Potts v National Australia Bank Limited (ABN 12 004 044 937) [2023] HCATrans 131 (10 October 2023)

Last Updated: 12 December 2023

[2023] HCATrans 131

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S48 of 2023

B e t w e e n -

MICHAEL THOMAS POTTS

Appellant

and

NATIONAL AUSTRALIA BANK LIMITED (ABN 12 004 044 937)

Respondent

GAGELER J
GORDON J
EDELMAN J
STEWARD J
GLEESON J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON TUESDAY, 10 OCTOBER 2023, AT 10.00 AM

Copyright in the High Court of Australia
MR N.C. HUTLEY, SC: If your Honours please, I appear with my learned friends MS M.E. ELLICOTT and MS A. ZHENG for the appellant. (instructed by Hall & Wilcox)

MR B.W. WALKER, SC: May it please the Court, I appear with my learned friends MR J.A. ARNOTT, SC, MS C.G. WINNETT and MS M. MELLOS for the respondent. (instructed by Norton Rose Fulbright)

GAGELER J: Thank you, Mr Walker. Yes, Mr Hutley.

MR HUTLEY: Your Honours, the only contested findings made by Justice Ball about the state of Dick Smith – and I will use that to refer to the relevant company – in January 2015 and how it got there form the relevant background to ascertaining whether Dick Smith engaged in misleading and deceptive conduct.

These findings – and I can go through them shortly – were that a form of revenue earned by Dick Smith was from the payment or allowance of rebates on goods sold by Dick Smith or services provided by Dick Smith – and your Honours will find that finding at primary judgment 25, core appeal book 19. One of the type of such rebate was what was called an “over and above” rebate, or “O&A” rebate. They were:

generally negotiated in connection with the promotion of a particular product or range of products or as a contribution by the supplier to a discount offered on a product –

and that is at paragraph 26 of the primary judgment, core appeal book 20. O&A rebates were usually treated:

as a contribution to marketing.

That is primary judgment 26, core appeal book 20 – which meant it reduced the cost of doing business, which was an amount deducted off revenue generated through sales in order to derive Dick Smith net profit. That is the primary judgment at paragraph 31. In the first half of calendar year 2014, Dick Smith began to place greater emphasis on O&A rebates, prompted at least to some extent by the fact that in March 2014 it was about $0.9 million behind budgeted EBITDA for the year to that point. That is the primary judgement of paragraph 79:

In order to meet budgeted EBITDA for the year, Mr Abboud, Mr Potts and Mr Skellern developed a plan in April 2014 –

which relevantly involved:

increasing the target for O&A rebates from $10.2 million to $17.2 million.

Mr Abboud increased the open to buy, which is called OTB, which is another word for the budget available for buyers. Your Honours will see that at Court of Appeal paragraph 11 in the core book at paragraph 306:

an increase in OTB by $20 million and subsequently $23 million.

Your Honours will see that at paragraph 82 of the primary judge’s judgment, core appeal book 41:

The emphasis placed on collecting O&A rebates continued throughout FY15.

Primary judgment 113, and core appeal book 53. In late October 2014 Mr Abboud released a further $15 million of OTB with an emphasis on obtaining $3 million in O&A rebates in late October 2014 – that is the primary judgment at 113 to 114, core appeal book 53 to 54. Mr Borg, who was the general manager of planning – his role was described at paragraph 18 of the primary judgment – a member of the senior management of Dick Smith sent a series of emails in late 2014, not only to Mr Potts and Mr Abboud but also to other members of the senior management team, that identified Dick Smith’s O&A strategy as contributing to Dick Smith being “overstocked”. That is paragraph 411 of the primary judgment.

Those emails are set out, your Honours, at primary judgment 127 to 130, and summarised at paragraph 20 of our submissions. They were sent to a Mr Skellern, the director of commercial property procurement and supply chain; a Mr Orrock, the director of buying, and his roles are set out at judgment 20 in the primary judge’s reasons; and a Mr Bonham, who was a merchandise manager, and his role is set out at judgment 21 in the trial judge’s reasons. I am not taking your Honours through them, they have been referred to extensively in the written submissions, unless your Honours wish me to. Justice Ball found that the likelihood was, quote:

that those emails reflect discussions within DSH.

And your Honours will find that at paragraph 411 of his reasons. Next, it was found that by January 2015, Dick Smith was overstocked – carrying $365 million worth of stock on 8 January 2015 – primary judgment 141 – compared to a target of $250 million of stock – that is the primary judgment at paragraph 387. His Honour found that a substantial cause of the overstocking was the emphasis Dick Smith placed on obtaining O&A rebates and buying practices that emphasised the obtaining of such rebates. Your Honours will find that at primary judgment 412, core appeal book 164, and it is also referred to further at the primary judgment at 570, core appeal book 229.

Next, it was found – his Honour found – that both Mr Potts and Mr Abboud knew that to be the case because of the emails sent to them by Mr Borg on 19 December 2014, which connected the overstocked position with the pursuit of those rebates – that is at his Honour’s reasons at paragraphs 414 to 415, at core appeal book 165 to 166. In particular, his Honour found that Mr Abboud was the main driver of the O&A strategy. He approved purchases and increases in the budget – the OTB – to obtain more O&A rebates and to meet profit projections. That is his Honour’s reasons at primary judgment 384 and 390.

He released, in fact, $15 million of OTB in October 2014 to acquire more O&A rebates, even though Mr Borg was already expressing concerns that Dick Smith was overstocked. That is his Honour’s judgment at 385, core appeal book 154. In early 2015, the board recognised that Dick Smith was overstocked, and a plan was developed by management to address the position. That is at his Honour’s judgment at paragraphs 471 to 472, core appeal book 192. However, his Honour found that the emphasis on O&A rebate had not changed, and that is primary judgment 570 and 572. Now, all those central findings were repeated in the Court of Appeal’s reasons to a greater or lesser extent, and your Honours can see that from the Court of Appeal’s reasons at paragraphs 10 to 26 and paragraph 50.

That was the background against which Dick Smith entered into discussions with the NAB to replace its then‑existing facility with Westpac. On 28 April, Mr Potts and Mr Abboud met with officers of the NAB and Justice Ball found that the following occurred: Dick Smith prepared a slide show presentation, which was given to the NAB officers. It contained statements made by Dick Smith about, among other things, “improved inventory management”. Your Honours will find those findings at the primary judge’s reasons, paragraphs 205 to 206, page 91 of the core book.

Mr Abboud also made a number of statements to the NAB officers at this meeting including, relevantly, that inventory requirements were “seasonal” with a high peak season of December and that the Chief Financial Officer, Mr Potts, would send through projections to validate this. That is primary judgment 207, core appeal book 91. Next, Mr Abboud stated that margins on each product category were monitored and discounting was “used to push sales”, and that Dick Smith negotiated with suppliers to obtain scan rebates with the objective of protecting gross profit margin. That is his Honour’s reasons at paragraphs 207 and 209 to 210 of the core book 91 to 93, and the primary judgment at paragraph 547 in the core book page 221.

Now, your Honours will see that we rely on this meeting as a particular occasion in which information was provided by Dick Smith to the NAB that meant Dick Smith – resulted in Dick Smith misleading the NAB when it made the clause 21.1(t) representation, which we will come to, and your Honours are familiar with. Dick Smith, both by itself and Mr Abboud, provided information to the NAB about Dick Smith’s inventory position and its pursuit of rebates in order to improve margin.

GORDON J: I am sorry, I am just a bit lost. Are we still talking about 28 April 2015 at this point?

MR HUTLEY: Yes, your Honour.

GORDON J: Thank you.

GLEESON J: Is there a finding that that presentation gave rise to misleading or deceptive conduct by the 21.1(t) representation?

MR HUTLEY: No, your Honour, that is because – which we will come to – Justice Ball did not deal with the 21.1(t) representation and the issue as to proportionate liability.

GLEESON J: So, we would have to make a finding of fact in relation to that?

MR HUTLEY: Your Honour would have to – that those representations were made is undoubted, those communications, they are his Honour’s findings. Our case, of course, is based on 21.1(t) about the representation made at the time of entry into the facility with the NAB.

GORDON J: I am a bit lost. There is no doubt that there was, as I understand the position – we will come to 21.1(t), that is, a representation made as a result of the warranty, and one can describe its effect and terms – but I had understood, when I read the primary judge, that he had found that the information provided at the meeting on 28 April 2015 was not misleading.

MR HUTLEY: Your Honour, he found it was not misleading at that time, because it was a high‑level meeting between ‑ ‑ ‑

STEWARD J: It was preliminary.

MR HUTLEY: Preliminary meeting, quite. But the character – to assess whether the 21.1(t) representation is misleading, one has to analyse what that is, and that is a representation that no information supplied at the time it was supplied was misleading by reason of omission. So, in other words, that is a representation which is made by Dick Smith on 22 June 2015. It is not the same question as the question of whether, in April 2015, what was said by Mr Abboud and Mr Potts – essentially, Mr Abboud – at a meeting with the NAB then misled them. It is a different question.

STEWARD J: You say the 21.1(t) representation is a fresh or new endorsement of what was said in the past.

MR HUTLEY: Quite. We will come to what we say precisely, your Honour, but we ‑ ‑ ‑

EDELMAN J: But to give future effect to a past representation in the sense of turning the past representation into one that has continuing future effect.

MR HUTLEY: I have to make a slight qualification to that, your Honour, because you will – it says it is not misleading by reason of admission at the time.

GORDON J: What is “at the time”? Are you talking about the time of the 21.1(t) representation or are you talking about 28 April?

MR HUTLEY: At the time of 28 April. It has to be not misleading by way of admission at that time. That – and I will come to it, your Honour – is to deal with this possibility. Your Honour will see 21.1(t) has two limbs.

GORDON J: It does.

MR HUTLEY: One which says all positive information given is accurate and remains so on 22 June. It says with respect to representations at the time, they were not misleading because of omissions at that time. Now, that distinction is obviously drawn because a representation on 22 April may be not misleading because of omission at that time, but if one, in effect, as it were, brought forward misleading by way of omission to a later date, it may become misleading because of subsequent events.

GLEESON J: But, Mr Hutley, at the special leave hearing – in answer to a question from Justice Gageler – you said that this case would involve “absolutely no factual enquiry”. This sounds like a factual enquiry.

MR HUTLEY: No. What we said – your Honour, what I said at the special leave application, as I understood it, we say on the findings made by his Honour, we would win. As we pointed out, his Honour made no findings dealing with this aspect. But his Honour found that what occurred by reference to all the representations – his Honour found that what was said at the meeting of 28 April – his Honour found that the representations in the sense of what was said, that the accounts were sent, and his Honour found that Ms Puja communicated with the Bank. What his Honour did not go on to deal with was that aspect thereafter ‑ ‑ ‑

GORDON J: What is “that aspect”, again?

MR HUTLEY: The aspect, his Honour – because his Honour did not deal with it, his Honour did not make a finding that they were misleading as at 22 June. But we say that follows from what his Honour found. His Honour found there had been a failure to communicate the findings – the matters – about the O&A materials. We say, once one takes that finding together with what was communicated, what was communicated was necessarily misleading.

You just have to say, this was communicated – the accounts. We say they are necessarily misleading because there has been an omission of the other findings made by his Honour. His Honour did not make a finding that there was a misleading case as at 22 June, because, as we told the court on the day, there was no finding – his Honour did not deal with this aspect of the case.

