Winn v Stewart Bros Constructions Pty Ltd

[2012] SASC 150

SUPREME COURT OF SOUTH AUSTRALIA

(Civil: Civil)

WINN v STEWART BROS CONSTRUCTIONS PTY LTD

[2012] SASC 150

Judgment of The Honourable Justice Blue

31 August 2012

CORPORATIONS - LEGAL CAPACITY AND RELATIONS WITH OUTSIDERS - EXTERNAL LITIGATION PROCEDURE - APPEARANCE IN COURT BY COMPANY AND REPRESENTATION

In 2006, the appellant/plaintiff (Mr Winn) sued the respondent/defendant (Stewart Bros) in the District Court of South Australia for damages for breach of contract and negligence in the construction by Stewart Bros of his house. Stewart Bros was represented in the action by solicitors for five years.

Shortly before trial which was listed for May 2012, the Judge who was case managing the action to trial as designated trial Judge authorised the sole director and shareholder of Stewart Bros, Mr Stewart, to represent the defendant company in the action pursuant to rule 27 of the District Court Rules 2006 (SA).

Mr Winn appealed against that order.

Held:

1.       The Court on an application for authorisation under rule 27 should weigh all factors pointing in favour of and against authorisation. The Court must be satisfied that the overall balancing of factors favours authorisation before granting authorisation.

2.       The factors relevant to the exercise of the discretion are not limited and will vary from case to case, but typically include:

a.       whether the company is plaintiff or defendant;

b.      whether the director is also a party (co-plaintiff or co-defendant);

c.       the stage which the case has reached;

d.      the time over which and the manner in which the case has progressed and the conduct of both parties to that point;

e.       the degree to which financial considerations inhibit the company from obtaining legal representation and in particular whether the denial of authorisation is likely to stultify the prosecution or defence of the action;

f.       the degree to which the time and cost of the trial will be extended due to the company being represented by a lay, self-interested advocate (and the impact this has on the interests of the other party and the public interest in the fair, efficient and timely administration of justice);

g.      the extent to which the director is to be a witness in the proceeding;

h.      the significance of a lay advocate not being subject to the ethical  precepts that bind legally qualified advocates.

3.       The trial Judge erred by failing to consider the question what (if any) additional time and cost would be likely to be incurred at trial by reason of the company’s representation by a lay advocate compared to a legal practitioner.

4.       Appeal allowed.

5.       Order authorising Mr Stewart to represent the defendant set aside.

6.       Mr Stewart’s application for authorisation to represent the defendant should be remitted to the District Court for reconsideration.

District Court Civil Rules 2006  (SA) Rule 27, discussed; Civil Procedure Act 2005 (NSW) Section 19; Corporations Act 2001 (Cth) Section 1335(1); County Court Civil Procedure Rules 2008 (VIC) Rule 1.17(1); Court Procedures Rules 2006 (ACT) Rule 30(4); Development Act 1993 (SA) Section 72; District Court of Western Australia Act 1969 (WA) Section 39(1); Federal Court Rules 1979  (Cth) Order 4 rule 14(2); Order 9 rules 1(3) and 3; Federal Court Rules 2011 (Cth) Rule 4.01(2); Rules of the Supreme Court (Eng & Wales) 1965 Order 5 rule 6(2); Order 12 rule 1(2); Rules of the Supreme Court 1971 (WA) Order 4 rule 3(2); Order 12 rule 1(2); Rules of the Supreme Court of the Australian Capital Territory  (ACT) Order 2A rule 14; Supreme Court Act 1995 (QLD) Section 209(1); Supreme Court (General Civil Procedure) Rules 2005 (VIC) Rule 1.17(1); Supreme Court Rules (NT) Rule 1.13; Supreme Court Rules 1937 (ACT) Order 8 rule 1(3); Supreme Court Rules 1970 (NSW) Part 4 rules 4 and 4A; Part 11 rule 1A; Supreme Court Rules 1987  (SA) Rule 36.11; Supreme Court Rules 2000 (TAS) Rule 11; Uniform Civil Procedure Rules 2005 (NSW) Rules 7.1(2)(a), 7.1(3), and 7.2, referred to.
ACT General Cleaning Co Pty Ltd v Naoum [1996] FCA 1560; (1996) 67 FCR 361; Molnar Engineering Pty Ltd v Burns [1984] FCA 232; (1984) 3 FCR 68, applied.
Arbuthnot Leasing International Ltd v Havelet Leasing Ltd [1990] BCLC 802; Cytel Pty Ltd v Peoplebank Recruitment Pty Ltd [2006] FCA 985; Evajade Pty Ltd v National Australia Bank Ltd (No 2) [2005] SASC 229; Hubbard Association of Scientologists International v Anderson and Just [1972] VR 340; O’Toole v Scott [1965] AC 939; Radford v Freeway Classics Ltd [1994] 1 BCLC 445; Scotts Head Developments Pty Ltd v Pallisar Pty Ltd (Unreported Supreme Court of New South Wales Court of Appeal, Mahoney AP, Powell JA and O'Keefe CJ, 6 September 1994); Worldwide Enterprises Pty Ltd v Silberman [2010] VSCA 17; (2010) 26 VR 595; Young v ICM Agriculture Pty Ltd [2009] FCA 1065, discussed.
Access Services Group Pty Ltd v McLoughlin [2006] NSWSC 532; (2006) 57 ACSR 725; Alice Springs Abattoirs Pty Ltd v Northern Territory (1996) 134 FLR 440; ASIC v Neolido Holdings Pty Ltd [2006] QCA 266; Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223; Bay Marine Pty Ltd v Clayton Country Properties Pty Ltd (No 2) (1986) 8 NSWLR 104; Checked-Out Pty Ltd v Eagle Eye Inspections Pty Ltd [2002] FCA 1002; Connectland Pty Ltd v Porthaven Pty Ltd [2011] NSWSC 616; Eastern Metropolitan Regional Council v Four Seasons Construction Pty Ltd [2000] WASC 178; (2000) 22 WAR 372; Galladin Pty Ltd v Aimnorth Pty Ltd [1993] SASC 3914; (1993) 60 SASR 145; Grimsey v Southern Regional Health Board [1997] TASSC 77; House v The King [1936] HCA 40; (1936) 55 CLR 499; John Arnold’s Surf Shop Pty Ltd (in liquidation) v Heller Factors Pty Ltd (1979) 22 SASR 20; Manitowoc Crane Group Asia Pte Ltd v Preston Erection Pty Ltd [2004] NSWSC 1141; May v Christodoulou [2011] NSWCA 75; Northern Australian Aboriginal Legal Aid Service Incorporated v Liddle (1994) 118 FLR 109; Pacific Air Freighters (Qld) Pty Ltd v Toller [2000] FCA 343; (2000) 171 ALR 519; Re Hoffman [2004] WASCA 238; Simto Resources Limited v Normandy Capital Limited [1993] FCA 305, considered.

WINN v STEWART BROS CONSTRUCTIONS PTY LTD
[2012] SASC 150

Civil:       

1. BLUE J:                The appellant/plaintiff (“Mr Winn”) is suing the respondent/defendant (“Stewart Bros”) in the District Court for damages for breach of contract and negligence in the construction by Stewart Bros of a house.

