficult questions of fact and law and will be hard fought by Normandy. Mr Caruso, who seeks to represent the company, has no apparent relevant experience or expertise which would assist in the presentation of his company's case. He will himself be the company's principal witness. In my opinion, the presentation and management of the litigation will be virtually unworkable and certainly protracted if the company does not proceed using solicitors and counsel.
In conclusion, I am not satisfied that it has been shown that there is sufficient reason to grant the leave sought. I am satisfied moreover that there is good reason why it should not be granted. I am prepared however to grant leave for the limited purpose of allowing the company to resist a motion for judgment on the basis of its non-compliance with the Court's orders. If the company fails to arrange representation, however, that leave may become academic.
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