Enviro Pak Pty Ltd v New Horticulture Pty Ltd

Introduction 1 The Court has before it for hearing today an interlocutory application filed on behalf of the first respondent. The application is dated 5 March 2013. Relevantly, the first respondent seeks dispensation under r 1.34 of the Federal Court Rules 2011 from the requirement in r 4.01(2), which is to the effect that a corporation must not proceed in the Court other than by a lawyer. 2 The first respondent, New Horticulture Pty Ltd, seeks leave to have the second respondent, Mr Koesterke, represent it in the proceedings. Mr Koesterke is the sole director and sole shareholder of the first respondent. It is also important to note, at the outset, that Mr Koesterke personally is the second respondent in the proceedings and it is his intention, as is his right, to represent himself. 3 The central question is whether the Court should order a dispensation from the prohibition set out in r 4.01 to enable Mr Koesterke to represent not only himself, but also the company. Mr Koesterke relies on an affidavit dated 25 March 2013 in support of the application and he has advanced in oral argument before me today several reasons why he says the rule should be dispensed with. The applicant in the proceedings, represented by its solicitor, Mr Tahar, opposes the application and has made submissions in both written and oral form. 4 It is necessary to have a broad understanding of the background to the litigation and the stage which it has reached. The proceedings were commenced by Enviro Pak Pty Ltd in August 2012 by way of an originating application and a statement of claim. The broad nature of the applicant's case is that the first and second respondents have contravened what are alleged to be exclusive rights possessed by the applicant concerning certain corrugated paper cups which have been imported from China. 5 The applicant claims that it has exclusive rights in respect of the relevant corrugated paper cups by reason of it being registered as the designer of the cups under the Designs Act 2003 (Cth) ('the Designs Act'). The applicant claims that it received a certificate of registration in respect of the corrugated paper cups for a period of five years, commencing from 11 January 2006, which was then extended for a further five year period from January 2011 meaning that, according to the applicant, it has exclusive design rights in respect of the relevant cups up until the beginning of 2016. 6 The first and second respondents who, at the relevant time, had legal representation, filed a defence in October 2012 and also filed a cross-claim against the applicant. In broad terms, the respondents deny that they have infringed any of the applicant's rights under the Designs Act and they say further that the applicant is not entitled to any statutory rights under that Act for various reasons, including that the true designer of the corrugated cups is not as alleged by the applicant. As I have already indicated, the respondents have also filed a cross-claim seeking to rely on s 93 of the Designs Act to have the applicant's registration revoked. 7 It is also my understanding that running parallel to these proceedings in the Court, there is on foot, in the jurisdiction of IP Australia, a request for revocation filed on behalf of the respondents. I understand, based on some material that has been tendered by the applicant in this interlocutory hearing, that the regulatory body, IP Australia, is currently conducting an enquiry into the request for revocation and that directions were made earlier this year for the filing of evidence by the relevant parties to enable that request for revocation to be determined. 8 Mr Koesterke filed evidence with IP Australia in support of the revocation request on 18 March 2013 and, while the applicant did not file any evidence in support at that time, it nevertheless has an opportunity now, over a two month period commencing on 22 March 2013, to provide to IP Australia any evidence in answer to the evidence in support filed by Mr Koesterke in those proceedings. 9 Returning now to the course of proceedings in this Court, the applicant filed a defence to the cross-claim on 12 October 2012. It might also be noted that various affidavits have been prepared and filed and served in respect of the substantive proceedings in this Court. Affidavits have been filed on behalf of the applicant in the form of several affidavits by Mr John De Flumeri, as well as by a Mr Savo Djukic. Affidavits have also been filed in the primary proceedings by the respondents. Mr Koesterke has sworn at least two affidavits in the substantive proceedings and there have also been a number of additional affidavits sworn by him in support of several interlocutory applications that have been commenced by the respondents, only one of which is being heard by me today. 10 As I indicated above, both the first and second respondents were represented by lawyers up until 8 February this year. The application which is now before me results from the fact that those lawyers ceased to act for the first respondent at around that date. 11 The first respondent has filed an affidavit by Mr Koesterke in support of the application to have the relevant rule dispensed with. That affidavit advances a number of reasons why the company says that it should be able to be represented by Mr Koesterke. At the forefront of the company's case and the evidence as adduced in the affidavit of Mr Koesterke are what are said to be financial difficulties confronting the first respondent. The company submits, through Mr Koesterke, that it has suffered financial detriment for a number of reasons, including its involvement in these proceedings. It points to a profit and loss statement for the period 1 July 2012 through to 14 March 2013 in support of its submission that it is encountering significant financial difficulties. 