2. On 24 April 2012, a Judge of the District Court authorised the sole director and shareholder of Stewart Bros, Mr Stewart, to represent the defendant company in the action pursuant to rule 27 of the District Court Civil Rules 2006. 

3. Mr Winn appeals against that order. 

   Background facts

4. In 2001, Mr Winn engaged an architect to design and provide instructions to a builder concerning the construction of a house upon his land.  Mr Winn engaged a building certifier to inspect and certify the design of the house. Mr Winn engaged a mechanical engineer to design and supervise the construction of the mechanical services (including air conditioning) for the house.

5. In 2002, Mr Winn entered into a contract with Stewart Bros to construct the house.  Construction commenced in 2002 and was completed in mid 2005.[1] 

   [1]    Stewart Bros claims, and Mr Winn denies, that practical completion was achieved at that point.

6. In November 2006, Mr Winn instituted the action in the District Court, initially against the architect and Stewart Bros and later also against the engineer and certifier.

7. Mr Winn alleges that there were twelve defects in the design and construction of the house, namely:

   1.water was permitted to enter the house due to :

   (a)     the height and slope of the paving;

   (b)     the absence of rebates in the concrete slab;

   (c)     inadequate damp proofing to external walls;

   (d)     inadequate sealing of floors;

   (e)     inadequate sealing of window and door frames;

   (f)     inadequate sealing of the balcony;

   (g)     the height of the sewer relief gully;

   (h)     the roof down pipe location;

   2.there were defects in the air conditioning;

   3.there were more minor defects in:

   (a)     the range hood and flue;

   (b)     aluminium skirting;

   (c)     motorised windows.

8. Mr Winn alleges that the defects referred to at 1 (a), (b) and/or (c) in turn caused consequential damage to:

   (a)     the internal face of the external walls;

   (b)     the external face of the external walls;

   (c)     the retaining walls;

   (d)     the garage ceiling;

   (e)the floors (rectification of which overlaps completely with the defect in item 1(d) above).

9. Mr Winn alleges that the responsibility for the defects was that of:

   1.the builder Stewart Bros for defective construction in the case of all twelve defects and all consequential damage;

   2.the architect for defective design and failure to instruct the builder in construction in the case of eleven defects (all except the air conditioning) and all consequential damage;

   3.the engineer for defective design and supervision of the builder in respect of the air conditioning, motorised windows and sealing of the floors;

   4.the certifier in respect of the height and slope of the paving and the absence of rebates in the concrete slab.

10. Mr Winn alleges that the twelve defects in the design and construction of the house and five items of consequential damage would have cost approximately $1.3 million to rectify (based on a quote from a tradesperson from each relevant specialty in the building industry) and that he suffered losses due to delay and loss of amenities of approximately $100,000 giving a total loss of approximately $1.4 million. Mr Winn did not incur the rectification costs, but instead sold the house in mid 2010 after disclosing the defects to the purchaser.

11. Stewart Bros was represented in the action by solicitors from the outset. Stewart Bros counterclaimed $230,000 being the balance said to be owing to the builder under the building contract.  Stewart Bros applied for summary judgment on its counterclaim. In September 2007, Mr Stewart filed an affidavit in which he guaranteed that Stewart Bros would repay the $230,000 to Mr Winn if summary judgment were granted on the counterclaim and Stewart Bros were ultimately found liable for defective work in the action at trial (or on settlement). Mr Winn paid the $230,000 to Stewart Bros in satisfaction of the counterclaim.

12. In November 2011, Mr Winn obtained a supplementary report from his expert architect engaged for the purpose of the action.  She made her own assessment[2] of an allocation of responsibility as between Stewart Bros, the architect and engineer,[3] assessing a percentage of responsibility for each defect where she assessed that more than one defendant was liable for a defect.[4] Her allocation of responsibility to Stewart Bros ranged from 15 per cent to 85 per cent depending on the defect.  In turn, Mr Winn quantified his claim against Stewart Bros based on the estimated costs of rectification per item and the expert architect’s assessment of the proportionate liability of Stewart Bros to give a claim of approximately $400,000.[5]

    [2] It is doubtful that expert opinion as to allocation of responsibility under section 72 of the Development Act 1993 (SA) is admissible at least in the circumstances of this case. However, the present relevance of the report is that it was adopted by Mr Winn as his case on the degree of responsibility of Stewart Bros.

    [3]    No allocation was made vis a vis the certifier because Mr Winn had recently settled his claim against the certifier.

    [4]    She assessed that Stewart Bros was not responsible for the failure to rebate the concrete slab.

    [5]    This figure excludes loss in respect of one defect for which Mr Winn has not yet quantified the loss, one item of consequential damage from another defect for which Mr Winn has not yet quantified the consequential damage, some unallocated costs which Mr Winn has not yet allocated between the different defects and the claim for loss of amenities.

13. In the first half of 2011, Stewart Bros ceased carrying on its building business and by mid 2011 had wound up that business. It had originally been owned and controlled by three Stewart brothers (and Mr Stewart’s brothers’ wives), but by this time it was solely owned and controlled by Mr Stewart. Stewart Bros had been represented by solicitors in the action for 5 years and had incurred legal costs of more than $100,000. In December 2011, Stewart Bros’ solicitors ceased to act.

14. In December 2011, a Judge of the District Court was designated as the trial Judge (the trial having been listed for eight weeks from 7 May 2012) and commenced actively to case manage the action.  In December 2011, Mr Winn appeared at a directions hearing before the trial Judge and announced that he sought to appear for Stewart Bros.

15. Subsequently, Mr Winn settled with the architect and engineer (having earlier settled with the certifier), leaving Stewart Bros as the sole defendant.  Mr Stewart applied for authorisation to act for Stewart Bros, which was granted by the trial Judge on 24 April 2012.  Upon filing an appeal against that decision, Mr Winn successfully applied for an order vacating the trial date in May on the basis that otherwise the appeal would be rendered nugatory if successful.

    Reasoning of the Judge

16. The Judge heard argument on the application and made an ex tempore order at the conclusion of the argument.  The Judge did not give, and no party requested, reasons.  The Judge provided at this Court’s request a report for the purpose of the appeal setting out his reasons for decision.

17. The Judge took into account the following factors in deciding to exercise his discretion to authorise Mr Stewart to represent Stewart Bros.

    1.The action had been on foot for five years.

    2.Stewart Bros had been legally represented for five years during which it incurred legal costs of approximately $140,000 before Mr Stewart sought to represent the company.

    3.Mr Winn had received the benefit of indulgences in respect of the report from his expert architect given in December 2011 addressing apportionment.

    4.The plaintiff had settled with the other defendants (who were presumably insured), leaving Stewart Bros as the last defendant.

    5.Stewart Bros had waited years to have Mr Winn’s claim against it tested in Court on evidence including evidence it wished to adduce.

    6.Stewart Bros had no money left to engage legal representation.

    7.Mr Stewart had offered his own funds to contribute to the proposed conclave of experts (which had not been pursued) in the hope it would reduce the issues and time of trial.

    8.Stewart Bros would suffer a judgment in default in consequence of a refusal of authorisation of representation by Mr Stewart, which would be unfair and unjust in the circumstances.