The Court of Appeal dealt with this aspect of the case by, in our respectful submission, asking themselves the wrong question. What we do say, however, is when you have the findings made about the state of this business, the findings made about the communication, the comparison of them leads necessarily to a misleading conduct. In fact, the NAB accepted that the representation under 21.1(t) was made, and it alleged that it was misleading because of the matters which his Honour has found and accepted, they relied upon it.

EDELMAN J: Is that the entirety of your case, those three matters in paragraph 5(a), (b), and (c)?

MR HUTLEY: Of our submissions?

EDELMAN J: Yes.

MR HUTLEY: I think so, your Honour.

GLEESON J: Can I please check that? So, paragraph 4 of your outline does not involve the submission that Mr Potts’ conduct caused the 21.1(t) representation to be false?

MR HUTLEY: We are not relying upon Mr Potts’ conduct.

GLEESON J: Can I just check, then, paragraph 44 of your written submissions?

MR HUTLEY: If your Honour bears with me a moment, just so I can pick that up.

GLEESON J: It says:

in assessing whether the cl 21.1(t) representation was misleading . . . this was readily established on the facts as found . . . First, and obviously, it is established in respect of the statements made by Mr Potts . . . The fact that those statements were misleading made the cl 21.1(t) representation misleading.

MR HUTLEY: Yes. But we cannot rely – your Honour, can I make my position clear? We do not rely upon Mr Potts’ conduct as making the 21.1(t) submission misleading. Technically, I think one could have, consistently with the argument, but that is not how it was run at first instance before Justice Ball or in the Court of Appeal. I think that submission was made at 44 to show logical consistency as that – why we say it could, but we have never relied upon it, and I do not.

EDELMAN J: There has never been a case of proportionate liability based on agency.

MR HUTLEY: Well, it would not technically be an agency point. That was one of the interesting things here, because if one gets to 21.1(t), that is a representation solely by the company. There is no vicarious liability case.

GORDON J: No, no, we are talking about apportionment.

MR HUTLEY: I am sorry. I do apologise. I thought we were talking about ‑ ‑ ‑

EDELMAN J: No. No. The question was there has never been a case of proportionate liability based upon falsification of the representation in the facility agreement arising from agency.

MR HUTLEY: We have never relied upon or said that there could be proportionate liability between a company and a person who is found liable, and the company is found liable only because of vicarious liability. We accept the statements of principle to the effect one cannot have proportionate liability in that case.

GORDON J: Can I just test – I am being really slow here. If one takes the representation made by reference to 21.1(t) in June at the time the SFA is entered into, the three pieces of information you rely upon are set out in your outline. One tests whether or not that information is misleading, does one not, at the time at which the information is provided in the context in which it is provided.

MR HUTLEY: Well, your Honour, that becomes a different – that is apt, with respect. If the context includes who is listening to it then, we would disagree with that, because, in effect, we say it is a new representation made about earlier information.

GORDON J: Does that mean the consequence of your submission is that an entity who is providing a warranty, which is a standard warranty in all facility agreements – I mean, the Bank would not give the facility without a warranty of that nature – has to go back and check and update every piece of information that is provided in the course of a negotiation?

MR HUTLEY: Your Honour, when one – can I ‑ ‑ ‑

GORDON J: I am testing this idea that one is testing misleading and deceptive ‑ ‑ ‑

MR HUTLEY: I understand that, your Honour, but one has to, in effect, go to the terms of 21.1(t), which our learned friends submitted was misleading and admitted when we submit – we alleged, it was misleading – that it was, and they relied upon it. One has to go to the precise language of 21.1(t), if we could go there, if I could, your Honour.

GAGELER J: Mr Hutley, as you do, so that I can understand the structure of your case, you say that the information within the meaning of section 21.1(t) is that provided on the three dates that you identify in paragraph 5 of your outline.

MR HUTLEY: Yes, your Honour.

GAGELER J: Am I right in understanding that you say the problem with that information was that it was – and the only problem with it, is that, on the date provided, it was misleading by omission. Is that correct?

MR HUTLEY: Yes, your Honour.

GAGELER J: And the omission is what you identify at the end of paragraph 4.

MR HUTLEY: Could I just make sure I ‑ ‑ ‑

GAGELER J: The last sentence of paragraph 4.

MR HUTLEY: Of our submissions? I will just make sure it is. Of our outline, your Honour, or of our submissions?

GAGELER J: I am looking at your outline.

MR HUTLEY: I am sorry, your Honour. Yes, essentially, your Honour.

GAGELER J: That is the long and short of it?

MR HUTLEY: That is it. I mean, we have, of course to an extent, compressed in the three pages what I am going to say, but in essence that is the point.

EDELMAN J: As at 22 June 2015.

MR HUTLEY: Yes. Yes, your Honour.

STEWARD J: Do you need paragraph 5? Or you may need a bit of it, but in the sense that your case – let us just say the Bank had simply given the financial records across ‑ ‑ ‑

GORDON J: You mean the company?

STEWARD J: Sorry, the company – yes, I am grateful to Justice Gordon. Your case is that there was a failure to disclose the true position, as you call it, and that would not – the fact that that did not take place does not depend upon anyone saying anything in particular at all to the Bank other than ‑ ‑ ‑

MR HUTLEY: Well, your Honour, 21.1(t) is tied to information supplied. That is why ‑ ‑ ‑

STEWARD J: But what if they just supplied the financials?

MR HUTLEY: If they – it has not been dealt with for reasons which I will not bore your Honours with. But essentially, your Honour, if one can say that that information is materially misleading because of an omission, yes, what your Honour – and I will go through each of the examples. For example, when one comes to Ms Puja, the communications there, a specific question was asked about how you deal with stocking.

STEWARD J: Yes, or to put it a different way, when the Bank made its warranty in 21.1(t), it was incumbent upon it to make sure that it had disclosed by then the true position.

MR HUTLEY: Quite. Your Honour, I just want to deal with the warranty point for the moment. The case was pleaded as a representation case in entering into the facility, and so not a warranty as such; a representation case. That is why one has to go to paragraph 19 of the relevant pleadings. It was not just that there was a breach of the warranty, it said that the representation in 21.1(t) induced the entry into the agreement.

GORDON J: The interesting thing is – that is a matter of logic, one understands that. As I put to you, the Bank is not going to give the facility without a provision like this, but what is ‑ ‑ ‑

MR HUTLEY: And there is going to be negotiation before the provision and somebody is going to say, I am prepared to give it, so it is going to be a representation.

GORDON J: Well, assume for the moment you are right about representation, assume you are right about reliance, we will have to come to 21.1(t) in a moment because (u) excludes accounts and financial projections, so it is dealing with information which is not within (u). Do you accept that?

MR HUTLEY: No, I only exclude, I think, financial projections and certain other matters. I do not exclude accounts, per se. If 21.1(t) has a specific exclusion, if we could go to it, your Honour ‑ ‑ ‑

GORDON J: Because we are trying to work out the parameters of (t) and (u), and we are trying to work out what is information and at what point you assess it, especially if it is by omission.

MR HUTLEY: Yes:

all information (excluding financial projections, estimates and forecasts) –

So, financial accounts would be information, to the extent that they are not projections – financial projections, estimates and forecasts.

GORDON J: So, management accounts, where do they fall, which is your item 2?

MR HUTLEY: We say insofar as they refer to, as it were, inventory and profit, they are not neither estimates or – they are statements of fact. The statement of fact – and I will come to the documents in due course – showed that the peak inventory was some $365 million, and as his Honour found, that was brought about by the overstocking, brought about by the O&A policy. We say to supply those management accounts without exposing that those management accounts were the product of a policy which led to overstocking, as it were, with a view to inflating profit, was misleading.

We say that was the representation made by the company – 21.1(t) – at the time it was made, when it was communicated. We say by omission it was misleading because it failed to advert to the matters which Justice Ball found. That is why we say in answer to your Honour Justice Gleeson’s question, your Honours do not have to make further findings. One merely has to, as it were, put together the findings made with the undoubted communications which were found to have occurred, and we say the answer falls out.

GAGELER J: Mr Hutley, you say in paragraph 6 of your outline that 21.1(t) contains two representations, one speaking as at the date the information is provided, and the other speaking as at the date of entry into the facility agreement ‑ ‑ ‑

MR HUTLEY: No – sorry, yes, your Honour, I do apologise.

GAGELER J: ‑ ‑ ‑ in June. It seems that you are putting your case on the basis of the earlier of those dates – as at the date provided there was an initial ‑ ‑ ‑

MR HUTLEY: At the date provided, yes.

GAGELER J: It is the second of the representations you identified.

MR HUTLEY: Quite. The first goes to accuracy of the representation. The second goes to misleading, whether by omission or otherwise, as at the date of the supply of the information, because that is not a representation. That is supply of the information. The question is, you concentrate on the moment of supply of the information and you ask, quoad that information, was that information misleading by reason of omissions as at that date. Now, that is the question. We say in respect of these three matters, on the findings made by his Honour, the policy and inflationary effect on profit and inventory existed at all material dates, and the information supplied was misleading by omission in not adverting to that fact.

GLEESON J: Does that not raise a more complex factual inquiry about whether the context made that particular occasion an appropriate occasion for provision of additional material?

MR HUTLEY: With respect, no. That in a sense directs to the wrong question because that takes you back to whether it was misleading at the time. Let me assume they supplied a document, saying, A, the people who received it set it aside at that time because they were expecting further information. We say at the 21.1(t) time, the representation is that all material information at the time it is supplied was not misleading – that is, likely to mislead or deceive – because of omissions, and we say in that circumstance you would be in breach of the 21.1(t) representation, although you may have engaged in no misleading and deceptive conduct at the time of the supply of the information with proposition A in it.

GORDON J: So, can I just break up this – I know I am being slow, Mr Hutley – but you are right to say it has got two limbs. The first limb is dealing with, at the date of this document ‑ ‑ ‑

MR HUTLEY: Yes, 22 June.

GORDON J: And we are putting that to one side for the moment. Let us call that A. We are not dealing with A. We are dealing with B.

MR HUTLEY: Yes.

GORDON J: B is, not by omission or otherwise, so only dealing with omission. Misleading in any material respect. So, we have a materiality consideration or assessment?

MR HUTLEY: There cannot really be a debate about materiality here. The whole case was ‑ ‑ ‑

GORDON J: No, we are just trying to work out what the extent of the clause is, for the moment.

MR HUTLEY: I am sorry, your Honour, I thought you said, “we have to”, your Honour. I was thinking your Honour is involved in a factual finding.

GORDON J: At the date provided – whether by its inclusion or by omission, or other information ‑ ‑ ‑

MR HUTLEY: It was misleading, yes.

GORDON J: So, to pick up the points that Justice Gleeson is making to you, it is at the time, we are dealing with the audience; we are dealing with the request; the position; the reason why they asked for the information – why are we not, in order to determine whether or not what they are being provided for – being what they have asked for; who the ordinance is; what they have provided.

MR HUTLEY: With respect, the representation is a representation now that all information, at the time it was provided was not misleading by reason of omission; not that it did not mislead; that it was not misleading. That is, “misleading” means the act to mislead.

GLEESON J: At where? At the date provided?

MR HUTLEY: At the date provided, quite. No, no, it is a representation that now – that at the date provided it was not misleading. This is about inducing you to enter into the facility now.

GLEESON J: We did not lie to you back then.

MR HUTLEY: What?

GLEESON J: We did not lie to you back then.

