Solomons Franchise Systems Pty Ltd v Taydex Pty Ltd

[1995] FCA 382

IN THE FEDERAL COURT OF AUSTRALIA )    No. VG 30 of 1994
QUEENSLAND DISTRICT REGISTRY     )
GENERAL DIVISION                 )

BETWEEN:  SOLOMONS FRANCHISE SYSTEMS PTY. LTD.

ACN 008 094 899

First Applicant

AND:NO. 1 RABEREM PTY. LTD.

ACN 007 733 995

Second Applicant

AND:NO. 2 RABEREM PTY. LTD.

ACN 007 733 986

Third Applicant

AND:NO. 3 RABEREM PTY. LTD.

ACN 007 733 977

Fourth Applicant

AND:     TAYDEX PTY. LTD.
                  ACN 010 809 739

First Respondent

AND:MICHAEL ROY PARR

Second Respondent

AND:CLIVE JOHN WALKER

Third Respondent

MINUTES OF ORDERS

JUDGE MAKING ORDER:         Drummond J
DATE OF ORDER:              8 June, 1995
WHERE MADE:                 Brisbane

THE COURT ORDERS THAT:

1. The notice of motion be dismissed.

1. The second respondent pay the first applicant's costs of hearing the notice of motion, to be taxed.

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

IN THE FEDERAL COURT OF AUSTRALIA )    No. VG 30 of 1994
QUEENSLAND DISTRICT REGISTRY     )
GENERAL DIVISION                 )

BETWEEN:  SOLOMONS FRANCHISE SYSTEMS PTY. LTD.

ACN 008 094 899

First Applicant

AND:NO. 1 RABEREM PTY. LTD.

ACN 007 733 995

Second Applicant

AND:NO. 2 RABEREM PTY. LTD.

ACN 007 733 986

Third Applicant

AND:NO. 3 RABEREM PTY. LTD.

ACN 007 733 977

Fourth Applicant

AND:     TAYDEX PTY. LTD.
                  ACN 010 809 739

First Respondent

AND:MICHAEL ROY PARR

Second Respondent

AND:CLIVE JOHN WALKER

Third Respondent

Coram:    Drummond J
Date:     8 June, 1995
Place:    Brisbane

REASONS FOR JUDGMENT

This is an application by Mr. Parr, the second respondent in the proceedings, for leave, pursuant to O. 9, r. 1 the Federal Court Rules, to represent Taydex Pty. Ltd., the first respondent company in the proceedings.  Mr. Parr is a director of that particular company.  The only live issue on the applicants' claims against the first and second respondent is the first applicant's claim for payment of something in excess of $61,000 allegedly due by the first respondent only.  There is no claim now being pursued by any of the applicants against Mr. Parr.  On the cross claim as it now stands, the only live issues between the respondents and the applicants are, firstly, the claim by the first respondent company for damages for the first applicant's refusal to reduce franchise fees payable by the first respondent allegedly in breach of the franchise agreement.  Secondly, the allegation that the first applicant in breach of the franchise agreement sold franchised products to potential customers of the first respondent, moreover at prices lower than those at which it supplied the product to the first respondent, which conduct entitles the first respondent to damages from the first applicant.  Finally, in breach of a term of the franchise agreement not precisely identified, the first applicant gave approval to franchisees Timothy and Janet Brown to relocate from their premises at Browns Plains to Coorparoo.  Mr. Parr from the bar table informed me that, in effect, that enabled the Browns' store to sell the franchised product into the area upon which the first respondent relied for its trade in the franchised product.  Damages are again sought by the first respondent from the first applicant in respect of that alleged breach.

There is no overlap at all between any issues between any of the applicants and the company on the one hand, and any of the applicants and Mr. Parr on the other.

Exactly the same application was made to Kiefel J in proceedings determined by her by her judgment of 4 April, 1995 in which she refused the application that Mr. Parr then sought, but gave him leave to renew his application.

Her Honour identified deficiencies in the material relied on by Mr. Parr when he made the application to her Honour for leave to appear on behalf of the company, firstly, the absence of any proof that Mr. Parr was properly authorised by the company to act on its behalf in connection with the litigation and, notwithstanding the fact that her Honour went to the trouble of dealing with that matter at some little length, that deficiency in the material before me today remains.  Secondly, her Honour also dealt with the question of what the material before her revealed as to the company's capacity to afford legal representation, an important consideration when an application of the present kind is brought, as is apparent from the decision to which her Honour referred, Molnar Engineering Pty. Ltd. v Burns (1984) 3 F.C.R. 68. In that context, her Honour said this:

"It is said by Mr Parr that the first respondent has not operated as a trading company since 30 December 1993, although he does disclose that it has been engaging in transactions, which however are said to be associated with debts incurred as a result of the first applicant's actions.  The financial position of the first respondent and the other company, Oxgold Pty Ltd, are then disclosed by a financial statement which is not verified.  It does however show that there has been a loan by the first respondent to Oxgold of some $54,000 and it seems Oxgold is the tenant of the former premises of the first respondent.

