Pharm-a-Care Laboratories Pty Ltd v Commonwealth of Australia

IN THE FEDERAL COURT OF AUSTRALIA NSW DISTRICT REGISTRY GENERAL DIVISION NSD 1991 of 2008

BETWEEN: PHARM-A-CARE LABORATORIES PTY LTD (ACN 003 468 219)

JUDGE: FLICK J DATE OF ORDER: 23 MARCH 2012 WHERE MADE: SYDNEY

1. The oral application by Australian Naturopathics Pty Ltd seeking dispensation from the requirement imposed by r 4.01(2) of the Federal Court Rules 2011 is dismissed. 2. There be no order as to costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA NSW DISTRICT REGISTRY GENERAL DIVISION NSD 1991 of 2008

BETWEEN: PHARM-A-CARE LABORATORIES PTY LTD (ACN 003 468 219)

JUDGE: FLICK J DATE: 23 MARCH 2012 PLACE: SYDNEY

REASONS FOR JUDGMENT 1 The present proceeding was commenced on 23 December 2008 by the filing of an Application expressed to be an "Application Under Part IVA of the Federal Court of Australia Act 1976". Also filed on that date was a Statement of Claim. 2 On 25 March 2011 reasons for decision were given approving a settlement: Pharm-a-Care Laboratories Pty Ltd v Commonwealth of Australia (No 6) [2011] FCA 277. Orders were made on 14 April 2011 and entered on 11 May 2011. 3 The Settlement Distribution Scheme as approved provided for the appointment of an Administrator of the Scheme, the Administrator being a partner of McLachlan Thorpe Partners (namely Mr Andrew Thorpe or Mr Peter McLachlan as his alternate). The Scheme further provided for the making of claims by those group members who sought a share of what was described as the Settlement Sum. The Scheme further provided for the manner in which a group member who was dissatisfied with a decision could seek review of that decision. 4 In between the commencement of the proceeding and now, a number of decisions have been published. Some of those decisions have been directed to correcting or varying the terms of the Settlement Distribution Scheme: eg, Pharm-a-Care Laboratories Pty Ltd v Commonwealth of Australia (No 8) [2011] FCA 745 and Pharm-a-Care Laboratories Pty Ltd v Commonwealth of Australia (No 10) [2011] FCA 1510. Others have been directed to the granting of approval for costs and expenses incurred in the administration of the Scheme: eg, Pharm-a-Care Laboratories Pty Ltd v Commonwealth of Australia (No 7) [2011] FCA 715; Pharm-a-Care Laboratories Pty Ltd v Commonwealth of Australia (No 9) [2011] FCA 1111; and Pharm-a-Care Laboratories Pty Ltd v Commonwealth of Australia (No 11) [2012] FCA 105. 5 The final approval which is sought in respect to the administration of the Scheme, and the approval which will permit monies to be distributed to group members, is presently listed for hearing on 4 April 2012. 6 In advance of that hearing, one group member - Australian Naturopathics Pty Ltd ("Australian Naturopathics") - filed on 12 March 2012 an Interlocutory Application challenging the assessment of its claim. That Interlocutory Application asserts "procedural errors, inconsistencies and negation of natural justice in the administration of the Commonwealth Class Action Distribution Scheme". Australian Naturopathics claims to have "suffered a substantial miscarriage of justice leading to a major shortfall in the assessment of their submitted claim …". The Administrator of the Settlement Distribution Scheme maintains that there is no power in the Court to entertain Australian Naturopathics' Application. 7 On 19 March 2012 the proceeding was listed for mention and Mr Marevich, a director of Australian Naturopathics, sought to appear on behalf of that company for the purposes of seeking relief consistent with the Interlocutory Application filed on 12 March 2012. On that occasion Mr Marevich was told that he confronted at least two potential difficulties, namely: the Rules of Court provide that a company can only appear by way of a legal representative; and the power of the Court to grant the relief sought was not beyond question. The matter was adjourned to the following day to enable Mr Marevich to make a decision as to whether he wished to seek legal representation and, if so, to obtain such representation. When the matter came back before the Court on 20 March 2012, Mr Marevich again told the Court that he sought to appear on behalf of Australian Naturopathics and sought an order pursuant to r 1.34 of the Federal Court Rules 2011 dispensing with compliance with r 4.01(2) of those Rules. 8 That is the matter now before the Court. No further Interlocutory Application has been filed on behalf of Australian Naturopathics seeking an order pursuant to r 1.34. The application made orally by Mr Marevich has been treated as sufficient notice to the Administrator of the issues to be now resolved.

