962149 Limited v Hansen
[2014] NZHC 1884
•12 August 2014
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-004-1899 [2014] NZHC 1884
BETWEEN 962149 LIMITED AND MR COLIN
JOHN MACFADYEN Plaintiffs
AND
MESSRS WADE ROBIN HANSEN, PETER WILLIAM SMITH, SMITH & PARTNERS TRUSTEES 2010 & 2011, SMITH AND PARTNERS
Defendants
Hearing: 30 July 2014 Appearances:
Mr C MacFadyen shareholder in person and Ms M MacFadyen
- Director in person
Ms H Twomey and Ms W Robertson for defendantsJudgment:
12 August 2014
JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE
This judgment was delivered by me on
12.08.14 at 4 pm, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
962149 LIMITED & ANOR v HANSEN & ORS [2014] NZHC 1884 [12 August 2014]
Background
[1] The plaintiffs in this proceeding is 962149 Limited (“the Company”) and Mr Colin MacFadyen. The directors of the Company are Mr MacFadyen and Ms Monica MacFadyen. The fourth named defendant, Smith & Partners, are solicitors in practice in Henderson.
[2] Ms MacFadyen has brought an application seeking leave to represent the Company in its litigation against the defendants. This proceeding is one of five or six proceedings in total. As with the other proceedings, it was commenced in the District Court and transferred to the High Court on notice being given by the defendants under s 43 of the District Courts Act 1947.
[3] The background can be briefly described.
[4] The various proceedings are all linked to the involvement of the plaintiffs and the defendants in the business which Mr MacFadyen says he established in 1999. The company was involved in the signage business. The intituling of the filed statement of claim states the following:
IN THE MATTER of
MISLEADING AN DECEPTIVE CONDUCT, THEFT, THEFT BY A PERSON REQUIRED TO ACCOUNT, THEFT BY A PERSON IN A SPECIAL POSITION AND RESLATIONSHIP, OMISSION TO UPHOLD THE LAW, FAILURE TO PROVIDE FIDUCIARY DUTY TO CLIENT, FAILURE TO PROVIDE ACCOUNTS UPON NOTICE, FAILURE TO UPHOLD THE INTERESTS OF A COMPANY, FRAUD, FAILURE TO ADVISE TO UPHOLD AND ABIDE BY DIRECTORS’ DUTIES TO THE COMPANY, FAILURE ADVISE TO AVOID TRANSACTIONS INVOLVING SELF-INTEREST, FAILURE TO ADVISE OF THE DUTY ENSURE DIRECTORS’ DUTY OF CARE TO THE COMPANY, FAILURE TO COMPLY WITH COMPANIES ACT AND COMPANY CONSTITUTION.
[5] Essentially the plaintiffs allege that several employees of the Company and one other shareholder acted contrary to the interests of the Company and the personal interests of Mr MacFadyen as the principal shareholder in the Company. I shall refer to those other parties as “the employees”.
[6] The statement of claim is fairly described by the defendants as a prolix document that is not easy to understand. The document is 105 paragraphs in length.
[7] As I read the statement of claim, the allegations that are brought against the defendants as solicitors involve the following key elements. It alleges that the employees’ misconduct resulted in the Company going out of business in or about
2004. This came about because some or all of the employees engaged in dishonest practices and drew excessive salaries from the Company. It is alleged that they misled Mr MacFadyen about the state of the business and prevented him from having access to the Company accounts. The plaintiffs’ allege that the defendants were the solicitors acting for the Company at all material times. This allegation is denied. The defendants agree that in 2002 they were engaged by the Company to review the Company’s terms of trade and employment matters but that they did not act for the Company after 2002. In 2004, the law firm received instructions from some of the employees to provide advice.