MR HUTLEY: We did not supply to you information which, by reason of omission, was misleading; not that we did not lie to you, not that we did not mislead you, because it is a representation being made now to induce you to enter into the facility now. What it is taking into account and the reason why it is looking backwards, your Honour is the simple proposition – is, unlike the first limb which goes to accuracy, it is not updating all information to today’s date because they may have things that occurred between the supply of the information and today’s date which would make its omission misleading.

GORDON J: So, I put a proposition to you earlier about updating. That is, in a sense, what this submission is about – i.e., there was an obligation on you to go back and look at the information you provided in connection with the finance documents and update them.

MR HUTLEY: To satisfy yourself, had you, in those documents, communicated; were they, at that time, apt to mislead by reason of omission? Not whether they did mislead because you could not know whether somebody relied upon them or not, at the time. All you could do, at the time you were giving this representation, is say, I am saying of all information that I have supplied – looking at that information – that was, not by reason of any material admission, misleading.

I do not know whether you were misled or even read the document, necessarily, at the time. I do not know who in the organisation read the document. But here is an inducement to enter into the facility. I am telling you now, you can look back over all communications today and be satisfied that at the time you received that information, it was not apt to mislead, or misleading, because of omission, et cetera. That is what it is aimed to do. That is the only purpose of making a representation. This is a representation to induce you to enter into the facility, as was found.

GAGELER J: So, materiality is material by reference to the act of entering into the facilities.

MR HUTLEY: Quite, because this whole negotiation that is leading up is to enter into a facility. This is not – because this is:

information . . . provided . . . in connection with the finance documents –

So, not any information you happen to receive. That is, for example, why we do not take account and we are not relying upon information they received from brokers. Your Honours will have seen we do not rely on that, because that was not information provided by Dick Smith as part of the – in connection with the finance documents.

GORDON J: It does say “or on its behalf”, so it may have been by a broker, for a broker being instructed to provide it. Now, I am just testing this ‑ ‑ ‑

MR HUTLEY: Theoretically, your Honour.

GORDON J: We are testing the extent of this provision and your construction of what I call B.

MR HUTLEY: Can I say I accept that, your Honour. For example you may have had a finance broker.

GORDON J: Correct.

MR HUTLEY: You might have had a merchant – you know, what used to be called merchant bankers, kind of spruiking your interests, and they may have been communicating, and they never engaged in misleading ‑ ‑ ‑

GORDON J: On your construction of B, you would be obliged to ask the merchant banker, the finance broker, for all of the information they have provided over the course, in connection with the finance documents and update them.

MR HUTLEY: If you wanted to give this warranty you might want to negotiate and say, we cannot give it in these extreme terms.

STEWARD J: Your point, really, is it is a sole undertaking and if they are not prepared to give it, they have to make an effort to make sure that they disclose their true hand to the Bank before it lends them money.

MR HUTLEY: If they want to complain, they have to make it, certainly – it is their choice to make it. That is simply all there is to it. The important point is, NAB pleads, and has admitted, that it relied upon this. The reason why one would rely upon it as an organisation is it relieves one of, in effect, worrying about Rumsfeldian unknown unknowns.

GORDON J: I know you will come to this, but I have three concerns about it. Was this the way the case was run below?

MR HUTLEY: Yes.

GORDON J: But not addressed?

MR HUTLEY: Not addressed by his Honour.

GORDON J: And not addressed by the Court of Appeal?

MR HUTLEY: Well, the Court of Appeal addressed it, and I will come to the paragraphs where the Court of Appeal addressed it, but with respect to them, the Court of Appeal, in effect, got diverted by failing, with respect to them, to concentrate that 21.1(t) is a representation about fact. They saw it in terms of fault and states of mind, and that was wrong.

They got diverted from the question – the simple question is: take information at point X, what was that information; was it, by reason of admission, of material matters as at that date misleading, yes or no? It is a pure question of fact, in our respectful submission, in the facts of this case as the case is put. The Court of Appeal never asked that question, never looked at that question; Justice Ball never asked that question, never looked at that question. That is why we are here.

GLEESON J: I thought that we were here to deal with the question of general importance about the source of knowledge of a company.

MR HUTLEY: Quite. I think we put two points, your Honour, with respect – I do not want to – firstly we said, it is not about knowledge at all, I think, that is the question which comes out of the Full Court’s decision in a case, the name of which I have now forgotten, of about whether one looked to the mind of the board – the facts known to the board ‑ ‑ ‑

GLEESON J: I can remember, it was Crowley v WorleyParsons.

MR HUTLEY: Thank you, your Honour, an extraordinary event, as we all know. There was that issue. That was the issue after the question of, is it just a misrepresentation, or misrepresentations get tied up in knowledge. Our first point was that the whole thing went wrong because it was just a question of fact. But if and to the extent states of mind were relevant, we said the state of the mind is the company as a whole and is not determined by what might be called the non‑executive directors on a board, one had to have, in effect, looked at rules of attribution in representation by the company. That was the question of importance.

That question maybe seemed to have gone, because our learned friends really do not defend the Court of Appeal’s reasoning at all. The whole case they seek to run is by a series of what should be on notices of contention but seem to have been – that, as it were, procedural vulgarity seem to have been set aside – and run a whole series of cases, most of which have never been mentioned until the High Court.

So, the points of general importance are, in effect, conceded that the Court of Appeal, in a sense just asked the wrong questions, answered the wrong questions, and to the extent that knowledge was involved, looked at the wrong question.

GAGELER J: Does it take us to paragraph 8 of your outline?

MR HUTLEY: Your Honour, I hope. Can I just check that, your Honour – I did have some notes – but it probably does. Yes. I would like to explain a little bit about the information, for just a moment or two, if I might, your Honour.

GAGELER J: Of course.

MR HUTLEY: I was taking you to the findings of fact made by Justice Ball about the meetings of 28 April. I have taken your Honour’s reference to those, and I have pointed out how it was dealt with. Can I deal with the management accounts. The provision of the management accounts was sought at the meeting of 28 April, or offered, and your Honours will see that at primary judgment 566, and I am not going to go to them. The relevant emails, your Honour, are in the appellant’s book of further materials.

Because of the way that Justice Ball dealt with the question – and your Honours will see that at primary judgment 549 – he said the NAB claimed that the management accounts involved misleading and deceptive conduct by Mr Potts. That was rejected by Justice Ball at paragraph 549 in the primary judgment at core appeal book 222, because his Honour held that it was not a representation by Mr Potts. He was acting in a purely ministerial capacity.

That is why his Honour did not then go on – because his Honour did not deal with the proportionate liability case – did not deal with a comparison of the accounts, make factual findings about the accounts. But the accounts are before the Court and there is no doubt as to what the accounts show. They are just clear demonstration. Your Honours can find the relevant communications at paragraphs 8 and 9 ‑ ‑ ‑

GORDON J: Of what?

MR HUTLEY: Pages 8 and 9, I am sorry, of the appellant’s book of further materials, your Honour.

GAGELER J: These are emails?

MR HUTLEY: Emails, yes, your Honour. I am just making good. You will see on 4 May – this is on 9, the top email – his understanding that “the financial information you requested”, monthly P&L, balance sheet and cash flow – do your Honours see that – and some forecasts. Then if one goes over to page 8, the second email from Mr Potts on 5 May at 3.29 pm, he attached the monthly financial year P&L, balance sheet and cash flow, et cetera.

Now, if your Honours go over to paragraph – they do not seem to have the numbers, because they were attached, but it is 11 and 12 – it should be 11 and 12 in that book – your Honours will see what are called “Statutory P&L” for the financial year 2015. But if your Honours then go over to the next page, and your Honours will see the balance sheet from June 2014 up until March 2015, they were alleged, and there was no debate that they were actuals.

GORDON J: So, this comes back to the intersection between (t) and (u), and I do not want to take you away from it, but these have got projections within them.

MR HUTLEY: Quite, to the extent they are projections, they are ‑ ‑ ‑

GORDON J: You do not rely upon them.

MR HUTLEY: I do not rely upon them. To the extent that they are projections, they are a matter of irrelevance.

GORDON J: So, just so we are clear, on this document, what are we to take into account on your case in relation to pages 11 and 12?

MR HUTLEY: Up until March 2015, because you can see it from the date.

GORDON J: When you say “up to”, am I including the March 2015 column?

MR HUTLEY: Yes, yes. I am sorry, yes, up until – including.

GORDON J: So, the entries for April, May, June and the full year I am to exclude?

MR HUTLEY: Yes, your Honour. Your Honour can set those aside.

GORDON J: Because they fall within (u).

MR HUTLEY: Projections.

GORDON J: Just so I am clear, and I am sorry to be pedantic about this ‑ ‑ ‑

MR HUTLEY: Not at all.

GORDON J: ‑ ‑ ‑ but the attachments that you took us to, can we just go to page 9, which I assume is what you are going to take us to, these are the various attachments, to attach to the email.

MR HUTLEY: Yes, the relevant attachment. Nobody has suggested any others were ‑ ‑ ‑

GORDON J: Which ones of these are (t) and which ones are (u)?

MR HUTLEY: I have not put in anything to do with (u) because (u) – no leave was given in respect of (u).

GORDON J: No, I know, but what are we to look at?

MR HUTLEY: Well, to the extent ‑ ‑ ‑

GORDON J: What are the facts?

MR HUTLEY: I am sorry, with respect to (u), just to go back to ‑ ‑ ‑

GORDON J: No, no, by reference to these documents, is what I am trying to see. How do we know which bits of this are relevant to your case?

MR HUTLEY: Insofar as they are statements of the actual position, they are relevant.

GLEESON J: So, the inventory line item?

MR HUTLEY: Yes, particularly. Your Honour will see, for example, the inventory line item is a critical one because that is said to be, gets to inventory up until – your Honour will recall the finding made that the highest point in the inventory, we have got to 360 million, and your Honours will see that in January 2015, and that was actually a finding which was made about this document.

GAGELER J: So just mapping this onto your structure of argument as identified in your outline, this is the information provided on 5 May?

MR HUTLEY: Yes.

GAGELER J: And you say this information is misleading by failing to disclose that the overstocking was caused by the O&A strategy?

MR HUTLEY: Yes.

GAGELER J: You would expect to find that in these numbers somewhere, would you?

MR HUTLEY: No. We say to send this document, unqualified, without saying that inventory of this company had been, in effect, artificially inflated by a policy which was introduced to drive profit, rendered this document misleading, because there was an omission of a material particular in the communication of the information.

We say, if you put it this way, if they had been told that, would they have viewed these documents in a different fashion? And we say, it is obvious they would have, because the accounts were sent forward as reflecting, as it were, on their face, what would appear to be the ordinary course of business. And the whole thing about this company is there was an extraordinary course of business. And that is what Justice Ball found that, in effect, the whole of this was being done to pump – and it went to the profit line as well.

I have not taken your Honour to it, but your Honour will recall there were findings that, in effect, they took these matters to the profit line as soon as humanly possible. What they were doing, there was a policy to hunt for O&A and, to do that, you had to increase the budget, which led inexorably to overstocking, which also led to the inflation of the profit.

GLEESON J: But is not this material that led to the National Australia Bank having a meeting with Mr Potts to ask him some questions to try to work out what the qualifications might be to the financial position?

MR HUTLEY: Well, it did not really lead to him to ask that meeting, but he did subsequently have a meeting, your Honour, I accept that. And at that meeting, communications which were made, which have been found to be misleading – and I am not disputing that – but if one goes back to 21.1(t), it says, is this information, by reason of omission at the time it was supplied, misleading. And we say, objectively, one does not take into account what happened subsequently, one takes into account what happened at the communication at the time.

