Federal Court of Australia Secretary, Department of Health and Aged Care v Prefixx Pty Ltd [2024] FCA 153 File number(s): NSD 439 of 2022 Judgment of: PERRY J Date of judgment: 28 February 2024 Catchwords: CORPORATIONS — Liquidation — whether s 237 of the Corporations Act applies when company in liquidation — Chahwan v Euphoric Pty Ltd trading as Clay & Michel [2008] NSWCA 52 followed PRACTICE AND PROCEDURE — Application seeking order pursuant to rule 1.32 of the Federal Court Rules 2011 (Cth) for the second respondent to represent the first respondent, a company in liquidation — application refused Legislation: Corporations Act 2001 (Cth) ss 237, 500(2) Therapeutic Goods Act 1989 (Cth) Federal Court Rules 2011 (Cth) rr 1.32, 40.51 Cases cited: Chahwan v Euphoric Pty Ltd trading as Clay & Michel [2008] NSWCA 52; (2008) 245 ALR 780 Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 Pearl Coast Divers Pty Ltd (in Liq) v Cossack Pearls Pty Ltd [2008] FCA 927; (2008) 249 ALR 591 Ragless v IPA Holdings Pty Ltd (In liq) [2008] SASC 90 Smart Company Pty Ltd (In Liquidation) v Clipsal Australia Pty Ltd [2011] FCA 35; (2011) 82 ACSR 154 Division: General Division Registry: New South Wales National Practice Area: Administrative and Constitutional Law and Human Rights Number of paragraphs: 17 Date of last submission/s: 4 September 2023 Date of hearing: 27 February 2024 Counsel for the Applicant: Mr Trent Glover Solicitor for the Applicant: Corrs Chambers Westgarth Counsel for the First Respondent: The First Respondent did not appear. Counsel for the Second Respondent: The Second Respondent was self-represented Table of Corrections 28 February 2024 In the last sentence of paragraph 16 of the reasons for judgment, the word "allegations" be replaced with "submissions". ORDERS NSD 439 of 2022 BETWEEN: SECRETARY OF THE DEPARTMENT OF HEALTH AND AGED CARE Applicant AND: PREFIXX PTY LTD (ACN 639 094 698) First Respondent BRAD ANTHONISZ Second Respondent order made by: PERRY J DATE OF ORDER: 28 February 2024 THE COURT ORDERS THAT: 1. The interlocutory application filed by the second respondent on 8 August 2023 is dismissed insofar it seeks leave for the second respondent to file documents and make representations on behalf of the first respondent. 2. Costs of the interlocutory application are reserved. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT PERRY J: 1. Introduction 1 The applicant, the Secretary of the Department of Health and Aged Care, seeks declarations and pecuniary penalties against the respondents in relation to conduct allegedly engaged in by the respondents, namely, advertising, or causing to be advertised, nicotine vaping products (NVPs) on websites operated and/or controlled by them, in contravention of the Therapeutic Goods Act 1989 (Cth) (TG Act). 2 The first respondent, Prefixx Pty Ltd (in liq), was placed in liquidation after the commencement of the proceedings. On 19 April 2023, the Court granted the Secretary leave to proceed against Prefixx pursuant to s 500(2) of the Corporations Act 2001 (Cth). The second respondent, Mr Anthonisz, was at all times material to the matter, the sole director and shareholder of Prefixx. 3 By an interlocutory application filed on 9 August 2023, Mr Anthonisz, initially sought three interlocutory orders in relation to the future conduct of the proceedings, namely: (1) Mr Anthonisz be granted leave to file documents and make representations on behalf of Prefixx under s 237 of the Corporations Act or, in the alternative, rule 1.32 of the Federal Court Rules 2011 (FCR) (orders 1 and 2 respectively) (2) pursuant to FCR rule 40.51, Mr Anthonisz be granted a protective costs order limiting costs in the proceedings that can be claimed by the Secretary to a maximum of $5,000 and by Mr Anthonisz against the Secretary, to a maximum of $10,000 or, in the alternative, a maximum sum that can be claimed on a party/party basis as the court deems appropriate (orders 3 and 4 respectively); and (3) the notice to produce issued by the Secretary on 28 July 2023 be set aside in whole or in part (orders 5 and 6 respectively). 4 Mr Anthonisz also seeks an order that the Secretary pay the costs of the interlocutory application to be paid forthwith or that each party is to bear its own costs. 5 In support of his application, Mr Anthonisz relies on his affidavit affirmed on 8 August 2023 (Anthonisz Affidavit), and written submissions dated 8 August 2023 (R2S) together with his submissions in reply dated 4 September 2023. I note that Mr Anthonisz did not formally read his affidavit but this was no doubt due to an oversight on his part as it is relied upon by him in his written submissions. Given that the Secretary did not foreshadow any objections to any parts of that affidavit, I have treated Mr Anthonisz's affidavit as read for the purpose of the interlocutory application for orders 1 and 2. 