I do not, in view of the sketchy picture of the second company's financial position [i.e. Oxgold's financial position] and arrangements thus far presented, consider it appropriate to make the order sought."

It was in that context that her Honour gave leave to Mr. Parr to renew his application on further material.  What has happened is that essentially the position, so far as the first respondent's capacity to afford legal representation in the action is concerned, remains in much the same situation as it was before her Honour.

The inference that it appears her Honour was asked to draw was that Taydex Pty. Ltd. had no capacity to fund its representation in this action, particularly if Oxgold Pty. Ltd. was unable to repay to it the debt of $54,000 which Mr. Parr, in the material he put before her Honour, indicated that Oxgold Pty. Ltd. owed to the first respondent.  Mr. Garner, an accountant, acting on instructions from Mr. Parr, has now prepared what he describes as unaudited financial statements for Oxgold Pty. Ltd. for the period December 1993 to 30 June 1994 and from 1 July 1994 to 31 March 1995.  Mr. Garner's material shows that as at 30 June 1994, Oxgold Pty. Ltd. was indebted to Taydex Pty. Ltd. in an amount slightly in excess
of $43,000 whereas the balance for the nine month period to 31 March 1995 shows that that loan has been reduced by over half.

There is no other explanation before me which throws any light on how this occurred.  The financial material does show that Oxgold Pty. Ltd. has, in the two periods covered by the material, made operating losses, but it is running what is apparently a substantial business, and my attention has been drawn to the increases, in the most recent nine month period for which information is available compared with the previous period, in payments for rent, subcontractors and wages.  It must be observed, in relation to the increases in payments by Oxgold Pty. Ltd. to subcontractors and wages, that turnover appears to have substantially increased, but there is a significant increase in rent and it appears that Oxgold Pty. Ltd. may have taken over the premises previously occupied by Taydex Pty. Ltd..  There is no explanation for this increase in rent.

In Molnar, the way Smithers J put the matter, when application was before the court on that occasion for leave by a natural person to represent a company, was this:

"There is not, in the evidence, a sufficiently particularised relationship between the cost of maintaining the action with legal representation and the available resources of the company.  In an application of this kind the applicant should take the court fully into its confidence."

Even though Mr. Parr was put on precise notice by Kiefel J as to the two areas of particular concern to whether he should be given leave to represent the first respondent, he has in my view quite failed to take advantage of that opportunity and inform the Court of matters directly relevant to whether he should be given the leave sought. 

I will dismiss the motion for leave for Mr. Parr to represent the company.

I will order that Mr. Parr pay the first applicant's costs of today's hearing of his notice of motion, to be taxed.

I decline to order that the costs which I have directed that Mr. Parr pay to the first applicant be taxed on an indemnity basis.  That is an unusual order to make; special circumstances have to be shown.  My attention has been drawn to a letter of 2 February, 1995 sent by the solicitor for the applicants to Mr. Parr in which deficiencies in the material he was then relying on to justify the making of an order giving him leave to represent the first respondent company were pointed out, but nowhere in that letter is there any suggestion that if Mr. Parr pursued his claim on the limited material he then was apparently relying on, an indemnity costs order would be sought against him on the ground that his application was hopeless and was bound to fail. 

Mr. Flanagan for the applicants has also drawn my attention, not only to what Kiefel J had to say and to which I have referred in my own short reasons when she gave leave to Mr. Parr to renew his application for leave by way of deficiencies in his material, but also to comments by her Honour in the course of one of the hearings in which she emphasised those same matters.

It is plain that Mr. Parr has had ample opportunity, he being apparently a person with some business experience, who might be expected to be able to take notice of those comments, but that he has failed to pay any proper regard to them.  However, nowhere was Mr. Parr put on notice at any stage that, if he persisted in making the application that he brought before me today and on which he failed because his material was hopelessly deficient, he would be at risk of an indemnity costs order being sought against him.  In the circumstances of this case I regard that as a significant factor and I am not prepared to make an order for indemnity costs.

I am not prepared to give leave to tax the costs forthwith. 

I certify that this and the preceding
six pages are a true copy of the
reasons for judgment herein of the
Honourable Justice Drummond.

Associate:
Date:        8 June, 1995