RULE 4.01(2) - CORPORATIONS 9 Rule 4.01(2) of the Federal Court Rules 2011 provides as follows: A corporation must not proceed in the Court other than by a lawyer. A "lawyer" is defined in the Dictionary in Schedule 1 to the Rules as having "the meaning given by section 4 of the Act". Section 4 of the Federal Court of Australia Act 1976 (Cth) is an interpretation provision and provides that a "lawyer" means "a person enrolled as a legal practitioner of a federal court or the Supreme Court of a State or Territory". 10 Rule 1.34 of the Federal Court Rules provides as follows: The Court may dispense with compliance with any of these Rules, either before or after the occasion for compliance arises. 11 Rule 4.01(2) had its counterpart provision in Order 9 r 1(3) of the now-repealed Federal Court Rules. That rule formerly provided (in part) as follows: …. a corporation may not without the leave of the Court or a Judge enter an appearance or defend any proceeding except by a solicitor. 12 There is no relevant distinction between the former Order 9 r 1(3) and the current r 4.01(2). The principles that lie behind a requirement that a corporation be represented by a lawyer, and the considerations relevant to the exercise of the power to dispense with such a requirement, remain common to both the former and current rule. 13 The requirement that a corporation must normally appear by way of a legal representative is a requirement commonly imposed by rules of superior courts in Australia and overseas: Bay Marine Pty Ltd v Clayton Country Properties Pty Ltd (1986) 8 NSWLR 104 at 105 to 106 per Kirby P (as His Honour then was). His Honour there set forth the reasons for imposing such a requirement as follows: Various reasons are suggested for the rule and the practice of the courts. They include the control which courts exercise over those having audience before them and the privilege afforded to legal representatives because of the training which they undergo and the discipline to which they submit. But they also include, in the case of a corporation, the importance of ensuring that those who speak for it (the corporation not being a natural person able to speak for itself), have authority to do so and may thereby be subjected to orders of the court, including as to the costs of litigation. There is no common law entitlement of a member or officer of a corporation to appear for it before a court. On the contrary, the rules of this jurisdiction, as of others, require that, statute apart, a corporation shall be represented by a legal practitioner. … Samuels JA there expressed the reasons for the requirement at 110 as follows: Although from time to time, in matters of procedure or practice or not of great complexity, the Court has permitted a corporation to appear by an unqualified agent, the rule has in other respects been consistently and strictly applied. The reasons for the rule are many, amongst them that otherwise it might be open to an unqualified person to appear for a corporation without any authority, and as my brother Mahoney pointed out during the argument, to render it liable to large impositions for costs, again without authority. In addition, and this is a consideration of great importance in the present case, as Sir Robin Cooke pointed out in Re G J Mannix Ltd [1984] 1 NZLR 309 at 314. "A court, particularly an appellate court, as part of its application to the pursuit of justice, is required to have, so far as may be, assistance, and properly qualified assistance, for the task in hand." His Honour added: "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." The other members of the court, McMullin and Somers JJ, spoke in separate judgments to the same effect. Hence that case is no authority for the analogical extension to the case of a corporation of any right of an individual litigant to appear in person. A further reason supporting the requirement is 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": Re G J Mannix Ltd [1984] 1 NZLR 309 at 315 per McMullin J. 14 Courts have thus rejected a conclusion which would permit a corporation, being an entity that cannot speak for itself, to be represented by any suitable person: Hubbard Association of Scientologists International v Anderson [1972] VR 340. In delivering the judgment of the Court comprised of Smith, Little and Gowans JJ, Gowans J concluded: In spite of the appeal of the argument that a company which is a litigant that cannot speak for itself should be allowed to speak through any mouthpiece it chooses, unless that mouthpiece appears unsuitable, the considerations that have been adverted to dictate adherence to the well-established practice that a company should be allowed to speak to the Court only through a legally qualified person, founded as that practice is on the belief that any person chosen must be regarded as unsuitable for the task unless he has been accorded recognition by admission to practise: [1972] VR at 343 to 344. Any analogy to the right of a natural person to appear in person was similarly rejected by the Court of Appeal in New Zealand in Re G J Mannix Ltd [1984] 1 NZLR 309. Cooke J there rejected that argument as follows: Further, while a natural person of sufficient age and capacity cannot be denied the right to present his case in person, it is a right which there are good reasons for not extending by analogy. Occasionally litigants in person have celebrated successes, Wintle v Nye [1959] 1 All ER 552 being the standard example, but it is largely rarity that makes them celebrated. Every Judge knows that a litigant in person is not usually the most effective advocate for himself - from lack partly of knowledge of the law, partly at times of perspective: [1984] 1 NZLR at 312. His Honour had there stated the reason for the requirement to be that "… it secures that the Court will be served by barristers or advocates who observe the rules of their profession, who are subject to a disciplinary code, and who are familiar with the methods and scope of advocacy followed in presenting arguments to the Court": [1984] 1 NZLR at 311. 