    9.In particular, it would be unfair and unjust that issues of apportionment between Stewart Bros and other “wrongdoers” not be taken into account in the judgment and Stewart Bros not be allowed to defend the items of claim made against it.

    10.A trial on liability would not be unduly longer than an assessment of damages and, to the extent that it would be longer, the extra time was justified in the interests of the sole remaining defendant.

    Grounds of appeal

18. Mr Winn’s first ground of appeal was that the Judge should have provided reasons for judgment.  That ground has been superseded by the Judge’s report and Mr Winn does not pursue that ground but refers to those reasons in advancing ground three. 

19. Mr Winn’s second ground of appeal was that the Judge should have found that Stewart Bros failed to satisfy the Court that Mr Stewart had power to bind the company in relation to the conduct of the proceeding pursuant to rule 27(2).  In light of evidence adduced on appeal by Stewart Bros that the constitution of Stewart Bros provides (at least prospectively) for a sole director (and the fact that Mr Stewart is and has been the sole director of the company), Mr Winn does not pursue that ground.

20. The third ground of appeal, and the ground pursued, is that the Judge erred in the exercise of his discretion by applying the wrong principle, failing to take into account factors he was obliged to take into account, taking into account factors which are irrelevant and that the result of the exercise of his discretion is manifestly unreasonable.[6]

    [6]    In the sense described in Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223.

    Relevant principles

21. Rule 27 of the District Court Civil Rules 2006 (SA) relevantly provides as follows:

    (1)     The Court may, on application by a director of the company, authorise representation of a company by the applicant or some other director of the company.

    (2)     The Court must be satisfied that a director who is to represent the company has power to bind the company in relation to the conduct of the proceeding.

    The approach to an application for authorisation

22. Mr Winn contends that the proper approach of the Court is that authorisation is only to be granted in exceptional circumstances, and that the mere fact that a company lacks the means to instruct legal representatives does not constitute an exceptional circumstance.

23. Before addressing the authority on which Mr Winn relies for his contention, it is important to distinguish between representation of a company in an action generally (including for the filing and service of court processes) and the appearance as advocate on an interlocutory or final hearing. Where both may be permitted in the court’s discretion, while the criteria for grant of permission for each will overlap to a large degree, there will or may be some differences. Further, in considering previous authorities, it is necessary to ascertain which procedure is being addressed and, in at least one jurisdiction,[7] permission for appearance as an advocate can be granted but not for representation in the action generally.   

    [7]    The Supreme Court of Western Australia: see [29] below.

24. In England and Wales, Order 5 rule 6(2) of the Rules of the Supreme Court (Eng & Wales) 1965 provided that:

    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

    and Order 12 rule 1(2) provided that:

    except as aforesaid [giving notice of intention to defend] or as expressly provided by any enactment, such a defendant [a body corporate] may not take any steps in the action otherwise than by a solicitor.

25. In Arbuthnot Leasing International Ltd v Havelet Leasing Ltd,[8]  Scott J drew a clear distinction between general representation and appearance as an advocate[9], reviewed the English authorities[10] and concluded that the position in England was as follows. 

    First, RSC Ord 12, r 1 is of statutory effect and prohibits a body corporate from taking a step in an action otherwise than through a solicitor.  Second, the courts have an inherent power to regulate their own procedure and a judge in an individual case has, as part of that inherent power, the power to permit an advocate to appear for a litigant if the exceptional circumstances of the case so warrant.  No limit can be placed on what might constitute sufficient exceptional circumstances.  But third, subject to any exceptional circumstances that might require a particular individual in the interests of justice to be allowed to appear as advocate, the general practice of the court is that bodies corporate cannot appear by their directors but only by solicitors or counsel.[11]

    [8] [1990] BCLC 802.

    [9] Ibid at 806.

    [10] Ibid at 806-809.

    [11] Ibid at 809.

1. Mr Winn principally relies on the subsequent decision of the English Court of Appeal in Radford v Freeway Classics Ltd.[12] In that case, the Court of Appeal dismissed an appeal from the Judge below refusing leave to a director to represent a company defendant. Sir Thomas Bingham MR (Leggatt LJ and Roch LJ agreeing) said:

   On a straightforward reading of those provisions [the relevant Rules] they appear to be very clear legislative provisions requiring a limited company to pursue its litigation … through legal advisers.  There is, however, a limited gloss which has been put on those provisions in the cases, and the clearest and most succinct statement of the gloss is that given by Scott J in Arbuthnot Leasing International Ltd v Havelet Leasing Ltd [Sir Thomas Bingham MR then quoted the passage set out at [25] above].

   … It is worthy of note that the provisions which I have cited from the rules which require corporations to appear through solicitors are not merely rules for the sake of having rules but rest on a basis of fairness and good sense … A limited company, by virtue of the limitation of the liabilities of those who own it, is in a very privileged position because those who are owed money by it, or obtain orders against it, must go empty away if the corporate cupboard is bare.  The assets of the directors and shareholders are not at risk.  That is an enormous benefit to a limited company but it is a benefit bought at a price.  Part of the price is that in certain circumstances security for costs can be obtained against the limited company in cases where it could not be obtained against an individual, and another part of the price is the rule that I have already referred to that a corporation cannot act without legal advisers.  The sense of these rules plainly is that limited companies, which may not be able to compensate parties who litigate with them, should be subject to certain constraints in the interests of their potential creditors.[13] 

   [12] [1994] 1 BCLC 445.

   [13] Ibid at 447, 448.

2. The Court of Appeal went on to hold that the circumstances of that case, which included allegations by the company that it lacked the means to instruct legal representatives and that the company had a good defence to the plaintiff’s claim, did not constitute “exceptional circumstances”. 

3. The Rules (or legislation) of the jurisdictions in Australia range from one extreme (prohibition on general representation with a limited discretion to permit appearance as an advocate only) to the other extreme (entitlement to director representation provided authorised by company).

   1.The Rules in Western Australia (Supreme Court)[14] reproduce the wording of the English rules.  They do not include a general power in the Court to dispense with compliance with the Rules. It has been held that the Court has no power at all to permit general representation of a company by a director in the action contrary to the Rules, although the Court has a more limited inherent power, in exceptional circumstances, to permit a director to appear as advocate for the company).[15]

   2.The Rules in Victoria,[16] Tasmania (Supreme Court),[17] the Northern Territory (Supreme Court)[18] and the new Federal Court Rules 2011 (Cth)[19] essentially reproduce the wording of the English Rules but include a general dispensation power.  In Victoria[20] and the Northern Territory,[21]  it has been held that the Court has power to permit representation of a company by a director which is to be exercised in the interests of justice in “an appropriate case” and “on sufficient reason being shown”.

   3.In Queensland[22] and Western Australia (District Court)[23], the legislation provides that a party may appear by a person other than a lawyer by “special leave” of the judge.

   4.In the Australian Capital Territory (Supreme Court) until 1997[24]  and the Federal Court until July 2011[25], the Rule was expressed in essentially the same terms as in England, but importantly the prohibition was expressed to be “without the leave of the Court”.

   5.In the Australian Capital Territory (Supreme Court), the Rules since 1997[26] have provided that an authorised officer of a corporation may start and carry on proceedings on the corporation’s behalf with “leave” of the Court.