[8] Apparently the allegation that is made against the defendants is that they essentially prevented the employees and the company accountant (who is a defendant in one of the other proceedings) from supplying current accounts to Mr MacFadyen for a period of two years or more. This came about, the plaintiffs claim, because the defendants gave an instruction to the accountant that he was not to release financial information to Mr MacFadyen because there was a “shareholder dispute”. It is the plaintiffs’ claim that because of the lack of information, the Company got into dire financial straits. Proper taxation returns were not filed and then eventually Mr MacFadyen, at the instigation of, or at least with the connivance of the defendants, transferred the business to another company which had been a competitor of the plaintiff company. Thereafter the operations of Mr MacFadyen’s business were wound down. During that time, the plaintiffs say the business was negligently conducted by some of the employees who remained in control of the day-to-day operations of the business after the transfer to the other company.
[9] The plaintiffs claim to recover from the defendants various items of relief, including the excessive amounts of money which the employees are alleged to have taken from the Company. The essence of the plaintiffs’ complaint is that the
employees were not prevented from so doing (as ought to have occurred) because Mr MacFadyen did not have access or did not know it was occurring. The plaintiffs apparently allege that Mr MacFadyen did not know it was occurring because of the defendants’ instructions to the accountant which I have already mentioned.
[10] I also understand that the plaintiffs claim that the defendants were under an affirmative obligation to expose the alleged dishonesty of the employees. Although these are civil proceedings, it is alleged that the defendants breached s 377 of the Companies Act 1993 which makes it an offence for any person with respect to a document to make or authorise the making of a statement that is false or misleading. It is also alleged that there was a further offence in the form of falsification of records under s 379 of the Companies Act which was known to the accountant who then failed to record or correct the falsity of the accounting documents. Further, the defendant law firm was a willing party to the falsification of the Company’s books and records. There are other various offences claimed including breaches of the Tax Administration Act 1994. The claim is also made that the plaintiffs are entitled to relief because the conduct of the solicitors was in breach of the rules of professional conduct for barristers and solicitors pursuant to s 17 of the Law Practitioners Act
1982.
[11] It does not appear, though, that any claim is made for alleged damages representing compensation for the loss of the business itself.
[12] The pleadings in the statement of claim are patently confused as to the source of the plaintiffs’ rights. Some or all of the causes of action would be unlikely to survive a strike-out application. Those which are founded on breaches of criminal provisions would also seem vulnerable to strike-out orders.
[13] Against this background Ms MacFadyen seeks leave to represent the Company because she says the Company has no resources to obtain services of a paid lawyer and attempts to obtain assistance under the Legal Services Act 2011 have been unsuccessful. She considers that great harm has been done to Mr MacFadyen and the company and that it is necessary for her to be authorised to advocate on behalf of the company if any injustice is to be redressed.
[14] The defendants’ position, in outline, is that the defendant firm never acted for the Company. Further, the defendants say they should not be embroiled in proceedings that are stated in a prolix form in a statement of claim which is confusing and difficult to understand. Their concern is that on the evidence of Ms MacFadyen’s actions to date, the defendants will be vexed with unnecessarily prolonged proceedings which will eventually be found to be baseless. Ms Twomey for the defendants did however state that the merits of the claim were not relevant and her real criticisms were addressed to the detriment that the defendants will suffer from being enmeshed in proceedings that were under the control of someone who did not have the required qualifications and expertise to manage them, which has already resulted in the prolix and disorganised statement of claim being filed.
[15] Ms Twomey submits that the case for the defendants on the present application essentially rests on the line of authority of which Re G J Mannix Ltd is the principal authority.1 It is to the authorities that I will next turn.
Authorities and principles
[16] It has been established since at least 1984 in New Zealand that lay persons cannot in general represent companies. As it is stated in the Mannix decision:2
It is well settled in this country, and in England, Australia and Ireland, that a company has no right to be represented in the conduct of a case in Court except by a barrister; or by a solicitor in Courts or proceedings where solicitors have the right of audience - as they usually have in Courts which are not superior Courts.
The rule may have originated in early seventeenth century metaphysical reasoning that a corporation has no soul, is invisible and cannot do homage. But the modern rationale is simply that a corporation is not a natural person and so cannot appear in person; and that, apart from statutory exceptions, no one has a right to present a case in any Court unless in person or by a qualified lawyer.