15 An express discretionary power is frequently conferred, however, to dispense with this requirement. In some Courts it has been said that the Court should exercise this power "… only with the most meticulous care": Bay Marine (1986) 8 NSWLR at 111 per Samuels JA. See also: Re G J Mannix Ltd [1984] 1 NZLR at 314 per Cooke J. 16 In contrast to such an approach, the discretionary power formerly conferred by Order 9 r 1(3) of the Rules of this Court to permit a corporation to appear other than by way of a solicitor was construed as a power which did not impose any "… threshold requirement of special or exceptional circumstances": Termi-Mesh Australia Pty Ltd v Josu Manufacturing Pty Ltd [1999] FCA 1241 at [12] per French J (as His Honour then was). A like approach was also applied in Alice Springs Abattoirs Pty Ltd v Northern Territory of Australia (1996) 134 FLR 440 at 451 to 452. 17 In Termi-Mesh French J went on to identify as follows some of the factors to be taken into account by a Court when a corporation sought leave to appear other than by way of a solicitor: [13] Nevertheless the policy of the rule is clear that ordinarily a corporation will be required to be represented by a solicitor. Relevant factors for dispensing with that requirement 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. The factual complexities of the case and the capacity of the proposed representative to conduct it effectively are also relevant … [14] There is no doubt that those who choose to carry on their business through corporate structures enjoy advantages that those carrying on business on their own account do not enjoy. They also acquire disabilities and obligations. One of the disabilities is that which is imposed by the Rules of Court under consideration in this case … 18 The same approach should be adopted when a corporation seeks to invoke r 1.34 of the Federal Court Rules 2011 to dispense with the requirement imposed by r 4.01(2). A corporation need not establish "special or exceptional circumstances" before the requirement imposed by r 4.01(2) may be dispensed with. And the power to dispense with that requirement should be exercised by reference to "all relevant considerations": cf. Molnar Engineering Pty Ltd v Burns (1984) 3 FCR 68 at 73. 19 Instances can be provided where a court has permitted an agent to appear for a corporation (eg, ACT General Cleaning Company Pty Ltd v Naoum (1996) 67 FCR 361) as can instances be provided where leave has been refused (eg, Hubbard Association, supra; Re Education Pty Limited and the Companies Act [1963] NSWR 1340 per McClelland CJ in Eq). 20 In the broader context of considering whether an unqualified person should be granted leave to appear for an otherwise unrepresented party, Stein J in Damjanovic v Maley [2002] NSWCA 230, 55 NSWLR 149 summarised the "themes or principles" that he distilled from the authorities as follows: Principles from the cases [69] A number of themes or principles run through the cases which are relevant to the exercise of the discretion to grant or refuse leave to an unqualified person to appear on behalf of an unrepresented litigant. They may be briefly summarised as follows: (a) The complexity of the case [70] Whether the case is one of complexity or minor or straightforward has often been seen as a discretionary factor. … (b) Genuine difficulties of the unrepresented party [72] These include matters such as unexpected language difficulties and emergencies. … (c) The unavailability of disciplinary measures and a duty to the court by lay advocates [74] Almost every case mentioned these matters as protection for a client when a qualified lawyer represented a party but were protections which were not available where an unqualified lay advocate appears. … … [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 D A 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. … (d) Protection of the client and the opponent [79] Lay advocates are unqualified, unaccredited and uninsured. This places a client at considerable risk. … [80] One should also not lose sight of a lawyer's duty to his/her opponent. … (e) Lay advocates in inferior courts and tribunals [81] There are indications in some of the cases that Local Courts, given their jurisdiction and large numbers of unrepresented litigants, may be more likely to grant leave to unqualified persons. This is, one assumes, in straightforward uncomplicated matters where the party is under some disability in presenting his/her own case. This may also be the case with some specialist jurisdictions and tribunals. [82] The authorities however suggest that higher courts should be very chary at giving leave. … (f) The interests of justice [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. Mason P and Sheller JA agreed. 21 These considerations mirror the considerations that may be taken into account when granting leave to an unrepresented party to appear for a corporation. In the case of a corporation, a further consideration may be whether a director who is seeking to appear for the corporation is the "… sole director or the real force behind the company": Helmhout v Apostoloff [2011] ACTSC 2 at [46] per Refshauge J.