   6.In New South Wales, the position differs between the District Court and the Supreme Court and in the latter between plaintiff and defendant.

   (a)In the District Court, provided evidence is filed of authority to act on behalf of the company, a director is entitled to represent a company plaintiff or defendant as of right.[27] This “right” is probably subject to power of the Court in its inherent jurisdiction to make a disqualifying order in exceptional circumstances on principles akin to those in which counsel or solicitors are disqualified.[28]

   (b)In the Supreme Court, a director who is a co-plaintiff with the company is entitled to represent the company in the proceedings in a same manner as in the District Court.[29]  If the director is not a co-plaintiff, it seems that the Court retains power to dispense with rule 7.1(3).[30] 

   (c)In the Supreme Court, it seems that a director is entitled to represent a company when the company is a defendant in the same manner as in the District Court.[31]

   [14]   Rules of the Supreme Court 1971 (WA) order 4 rule 3(2) and order 12 rule 1(2);.

   [15]   Eastern Metropolitan Regional Council v Four Seasons Construction Pty Ltd [2000] WASC 178, (2000) 22 WAR 372 at [44]-[49] per Hasluck J; Re Hoffmann [2004] WASCA 238 at [13], [16]-[17], [22], [26] and [27] per McKechnie JA (Murray J and Templeman J agreeing)

   [16]   Supreme Court (General Civil Procedure) Rules 2005 (VIC) rule 1.17(1); County Court Civil Procedure Rules 2008 (VIC) rule 1.17(1).

   [17]   Supreme Court Rules 2000 (TAS) rule 11.

   [18]   Supreme Court Rules (NT) rule 1.13.

   [19]   Federal Court Rules 2011 (Cth) rule 4.01(2).

   [20]   Worldwide Enterprises Pty Ltd v Silberman [2010] VSCA 17; (2010) 26 VR 595 at [32]-[41] per Weinberg JA (Bongiorno JA agreeing). See also Hubbard Association of Scientologists International v Anderson and Just [1972] VR 340 at 341-342 per Smith, Little and Gowans JJ.

   [21]   Alice Springs Abattoirs Pty Ltd v Northern Territory (1996) 134 FLR 440 at 454-455 per Kearney ACJ.

   [22]   Supreme Court Act 1995 (Qld) section 209(1). See ASIC v Neolido Holdings Pty Ltd [2006] QCA 266 at [59] per Keane JA (Williams JA and Holmes JA agreeing).

   [23]   District Court of Western Australia Act 1969 (WA) section 39(1).

   [24]   Rules of the Supreme Court of the Australian Capital Territory (ACT) order 2A rule 14.

   [25]   Federal Court Rules 1979 (Cth) order 4 rule 14(2) and order 9 rule 1(3).

   [26]   Supreme Court Rules 1937 (ACT) order 8 rule 1(3); Court Procedures Rules 2006 (ACT) rule 30(4) (which also apply to an “authorised employee”).

   [27]   Uniform Civil Procedure Rules 2005 (NSW) rule 7.1(2)(a) and rule 7.2. See May v Christodoulou [2011] NSWCA 75 at [8] and [14]-[15] per Handley AJA and [95] per Sackville AJA (Macfarlan JA agreeing).

   [28]   See the discussion by Nicholas J in Manitowoc Crane Group Asia Pte Ltd v Preston Erection Pty Ltd [2004] NSWSC 1141 at [12]-[20] and in particular at [19]-[20].

   [29]   Uniform Civil Procedure Rules 2005 (NSW) rule 7.1(2)(a) and (3); rule 7.2. See also the former Supreme Court Rules 1970 (NSW) part 4 rules 4 and 4A.

   [30]   Connectland Pty Ltd v Porthaven Pty Ltd [2011] NSWSC 616 at [19] per White J referring in turn to Access Services Group Pty Ltd v McLoughlin [2006] NSWSC 532; (2006) 57 ACSR 725 at [10]-[14] per Barrett J. See also the earlier variation in views on the power of the Court to permit a director to appear at least as advocate under the then Supreme Court Rules in Bay Marine Pty Ltd v Clayton Country Properties Pty Ltd (No 2) (1986) 8 NSWLR 104 at 105-106 per Kirby P and at 111 per Samuels JA (Mahoney JA expressing no view).

   [31]   Uniform Civil Procedure Rules 2005 (NSW) rule 7.1(2)(a) and (3); rule 7.2. The drafting of rule 7.1(3) in conjunction with rule 7.1(2)(a) is infelicitous. See also the definition of “carry on proceedings” in the Civil Procedure Act 2005 (NSW) section 19; the former Supreme Court Rules 1970 (NSW) part 11 rule 1A and Access Services Group Pty Ltd v McLoughlin [2006] NSWSC 532 at [13] per Barrett J.

4. It can be seen that the Rule in South Australia is most akin to the present Rules in the Australian Capital Territory (category 5) and to the former Rules in the Australian Capital Territory until 1997 and the Federal Court until July 2011 (category 4). A Full Court in each of those jurisdictions has considered the effect of their former rules.

5. In Molnar Engineering Pty Ltd v Burns,[32] a director and principal shareholder of the plaintiff company sought leave, on the third day of trial, to appear for the company in the Federal Court.  The trial Judge refused leave, which was reversed by the Full Court (Sweeney J dissenting). Smithers J said:

   [32] [1984] FCA 232; (1984) 3 FCR 68.

   In O’Toole v Scott, the Privy Council, after referring to a court’s inherent right to regulate its proceedings, said:

   “There is no reason in principle for limiting the discretion as suggested.  It can be exercised either on general grounds common to many cases or on special grounds arising in a particular case.  Its exercise should not be confined to cases where there is a strict necessity; it should be regarded as proper for a magistrate to exercise the discretion in order to secure or promote convenience and expedition and efficiency in the administration of justice.”…

   [After setting out the text of order 5 rule 6 of the English Rules] But in this Court the presence of r. 14(2) of O. 4 and r. 3 of O. 9 introduces a new element. 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 exercised by reference to all relevant considerations.

   … the discretion introduced in O. 4, r. 14 and O. 9, r. 3 does introduce an element different from that which might have been expected when the Federal Court of Australia was established in 1976, had it been intended that the discretion of that court should be but a similarly residual discretion.  Certainly a change of emphasis appears to be involved.  The discretion introduced in the express provisions of the rules is, in the absence of other guidance, to be exercised juridically according to the requirements of justice …

   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.

   The problem is to recognise what is sufficient reason for the purpose in hand.  The common reason for a company seeking to proceed without qualified assistance is, no doubt, that the company does not have the funds to engage such assistance.  One would suppose that a company might successfully support an application to sue or defend without qualified assistance, not only where the company is bereft of funds, but also where having regard to the necessary or reasonable commitments of the company, the appropriation of funds to engage qualified assistance for the litigation in question would create financial difficulties with which the company could not cope, or with which it ought not be required to cope. …

   Similarly the identity of the shareholders and the spread of the shareholding would be relevant.  So also would the capacity of a person by whom the litigation might be commenced and carried on.  In this case Mr Molnar is, from the point of view of substance, a one man company…It could no doubt be urged that, in the case of a one man company which seeks leave to carry on the proceedings without a solicitor and which proposes that it be carried on by the one man of the company the situation approximates, in substance, that of a litigant in person.[33]

   [33]   at 71, 73-75.

