These are proceedings to set aside a statutory demand issued by the defendant Maddison Morgan & Bailey Pty Ltd to Business Innovation Group Pty Ltd ("the Company"). Proceedings were commenced in the name of the Company as plaintiff by John Innes who is said to be a director of the Company and to have been authorised by the Company to conduct the litigation on its behalf.
The effect of Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), r 7.1(2), is that the Company was only able to commence proceedings and is only entitled to carry them on by a solicitor: see Connectland Pty Ltd v Porthaven Pty Ltd [2011] NSWSC 616 (White J, as his Honour then was); DB Mahaffy & Associates Pty Ltd v Mahaffy [2011] NSWSC 673 (White J); Re DB Mahaffy and Associates Pty Ltd [2012] NSWSC 776 (Brereton J, as his Honour then was); Tanamerah Estates Pty Ltd v Tibra Capital Pty Ltd [2015] NSWSC 1519 (Black J).
Mr Innes accepts that this is so. He seeks to have the Court dispense with this requirement pursuant to the Civil Procedure Act 2005 (NSW) ("CPA"), s 14, by granting him leave to conduct the proceedings on the Company's behalf. Mr Innes has sought to do this by filing a Notice of Appearance in the proceedings naming himself as the person representing the Company. This was probably the wrong procedural course but I will deal with the application as a matter of substance.
The defendant has filed an appearance in the proceedings by a solicitor, Gregory David Willis, who describes himself as practising from the defendant's address in Wollongong, and states that he holds a current practising certificate.
Mr Willis has appeared at today's application. He did not oppose the grant of leave for Mr Innes to represent the Company in the proceedings, but the question whether leave should be granted is a matter for the Court, and raises wider issues than the effect on the defendant. I still need to be satisfied that it is a proper case for the exercise of the Court's discretion.
For the purpose of this application, I have had regard to the Originating Process and the affidavit filed by Mr Innes in support of that Originating Process.
Mr Innes also tendered his LinkedIn profile. Mr Innes does not hold, and does not claim ever to have held, a practising certificate. According to his LinkedIn profile, he held the position of Executive Director & General Counsel of what he describes as two organisations, Innes-Owens Workers Compensation (Licensed Insurer) and Innes-Owens Legal (Solicitors). According to the profile, this was between April 1985 and September 1989.
Mr Innes claimed from the Bar Table, although I cannot see it in the LinkedIn profile, that as part of his role with the Innes-Owens Workers Compensation organisation, he was responsible for the establishment of a solicitor corporation which operated in-house to conduct the work of the organisation, which I assume had something to do with workers compensation management.
Mr Innes said that he had thirty-four years of what he described as corporate law experience. By this I understood him to mean involvement in work in various corporate roles where that work had a legal dimension. In particular, Mr Innes said, and his LinkedIn profile confirmed, that he had spent a period of three years working for the New South Wales Corporate Affairs Commission. Mr Innes said that he had been involved in investigations conducted by the Commission, in particular, investigating corporate fraud and specialising in forensic accounting.
The alleged debt which is the subject of the statutory demand arises under what purports to be an award in an international arbitration which, so the defendant contends, would be enforceable in Australia under the UNCITRAL Model Law pursuant to the International Arbitration Act 1974 (Cth). The amount of the debt is only approximately $15,000.
In the affidavit in support of the Originating Process, Mr Innes identifies eleven separate grounds of challenge to the statutory demand. Some of them are matters of form relating to alleged deficiencies in the statutory demand. Ground 6 contends that there is a genuine dispute as to the existence of the debt. It appears that the debt has been purportedly assigned from a related company to the defendant, and Mr Innes challenges both the assignment and the underlying debt, the latter challenge apparently being based on the proposition that the award has not been and could not be enforced in Australia.
There are four separate grounds, numbered 8 to 11, headed "Abuse of Process". One of these refers to an offsetting claim said to total over $370,000 and which is said to have been the subject of a notice issued in August requiring mediation as a condition precedent to arbitration under the arbitration agreement.
Mr Innes has also filed an Interlocutory Process in which he seeks to challenge Mr Willis' appearance for the defendant in the proceedings. The relief sought in the Interlocutory Process is largely declaratory in form. That may give rise to procedural difficulties because declaratory relief is final, substantive relief and should ordinarily be sought by way of originating process (or equivalent) joining the parties affected, and Mr Willis has not been joined. The substance of the complaint appears to be an allegation that Mr Willis is an in-house lawyer, and that his practising certificate does not permit him to act in these proceedings, but I have not gone into the detail any more than that.
Mr Innes submitted that with his experience, he will be well capable of conducting the Company's case, and that with his familiarity with the dispute, it would be advantageous for the Company for him to do so. He pointed out that the same view had apparently been taken by the defendant in not opposing the grant of leave.