AUSTRALIAN NATUROPATHICS - THE FACTS 22 Mr Marevich and his wife are the two directors of Australian Naturopathics. They are "the real force" behind the company. Mr Marevich is not a lawyer. 23 He has filed an Affidavit in support of the oral application by Australian Naturopathics for dispensation from the requirement imposed by r 4.01(2). Much of that Affidavit is in inadmissible form. But such matters can largely be left to one side. In an application made by a lay person for dispensation from the requirement of a corporation to retain legal representation, it may perhaps be expected that such evidence as is relied upon may itself not be drafted with the skill of a lawyer. Such matters of form should not unnecessarily stand in the way of an unrepresented applicant seeking to place its case before a Court. Counsel on behalf of the Administrator properly took no objection to the Affidavit. 24 The Affidavit states that from 2003 Australian Naturopathics conservatively estimates that it has incurred "… a shortfall in income funds" attributable "… solely to Pan Pharmaceutical's closure" of $3,745,166. The claim as assessed by those administering the settlement is in the sum of $346,317. Of that latter amount, given the distribution between other group members, Australian Naturopathics estimates, on advice Mr Marevich says he has received from the Administrator, that it will ultimately receive about $130,000. 25 The closure of Pan Pharmaceuticals unquestionably caused great loss to group members. 26 It may be accepted that Australian Naturopathics is no exception. Mr Marevich in his Affidavit deposes (inter alia) to "… the massive wage reductions accepted by the Directors … and the injection of personal private funds into the company which in the 2011-2012 financial year alone amount to $120,000 on top of previous loans … shown in the 2011 balance sheet … of $135,812.12". The Financial Statement for the year ended 30 June 2011 records gross profit from trading at $138,422.74 (up from $120,801.65 for the 2010 year). Retained profit was recorded at $37,933.02 (up from a loss of $10,805.41 for the 2010 year). The Financial Statements for previous years, and for the years prior to the action taken against Pan Pharmaceuticals which spawned the present representative proceeding, were not provided. 27 Nor is there evidence of the financial position of Australian Naturopathics updated from July 2011 to the present. 28 The primary concern advanced by Mr Marevich is the quantum of legal costs that may be incurred if there be no dispensation from the requirement of r 4.01(2). He estimates that the legal costs that may be incurred in being represented in the Interlocutory Application "… plus any additional appearances that we anticipate may be required to finalize the matters being contested presently, would add an estimated further $50K to our legal costs …". The basis upon which that estimate has been provided is not set forth. It is not known whether the costs have been estimated upon the basis of retaining junior or senior counsel; nor is it known the ambit of any brief that may be delivered to counsel. Without explanation, the estimate would seem a little high. 29 Not without some justification, Mr Marevich is also concerned at what he sets forth in his Affidavit (without alteration) as "… the speculative nature on AN chances for success in its application". 30 Notwithstanding such concerns, it is not considered that the requirements imposed by r 4.01(2) should be dispensed with because: the financial position of Australian Naturopathics does not preclude the retention of legal representation. Irrespective of any further improvement in the financial affairs of the company that may have occurred as between July 2011 and the present, the company has available to it its retained profits and the prospect of a forthcoming payment of approximately $130,000 (if the distribution is approved in April 2012). That is presumably an amount against which monies could be borrowed, if necessary. Any litigation necessarily involves expense and an assessment on the part of any litigant of their prospects of success. A litigant may not be prepared to risk incurring substantial legal costs if the prospect of a return is assessed as poor; conversely, a litigant may be prepared to risk incurring more moderate legal costs if the prospect of a return is comparatively great. Such are the assessments to be made by any litigant. The justifiable concerns of Australian Naturopathics do not place it in any different position to any other corporation that wishes to proceed in this Court. It is obviously entitled to make its own assessment as to the comparative costs of legal representation and financial return. If the claim of $3,745,166 were to attract the same rate of distribution as is expected in respect to the assessed sum of $346,317, Australian Naturopathics could expect a payment well in excess of $1 million. But, having made its own assessment as to prospects of success, that assessment is