6. Keely J said:

   I agree with Smithers J that the discretion is to be exercised judicially according to the requirements of justice and that it must be exercised in favour of the company where there is sufficient reason; further that one reason likely to be advanced is that the company neither has, nor has access to, the funds required to engage legal practitioners.  I also agree with him that leave should be granted where, having regard to the necessary or reasonable commitments of the company, the appropriation of funds to engage legal practitioners for the litigation in question would create financial difficulties with which the company could not – or with which it ought not be required to – cope and that in this connection the ability of the company to retain and pay its staff may well be relevant. … I would prefer not to express an opinion as to whether, in considering the grant of leave to a company, the identity of the shareholders or the spread of the shareholding is relevant.

   … in my opinion his Honour’s discretion miscarried by attaching too much importance to the fact that the court would be deprived of the assistance of a legal practitioner appearing for the company, when that fact is considered in the light of the findings which his Honour had made in favour of the company’s application as to its financial difficulties.[34]

   (Emphasis added, citations omitted)

   [34]   Ibid at 80-81.

7. In ACT General Cleaning Co Pty Ltd v Naoum,[35]a director of a family company instituted proceedings in the Supreme Court of the Australian Capital Territory.  Leave was granted to the director to appear on behalf of the company in respect of certain interlocutory steps in the proceedings but was refused at the trial and as a result the company’s claim was dismissed.  Beaumont J (Heerey J and Finn J agreeing) said:

   The approach to be taken to the exercise of the Court’s discretion in this area was fully considered by a Full Federal Court in Molnar Engineering Pty Ltd v Burns.  Smithers J there indicated several of the factors which would ordinarily be taken into account in considering whether leave ought to be granted.  As his Honour pointed out the identity of shareholders and the spread of shareholding is a relevant consideration, as is the capacity of a person by whom the litigation might be commenced and carried on …

   I have come to the conclusion that his Honour’s discretion miscarried in the present case for two principal reasons.

   In the first place, it does not appear that his Honour gave any weight, or any real weight, to the circumstance that both Higgins J and Master Hogan had previously granted leave …

   The second matter, which his Honour does not appear to have taken into account, is the close nature of the holding of the equity capital of the company.  As has been said, the appellant is a family corporation; and it is not disputed that it is effectively controlled by Mr Stergiou.[36]

   (Citations omitted)

   [35] [1996] FCA 1560; (1996) 67 FCR 361.

   [36] Ibid at [21], [24]-[26]; 364.

8. The wording of rule 27(1) of the District Court Civil Rules 2006 (SA) is expressed in different terms to the former Federal Court Rules 1979 (Cth) and the former Supreme Court Rules of the Australian Capital Territory (ACT).  Like the current Court Procedures Rules 2006 (ACT), it is not expressed in negative terms of a prohibition subject to leave. It is expressed in positive terms empowering the Court to authorise representation of a company by a director. Rule 27 contains an express prerequisite that the Court must be satisfied that the director has power to bind the company in relation to the conduct of the proceeding but no other prerequisite.

9. I consider that rule 27 confers upon the Court a broad discretion to be exercised judicially but not fettered by specific rules such as the “exceptional circumstances” criterion in England and Wales. The position is analogous to the discretion vested in the Court to grant security for costs against a plaintiff company by section 1335(1) of the Corporations Act 2001 (Cth).[37]  In deciding whether to grant authorisation under rule 27, the Court needs to consider all relevant factors including not only the respective interests of the parties but also the public interest in the administration of justice.  At the end of its consideration, the Court will need to be satisfied that the overall balancing of factors favours authorisation in order to make an order.  This construction of rule 27 accords with the approach of the Full Courts of the Federal Court and the Supreme Court of the Australian Capital Territory in the two cases cited above.  It also implements the approach of the Privy Council in O’Toole v Scott referred to and applied by the Full Court of the Federal Court.

   [37]   John Arnold’s Surf Shop Pty Ltd (in liquidation) v Heller Factors Pty Ltd (1979) 22 SASR 20 at 33-34 per Mitchell J (King CJ and Legoe J agreeing).

10. There is nothing in the reasons for judgment of Gray J in Evajade Pty Ltd v National Australia Bank Ltd (No 2)[38] which is inconsistent with this conclusion. In that case, Mr Garrett, who was not a director and who was an undischarged bankrupt, applied for leave to represent the plaintiff company pursuant to rule 36.11 of the Supreme Court Rules 1987 (SA).  Gray J upheld the decision of the Master that Mr Garrett was not within the class of persons (a managing director or person in whom the powers of the board of the directors are vested) eligible under rule 36.11(1) to apply for leave, and in any event the fact that Mr Garrett was an undischarged bankrupt militated against the exercise of any discretion in his favour.[39] 

    [38] [2005] SASC 229.

    [39] Ibid at [29].

11. In the course of his reasons, Gray J referred to an argument put by the defendant that Mr Garrett’s motivation in making the application was to avoid possible costs exposure on the part of the director of the company in the course of which the defendant relied on and read from the judgment of Sir Thomas Bingham MR in Radford.[40]  It is clear that Gray J was only identifying a submission by the defendant as to motivation and was not himself referring to or adopting the approach taken in Radford as the appropriate approach under rule 36.11. 

    [40] Ibid at [28].

12. The Master had also considered the inherent jurisdiction of the Court on the basis that Mr Garrett fell outside the class of persons entitled to apply under rule 36.11 and in the course of doing so the Master referred to Radford as authority for the proposition that the mere fact that a company cannot afford legal representation is not in itself a sufficient exceptional circumstance.[41]  Gray J went on to uphold the decision to refuse to exercise any inherent jurisdiction that may exist and identified four reasons which militated against the exercise of any such jurisdiction.  Those reasons did not include any reference to the ability of the company to afford legal representation and in any event were confined to consideration of the inherent jurisdiction as opposed to the jurisdiction under the Rules.  In short, in that case, Gray J simply did not address the question which arises in this case under rule 27 of the 2006 Rules.

    [41] Ibid at [30].

    Rationale for requiring authorisation

13. While caution needs to be exercised in considering authorities in other jurisdictions which consider differently worded rules, those authorities do identify several rationales for the principle that a company does not have an absolute right to be represented by a person other than a legal practitioner. 

    1.The opposite party may be disadvantaged by the time and cost of the proceeding being extended due to the company not being represented by a legally qualified advocate.[42]

    2.The public interest in the efficient and timely administration of justice may be prejudiced by the time and cost of the proceeding being extended due to the company not being represented by a legally qualified advocate.[43]

    3.The public interest in the fair administration of justice may be prejudiced by the fact that a lay advocate (unlike a legally qualified advocate) does not owe a duty to the Court and to the parties in the litigation to ensure that the Court is properly informed and not misled.[44]

    [42]   Scotts Head Developments Pty Ltd v Pallisar Pty Ltd (Unreported Supreme Court of New South Wales Court of Appeal, Mahoney AP, Powell JA and O’Keefe CJ, 6 September 1994) per Mahoney AP.