And we say that omission, of that communication, as it were, what you might call a qualification to the email of the 5th and, by the way, these accounts are affected by the following policy which has had the following result, i.e., overstocking which has been done to, as it were, inflate the profit.

GLEESON J: Is there a finding that NAB relied on these pages?

MR HUTLEY: There is no doubt there are findings that they considered them and took them into account, your Honours – and I will just give your Honours the pages where that was considered. The management accounts – if your Honours sees it at judgment 216.

GORDON J: Is that paragraph or page?

MR HUTLEY: Primary judgment paragraph, your Honour.

GORDON J: That paragraph is Mr Menzies and Mr Taylor noticing monthly figures – have I got the wrong paragraph?

MR HUTLEY: Yes. They:

noticed that the monthly figures revealed that DSH’s inventory peaked in January 2015 –

et cetera. So, they obviously considered it.

GORDON J: But the question was whether they relied – I did not finish giving you my three problems. One of the problems here is that we do not actually have before us the landscape of information provided.

MR HUTLEY: But your Honour, it is not whether they relied – NAB sued Mr Potts on the basis of these accounts, and they had to prove – the reliance is on the representation, with respect, under 21.1(t).

GORDON J: Sorry, maybe “reliance” was wrong. We do not have the landscape of information provided. We do not know which bits are subject to omission or non‑omission on your case. So, even if you are right, how do you apportion?

MR HUTLEY: But, your Honour, can we come down to apportionment after the event, but we never got to that ‑ ‑ ‑

GORDON J: We can, but this is why we are asking these questions, because ‑ ‑ ‑

MR HUTLEY: We never got to apportionment. Now, we will say, if you get to apportionment, we say this. Solemnly, in order to induce NAB to enter into this facility, Dick Smith determined to make a very significant representation. And, as your Honour has observed, that may have made incumbent upon them before they did so to, in effect, audit their communications of information that had taken place, and satisfy themselves that there was nothing by omission or otherwise which rendered the communications misleading at the time they were made.

Now, if they chose to make it and there is no evidence called to suggest that they went through that audit, no submission is made on behalf of our learned friends, or is pointed to any evidence to suggest that they went through that exercise, then one looks to the question of responsibility and looks at the question of the last chance, a solemn last chance to make sure, from the point of view of the person seeking the credit, to be in a position to make this representation – one looks to responsibility for what has gone wrong here. We say there is fairly good basis – a very strong basis for apportionment, and one substantially adverse to Dick Smith.

It seems to be the submission made on the other side, to the effect that this is nothing, this representation is just a bit of paper. This, in effect, was designed to make sure that before you took our money, before you received our money, you were in a position to tell us that you were ‑ ‑ ‑

EDELMAN J: Did you run a Henville v Walker no-transaction case?

MR HUTLEY: No, there was no dispute about it, because they said, if your Honour goes to the pleadings, their case was not an audit case. It induced them, and they relied upon it to enter into the facility. It was not a case on warranty, and it seems to be a position – I should take your Honours to the pleadings in relation to this, because it is quite important. It is not as if they were taken by surprise in relation to this, because that was what the NAB pleaded. If your Honours go to our bundle of further materials.

GORDON J: I think you have three bundles. Are we still on the first bundle, or are we in the second or third bundle?

MR HUTLEY: I will call the second one the bundle of further materials and then the third one called the supplementary bundle of further materials, your Honour. I am dealing with what might be called the first bundle. If your Honours go to paragraph 17 of our learned friend’s, what is called “Third Amended Commercial List Statement”, which starts at page 72, if one then goes to paragraph 17, that is where the NAB pleaded ‑ ‑ ‑

EDELMAN J: Sorry, which book are we looking at?

MR HUTLEY: The appellant’s book of further materials, your Honour. Paragraph 17 pleads the relevant provisions:

representations and warranties –

if your Honour sees that. If your Honour goes over to 19, it said:

In entering into the Loan Agreements and making advances in accordance with their terms, each –

et cetera. So, the case run that was pleaded by them, that this induced them to enter into the facility, that was pleaded back at them. If your Honours go to my client’s response at paragraph 133, which your Honours see commencing at page 162 in the same document, at page 163, subparagraph (b), that was pleaded back in the same term and, unsurprisingly, in the NAB’s reply at paragraph 9 at page 49 in the same bundle – the sequencing was done because of the dates of the documents, these things get amendments, so – it is no criticism; that is just how it was chosen. If your Honours go to page 49, paragraph 9, your Honours will see that 133 is admitted. So, this case was run on the common ground that the 21.1(t) representation induced the entry into the facility.

Now, our learned friends seek to try and depart from that, and we say they cannot – could have led to being the subject of evidence and all manner of things, cross‑examination – but it was common ground, and a moment’s thought tells you why it was. These documents go backwards and forwards before they are signed. The critical thing about a representation like this is no party will sign it until they see that the other party is prepared to represent that to induce them to enter into the facility. So, questions of warranty do not arise.

The only question is, what did the representation mean, and we say it is clearly demonstration, as we put it. So, all questions – that is why we say when one gets to apportionment, to return to your Honour Justice Gordon’s question, Dick Smith must have known that this representation was a very significant one – for that matter, the other ones were – and it determined, for the purposes of obtaining a large sum of money from the NAB, to make it, and the NAB was entitled to assume they would have done what might be called an audit of communications and be satisfied that they were satisfied that at the time they were made by omission nothing was left out. If they did not, well, that goes to their responsibility and it makes it all the greater.

In effect, one looks at Mr Potts’ conduct months before, or well over a month before this facility and his failure to communicate in May, there was a critical, vital last chance in favour of the NAB – in favour of Dick Smith, and for whatever reason they chose not to, and we say, when one comes to apportionment your Honours have the basis for a very substantial apportionment and we have said at the minimum it would be 50/50, but we would say, if you look at the four occasions, it is more likely to be a 25 per cent apportionment adverse to my client.

But critically, because there are four, if they had ordered any one of the three we referred to, they would have realised. Therefore, one infers that, in effect, failed in all regards. We say, that should go to the apportionment. I have dealt with the management accounts. Can I now deal with the – I am not going to go through Mr Potts’ misleading and deceptive conduct from 6 and 11 May – that is what it is, and your Honours have those findings. We do not challenge them. Your Honours will see what they are.

Can I turn to Ms Puja’s information – what we have called Ms Puja’s information. Your Honours will see the particular information is only referred to shortly in his Honour’s judgment at trial, at paragraph 242 – this information is trade and working capital and information supply – and it says – the only reference to it is at 242. That requires us to take your Honours to the actual communications. If your Honours go to the appellant’s book of further materials – what might be called the first book – at page 18, your Honours will see these communications, I hope, yes.

What had occurred is that NAB had sent some questions to Dick Smith. Your Honours can see those questions at page 19 and 20 – and the answers, your Honours can see them in the way – the questions are in bold – the answers are typed beneath them. That is a communication from Dick Smith to the Bank. Your Honours, one needs only to go to question e, on page 19.

GORDON J: Question 1e?

MR HUTLEY: Yes, 1e, your Honour:

With respect to stock control, how are inventory provisioned and how are excess stock identified and managed?

That is a direct question to Dick Smith – a frank answer to which would necessarily have disclosed the overstocking, we say – just plain to demonstration. The answer it gets – “Answer”:

Inventory is provisioned on a monthly basis. The calculation of the provision is applied at an item level based on the age of the item, the level of weeks cover and any items with a negative margin.

Nothing said about excess identified and managed. The classic omission. Any frank – that was apt, we say, to be a communication which was misleading by omission.

GORDON J: What is the omission in the context of request about stock control, inventory provision and excess stock identified and managed? What is the omission in that answer?

MR HUTLEY: We obtain excess stock because we have a policy of driving purchases to get O&A. We, in effect, produce excess stock. Our excess stock is not managed, and as I said, the finding was they had not dealt – Justice Ball’s finding was, they had not dealt with, at this time, the implications of the policy. They had not addressed it, and your Honours know that and are aware of that finding. In other words, throughout 2015, they did not address – they kept driving the O&A policy which, in effect, was driving an overstocking situation. That spoke to how excess stock is managed; it was managed by getting more. In other words, we say that is a clearly misleading communication at the time by omission.

Now, I have taken your Honours, in the debate between the bench and myself, your Honours understand how we put the representation with respect to 21.1(t). Just to summarise – firstly, 21.1(t) was a representation about all information provided, unqualified. It was all information that had been disclosed, relevantly, by Dick Smith. There is no debate about that. As we said, it had two aspects. One, as at 22 June, or if later provided, was:

accurate in all material respects and –

secondly:

not, by omission or otherwise, misleading in any material respect at the date provided (whether by its inclusion or omission of other information) –

Now, therefore that accuracy representation at the 22nd, other representation as to not misleading as at the date supplied, and that, we say, that time difference is to avoid, in effect, an updating characteristic which would apply. Now, to some extent, your Honour, interestingly, that updating aspect was dealt with in the – and we do not rely on it, but just to explain to your Honour how the construct worked, if your Honours went to 21.1(s), and your Honour sees there that is qualified by “known to it”, so it is a different sort of representation.

So, in effect, there has been a clear distinction drawn between (s) and (t). Our learned friends try to, in effect, read down the representation of (s) to (t) in an argument which has never been advanced until this Court. But, critically, one should notice that (s) is expressed in very different terms, seeking a very different analysis.

EDELMAN J: Is this paragraph 10 that you are addressing now? This is the point about the difference between state of mind and fact.

MR HUTLEY: Yes. But I just want to make that point there. Therefore, we say – we have been through, I think, how we put our position in relation to the various communication – the communication of 28 April. We say, those communications, if looked at in the way we say the representation in 21.1(t) requires them to be looked at, were clearly misleading by reason that they did not – they omitted a material matter, same with respect to the management accounts and the Puja information. Can I deal, shortly, with the pleadings?

GAGELER J: With all of those things, with that submission, you were asking us to make those findings of fact ‑ ‑ ‑

MR HUTLEY: Yes, we say, on the findings found, it follows.

GAGELER J: ‑ ‑ ‑ for the first time.

MR HUTLEY: Yes, quite. We say that because nowhere else in the Court – if your Honours think there has been an error in failing to make – your Honours could send back the case for those findings. But we sought those findings – as I will come to ‑ ‑ ‑

GORDON J: Where do we find those set out being sought below?

GAGELER J: This is paragraph 8, I think, is it not? You are coming to it.

MR HUTLEY: I am coming to those, your Honour, I have to deal with the pleading first. I have to deal with the pleading, if I could, your Honour. I have to deal with the pleading, if I could. I have taken your Honours, in the list statement, to paragraph 17, about the loan agreement, and 19, about reliance. Then, there are paragraphs 28 to 42. Could I just ask your Honours to deal with one or two of the paragraphs. Paragraph 28, at page 79 – this is in the appellant’s book of further material. That refers to the “Rebate Maximisation Policy”. That was the policy that his Honour found. If your Honours then go down to 30, that refers to the continuation of the policy. His Honour found that was, at all material times, in place up to 22 June 2015. If your Honours look at 31(a), it says, the Rebate Maximisation Policy led to:

employees of DSH and the DSE Group who were responsible for buying inventory engaging in buying practices which focused on and prioritised maximising rebates –

That was found by his Honour. If your Honours would then go over to paragraph 34, your Honours will see 34, the chapeau, and (a) and (b). His Honour found those. Now, if your Honours then drop down, if your Honours would, to paragraphs 39, and if your Honours go to paragraph 39(d1), that was as his Honour found. If your Honours then go over to paragraph 98, this is of some significance, having regard to some of the points raised by our learned friend. That said:

By reason of the conduct . . . Potts in effect represented . . . that –

certain matters – they are irrelevant to our question, but the matters of relevance, are (g), (i) and (j) – the questions of fact. And your Honours will see:

(g) did not have appropriate and effective inventory management practices;

. . .