itself no reason to dispense with the requirement of r 4.01(2). Moreover, there are at least two sources of potential legal difficulty that may well be encountered in resolving the Interlocutory Application as filed by Australian Naturopathics, namely: the power of the Court to revisit decisions that have been made pursuant to the Settlement Distribution Scheme - and the principles to be applied when reconsidering those decisions; and, if a Court does have such a power: the principles to be applied when assessing the merits of a claim made by a group member. There may well be both legal and factual complexity in assessing a claim and in considering the legal and factual basis upon which a claim has been assessed pursuant to the Settlement Distribution Scheme. Although it may well be doubted that this Court - after having approved a settlement - is thereafter deprived of any power to review the manner in which claims of group members are determined: the principles to be applied when doing so are far from self-evident; the manner in which the claims of Australian Naturopathics in the present proceeding may be resolved may have financial repercussions upon other group members whose claims are being administered pursuant to the Settlement Distribution Scheme; and the resolution of the Application by Australian Naturopathics to review the manner in which its claim has been assessed may well have significance to the administration of other settlements approved pursuant to Part IVA of the 1976 Act. No course should be encouraged whereby disgruntled group members may first have their claims assessed in the manner contemplated by a scheme and thereafter seek to re-agitate those claims in this Court. To do so may well prejudice the rights and interests of other group members. But the Court is entitled to expect assistance when called upon by a group member who claims that something has gone awry in the way in which its particular claim has been resolved. How a Court should go about that task is a matter in respect to which the assistance of a legal representative is highly desirable, if not essential. 31 Irrespective of any assessment of the financial ability of Australian Naturopathics to retain a legal representative to advance its claims, it is thus separately considered that the Court requires the assistance of an independent legal representative. Mr Marevich, it may be expected, would not unsurprisingly advance the interests of his own company. But the Court in the present proceeding requires the assistance that only an independent legal representative can provide. 32 A possible course which was raised with Mr Marevich this morning was to first separately determine the questions as to the power of the Court to consider a claim such as that advanced by Australian Naturopathics and the principles to be applied if the Court had power to do so. If those questions were resolved in favour of Australian Naturopathics, a review of the manner in which its claim was to be resolved could proceed thereafter on another occasion. It may be that the desirability of the Court being assisted by an independent legal representative is more directed to the former questions than the latter. In that manner the quantum of legal costs to be incurred could potentially have been confined. However, it is open to question whether the issues could be so easily dissected and, even putting that issue to one side, Mr Marevich resisted the proposal as a means of limiting the costs incurred.

CONCLUSIONS 33 The oral application made by Australian Naturopathics to dispense with the requirement of r 4.01(2) is dismissed. 34 The Administrator did not seek costs in respect to the hearing of the Interlocutory Application filed by Australian Naturopathics. 35 There is no reason why the hearing date of 4 April 2012 should be adjourned to permit Australian Naturopathics a further opportunity to seek legal representation. The company has been on notice since 19 March 2012 of the requirement that it appear by way of a lawyer and has been given an opportunity to seek to have the requirement of r 4.01(2) dispensed with. The interests of other group members are also to be taken into account. It is to be expected that those seeking approval on 4 April 2012 will address (inter alia) the manner in which resolution has been effected in respect to group members who have disputed an original decision as to their entitlements and any disputes that remain outstanding. 36 Should Australian Naturopathics (or any other group member) wish to appear on 4 April 2012 to either oppose the making of orders then sought or to support the making of those orders, they remain free to do so - provided they appear in a manner approved by the Rules.

THE ORDERS OF THE COURT ARE: 1. The oral application by Australian Naturopathics Pty Ltd seeking dispensation from the requirement imposed by r 4.01(2) of the Federal Court Rules 2011 is dismissed. 2. There be no order as to costs. I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Flick.