6 At the hearing, Mr Anthonisz supplemented his written submissions with oral submissions, as did the Secretary. I granted Mr Anthonisz leave to attend with his McKenzie friend, Mr Dylan Abbott, accountant, on the basis that Mr Anthonisz would make submissions on his own behalf, but he could seek assistance, as required by him, during the course of the hearing from Mr Abbott. 7 The Secretary relied upon the affidavit of Andrew Korbel, Solicitor, affirmed on 30 August 2023 (Korbel affidavit). There were a number of objections by Mr Anthonisz to the affidavit and annexures, which the Secretary conceded. These related to the disclosure of Heads of Agreement apparently entered into by the parties after a court-ordered mediation but which Mr Anthonisz no longer agrees to. I should explain that I have not read those annexures. I also made orders at the hearing that the Korbel affidavit and annexures be removed from the Court file and that the Secretary file and serve redacted copies of the affidavit and annexures in line with the Secretary's concessions and the Court rulings. 8 At the hearing, the Secretary accepted that the claim of penalty privilege by Mr Anthonisz was properly made (as he had also accepted in his written submissions) and therefore agreed to orders withdrawing the notice to produce. The Secretary also explained that he did not intend to issue a further notice to produce against Mr Anthonisz but was seeking documentation from other persons through other means. 9 Also at the hearing, orders were made that the application for a protective costs order be adjourned to a date to be fixed after Mr Anthonisz had filed and served his concise statement in response to the Secretary's concise statement filed on 10 June 2022. Mr Anthonisz sought a period of twelve weeks within which to file and serve his concise statement so as to afford him an opportunity to seek legal advice. In this regard, I explained at the hearing the importance of Mr Anthonisz seeking independent legal advice if at all possible, given the seriousness of the allegations made against him and the fact that the Secretary sought civil penalties against him which could be substantial, as could any costs order against Mr Anthonisz if he were unsuccessful. As I further explained at the hearing, in making those observations, I was not in any way indicating any views as to the possible outcome of the proceedings. 10 That leaves only the interlocutory application for orders 1 and 2 seeking leave to represent Prefixx in liquidation to be determined at this time. For the reasons set out below, the interlocutory application to this extent must be dismissed. 2. Application for leave for Mr Anthonisz to represent Prefixx (interlocutory application, orders 1 and 2) 11 First, relying upon the evidence in his affidavit, Mr Anthonisz submits that leave should be granted for him to represent Prefixx and file documents on its behalf on the basis that he satisfies all of the criteria in s 237(2) in Part 2F.1A of the Corporations Act. That section provides that the Court must grant an application for leave to intervene in proceedings if satisfied, among other things, that it is probable that the company will not properly take responsibility for the proceedings or steps in them, the applicant is acting in good faith, and the grant of leave is in the best interests of the company. 12 Mr Anthonisz referred to the decision in Ragless v IPA Holdings Pty Ltd (In liq) [2008] SASC 90 in support of his contentions. In that decision, the Full Court of the Supreme Court of South Australia indicated its support for the proposition that s 237(2) applied to a company in liquidation without expressing a final view, after referring to conflicting authority: Ragless at [43] (Debelle J (with whose reasons Sulan and Vanstone JJ agreed at [48] and [49])). However, as the Secretary submits, it is now well-established that s 237 does not apply to a company in liquidation: Chahwan v Euphoric Pty Ltd trading as Clay & Michel [2008] NSWCA 52; (2008) 245 ALR 780 at [124]–[125] (Tobias JA (Beazsley and Bell JJA agreeing at [1] and [128])) (overruling earlier decisions to the extent to which they held the contrary). This decision has been followed in this Court: see e.g. Pearl Coast Divers Pty Ltd (in Liq) v Cossack Pearls Pty Ltd [2008] FCA 927; (2008) 249 ALR 591 at [13] (Gilmour J); Smart Company Pty Ltd (In Liquidation) v Clipsal Australia Pty Ltd [2011] FCA 35; (2011) 82 ACSR 154 at [8] (Lander J). It does not appear that the decision in Chahwan (which was decided only a few days before Ragless) was drawn to the Supreme Court of South Australia's attention