    [43] Ibid per Mahoney AP; Hubbard Association of Scientologists International v Anderson and Just [1972] VR 340 at 343 per Smith, Little and Gowans JJ.

    [44]   Bay Marine Pty Ltd v Clayton Country Properties Pty Ltd (No 2) (1986) 8 NSWLR 104 at 105-106 per Kirby P; Scotts Head Developments Pty Ltd v Pallisar Pty Ltd (Unreported Supreme Court of New South Wales Court of Appeal, Mahoney AP, Powell JA and O’Keefe CJ, 6 September 1994) per Mahoney AP.

    Relevant factors

1. The factors relevant to the exercise of the discretion are not limited and will vary from case to case.  The direction in which a factor points and the weight to be accorded to it will vary from case to case.  However, authorities identify several recurring factors which are typically relevant. Those factors in a case such as the present in which a director seeks to represent the company as advocate at trial include the following.

   1.The role of the company as plaintiff or defendant.  It may be (depending on other relevant factors) that authorisation will be more readily granted to a defendant because the defendant is not invoking the jurisdiction of the Court and in this sense is an involuntary party.[45]

   2.Whether the director is also a party in his or her own right (co-plaintiff or co-defendant).  It may be (depending on other relevant factors) that authorisation will be more readily granted if the director is co-plaintiff or co-defendant (as the case may be) with the company.[46] In some cases, this may tend to point against authorisation.

   3.The stage which the case has reached.  It may be (depending on other relevant factors) that authorisation will be more readily granted if the case is well advanced rather than at the outset.[47] In some cases, this may tend to point against authorisation.

   4.The time over which and manner in which the case has progressed from inception to when the application is made and the conduct of both parties to that point.[48]

   5.The degree to which financial considerations inhibit the company from obtaining legal representation.  In particular, if the denial of authorisation is likely to stultify the prosecution or defence of the action (as the case may be), that is a substantial factor in favour of the grant of authorisation.[49] At least where the company is a plaintiff, regard will usually be had not only to the financial resources of the company itself but also of the shareholders who stand to benefit from the litigation if successful.[50]

   6.The degree to which the time and cost of the trial will be extended due to the company being represented by a lay, self-interested, advocate (which impacts both upon the interests of the other party and the public interest as described above).[51]

   7.The extent to which the director is to be a witness in the proceeding.[52]

   8.The importance of the lay advocate not being subject to the ethical precepts that bind a legally qualified advocate.[53]

   [45]   See for example Cytel Pty Ltd v Peoplebank Recruitment Pty Ltd [2006] FCA 985 at [10] per Bennett J.

   [46]   Young v ICM Agriculture Pty Ltd [2009] FCA 1065 at [22] and [27] per Lindgren J. See also, in the different context of a co-defendant applying to represent a co-defendant where he or she is a natural person, Galladin Pty Ltd v Aimnorth Pty Ltd [1993] SASC 3914; (1993) 60 SASR 145 at 147-148 per Perry J.

   [47]   Worldwide Enterprises Pty Ltd v Silberman (2010) 237 FCR 292 at [41] per Weinberg JA (Bongiorno JA agreeing). See also, in the different context of a co-defendant applying to represent a co-defendant where he or she is a natural person, Galladin Pty Ltd v Aimnorth Pty Ltd (1993) 60 SASR 145 at 147-148 per Perry J.

   [48]   Molnar Engineering Pty Ltd v Burns (1984) 3 FCR 68; Worldwide Enterprises Pty Ltd v Silberman (2010) 26 VR 595 at [41] per Weinberg JA (Bongiorno JA agreeing).

   [49]   Worldwide Enterprises Pty Ltd v Silberman (2010) 237 FCR 292 at [41] per Weinberg JA (Bongiorno JA agreeing).

   [50]   Simto Resources Limited v Normandy Capital Limited [1993] FCA 305 at [9] per French J; Checked-Out Pty Ltd v Eagle Eye Inspections Pty Ltd [2002] FCA 1002 at [14] per Emmett J.

   [51]   Molnar Engineering Pty Ltd v Burns (1984) 3 FCR 68 at 73-74 per Smithers J and 80-81 per Keely J; Scotts Head Developments Pty Ltd v Pallisar Pty Ltd (Unreported, Supreme Court of New South Wales Court of Appeal, Mahoney AP, Powell JA, and O'Keefe CJ, 6 September 1994) per Mahoney AP; Worldwide Enterprises Pty Ltd v Silberman (2010) 237 FCR 292 at [41] per Weinberg JA (Bongiorno JA agreeing).

   [52]   Pacific Air Freighters (Qld) Pty Ltd v Toller [2000] FCA 343; 171 ALR 519 at [7] per Drummond J; Cytel Pty Ltd v People Bank Recruitment Pty Ltd [2006] FCA 905 at [9] per Bennett J.

   [53]   Scotts Head Developments Pty Ltd v Pallisar Pty Ltd  (Unreported, Supreme Court of New South Wales Court of Appeal, Mahoney AP, Powell JA and O'Keefe CJ, 6 September 1994) per Mahoney AP; Worldwide Enterprises Pty Ltd v Silberman (2010) 237 FCR 292 at [41] per Weinberg JA (Bongiorno JA agreeing).

2. Mr Winn accepts that rule 27 confers a discretion which can only be disturbed on appeal if it is established that the Judge below applied the wrong principle, failed to take into account a relevant factor, took into account an irrelevant factor, made a decision manifestly unreasonable[54] or his discretion otherwise miscarried within the principles established by the High Court in House v The King.[55]

   [54]   In the sense described in Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223.

   [55] [1936] HCA 40; (1936) 55 CLR 499.

   Application of wrong principle

3. Mr Winn contends that the Judge applied the wrong principle in that he failed to apply the approach adopted by the English Court of Appeal in Radford that exceptional circumstances are required to justify authorisation, and that the mere fact that refusal will stultify a defence does not comprise an exceptional circumstance. 

4. I reject this contention. For the reasons identified at [29] to [34] above, the 4approach in South Australia pursuant to rule 27 is different to the approach adopted in England pursuant to the Rules of the Supreme Court.

   Factors taken or not taken into account

5. Mr Winn next contends that the Judge erred in relation to factors which he took into account and factors which he did not. 

6. First, Mr Winn contends that the Judge’s taking into account the fact that Stewart Bros had waited years to have the plaintiff’s claim against it tested in Court was contrary to established legal principles.  I reject that contention.  The stage which the case has reached, and the conduct of the parties in the action prior to the application, are established as factors to which it is proper to have regard: see [39] above.

7. Secondly, Mr Winn contends (based on Radford) that the Judge’s taking into account his assessment that it would be unfair and unjust for a judgment in default to be entered which does not take into account issues of apportionment between a variety of wrongdoers or allow the plaintiff’s claim to be tested on the evidence is contrary to established legal principles.  I reject that contention.  The fact that denial of authorisation may stultify the defence to the action is established as a factor to which it is proper to have regard (and indeed will often be a crucial factor): see [39] above.