(i) DSH’s excess inventory was not the consequence of events beyond DSH’s control or was otherwise explicable.

(j) DSH’s excess inventory was a consequence –

et cetera. Now, those paragraphs we emphasise because Justice Ball found that to be the true position regarding Dick Smith. That is, this January stock position was caused by over-ordering to maximise rebates and boost profits. And in May, no real steps had been taken to address that issue. Finally, I need take your Honours to paragraph 102, which is the heart of some of our learned friend’s submissions. It says:

By reason of the contraventions by Potts –

et cetera, of the sections – and there are a number of sections. All were said to be engaged and no distinction was made:

and in reliance on the representations pleaded in paragraphs 98(a) to 98(f) NAB entered into the Loans Agreements and advanced the loans to DSE as pleaded above and has suffered loss and damage.

Can I now take you to our concurrent wrongdoer defence. I have taken your Honours to certain paragraphs of it, but I can deal with it relatively shortly. The relevant page in this book is page 161. Now, that plead – the proportionate liability defence, I do not need to trouble you any further with that at the moment – pleaded that.

GORDON J: Sorry, what paragraph was that?

MR HUTLEY: Paragraph 129, your Honour.

GORDON J: Paragraph 129 or 161? Did you mean ‑ ‑ ‑

MR HUTLEY: Page 161, I am sorry, I think I said – but paragraph 129.

GORDON J: Thank you.

MR HUTLEY: And then one drops down. If your Honours would note 132, but it is of no longer any relevance, just that it was part of the defence that has been superseded. Then paragraph 133, to which I took your Honours, and I would like to take your Honours shortly to it. It says:

If the matters in paragraphs –

and then it recites various paragraphs:

are established, then:

(a) DSH represented to NAB and HSBC that –

It does not matter. Could I tell your Honour in the chapeau, paragraph (i), (ii), and (iii) was only of relevance to HSBC, so it is of no significance any further. I will come back to how the others are dealt with.

GAGELER J: I am sorry, paragraph (a) of ‑ ‑ ‑

MR HUTLEY: No, no, in the chapeau, there is a reference to paragraph 123 – your Honour sees that?

GAGELER J: I see. Yes.

MR HUTLEY: That solely was concerned with HSBC. Your Honours will see there is reference to in paragraphs – including the paragraphs I have taken your Honours to – where the findings were made. Then it sets out the representation – (ii) is, of course, the representation with which we are concerned. Then (b) says:

NAB and HSBC relied upon each of the representations . . . in entering into the Loan Agreements and making advances in accordance with their terms –

Now, your Honours see that cross‑references to paragraph 19 of our learned friend’s NAB pleading. So, it repeats that, as I told your Honours before. Now it says:

each of the representations . . . above was misleading or deceptive, in contravention . . . by reason of DSH’s failure to disclose to NAB –

the various matters, which included the matters to which I have taken your Honours to, and the matters his Honour found – and his Honour found sufficient to make Mr Potts liable.

GORDON J: So, they were cross‑referenced back to 98(g), (i) and (j).

MR HUTLEY: Quite. And then, (d) – this is important:

by reason of DSH’s misleading –

and deceptive:

conduct . . . NAB and HSBC entered into the Loan Agreements and advanced funds pursuant to those agreements, and thereby suffered loss and damage, being the same loss and damage for which Potts is sued –

And that is the reference to 102. The only point of the reference to 102 is to make good the essential allegation for a proportionate liability defence that one is dealing with the same loss.

EDELMAN J: So, is 133(b) on page 163 a no‑transaction case?

MR HUTLEY: It could be.

EDELMAN J: Had it been addressed.

MR HUTLEY: Had it been addressed, yes. Well, the amount recovered was the amount of the loan less what they got out of the organisation in any event so, in a sense – plus interest, I think, your Honour – so it was equivalent to a no‑transaction case, in any event. It was not as if they said that they would have invested the money somewhere else and would have made a lot of money, et cetera. They said that basically they would have not made the loan ‑ ‑ ‑

EDELMAN J: Yes.

MR HUTLEY: ‑ ‑ ‑ but they have to give credit for what they got back.

EDELMAN J: And is that the same loss or damage as the loss or damage suffered as a result of the misrepresentations by Mr Potts?

MR HUTLEY: Yes. They say by Mr Potts – they would not have entered into transaction but for his representation; they would not have ended into this transaction but for these misrepresentations. Same loss.

GAGELER J: So, the whole of paragraph 133 is admitted in reply.

MR HUTLEY: Yes, your Honour. Yes.

GLEESON J: But (c) does not identify any particular information that was misleading in any material respect of the date provided by omission.

MR HUTLEY: I accept that, your Honour. That was, in a sense, an absence of particulars. No particulars were sought.

GLEESON J: It is not just an absence of particulars because it is an allegation of a failure to disclose prior to entry.

MR HUTLEY: Your Honour, nobody ran a case that nothing could be run under this case. Our learned friend ran a case that we were limited because of the way that had been pleaded to Mr Potts’ conduct on a reflexive case – and all I am making the point about is, nothing is relied upon – I will come to it, your Honour.

GLEESON J: No, I think the way that they dealt with it in reply was by denying paragraph 134 on the basis that any relevant conduct was the conduct of Mr Potts.

MR HUTLEY: Quite, but that assumes we have alleged that is the only relevant conduct – and we have alleged all information supplied – because we said there was a breach of all information supplied, and we pleaded all information.

GAGELER J: Mr Hutley, at this stage we will take the morning adjournment.

MR HUTLEY: If your Honours please.

AT 11.22 AM SHORT ADJOURNMENT

UPON RESUMING AT 11.35 AM:

MR HUTLEY: I was dealing with – I dealt with paragraph 133, your Honours, then there is 134, we plead, et cetera. Can I now take you to the reply of our learned friends, on behalf of our learned friends’ client, and the relevant reply is 9, as your Honours have observed – that is at page 49 in the book. They responded to paragraph 129 at paragraph 5. The Court of Appeal held that they were apportionable claims and that is no longer in dispute.

If we then go to – as your Honours have observed, they admit paragraph 133, and then they say – paragraph 10, which seems to be central to our learned friend’s, places – now, in the first subparagraph, it repeats paragraph 5(a) which dealt with the legal question which was determined adversely to them and is not of concern to your Honours. Secondly, in subparagraph (b), it pleads a basis upon which it appears NAB denies that Dick Smith is a concurrent wrongdoer within the meaning of the relevant legislative provisions. Now, the gravamen of the contention appears to be (b)(iii):

to the extent that DSH engaged in misleading conduct as alleged by Abboud –

Now, it does not actually refer to Potts:

Abboud in paragraphs 132 and 133, it was the same acts or omissions which are the subject of the claim against Abboud and Potts as set out in the 2ACLS and are attributable to DSH which caused DSH to engage in that conduct through acts or omissions in which Abboud and Potts engaged as officers of DSH –

It is not entirely clear what that means. It seems to be pleaded from the point of view of Abboud, not from the point of view of Potts, but setting that aside for the moment, so far as we can understand it, it seems to be directed at the discussion in the authorities regarding whether or not a defendant seeking to raise a proportionate liability defence can do so by naming a company, the concurrent wrongdoer, with the basis of that company’s liability to the plaintiff being its vicarious liability for the defendant’s acts or omissions. That is discussed in the Court of Appeal’s judgment at 437 to 439 ‑ ‑ ‑

EDELMAN J: By vicarious liability, you mean agency.

MR HUTLEY: Agency, yes. I think in the cases it is referred to vicarious liability, but I accept your Honour’s correction. That is how it is – that is, in effect, the camp which has come to apply to this particular problem. Your Honours will see that at 437. However, if your Honours go to 442 at core appeal book 440 ‑ ‑ ‑

GORDON J: Sorry, just before you leave the reply, are you going to deal with subparagraph 10(c). Is that relevant?

MR HUTLEY: Yes, I am going to come to that in a little while, your Honour.

GORDON J: Thank you.

MR HUTLEY: That seems to be a position ‑ ‑ ‑

GORDON J: No, it is all right, come to it when you want to, Mr Hutley. It is fine.

MR HUTLEY: Thank you, your Honour.

GORDON J: So where are we going now in relation to (b)?

MR HUTLEY: I am just taking you to the fact that the Court of Appeal at 442 agreed that, in effect, this position of agency liability was not in issue in this pleading because my client accepted that he had to establish some act attributable to DSH other than its own acts – vicariously attributable in order to establish DSH was a concurrent wrongdoer. So, we did not rely upon vicarious liability.

GORDON J: Or agency.

MR HUTLEY: Or agency, yes, your Honour. To the extent that it deals with the acts of Abboud at the meeting of 28 April it, with respect, misses the point for the reasons we have submitted. Namely, it is concentrating on the wrong inquiry, which is the 21.1(t) inquiry, not what was found as between Mr Abboud and the NAB. It is a different question. So, we say it missed. Now, our position in the appeal is entirely consistent with what was pleaded in its response at paragraph 133, we say, and of course we are dealing solely with the acts of the NAB.

Can I deal finally then with (c). In subparagraph (c) of the reply, paragraph 10, it pleads that in the alternatives of subparagraph (b), if Mr Potts and DSH were concurrent wrongdoers – so, it assumes that they are concurrent wrongdoers – then Potts’ liability should nevertheless not be limited” by reference to DSH’s conduct because, as put in (c)(ii):

Abboud and Potts cannot rely upon their own contravening conduct on behalf of or as attributed to DSH to provide a basis to limit their liability –

Again, that seems to be a question which is concerned really with whether there is contribution, not how it should be apportioned. So, again, the pleading is, with all due respect, somewhat confused. Now, we say our position throughout is entirely consistent with the way it was run.

GAGELER J: Mr Hutley, just before you leave the pleadings, your paragraph 133 is contingently pleaded, if the matters in paragraphs there identified are established then. I did not track this through, but are all those matters established, you say?

MR HUTLEY: Not all of them, your Honour, but the ones I took your Honour to, and they were sufficient to find the liability of Potts. In effect, the case which was put against Potts, or a subset of all those matters were found, we say those matters having been found, and they say then it was found the NAB relied on those matters to enter into it, we say by parity of reasoning.

You do not have to have a finding of everything for this pleading to be an omission. It is, in effect, as his Honour found, the pleading was sufficiently broad to allow one to, in effect, find liability if a subset, or sufficiently material matters of the pleading were found in the sequence of paragraphs to which references were made. We are relying only on those subparagraphs, the ones I took your Honour to, which were found the basis of liability of Potts, not the representations but the wrongdoings.

GORDON J: So, the way it works is we have findings against Potts of particular paragraphs pleaded, the ones you have just taken us to ‑ ‑ ‑

MR HUTLEY: Sorry, can I just – not findings about his communications, findings of, in effect, conduct by Dick Smith.

GORDON J: No, I am dealing with Potts at the moment. There are findings about Potts and what Potts did which was misleading and deceptive, false, wrong – one can give whatever label you like. The information provided was not accurate.