Mr Innes also submitted that if the Court did not permit him to appear on this application, the very same issues would arise again at the hearing of subsequent proceedings to have the Company wound up. The assumption lying behind this submission apparently was that Mr Innes would be entitled to appear for the Company at such final proceedings, and that it would be wasteful not to permit him to conduct the present proceedings and head off the winding up proceedings now.
One thing that Mr Innes did not assert was that the Company was unable to pay for legal representation. Indeed he asserted from the Bar Table (although there was no evidence before me of this) that the Company had substantial investments and was well able to meet the $15,000 which is the subject of the statutory demand.
Mr Innes pointed out that both the Connectland and Mahaffy decisions, to which I have already referred, established that UCPR, r 7.1(2) requires a company to carry on proceedings to set aside a statutory demand by a solicitor, but did not consider factors relevant to the grant of leave under CPA, s 14. The same observation might be made about the decision in Tanamerah Estates to which I have also referred.
Mr Innes referred me to the decision in Super Choice Now Pty Ltd v BrisConnections Management Co Ltd (2009) 259 ALR 451; [2009] FCA 1026. In that case, Goldberg J granted leave to the sole director of the applicant (plaintiff) company to commence and carry on proceedings to have a statutory demand issued to that company set aside. His Honour was satisfied that the plaintiff company was impecunious but his Honour added (at [17]):
What particularly weighs in my consideration is that although the applicant is the moving party in the application, the application is, in substance, a defence. If a statutory demand is not set aside pursuant to the provisions of Div 3 of Pt 5.4 of the [Corporations Act 2001 (Cth)], so that the Company is obliged to comply with the statutory demands and fails to do so then in an application to wind up the Company on the ground of insolvency pursuant to s 459P of the Act the Court must presume that the Company is insolvent if the Company failed to comply with the statutory demands within three months before on the day in which the application to wind up the Company is made.
His Honour also referred to Classic Ceramic Importers Pty Ltd v Ceramica Antiga SA (1994) 13 ASCR 263 in which Young J (as his Honour then was) characterised (at 267) a party issuing a statutory demand as the "legal aggressor".
Goldberg J continued (at [19]):
Put another way, the applicant has been forced to institute the proceedings in order to avoid the application of a presumption of insolvency in any winding up proceedings brought against it by the respondent. In these circumstances, I consider that the Court should take a more benevolent approach to the exercise of the discretion under [the corresponding provision to UCPR r 7.1(2) under the former Federal Court Rules 1979 (Cth)] than it would in circumstances where the applicant was, in a practical sense, the moving party or the practical aggressor.
The principles which apply generally to the exercise of the Court's discretion to permit an unqualified person to conduct proceedings were authoritatively considered by the Court of Appeal in Damjanovic v Maley (2002) 55 NSWLR 149; [2002] NSWCA 230. Stein JA, who gave the leading judgment, set out at [69]-[86] a number of themes or principles derived from the authorities which bear on the exercise of the discretion.
One of these factors is the complexity of the case. The more complex the case is, the less the Court will be inclined to exercise its discretion.
Another factor is the nature of the difficulties facing the unrepresented party. Thus, unexpected language difficulties in emergencies or the absence of Legal Aid in a criminal matter will be factors which favour the exercise of the discretion. On the other hand, in that case, although there were language difficulties, they were not unexpected and that reduced, or perhaps eliminated, the weight of that factor.
A third and very important factor is the unavailability of disciplinary measures and the fact that lay advocates do not owe any duties to the Court. His Honour said (at [76]-[77]):
76. In my opinion, the overall duty of a barrister or solicitor to the court is an important consideration. It is a duty of candour and a practitioner must not knowingly mislead the court. The court is entitled to place reliance on that duty and expect it to be met. The disciplinary codes of the legal profession back up the overriding duty of a practitioner to the court. (see DA Ipp, "Lawyers" Duties to the Court" (1998) 114 Law Quarterly Review 63).
77. Training, qualifications and experience are also important. This is not to say that there are not incompetent lawyers, including some who seek to practice advocacy. For the most part, the market and the disciplinary codes account for them. But with unqualified and uninsured lay advocates, the court loses the benefit of the overriding duty and clients are at a distinct disadvantage. Apart from endeavouring to ensure that a lay person granted leave to appear obeys the rules, there is little a court can do except, in an appropriate case, withdraw the leave to appear.
A related matter is the protection of the client and the opposing party. On this, his Honour said (at [79]):
Lay advocates are unqualified, unaccredited and uninsured. This places a client at considerable risk. The point was made in [Scotts Head Developments Pty Ltd v Pallisar Pty Ltd (Court of Appeal, 6 September 1994, unreported)] that an unqualified advocate may cause loss to a party (at 3). A lay advocate does not owe the same duty to his client as does a lawyer. See also [Abse v Smith [1986] QB 536] (at 546) highlighting the duty owed by a lawyer to assist the court in ensuring the end of the proper administration of justice. On the same issue see also [Paragon Finance plc v Noueiri [2001] 1 WLR 2357] and [D v S (Rights of Audience) [1997] 1 FLR 724].