12 That profit and loss statement, which was also accompanied by a balance sheet as at 14 March 2013, were, according to Mr Koesterke, prepared by him based upon accounting records of the company and using a software program called QuickBooks. The profit and loss statement indicates that, during the relevant period covered by that accounting material, the company suffered a loss of almost $40,000. The material also suggests that legal fees of almost $26,000 were incurred by the company, presumably by the solicitors who previously acted for the company and who were responsible for filing the defence and cross-claim which I have referred to above. 13 The profit and loss statement also reveals that the company earned a wholesale income of just below $380,000 during the relevant period and that its costs of goods sold were almost $250,000. Its gross profit therefore, having regard to just those two items, was approximately $131,000, but there are of course other expenses and costs to be taken into account, producing a loss of almost $40,000 during the relevant period. I am satisfied, based on the evidence which has been placed before me, that the company is in a difficult financial situation. I also accept Mr Koesterke's evidence that the company is only able to avoid a position of insolvency because he says the company is still able to pay its debts as and when they fall due under loan arrangements which apparently have been entered into to enable that to occur. 14 Mr Koesterke's affidavit also deals with various other matters apart from the financial difficulties of the company and its current inability able to retain lawyers in circumstances where there are insufficient funds (even allowing for the loan arrangements) to be able to meet the costs of running proceedings of the nature which are before me. The company's financial difficulties are reflected in the fact that it has apparently had to retrench its staff owing to a downturn in profits and its inability to obtain finance in order to import further goods for sale. 15 It is also evident that Mr Koesterke conducts some sort of a landscaping business in his own name. That business is entirely unrelated to the activities of the corporation, and I do not see that as being relevant to the application which is before me today. 16 The principles applicable to the exercise of the discretion under r 1.34 of the Federal Court Rules 2011 to dispense with compliance with r 4.01(2) are relatively well established. A leading case in this context is the decision of French J, when he was a member of this Court, in Termi-Mesh Australia Pty Limited v Josu Manufacturing Pty Limited [1999] FCA 1241 ('Termi-Mesh'), where his Honour sets out various matters relevant to the exercise of the discretion under the earlier rules of the Court. His Honour made it clear that the policy of the rules is that ordinarily a corporation is required to be represented by a solicitor. His Honour then identified, in [13], various factors that may be relevant to determining whether that rule should effectively be waived in any particular case. Such relevant factors include the financial capacity or lack of capacity of the corporation and those standing behind it, the effect of diverting company resources to paying legal expenses, the nature of the company's undertaking, its financial structure, its ability to retain and pay its staff and the identity and spread of its shareholders. His Honour added that the factual complexities of the case and the capacity of the proposed representative to conduct the proceedings are also relevant matters. 17 An additional consideration which has some relevance to the circumstances here is his Honour's acknowledgement in [14] of his reasons for judgment in Termi-Mesh, to the effect that a more liberal approach may be warranted in circumstances where the corporation seeking the dispensation is a respondent in proceedings and not the applicant. 18 Another relevant authority which I have found helpful in considering this application is the decision of Murphy J in Deputy Commissioner of Taxation v Compumark Pty Ltd (2012) 292 ALR 83. After referring to and affirming the factors identified by French J in Termi-Mesh, Murphy J identified some other matters that might bear upon the question. Those matters are set out in [20] of his Honour's judgment and are drawn from criteria identified by Forrest J in Worldwide Enterprises Pty Ltd v Silberman (2009) VSC 165 at 20. The factors identified are: (a) the manner in which the case has progressed to date; (b) the manner in which the case can proceed in the future without a solicitor; (c) the complexity of the issues involved in the case; (d) whether the lack of disciplinary measures in relation to the person seeking to represent the company will affect the administration of justice; (e) whether the case can be conducted in an orderly and responsible fashion without a solicitor; (f) whether there are financial considerations which would inhibit a company from obtaining legal representation; (g) the stage which the case has reached; (h) whether the defendant is likely to expend more funds in defending the claim absent a solicitor acting for the company; and (i) the effect, if any, on court resources and in particular on other litigants in the court list if the company were to appear without a solicitor. 