There is a cognate rule that, apart from statutory exceptions, a corporation has no right to bring or carry on proceedings in a Court except by a solicitor. This refers to the filing of documents - writs, statements of defence, notices of appeal, etc.
1 Re G J Mannix Ltd [1984] 1 NZLR 309 (CA).
2 At 310-311 per Cooke J.
[17] That statement of principle is applicable to the circumstances of this case. The High Court is bound by the statements of principle contained in this case.
[18] Ms Toomey drew my attention to a number of passages in the judgment. These I now make reference to.
[19] The recognised exception to the principles that non-lawyers do not have rights of audience was described by Cooke J as follows:3
In general, and without attempting to work out hard-and-fast rules, discretionary audience should be regarded, in my opinion, as a reserve or occasional expedient, for use primarily in emergency situations when counsel is not available or in straightforward matters where the assistance of counsel is not needed by the Court or where it would be unduly technical or burdensome to insist on counsel. Especially in minor matters, cost-saving could also be a relevant factor. A “one man” company might be allowed to be represented by its owner if the Judge saw fit in a particular case. But it could not be right, for instance, to issue some sort of tacit for continuing or general licence to an unqualified agent to appear in winding up or any other class of proceeding.
[20] In the same case McMullin J stated:4
But, apart from the impossibility of devising a formula which would allow representation in some limited cases, to afford an absolute right of audience to a company for the considerations already mentioned would ignore the fact that there is not always an unanimity of viewpoint in small companies, which along with others can be the subject of internal dissension, with the consequent difficulty of ensuring that the officer seeking to appear for the company truly represents the interests of the company and not his own. … There is also the fact that litigants in person through their lack of expertise in conducting legal proceedings often pursue irrelevant matters ad nauseum, unduly prolong proceedings and require indulgences from the Court and from their opponents to meet their non-professional approach. That litigants in person sometimes succeed is not so much a result of their advocacy as the ability of the Judge to discern the essential facts and determine where the justice of the case lies.
[21] Somers J agreed and stated that: 5
Cases will arise where the due administration of justice may require some laxation of the general rule. Their occurrence is likely to be rare, their circumstances exceptional or at least unusual, and their content modest.
3 At 314.
4 At 315.
5 At 317.
[22] Ms Twomey also refers me to the Court of Appeal decision in The Commissioner of Inland Revenue v Chesterfields Preschools Ltd which confirmed the rule in Mannix and set out the policy reasons why a solicitor, rather than a lay person such as an officer of a company, should act for a company in commencing and continuing civil litigation as follows:6
A company is not a natural body and may have a number of officers, each with their own individual concerns and interests. A solicitor is ethically constrained to represent the company’s interests, unlike an individual officer who seeks to represent it. Moreover, if a solicitor is involved, the court can generally be satisfied that careful attention has been given to the validity of the proceedings, and the company’s interests will be adequately presented and protected. Similarly, solicitors recognise the duties and responsibilities that are owed to the court and to the defendant in the conduct of litigation, and are less likely to require indulgences in the rules of procedure or to use court processes for vexatious purposes. The court must also have a solicitor on the record as it cannot exercise its disciplinary powers over a company. If a director or shareholder is representing the company there is a heightened risk that the representative will lack the objectivity that an independent solicitor can bring to the case. It is no doubt for these reasons that the current law is that the Mannix rule be departed from only in exceptional circumstances.
Assessment of this case
[23] The first issue is to consider whether it can be fairly said that the present proceedings should be viewed as an exception to the general proscription on unqualified persons acting as an advocate.
[24] This case does not raise the type of straightforward subject matter, where the assistance of counsel is not needed, that was referred to in Mannix. Nor can the task of negotiating this proceeding through the interlocutory stages, carrying out any amendments to the pleadings, dealing with discovery and representing the Company at trial be described as a matter of modest content which the Court will allow representation by a non-lawyer.