MR HUTLEY: Yes.

GORDON J: We then have the 21.1(t) representation, and although you do not rely upon the conduct of Potts, you say that because the things which were omitted, which find its foundation in Potts’ conduct, those things should have been disclosed.

MR HUTLEY: No. We say, with respect, we do not in any way for the purposes of 21.1(t) rely on Potts’ conduct. We rely on other pieces of information provided by Dick Smith, and we ‑ ‑ ‑

GORDON J: That is sort of right but not quite right. We have the meeting in April, we have the production of management accounts by Potts, and then we have got the Puja questions.

MR HUTLEY: But it was found that the production of management accounts by Potts, Potts was merely ministerial. It was not a representation by him at all. That is why his Honour did not consider whether it was misleading and deceptive. I took your Honour to the paragraph ‑ ‑ ‑

GORDON J: My observation is a bit more simple, really. The omissions are omissions caused by Potts’ wrong behaviour – i.e., the overs and unders and the ramping‑up of the stock and the rebates.

MR HUTLEY: But they were not just Potts, your Honour. I took your Honours to – Mr Abboud was, in effect, the author of it. All the senior management were aware of it. In fact, Mr – his name escapes me momentarily – drew the overstocking ‑ ‑ ‑

GORDON J: Mr Borg.

MR HUTLEY: Yes, thank you, your Honour – to Mr Abboud and Mr Potts’ knowledge, and his Honour found, in effect, that senior management was fully aware of the situation. So, it is not, with respect, the result of Mr Potts’ conduct. It was a policy adopted by the Chief Executive Officer which was then executed by those to who were responsible to him – including Mr Potts. That produced this situation.

Can I deal with how the matter was dealt with below? We say, we are not putting a case different to that put below. Can I take you now to the supplementary book of further materials. That is the appellant’s supplementary book of further materials. If your Honours go to page 4, your Honours will see the opening submissions made – and they were joint – on behalf of Messrs Abboud and Potts. If your Honours go over to paragraphs 27 to 28 – this was, as your Honours can see, with respect to the – it was not – at 27:

it is an inescapable conclusion –

your Honours will see at about point 9 on the page.

GORDON J: Sorry, where are we reading? This is important, Mr Hutley.

MR HUTLEY: Page 6, your Honour, at paragraph 27, last two lines – last four lines:

Even if it could be established –

Then paragraph 28, your Honour. So, the issue was open from the outset. If your Honour goes then to our learned friends’ bundle of further material and your Honours go to page 271 in that, this is the written submissions at paragraphs 753 and 754. The “hypothetical matters” were defined in the submissions to be that the matters that NAB contended was in fact the case with Dick Smith and which had not been disclosed.

So, in other words, and of course when we come to the submissions, because obviously at first instance there were many moving parts and many contentions by the NAB, some of which were not found, some of which were, these sorts of submissions about proportionate liability have to, in a sense, deal with contingencies and possible alternatives. But that was how it was written. In oral closing submissions ‑ ‑ ‑

GORDON J: What were the hypothetical matters?

MR HUTLEY: The matters that the NAB alleged were false and not disclosed to it, or were not disclosed to it, either that there was misleading conduct or omissions. So, at this point, from the point of view of those representing my client, they were hypothetical matters. Now, if one then goes, if your Honour could, at 281 and following, these are submissions on behalf of Mr Potts. If your Honours start at 281, it really commences at about lines 10, 11 and following, and over the page at lines 6 to 13. In reply, counsel for the NAB – and your Honours will find this at 284 ‑ ‑ ‑

GLEESON J: Just before you go to that, the argument that was put was that the matters were not disclosed in the ASX documents.

MR HUTLEY: Yes, that was one of the things put, and we do not press that any further.

GLEESON J: I see.

MR HUTLEY: But I will come to other matters which were put in due course, your Honour. I am just dealing with what was said, but I accept what your Honour says, of course. Now, if your Honour then goes over, with respect, to 284, now we are dealing with the position taken on behalf of the NAB and, in effect, their position was ‑ ‑ ‑

GORDON J: So, this is submissions being made by Mr Potts, addressed ‑ ‑ ‑

MR HUTLEY: Against Mr Potts at this point.

GLEESON J: This is Mr Giles.

MR HUTLEY: Mr Giles. The response starting from line 18 makes the same pleading point which our learned friends maintain in this appeal, and your Honours will see that in lines 26 to 28, where he says:

Then in paragraph 133, if the matter is pleaded in – and it picks up my case.

That leads to the submission, which we say is misconceived, that:

there is not a proportionate liability defence of the company doing things independently of Messrs Potts and Abboud.

And that is at lines 30 to 32. Now, the other points raised by them concern the principle that a company cannot be a concurrent wrongdoer based upon agency liability. That seems to have been the point of the debate below. At first instance, with respect, the trial judge simply failed to deal with the concurrent wrongdoer defence, namely Dick Smith. That failure was acknowledged by the Court of Appeal at paragraph 450 in their reasons, at core appeal book 443.

Before the Court of Appeal, the argument that the failure to disclose the true position was not a failure only by him but by Dick Smith itself and identified Mr Abboud’s – was not a failure by only him and had identified Mr Abboud’s attendance at 28 April and Ms Puja’s provision of working capital information and answers to questions on excess inventory. Your Honours can see that from the appeal submissions – can I give your Honours a reference, rather than taking your Honours to, which your Honours will find in the further supplementary book of further materials. The submission is at paragraph 63, page 9, and the reply submission at paragraph 26 and 28, and your Honours will find those at the further supplementary book of further materials at page 18. These matters were repeated in oral submissions ‑ ‑ ‑

GLEESON J: Paragraph 63 does not ‑ ‑ ‑

MR HUTLEY: I think, your Honour. Can I take your Honours to that.

GLEESON J: Paragraph 63, yes, I have found it.

MR HUTLEY: Those were dealt with further in oral submissions ‑ ‑ ‑

GORDON J: Just one moment, please.

MR HUTLEY: They were further dealt with in oral submissions, that as for the 28 April meeting in the further supplementary book of further materials, pages 25 to 26, transcript 207, line 17, to 208, line 26. And with respect to Ms Puja, at further supplementary book of further materials page 28, at transcript 210, lines 7 to 15.

Now, the NAB did not engage with those arguments. Its argument on clause 21.1(t) before the Court of Appeal raised a series of different arguments regarding whether Mr Potts could rely on his own misleading conduct, and whether his own misleading conduct was in connection with the syndicated facility agreement, and his failure to prove that other information was itself misleading, or that the NAB relied upon it. Those submissions, your Honours will find at the further supplementary book of further materials page 14, paragraph 57, and our learned friend’s oral submissions can be found at the respondent’s book of further materials page 287, transcript 222 at line 47 going over to page 292. The argument ‑ ‑ ‑

GORDON J: Seventy pages of transcript.

MR HUTLEY: Pages 87 to 92, your Honour. No, 287 to 292. I said it is commenced in the transcript at 222, line 47. I am not going to take your Honours through them. The point is, they do not deal with these arguments. The argument on the substance is at transcript 224, line 24 to 226, line 14, and that is 289 – in the core appeal book, 289 to 291, and, again, it was a debate about their position as to the state of the pleadings, essentially.

Now, can I deal shortly with the position of the Court of Appeal. Now, the Court of Appeal referred to the fact that NAB’s own admission – on NAB’s own admission, it relied upon the representation in 21.1(t), and that is at the Court of Appeal 444 at the core appeal book 442. Can I take your Honours, however, to the dispositive reasoning to the Court of Appeal and you will find that at core appeal book 442. Your Honours will see at 444 at the beginning of that page:

There is no dispute that DSH made those written representations.

Then it refers to the fact that it was “relied upon”. Now, then – but you will find the reasoning with respect to (t) at the centre part of 445, it is about point 5 on the page:

It was not submitted that Mr Potts had identified such documents or information in cross‑examination of the company directors. With respect to subpar (t), there was no evidence that any of the directors (other than Mr Abboud and Mr Potts themselves) had reason to believe that the matters disclosed were otherwise than accurate in all material respects or were, by omission or otherwise, misleading.

Now, with respect, we say that is the whole of the reasoning of the Court of Appeal for rejecting the 21.1(t) reasoning.

GORDON J: It is not quite, is it? It proceeds from a finding in 444 – it might not be a complete answer:

the judge made no finding that, in the first part of 2015, the non‑executive directors and the board generally, breached their duties.

MR HUTLEY: I was going to come to that, your Honour. We say where that is the dispositive reason, what seems to have driven it was your Honour’s observation – that paragraph precisely. And also, that seems to be confirmed by what appears in 446:

No doubt that affirmative case against DSH would have been forensically difficult for Mr Potts to run, given his position –

et cetera:

It was one thing for him to eschew any claim that the liability of DSH turned on his conduct, but it was quite another to claim to have established that DSH had breached its duties with respect to the representations in the Syndicated Facility –

Et cetera, then it goes on. Then it says:

As NAB submitted, there were various documents prepared by other officers of DSH, including Ms Puja, which were supplied to NAB. However, Mr Potts eschewed any claim that any particular officer of DSH had failed in his or her duty.

Now, we say that is where the error lies. It was neither here nor there whether a person had or had not failed in his or her duties – under (t) it was, was the information objectively misleading because of omission. Strictly for (t)’s point of view, it could have been the case even if no one had known the fact.

GORDON J: Can I ask about 447? Is what is in quotes in the last three lines your submission?

MR HUTLEY: To the extent that your Honours find knowledge is significant – our first position is knowledge is not significant, but if it is, we say, by reason of rules of attribution – proper attribution – if Mr Abboud knew and the whole of senior management knew, then the company knew, for the purposes of the representation under (t). It did not have to be in a subset of the board and it did not, quoad Mr Potts, as the Court of Appeal seems to have found, you are entitled to exclude Mr Abboud’s knowledge.

GORDON J: Where do we find that reply, please? Where do we find that reply, again?

MR HUTLEY: I am sorry, which reply? I do apologise.

GORDON J: The one that is referred to in 447 as being – I understand the quote that has been set out there from your reply.

MR HUTLEY: Can I have that turned up, your Honour?

GORDON J: Thank you.

GLEESON J: I think it is in the further supplementary book of further materials, page 18.

GORDON J: Thank you, Justice Gleeson.

MR HUTLEY: I am sorry your Honour, could I just make sure – in our written submission in reply?

GLEESON J: No, no.

MR HUTLEY: I am sorry. I am getting:

For reasons explained . . . It does not follow . . . it must follow –

Sorry, I have got confused, your Honour. To which point are you ‑ ‑ ‑

GORDON J: No, Justice Gleeson is right. I was just discussing with you paragraph 447 of the Court of Appeal’s judgment, which quotes from your reply before the Court of Appeal. When you go to it, which is in the third book of ‑ ‑ ‑

MR HUTLEY: Yes, paragraph 26, yes.

GORDON J: It seems to be – it says in particular, but it seems to be directed at knowledge rather than night‑follows‑day kind of submission.