19 In my view, this is an appropriate case in which a dispensation should be granted to enable the first respondent to be represented by the second respondent. The matters which have particularly weighed with me in this regard are as follows. 20 First, it is apparent from the accounting material I have described above that the first respondent is in financial difficulty and, based upon the most recent profit and loss statement and balance sheet, would find it a challenge to engage and continue to pay legal representatives. I also note in this context that the corporation has, according to evidence given by Mr Koesterke which I accept, made various enquiries of several providers of pro bono legal services with a view to retaining lawyers on a pro bono basis, but without success. 21 A second matter which I give particular weight to is the fact that Mr Koesterke is the sole director and sole shareholder of the first respondent. Accordingly, there is no risk of any divergence or conflict of interest as I see it, between his interests as shareholder in New Horticulture Pty Ltd and any other interested person. Mr Koesterke is, by any objective assessment, the real force behind the corporation. 22 A third matter which is related in part to the second consideration which I have just described, is the fact that the applicant joined Mr Koesterke as the second respondent in the proceedings. That was no doubt the applicant's considered decision. Mr Koesterke, as a private citizen, is entitled as of right to represent himself in these proceedings. So, independently of the position of the first respondent, the applicant is going to have to deal with Mr Koesterke representing himself. It seems to me that this is an important consideration and one which operates to weaken the weight or emphasis which might otherwise have been accorded to other relevant factors or considerations, including the competency of Mr Koesterke, his lack of experience in litigation matters and so on. 23 It is evident from some of the affidavits and some of the interlocutory applications that have been filed by the first and second respondents, that Mr Koesterke doesn't have a great familiarity with court processes and procedures. It may well be that in different circumstances those considerations would have weighed more heavily in the Court's assessment as to whether or not the corporation should be able to be represented by him. But as I have said, in circumstances where he is going to be here representing himself anyway, this lessens the weight which otherwise may have attached to those matters. 24 The next consideration which I think tilts the balance in favour of dispensing with the requirement is Mr Koesterke's intimate familiarity with the underlying factual matters giving rise to these proceedings. He has demonstrated to my satisfaction that, notwithstanding that he does not have extensive experience in litigation, he is capable of presenting an argument coherently and succinctly. I have not formed any adverse view that Mr Koesterke's involvement in the proceeding would unduly prolong the proceeding. On the contrary, he has to date demonstrated a responsible appreciation of the need for proceedings to be conducted fairly but efficiently and I would hope that that would continue to be the case if he is given the privilege of representing the corporation. 25 Another important matter is the stage of the proceedings. It is not as though they are at a formative stage. On the contrary, they are well advanced. The pleadings are closed. Much of the evidence, it would appear, is on. If there is more evidence to be led, so be it. But there are, as I have already indicated, several affidavits filed on behalf of both the applicant and the respondents in the proceedings. The pleadings were, as far as the respondents are concerned, settled by lawyers. So the application is made at a time which means that Mr Koesterke would take over the representation of the corporation for the remaining part of the proceeding. This will involve him in resolving some outstanding discovery issues and also in dealing with some issues relating to notices to produce which have been served both by the applicant and also by the respondents. He will also be responsible for preparing for the trial and conducting any cross-examination in the interests of the corporation. Of course, any such cross-examination may well have been carried out in his own capacity representing himself. He will also be responsible for preparing and providing written and oral submissions on behalf of both the corporation and himself. 26 I do not doubt that the issues in these proceedings are complex. The parties have indicated that it may be necessary for there to be expert evidence going to the question whether or not the corrugated cups sold by the first respondent do infringe the asserted exclusive rights advanced by the applicant. On balance, however, I consider that for the reasons that I have given above, this is a case where it is appropriate to order that r 4.01(2) be dispensed with by enabling Mr Koesterke to appear on behalf of the corporation and I propose to order accordingly. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Griffiths.