before it delivered its decision in Ragless. Given, therefore, the state of the legal authorities as to the scope of s 237 of the Corporations Act, the application for order 1 must fail. 13 Mr Anthonisz relies in the alternative upon FCR rule 1.32 in support of order 2. That rule provides that "The Court may make any order that the Court considers appropriate in the interests of justice." In this regard, the Supreme Court in Ragless held (at [44]) that, as "a general rule", where a company is in liquidation, the liquidator is the person vested with the authority to bring legal proceedings on behalf of the company: see also e.g. Chahwan at [124(e)] (Tobias JA). However, the Supreme Court accepted that it has an inherent power to authorise a creditor or contributor to sue in the name of the company (at [44]). Equally, I accept that the Federal Court, which has statutory jurisdiction only, has an implied power to make orders to the same effect and, accordingly that rule 1.32 may extend to making an order in terms of order 2 sought by Mr Anthonisz (albeit that he is neither a creditor, nor, it would appear, a contributor). However, there are a number of factors which, in my view, weigh heavily against the exercise of the discretion in this case. 14 First, the starting point is the general rule that the liquidator is the person with appropriate authority. In this case, the liquidator has decided thus far not to take any active steps in the proceedings, given the lack of funds in the liquidation. That being so, I agree with and adopt the Secretary's submission that: it is not in the best interests of Prefixx to be represented by Mr Anthonisz, within s 237(2)(c), in circumstances where the liquidator has decided he does not wish to take any active steps in the proceedings: cf, RS [7.c]. Mr Anthonisz is essentially seeking to go behind the liquidator's decision, and to defend the proceedings on behalf of Prefixx in circumstances where he took steps to place Prefixx into liquidation in the first place. He submits this is in the best interests of Prefixx because Prefixx may recover costs in the proceedings and thereby be available to creditors. However, that is no doubt a decision the liquidator is best placed to make (and indeed has decided). (Applicant's submissions filed on 30 August 2023 at [9(c)] and [10]; emphasis added.) 15 Furthermore, the purpose of an award of costs is to compensate a party for legal costs expended (relevantly) in defending an action: Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at [1] (Brennan CJ). The purpose is not to provide funds for the benefit of the litigant or, in this case, their creditors. As such, Mr Anthonisz's submissions are respectfully based upon a misconception as to the purpose of an award of costs. 16 Secondly, contrary to Mr Anthonisz's submissions, he would not be denied procedural fairness if no order is made in terms of order 2. Mr Anthonisz is the second respondent in the proceedings. Mr Anthonisz's concern focused on the possibility that orders may be made against Prefixx by way of a default judgment in circumstances where allegations are made by the Secretary against Prefixx which include allegations that Mr Anthonisz caused or aided, abetted, counselled or procured Prefixx's conduct and as to the state of Prefixx's knowledge. The Secretary correctly accepted that Mr Anthonisz's interests are largely the same as those of Prefixx in this matter because he was the sole director and sole shareholder at the relevant times. However, at the hearing of the interlocutory application, the Secretary clarified that he did not intend to seek judgment in default against Prefixx. Rather, it was the Secretary's intention to seek to prove the allegations against Prefixx, as well as those made against Mr Anthonisz, on the balance of probabilities at the trial. I agree that this is the appropriate way to proceed, given the nature of the proceedings. As a consequence, there is no risk of procedural unfairness as a consequence of a default judgment against the company. Mr Anthonisz will have a full opportunity to participate in a trial of all of the allegations against both respondents including by way of the leading of evidence and the provision of oral and written submissions. 3. Conclusion 17 The only outstanding issues to be determined at this time on the interlocutory application are the application for orders 1 and 2. For the reasons set out above, the application to this extent should be dismissed. As agreed at the hearing, in all of the circumstances it is appropriate at this stage of the proceedings to reserve the question of costs of the interlocutory application. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Perry. Associate: Dated: 28 February 2024