MR HUTLEY: To the extent that the case was put, remember, this ‑ ‑ ‑

GORDON J: I am trying to work out, what was your case? Was it a knowledge case, or was it a night‑follows‑day case, or was it a ‑ ‑ ‑

MR HUTLEY: Our case was – as I have taken you through – it was misleading and deceptive conduct, and I took your Honour through, and we said – the submission is it followed because it was a fact. But there was a case put against us – and, of course, here one is dealing with some of the other pleadings, paragraphs, of the representation, which do depend on knowledge. Because, remember, (r) depends on knowledge, and (s) depends on knowledge, and (u) depends on knowledge, so one cannot characterise this thing as solely relating to (t). We had made the submission – I have taken your Honours through it – that it is just a representation of fact. The Court of Appeal seems to have taken the view that one had to find some element of fault in some way to engage these paragraphs ‑ ‑ ‑

GORDON J: The reason why I ask is that I do not know that that paragraph of the Court of Appeal’s judgment is actually the right quote, because your submissions on (t) are set out at paragraphs 28, 29, and 30, are they not? Of that document, which is actually consistent, I think, with the way that you have just put it to us. I think the confusion is ‑ ‑ ‑

MR HUTLEY: Can I just say, I am indebted to your Honour, because I had not followed that through exactly. We had never, in effect, departed from the objective test, so the Court of Appeal, in effect, got tied up in questions of knowledge, then with questions of duty, rather than the simple question – the objective question is ‑ ‑ ‑

GORDON J: Which is what you set out at 28, 29, and 30, I think. In that reply.

MR HUTLEY: So, anyway, we say the Court of Appeal, with all due respect, simply departed – never dealt with our case, and the case has not been dealt with.

EDELMAN J: But your submissions at 10b of your oral outline – that cannot be part of your case, can it? Even in an alternative?

MR HUTLEY: Our position is this – because there was a debate, and I think our learned friends put a debate – that it depends on the state of mind. We say that is irrelevant.

EDELMAN J: I understand that. Yes, so the submission at 10b might be directed, had this been an appeal on subparagraph (s) or (u) ‑ ‑ ‑

MR HUTLEY: Quite.

EDELMAN J: ‑ ‑ ‑ then it might be relevant to that, but it cannot be relevant to (t).

MR HUTLEY: But our learned friends still maintain a case and defence that we had to prove matters of knowledge, as we understand it, in some way. All we do is point out the questions of attribution of knowledge are not focused upon non‑executive directors of the board when one asks for representation by a company – particularly in circumstances where the Chief Executive Office – and also a member of the board – at all material times had all the knowledge.

GORDON J: So, what is said in 10 are the errors – that is, they should not have looked at state of mind.

MR HUTLEY: Quite.

GORDON J: They should not have looked at – in either one of historical fact of in the way it is set out in (b). Both of those are errors.

MR HUTLEY: Again, to take up the point that Justice Gordon asked me, we did say at the special leave application, that if that point arose ‑ ‑ ‑

GORDON J: I think it is Justice Gleeson – I know we look alike, but it is Justice Gleeson down that end.

MR HUTLEY: Justice Gleeson, sorry. As Justice Gleeson pointed out, we said at the special leave application, I accept, if state of knowledge does arise, it has looked at the wrong question. It does not, for the reasons of the case of Crowley v Worley. One looks at the company’s knowledge. That was the point. So, we say, that is the second order, and we do not – that is, I think, all we wish to say. I have made our submissions – and we have dealt with the case about attribution of knowledge in our written submission, I do not need to say any more.

As to apportionment, we have made in the debate our submissions in relation to that and we have made further submissions in our written submission at paragraphs 67 and following about the principles about apportionment and some of the aspects of the things we rely upon. But the critical thing to apportionment, one has to appreciate, is the character and the centrality of what might be called this final representation by way of assurance which Dick Smith chose to make. We say that goes, centrally, to the weight and significance. Unless I can be of further assistance ‑ ‑ ‑

GORDON J: Yes, I have one big question.

MR HUTLEY: Certainly, your Honour.

GORDON J: As your pleading sets out, apportionment is a question of just apportionment. To say that you take 66 and 67, as the submissions you have just given to us in a half a minute, is not really very helpful, for me at least, and I speak only for myself.

MR HUTLEY: I am conscious of the fact that the Court may take the view that it is appropriate to return it to the Full Court for that determination, and that was always ‑ ‑ ‑

GORDON J: But is the Full Court in any better position than we are? So that raises a ‑ ‑ ‑

MR HUTLEY: No – well, then I am ‑ ‑ ‑

GORDON J: No, no, I do not ‑ ‑ ‑

MR HUTLEY: I am sorry, if I have been – I was conscious of the time.

GORDON J: No, I am being critical, Mr Hutley, because I do not know that the Court of Appeal could do it.

MR HUTLEY: Well, with respect, often in apportionment cases there is what you might call, on one view a dearth of evidence, but one has an entitlement to it. One has to, in effect, then look to questions of, essentially, responsibility, because that is what the section refers to, and for the loss. We say if you look to the central responsibility, it is what was the representation which consummated this lending? What brought it about? The best way to characterise that is what the Bank sought and required and objectively was going to rely upon to consummate the transaction.

When one looks at the process of communication, which is a process which your Honours will see where communications are going to different people within the Bank, and we may take advantage of that and we say that is exactly what you would expect, what the Bank seeks, as it were, as the price of going forward is a representation in the form of 21.1(t) which the preparedness to make and the ability to audit lies solely with Dick Smith. Dick Smith cannot know about any communication, who it has gone to, from a point of view of reliance, how they have treated it, as a point of view of reliance, or the like.

It is confronted, though, by the Bank as the price of entering into the agreement and thereafter as a warranty saying, you, in effect, audit what you have communicated to us. Is it accurate? Yes. Was it misleading by way of omission at the time? If so, do not make this representation or qualify it.

GORDON J: My issue – and I think I have raised it with you before – is that one cannot just pick up – I do not think one, maybe you can, you might need to address it – (t) on its own without reference to the other representations and work out what was in fact – there is no doubt they relied upon (s), or (t) or (u), but to what extent? Does the information overlap? We have none of that other than “they relied”, and this is a question of apportionment. There may be a dearth of evidence, but usually there is an ability to look at it in the context of the overall evidence to bring about a question of apportionment. We have none of that before us.

MR HUTLEY: Well, with respect, you have the evidence that you have, and you have the common ground between the parties that they relied upon this representation. They did not qualify it in any way.

STEWARD J: I think Justice Gordon’s question is more a case of, they also relied on the other warranties. How are we going to pick a number by reference to what evidence – to what extent does (t) represent a more significant contributor of responsibility to (s) and (u)?

MR HUTLEY: Your Honour, there has been no finding that there has been a breach of (s) or (u), because special leave was not granted with respect to (s) or (u), so one is in the position of, is (t) misleading? If it is, and it has the advantage of being objective, that is the comparison – not hypothetical, with respect, of other possible conduct which is not before the Court. Now, it may have been that were breaches of the other, but your Honours do not have to concerned with that. Therefore, you have
often what one does have with a proportionate liability, that is, one has to, in effect, work out what was, in effect, the degree of responsibility.

EDELMAN J: Would you say that in a case where, for example, liability were to be apportioned between a company director and negligent auditors of the company, that the negligent auditors should bear, usually, the bulk of the responsibility, because they had the last opportunity to prevent any loss that was incurred by a third party?

MR HUTLEY: Your Honour, it can be a question of the way in which one is breached, in a sense, that the auditors may fail to use their professional experience. It would be, in our respectful submission, significant that the directors rely upon the auditors to do that, and that may affect the way they view things. But I am not just putting a last opportunity like contributory negligence thing, but what I am saying is that NAB structured this deal on putting forward what you might call an onerous – saying to him, we want you to make an onerous, potentially onerous, representation; it is a matter for you whether you do it, to enter into this deal.

EDELMAN J: Then we come, if your references to last opportunity are not bearing any of the weight or the bulk of the apportionment argument that you are making, come back to the point that Justice Gordon made to you, which is: how do we know that, or why should we treat, the voltage of the reliance by the Bank as more dependent upon the representation in (t) than upon the conduct of Mr Potts, and specific conscious representations he made to particular officers?

MR HUTLEY: I accept that that is a difficulty, your Honour, but we do have the fact that the Bank sought this as the price. It was important to them – they wanted, in effect, what I called an audit.

EDELMAN J: The questions they asked Mr Potts were presumably fairly important to it as well.

MR HUTLEY: Exactly. I am not saying they are insignificant. I am not saying what Mr Potts says is insignificant, but the Bank, in effect – one asked the question: is it common ground the Bank relied upon it, is it common ground the Bank saw it, common ground the Bank relied upon it in entering into this document. That is the usual sort of material you will have.

GORDON J: But that is not – the inquiry is, let us just take 87CD, which is set out at application book, core appeal book 438. We are being asked to limit it:

to an amount reflecting that proportion of the damage or loss claimed that the court considers just having regard to the extent of the defendant’s responsibility –

Now, as you said in your outline of oral argument, we are talking about comparative culpability here.

MR HUTLEY: I accept that. That is the material that is before your Honour. If one has got to – on the basis of the evidence, if it is a concurrent tortfeasor then the question becomes doing the best the Court can on the evidence before them. What is the comparative culpability? And I cannot put it any higher than I have. I am not saying there is culpability, for example, in the communication by Ms Puja, because that is not the representation. The culpability that has to exist, from my point of view, is the culpability of Dick Smith at the time they made the representation.

GORDON J: Not going back and doing an audit and doing an update?

MR HUTLEY: I accept that the wrongdoing, or otherwise, of Ms Puja – I am looking to the comparative culpability for the representation causing the loss, and the representation is the representation under 21.1(t). I accept that. I have to accept that. What we say is one has got to characterise what has been done there. One is, in effect, putting forward what we have called – you can call them an assurance, or an audit, or what have you. And that is a solemn act. A solemn act sought – not just information provided or offered, a solemn act sought at a point after the antecedent communications.

EDELMAN J: But it is a solemn act involving an error, and it is an error that, on your case, one cannot treat as negligent, one cannot treat as intentional or with knowledge. It is effectively a strict liability-type error.

MR HUTLEY: Can I say the same thing is, with respect to misleading and deceptive conduct, the same for Mr Potts. If Mr Potts had made the representation on behalf of the company, without it knowing any of this, he would still have been guilty of misleading and deceptive conduct. You can say there is a degree of responsibility because he was aware of those facts, but the case – it was a misleading and deceptive conduct case, not a fraud case and not a negligence case.

EDELMAN J: That is true, but for assessing apportionment in a just way under the Act you must surely be able to take into account awareness of the individual.

MR HUTLEY: Can I say I accept that completely. But one can, in effect, take awareness of the fact that the corporation, if awareness comes at an apportionment level, was aware of the O&A policy and the ramping of the profits and excess profits. They were aware of that. The company had made communications. The company could not have been in a position of knowing that it had communicated the deficiency.

EDELMAN J: Well, you will need findings of fact, then.

MR HUTLEY: All I am saying, your Honour, is I accept I have no findings of fact dealing with that, but I have what I have. I cannot go any further than that.

GAGELER J: You would say that if we get to the point of apportionment it is something we just have to do on the available material, and the Court of Appeal, if we sent it to them, would be in no better position than we currently are to make the evaluative judgment.

MR HUTLEY: I accept that, your Honour. I am sorry if I was glib about the submission, I thought we had set out fully the factors because there is only so much I can say, having regard – about relative responsibility. It is the nature of 21.1(t) and I do not have findings of fact of what Dick Smith did by way of audit or not. There is no evidence about it.

EDELMAN J: But we would need to make, or the Court of Appeal would need to make on your case if the matter were sent back, findings of fact to determine, for example, the extent to which knowledge is attributed to the company of the various circumstances, because that then would affect the extent of a relative apportionment.