8. Thirdly, Mr Winn makes an elliptical reference to the Judge’s finding that Stewart Bros has no money left to engage legal representation.  It is not clear whether that finding in itself is challenged on appeal.  To the extent that it is challenged, the written submissions of Mr Winn and the transcript of 24 April 2012 show that the hearing was conducted by both parties on the common basis that the company had ceased trading by June 2011 and had no significant assets and indeed Mr Winn relied in his own submissions on the company being a “shell” as a factor pointing against authorisation. 

9. Fourthly, Mr Winn contends that the Judge’s finding that Mr Stewart did not strip the company of assets to abuse the Court’s processes (ie to defeat a judgment) was not supported by evidence from Mr Stewart and was contrary to the objective evidence.  Mr Winn put to the Judge during submissions that the reduction of capital of the company by $175,000 in June 2010 involved stripping of capital and in those circumstances the company should not be entitled to “cry poverty”.  In response, Mr Stewart informed the Judge during his submissions that, after the HIH Insurance collapse, the company’s indemnity insurer required it to increase its share capital by $175,000 and that, when this was no longer required by the insurer in 2010, that capital was returned to the shareholders; there was no attempt to strip to company of assets; and this was done on the advice of the company’s accountant.  On the one hand, it is true that Mr Stewart did not give sworn evidence in relation to the transactions involving the company’s share capital.  On the other hand, before the Judge, Mr Winn did not object to Mr Stewart giving “evidence from the bar table” and adopted in support of his own submissions other assertions made by Mr Stewart from the bar table which were not made on oath.  Mr Winn did not seek to cross-examine Mr Stewart on his affidavit or otherwise before the Judge.  It would have been very difficult for the Judge to have made a finding on and for the purposes of the rule 27 application as to the motives of the company in making the share capital reduction.  In all of these circumstances, the Judge did not err in this respect.

10. Fifthly, Mr Stewart contends that the Judge erred in concluding that a trial would not be unduly longer than the assessment of damages which would be required in any event if the plaintiff obtained judgment on liability in default of appearance at trial (on refusal of authorisation) and proceeded to an assessment of damages. On the one hand, an assessment of damages on which Mr Stewart were also refused authorisation to appear for the company[56] would have taken a matter of days[57] rather than weeks.  On the other hand, for reasons which appear in the next paragraph, the real comparison which the Judge was required to make was between a trial on liability and quantum in which Stewart Bros was legally represented and a trial on liability and quantum in which Stewart Bros was represented by Mr Stewart.  A comparison between a trial on liability and quantum and an assessment of damages does not arise at all at least in the first instance.

    [56]   This raises the complication of speculating whether Mr Stewart would be refused authorisation to appear on an assessment of damages. Ultimately, I do not need to address that question for reasons which will appear.

    [57]   This raises the complication whether a Judge hearing an assessment of damages would have been required to inquire into issues of causation (see for example Grimsey v Southern Regional Health Board [1997] TASSC 77 per Wright J) or proportionate liability (compare the issue of contributory negligence discussed in Northern Australian Aboriginal Legal Aid Service Incorporated v Liddle (1994) 118 FLR 109 per Martin CJ (Angel J and Mildren J agreeing)). Ultimately, I do not need to address that question for reasons which will appear.

11. Sixthly, Mr Winn contends that the Judge erred in failing to give consideration to the extra time and cost likely to be incurred in a trial in which Stewart Bros was represented by Mr Stewart as compared to its being legally represented.  I agree that this was a factor (and a crucial factor) which the Judge was required to assess and take into account.  In a limited sense, the Judge took this factor into account in his conclusion that the extra time was justified as part of an overall weighing process.  However, he did that in the context of a different comparison (as identified in the previous paragraph) and did not give consideration to the question of what (if any) additional time and cost would be incurred by reason of the company’s representation by a lay advocate, Mr Stewart.  I therefore uphold this contention by Mr Winn.

12. Mr Winn contends that the Judge did not give consideration to the public interest in the efficient use of Court resources.  This is a factor which was required to be considered and is inextricably bound up with the issue addressed in the previous paragraph.

13. Seventhly, Mr Winn contends that the Judge did not give consideration to the fact that Mr Stewart would be both a major witness and an advocate for the company.  The Judge did not explicitly refer to this factor (I note that it was given little prominence in Mr Winn’s submissions to the Judge). 

14. Eighthly, Mr Winn contends that the Judge did not give consideration to the public interest in companies being represented by legal practitioners who owe ethical obligations to the Court and other parties.  The Judge did not explicitly refer to this factor (I note that it was given little prominence in Mr Winn’s submissions to the Judge).

15. I accept that these last two matters were factors required to be considered and taken into account. The Judge had been actively case managing the action since December 2011 as the intended trial Judge and it is apparent from his reasons that he formed a view concerning Mr Stewart’s role as an advocate. The Judge may well have taken these two factors into account, even though not expressed in his reasons. Ultimately, I do not need to reach a final view whether Mr Winn has demonstrated that the Judge erred in relation to these two factors due to my conclusion at [49] above.

    Manifestly unreasonable decision

16. Mr Winn contends that the circumstances before the Judge so overwhelmingly militated against grant that any decision to grant authorisation must necessarily have been unreasonable.[58] It is not necessary to consider this contention in light of my conclusion at [49] above. However, it is implicit in my reasons which follow in the next section that I do not accept that contention.

    [58]   In the sense described in Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223.

    Conclusion

17. It follows from paragraph [49] above that the exercise of the Judge’s discretion under rule 27 miscarried.  In those circumstances, the question arises whether I should exercise that discretion myself or whether I should remit the application for reconsideration by the District Court.

    Additional Evidence

18. On the hearing of the appeal, additional evidence was adduced by both parties.

19. Mr Winn tendered financial statements of Stewart Bros for the years ended 30 June 2010 and 30 June 2011.  Mr Stewart tendered balance sheets for the company for the years ended 30 June 2004 and 30 June 2009 and the eight months ended 29 February 2012.

20. Mr Stewart tendered correspondence between his accountant and the company’s insurance broker and banker in 2004 relating to the increase in share capital.  Mr Stewart tendered two letters by his accountant dated 26 April and 7 June 2012 explaining the share capital transactions in 2004 and 2010 (parts of which were not received on objection by Mr Winn).  Mr Stewart gave oral evidence concerning those transactions.

21. Mr Stewart gave oral evidence concerning the company’s present financial position, the payment of superannuation and his personal financial position.

22. On my ruling that the quantum of the settlement sums received by Mr Winn from the architect, engineer and certifier was relevant and should be disclosed, Mr Winn tendered the settlement agreements. These show the collective receipt by Mr Winn of a substantial proportion of his total claim of approximately $1.4 million but a shortfall on that total claim exceeding the $400,000 (or thereabouts) which he claims against Stewart Bros.

    Factors relevant to fresh exercise of discretion

23. In order to determine whether I should exercise my own discretion on the rule 27 application or remit it to the District Court, I first identify the factors which need to be considered on the exercise of the discretion. 