A further factor is where the proceedings are being conducted. The authorities show that it is more common to grant leave to an unqualified person to appear in lower courts, particularly in the Local Court and some specialist jurisdictions and tribunals, but that higher courts should be, in his Honour's words, "very chary" at giving leave (see at [81]-[82]).
Finally, his Honour mentioned the interests of justice. He observed (at [83]-[84]):
83. What runs through all of the authorities as the guiding principle in the exercise of the discretion is the public interest in the attainment of the ends of justice. The public has an interest in the effective, efficient and expeditious disposal of litigation in the courts. As a general rule this can best be achieved by parties employing qualified lawyers.
84. The reason for this was explained by Gleeson CJ in a speech given to the Supreme Court of Japan in January 2000 (Current Issues for the Australian Judiciary). The Chief Justice said that: "The adversary system assumes, in the interests of both justice and efficiency, that cases will be presented to courts by skilled professionals. To the extent to which that assumption breaks down, so does the system".
In my view, the factor which attracts primary importance in this case is the fact that if I give leave to Mr Innes to appear, he will not be under any professional obligations to assist the Court and to exercise restraint in the way the proceedings are conducted.
I have already pointed out that extensive grounds have been put forward for the setting aside of the statutory demand. In addition to that, Mr Innes wishes to raise by way of challenge to Mr Willis acting for the defendant, a complex piece of satellite litigation. Clearly, these proceedings fall at the high end of the complexity scale, but it is not just that they are complex. The proceedings show every sign of being far more complex than they need to be.
Based on my review of the Originating Process, the supporting affidavit and the Interlocutory Process, the number and complexity of points which are sought to be raised are grossly disproportionate to the underlying dispute about a $15,000 debt. For those points all to be fully ventilated and argued would likely result in the incurring of legal costs which are a multiple of the debt in question, and all in aid of proceedings which would not ultimately determine whether the debt is payable, but would only determine whether a presumption of insolvency arises for the purpose of yet further proceedings between these parties.
It is quite clear that if these proceedings are to be prosecuted at all, they cry out for the sort of expert and independent judgment and restraint which the Court expects and generally receives from legal practitioners who conduct litigation before it.
In my view, the circumstances show the strongest possible reasons for the Court to adhere to its usual practice, and require that proceedings in the Court be conducted on behalf of the Company by a qualified person who is independent and can be relied upon to perform the duties to the Court which are necessary components of the efficient conduct of such litigation.
A statutory demand is not a debt recovery procedure. It is a procedure preliminary to the institution of proceedings to wind up a company on the grounds of insolvency. It has a public interest dimension which goes well beyond the particular rights or claimed rights of a particular creditor.
A solvent company facing a statutory demand based on a debt which is disputed is not helpless. In a case such as this one where there is alleged to be an offsetting demand or entitlement, that can be litigated. It remains unclear to me why, if an offsetting demand point is to be raised in this case, it has not been possible to commence appropriate proceedings to vindicate that offsetting demand. I appreciate that there appears to be some dispute about whether the notice which has so far been issued is sufficient to do so, and whether mediation is required. But given that the dispute goes back long before August this year and we are now in October, I do not consider that the material before me properly explains why proceedings have not been brought.
In any event, even if a company facing a statutory demand based on a disputed debt does not have its own cross claim, if the company is solvent (which Mr Innes claims is the Company's case), it can simply set the money to meet the statutory demand aside, and put the issuer of the statutory demand on notice that it has the money but declines to pay because the debt is disputed. In that event, any attempt to proceed with winding up proceedings would be likely to result in a heavy costs order against the unsuccessful plaintiff, probably on an indemnity basis.
While in a sense these proceedings are defensive and in a sense the defendant is the aggressor, in my view it would be quite wrong to see such proceedings as being equivalent to action taken in response to self-help remedies and the like. If, as Mr Innes claims, the Company is clearly solvent, it has nothing to fear from winding up proceedings, and the circumstances in which this application comes forward become even more inexplicable.
In circumstances where there is no suggestion that the Company is unable to afford legal representation, I do not consider that the other factors mentioned by Goldberg J in Super Choice should require the Court to depart from its usual practice, forsake the protection that it is entitled to expect, and allow Mr Innes to conduct these proceedings. I decline Mr Innes' application.
I will stay the proceedings for a period of time to allow the Company, should it wish to continue, to obtain legal representation in order to prosecute them. Should it not do so, the Company can expect that the proceedings will be dismissed.
The orders of the Court are as follows:
I strike out the document styled "Appearance for the Plaintiff" filed in Court on 8 October 2018.
I refuse the application by John Innes for leave to carry on these proceedings in the name of the plaintiff.
I order that the proceedings be stayed.
I fix the proceedings for the further mention in the Corporations List on 5 November 2018.
I order that Mr Innes pay the defendant's costs of the application.
[2]
Amendments
11 October 2018 - Add in costs order
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 11 October 2018