[25] The main ground that Ms MacFadyen puts forward to support her contention that this is an exceptional case is that the Company does not have the financial
resources to engage a lawyer of its own.
6 Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2013] NZCA 53, [2013] 2
NZLR 679 at [34] per Stevens J (footnotes omitted).
[26] I do not accept that that is a justifiable reason: see Business Associates Ltd v
New Zealand Post Ltd.7
[27] I consider that the decision of the Court of Appeal in Chesterfields is particularly relevant to this case, referring as it does to the desirability of having a solicitor involved in control of the proceedings as there is an absence of disciplinary powers over a company in circumstances such as the present where a non-legally qualified advocate seeks to represent the company. The reason for saying so is the fact that I have already mentioned that the plaintiffs’ case rests on allegations of fraud by a considerable number of persons either as the authors of the fraud or who are implicated in the fraud by connivance or assistance of it.
[28] There is something to be said for the proposition that whilst occurrences of fraud (which are inherently unusual) may be understandable in isolated cases, it is less easy to understand how many parties, seemingly unrelated, would decide to behave fraudulently as they are claimed to have done in the circumstances of this case. I accept that argument is not conclusive but it is something that ought to be put on the balance.
[29] The widespread allegations of fraud in this case are an indication that appropriate restraint has not been exercised in considering whether fraud allegations should appropriately be launched in the circumstances of the present case. The defendants as solicitors are, of course, particularly vulnerable to the making of such allegations and any variations of them that may surface during the course of the proceeding.
[30] It is because of considerations of this kind that the Lawyers and Conveyancers Act (Lawyers Conduct and Client Care) Rules 2008 includes the following provisions:
Reputation of other parties
13.8 A lawyer engaged in litigation must not attack a person’s reputation
without good cause in court or in documents filed in court proceedings.
13.8.1 A lawyer must not be a party to the filing of any document in court
7 Business Associates Ltd v New Zealand Post Ltd (1998) 12 PRNZ 497 at 501.
alleging fraud, dishonesty, undue influence, duress, or other reprehensible conduct, unless the lawyer has taken appropriate steps to ensure that reasonable grounds for making the allegation exist.
13.8.2Allegations should not be made against persons not involved in the proceeding unless they are necessary to the conduct of the litigation and reasonable steps are taken to ensure the accuracy of the allegations and, where appropriate, the protection of the privacy of those persons.
[31] The fact that such a necessary safeguard would not be present if leave were granted to Ms MacFadyen to represent the Company is a further factor that indicates that granting leave would not be desirable.
[32] In Churchill Group Holdings Ltd v Aral Property Holdings Ltd, the Court noted an additional hazard in a case where a lay advocate is involved in that there is the potential for confusion between the roles of advocate and witness.8 In that regard, I note that even in the space of the short time that Ms MacFadyen appeared before me on 30 July 2014, it was evident that she was oblivious to the line between the two functions. The way in which the statement of claim is drafted shows that
Ms MacFadyen was involved in the events which will be canvassed in evidence before the Court. This is a further reason, albeit very much a subsidiary reason, why leave ought not to be granted.
[33] In overview, my conclusions are these. I have no doubt that Ms MacFadyen is a well-educated and articulate person. However it is equally plain that she has little or no understanding of the substantive or procedural law to equip her for the task of being an advocate in this case. The subject matter of the case involves potentially damaging allegations of fraud against a firm of solicitors. There are no circumstances present of the kind identified in Mannix which would indicate that an exception should be permitted to the prohibition against non-legally qualified advocates appearing for the Company. In my view the overwhelming merits of the case require Ms MacFadyen’s application to be dismissed and I order accordingly.
Costs on the interlocutory application are reserved.
8 Churchill Group Holdings Ltd v Aral Property Holdings Ltd HC Auckland CIV-2001-404-2302,
17 August 2004 at [29].
J.P. Doogue
Associate Judge
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