24. First, it is relevant that the company is a defendant and not plaintiff.  That is, the defendant is not invoking the jurisdiction of the Court but is compulsorily before the Court because Mr Winn is invoking of the jurisdiction of the Court.  This is not a factor which points in favour of authorisation, but does represent an important context in which other factors are to be considered.  This factor is reduced somewhat in weight because originally Stewart Bros brought a counterclaim for the balance of monies due pursuant to the building contract and that sum was paid on the basis that it would be returned if and to the extent that Mr Winn was successful in his claim. This in turn is offset somewhat by the fact that Stewart Bros agreed to repay that amount if unsuccessful in the action on the premise it would be permitted to defend the action on the merits.

25. Secondly, Mr Winn informed me during the hearing of the appeal that, if authorisation is granted to Mr Stewart, Mr Winn intends to join Mr Stewart personally as an additional defendant making a claim against him pursuant to his guarantee referred to at [11] above. If such a claim is prosecuted against Mr Stewart, there is a prospect that the Court would need to decide on the merits as between Mr Winn and Mr Stewart (independently of any default judgment obtained against Stewart Bros as a result of denial of authorisation) whether the company is liable to Mr Winn for defective building work to determine whether Mr Stewart is liable to Mr Winn on the guarantee. This is a factor which tends to point in favour of authorisation because a trial of the same issues would be required in that eventuality on the claim against Mr Stewart personally in any event.

26. Thirdly, the action has reached the point at which it was about to proceed to trial within two weeks of the authorisation order being made.[59] In the particular circumstances of this matter, having regard to the other factors, this tends to point in favour of authorisation relative to circumstances in which a company sought such an order at the outset of the litigation. 

    [59]   Mr Winn still needed (and needs) to quantify his claim for two defects (one primary and one consequential) and allocate general expenses between the defects. He also still needs to formulate his case on the proportionate responsibility of the certifier where relevant to the claim against Stewart Bros.

27. Fourthly, the action had been proceeding for five years since December 2006 before Mr Stewart applied to represent the company. A combination of its profit and loss statements for the years ended 2009 to 2011 and Mr Stewart’s evidence show that the company expended well over $100,000, and probably of the order of $140,000, on legal costs in the action over the five years to December 2011 while it engaged legal representatives. In the particular circumstances of this matter, having regard to the other factors, this tends to point in favour of authorisation. The other aspect of the assessment of this factor involves an assessment of the conduct of the parties. The Judge had been case managing the action as intended trial Judge since December 2011 and thereby gained familiarity with the history of the action and its conduct by the parties. The Judge appears, rightly or wrongly,[60] to have formed a generally favourable view concerning the conduct of the action by Stewart Bros (and in particular by Mr Stewart since December 2011) and a generally unfavourable view concerning the plaintiff’s conduct of the action. A Judge of the District Court, and in particular the Judge case managing the action to trial, would be better placed than a Judge of this Court on appeal to make an assessment of the past conduct of the action.

    [60]   I express no view on this question.

28. Fifthly, the company’s financial statements as at February 2012 demonstrate that it has no assets or funds to expend on legal representation.  In June 2010, the company chose to return $175,000 in share capital to its shareholders (50 per cent to Mr Stewart and 50 per cent to Mr Stewart’s brother and sister in law), which reduced the loans which had been made by the company to those shareholders by $175,000.  It is not possible to make any finding that the share capital reduction was made for the purpose of defeating a judgment (which Mr Stewart denied on oath).  On the one hand, the fact of the reduction in the net assets of the company is still to be taken into account.  On the other hand, the company continued to engage legal representatives for 18 months after the capital reduction and it remains a fact that the company does not now have assets or funds to pay for continuing legal representation.

1. In 2009, the company chose to pay approximately $120,000 voluntary superannuation by way of salary sacrifice to its employees (presumably the Stewarts). It is not possible to make any finding that the payment of voluntary superannuation was made for the purpose of defeating a judgment (which Mr Stewart denied on oath) and the payments were made approximately three years before the company’s legal representatives ceased to act for it. In these circumstances, the payment does not carry significant weight in the overall exercise of the discretion. 

2. Mr Stewart gave evidence that he has approximately $130,000 in a bank account.  Mr Stewart could choose to lend those funds to the company for the purpose of legal representation.  Because the company is a defendant and not a plaintiff, the same weight should not necessarily be given to the ability of the shareholder of the company to provide funds to it for the purpose of legal representation (as in circumstances in which a company is a plaintiff, its shareholder stands directly to gain financially as a result of the action).  Nevertheless, this should be taken into account on the overall exercise of the discretion.

3. Sixthly, it is essential to make an assessment of the likely effect on the time and cost of the trial of the company being represented by Mr Stewart as compared to a legal representative. 

   1.On the hearing of the appeal, Mr Winn pointed to the facts that:

   (a)in the Scott schedule (prepared while legally represented) the company denied liability for any of the twelve alleged defects or five consequential defects being pursued by Mr Winn and did not admit any figure for quantum in respect of those items;

   (b)in its Defence (also prepared while legally represented) the company pleaded several alternative defences which Mr Winn characterises as both novel and complex;

   (c)the tender book as proposed by Mr Winn will contain 1,585 documents;

   and he contends that the case is both factually and legally complex, Mr Stewart has no legal qualifications or expertise and the trial is likely to be significantly longer and more expensive as a result of the company being represented by Mr Stewart that by a legal representative. 

   2.On the other hand, during the hearing of the appeal, Mr Stewart indicated that his intention is:

   (a)not to object to the tender of any of the documents contained in the tender book;

   (b)not to tender any additional documents beyond photographs of the house;

   (c)not to pursue the “legalistic” defences pleaded in the Defence but rather to advance a factual case that Stewart Bros as builder was obliged by the architect’s and engineer’s designs and instructions to perform the work in the specific manner which Mr Winn alleges is defective as well as to challenge the quantum of the quotes by the tradespersons for rectification work. 

4. My reading of the Scott schedule in conjunction with Mr Winn’s expert architect’s report on proportionate liability suggests that the liability issues are neither numerous nor complex.  The summary of Mr Winn’s case at [7] and [8] above shows that there are twelve alleged defects, which involve the entry of water and the air conditioning (plus three minor miscellaneous defects). This suggests the issues are relatively confined.

5. A Judge of the District Court, and in particular the Judge case managing the action to trial, would be in a better position than a Judge of this Court on appeal to make an assessment of these matters.  Such an assessment could and ideally should be undertaken in the course of pre-trial identification of issues and directions.

6. Seventhly and eighthly, it is necessary to make an assessment of the degree to which difficulties or complexities would arise as a result of Mr Stewart being both the principal witness for the company as well as its advocate at trial and the importance in this case of Mr Stewart not being subject to the ethical precepts which bind legal representatives. Again, the Judge of the District Court managing the action to trial would be in a better position than a Judge of this Court on appeal to make these assessments, although I note that these two factors are unlikely to be decisive in this particular case. 

7. In summary, the fourth and the last three factors involving the past and future conduct of the action in the District Court would be better assessed by the Judge of the District Court managing this action to trial. In these circumstances, it is undesirable that I exercise my own discretion.  Rather, I should remit consideration of the exercise of the discretion to the District Court.

   Conclusion

8. I allow the appeal.  I set aside the order of the Judge authorising Mr Stewart to represent the defendant.  I propose to remit the defendant’s application for authorisation to the District Court for reconsideration.  I will hear the parties as to the precise orders which ought to be made.