MR HUTLEY: If it could, but, in our respectful submission, it cannot be doubted that the Bank was aware – the company was aware of, in effect, the objective facts. I mean, that cannot be because Mr Abboud, just putting it at the CEO level, was aware of all those facts. Setting Mr Potts aside, he was aware. So, the company – and we have set out the cases in this Court about attribution of knowledge. There can be no knowledge of that. What I do not have is findings, if your Honours thought they were relevant, as to what efforts were made by the company to, in effect, undertake what we have called an audit. But other than that, I think we have set out all the relevant matters which could bear upon it.

Thank you, your Honours.

GLEESON J: Mr Hutley, I am sorry, one last question. Going back to your further supplementary book of further materials.

MR HUTLEY: Let me just find that, if I might, your Honour. These things get a bit – yes, your Honour.

GLEESON J: Page 14.

MR HUTLEY: Page 14?

GLEESON J: Yes. This is an extract from submissions to the Court of Appeal, I think, from the Bank.

MR HUTLEY: Yes, your Honour.

GLEESON J: At paragraph 57, three‑quarters of the way down, the submission is made that Mr Potts did not:

identify or prove at the trial any other information provided to NAB (other than arising from his own misleading conduct) that was itself misleading.

When I look at the submissions in reply, and I think the relevant paragraph is 28, page 18, that does not seem to be contradicted, but there are references to some numbers which are PS numbers.

MR HUTLEY: Primary submissions, I think that would be, your Honour.

GLEESON J: So that would suggest that those issues had been raised at the first instance.

MR HUTLEY: But, your Honour, our submission was that these were misleading because of omissions. That was our whole submission. Their submission – at 57, et cetera:

By this clause . . . warranted that all information –

If I go back to 57 at page 14 in this book:

was accurate . . . and not misleading. This argument has similar difficulties to the first. It has the same problem that Mr Potts cannot rely on his own misleading conduct, given his disavowal . . . In any event, Mr Potts did not seek to establish at the trial that his

misleading conduct constituted information provided to NAB . . . Nor did he identify –

Et cetera. So, this is concerned with – their whole case was the only case we are running is our information – is Mr Potts’ information. In effect, they kept, with respect, setting up a straw man in the face of the position that Mr Nixon on behalf of Mr Potts was submitting, and that is how we put it, your Honour.

Is there anything further, your Honours?

GAGELER J: I think not.

MR HUTLEY: Thank you, your Honours.

GAGELER J: Mr Walker, thank you.

MR WALKER: May it please your Honours. Your Honours, if you will forgive me I will depart immediately from the order of our outline so as to try and, by way of a kind of opening, summarise our responses to the position, in particular, taken today. In the court below, which is the Court of Appeal, the contest concerned matters, some of which were challenged some of which were not, resulting from the trial. The trial had been held on the basis of the pleadings. The pleadings included the elaborate exchange, by way of a fallback position claiming proportionate liability on part of Mr Potts, which is forensically familiar because it places both parties in what might be called the opposite of their primary position.

It covers, contingently, what may happen depending upon what I will call partial success or failure. There was only partial success by the Bank. The only success was against Mr Potts. The Bank did not sue the company, it has no money. The point about the apportionment from the point of view of those with the financial interest in Mr Potts’ position is, of course, it will reduce what they have to pay from what otherwise be the solitary liability. In the Court of Appeal, the issues concerned, so far as that relatively subsidiary issue in the Court of Appeal, which was proportionate liability, whether or not, otherwise than by reliance upon his own liability, Mr Potts could persuade the Court of Appeal that the trial judge’s summary, but with respect entirely correct disposition of that fallback or subsidiary point, was wrong.

Could I remind you of the way in which the trial judge disposed of that matter, it has been the subject recently of some criticism today. Your Honours will pick it up in the core appeal book at page 236, at paragraph 586. The first sentence, which records what I have just told your Honours, sits oddly with one of the statements my friend has made today. Namely, that their case, that is for proportionate liability and apportionment financially in their favour, is, quote: “not just about Mr Potts”, unquote. It is page 236, paragraph 586. His Honour, that is the trial judge, has been subject to some mild criticism, we understand, for the peremptory nature of what follows:

Consequently –

his Honour said:

the question of apportionment does not arise.

Your Honours will recall that the trial judgment was disposing, mostly unfavourably to us, of cases against a number of persons, including relevantly Mr Abboud, and cases involving a number of persons not themselves sued but because their conduct was said to be attributed to the company. Mr Abboud, in particular, had been exonerated. That meant that a person who might otherwise have met the description of concurrent wrongdoer, for the purpose of the statutory provisions in question, was not held to be a wrongdoer at all.

At this point I need to interpolate something lest we be misunderstood. In the Court of Appeal, and we think still in this Court, your Honours are faced with an issue about the finding, the holding, concerning no proportionate liability, which turns on the way in which the case was determined by the combination of the trial findings and the different findings in our favour in the Court of Appeal, that is the combination of those undisturbed from trial and those which succeeded on appeal. It was only against Mr Potts, relevantly, that the trial judge found, subject to questions of relief that no longer concern this Court could succeed.

It was for those reasons that his Honour had before him, that is at trial, Mr Abboud, Mr Potts, and the company. Three entities, in legal terms, eligible to be considered in a preliminary way as concurrent wrongdoers. Mr Abboud was not a wrongdoer, therefore not available to be considered for the concurrency under the statute anymore. Leaving only the very entity that Mr Abboud and Mr Potts were so senior and so dispositive in their management of it, as without any need for elaborate explanation, to be the entity to which the conduct of Mr Potts was to be attributed.

No one has argued attribution in any way other than what Mr Potts did and, where it was actionable, did not do. So, statement or silence, act or omission, was to be attributed to the company. This was not a case about rogue or maverick officers or servants of a kind that might test attribution. This case never involved that. That is reflected in the form of the pleading, which, as Justice Gageler has pointed out, is contingent with issues being pressed and upon which we rely for the following reason.

The allegation concerning proportionate liability starts with the highly‑significant unmistakable word “if”. It then refers to whether or not there will be matters made out at trial. The pleading looks forward in a familiar form of unexceptionable pleading for a fallback contingent position to say, but if I fail – in that case, if I fail to resist findings of wrongdoing against me, the pleading party, then I say, fallback position, I have something of a nature of either a claim over, in the classic cross‑claim, or, in this case, directly against the otherwise successful party, a diminution of the judgment on account of proportional liability.

GAGELER J: Mr Walker, may I perhaps interrupt you at this point. You have taken us to paragraph 586 of the primary judge’s judgment, and particularly the first sentence. That was the subject of special attention by the Court of Appeal at paragraph 376, where, as I read them, the judges are saying ‑ ‑ ‑

MR WALKER: Could I go directly to that? That is page 416, yes.

GAGELER J: I will leave it to you to address it.

MR WALKER: I am sorry. Your Honours, I really should have done it straight away. I was going to come to it next; it is convenient for me to do it now. There is what I referred to earlier as the criticism. The judge did not expressly address the claim for apportionment. Now, I have described the language as peremptory. The reasoning is perhaps straightforward; I have tried to explain why it is straightforward. There were only three entities, relevantly, giving rise to the possibilities of statutory apportionment.

Their Honours raised some speculations – could I draw to attention the perhaps unfortunate use of the epithet “vicarious” in two sentences further on in the Court of Appeal’s paragraph 376. We are talking about “vicarious” in the sense of the human agent of an incorporeal entity, which can only act through humans. That kind of agency. Agency in perhaps an older, classical sense, not necessarily requiring, in all respects, principal agent relation. But agency, in that sense – that is, that by whom you act – and vicarious, in that sense, rather than, of course in the sense of attribution of liability to somebody who is definitionally not itself a wrongdoer. Rather, this is the case where the attribution means that the corporation, that entity, is a wrongdoer.

Their Honours point out that which is – we think, we hope – still common ground, clearly, that if that is the way in which the company is to be held liable, then there cannot be an application of these statutory provisions to the financial benefit of Mr Potts, who is now no longer merely hypothetically but actually the object of adverse judgment for his wrongdoing.

Their Honours in the Court of Appeal then in paragraph 376 refer to the pleadings to which you have been taken in detail, as well as to the findings of liability. Our first and important point is this: in the respects that we have collected in our written submissions in this Court, and to which I am going to come as noted in our outline, it is clear that the – I will call them – three extra forms of human conduct said to implicate the company are forms of conduct that this Court can look to, so as to say it is, to quote my friend, not just Mr Potts. The difficulty is this: none of those was the subject of findings against us – against those individuals, I should say, of any legal wrong.

EDELMAN J: It does not matter, does it?

MR WALKER: Your Honour, it does matter if – that is a poor start to what I am going to call an attribution so as to make the corporation liable. And it is only a poor start because it cannot be conclusive. Let me explain by a simple and familiar example.

The innocent clerk who narrates what is in a company’s books, which themselves contain something misleading because of someone else’s conduct, is of course not themselves personally going to be subject to any action if, in particular, they are not behaving in trade and commerce in a way that would bring in . . . . . statute. Certainly, there will not be negligence, and obviously there could not be fraud.

In our submission, it is equally clear that attribution to a company – Worley v Crowley is an example that has been mentioned – will normally involve consideration of more than what I am going to call “apical” human mentalities. It will include those which are relevant to the facts in question. It is for those reasons, in our submission, that we have drawn to attention that what the appellant has not done here is show how there was presented to the Court of Appeal, in terms so as to show the Court of Appeal has made an error, some kind of attribution which does not involve Mr Potts to the company of the conduct including – it appears, relevantly, in silence – of others not being Mr Potts so as to produce a liability for the same loss which is necessary as one of the steps in reasoning for the application of the statutory provisions for proportionate liability.

In our submission, this case, had it been run differently in the Court of Appeal, had this issue been posed and factually tested in the Court of Appeal, may, depending upon the outcome in that entirely hypothetical state of affairs, have produced a seriously interesting and important question concerning whether or not the word “independently” in the critical statutory provision can possibly be made out as between A and B, when B is an entity, A is a significant officer of the entity and A’s conduct needs to be attributed to B in order to render B liable.

EDELMAN J: Can I just asks how that works for example, then, in relation to Ms Puja? So, Ms Puja answers questions. Do you dispute that her answers to questions are an act that can be attributed to the company?

MR WALKER: No, of course not. That is why we pleaded back, as we did, with respect to Mr Potts.

EDELMAN J: Her acts are not the acts of Mr Potts.

MR WALKER: No, no, no.

EDELMAN J: So, why, then, is the company – what is the reason why the company, then, cannot be found to have been a separate and independent wrongdoer in respect of the attribution of, say, Ms Puja’s acts?

MR WALKER: First of all, in principle, what your Honour has asked me about is a possibility which, as a matter of straightforward and fundamentally important company law, must be possible. That is the first thing. The second thing is what I will call an overdetermined liability of the company – that is, by several, and each independently sufficient pieces of conduct, acts or omissions of different offices rendering the company liable. But third, in this case, the reason why that no doubt important point does not arise is because the way in which the case was run produced factually – and I stress, factually – given the way in which special leave was sought and obtained did not include findings that was Ms Puja did was, as to herself, misleading and deceptive, or B, that so far as it is to be attributed, the corporation misled the Bank.

You have to have everything, you have to have causation, it has to be causing the same loss. Whereas what you did have, by reason of trial findings as modified, obviously, in the Court of Appeal – what you do have at the end of the Court of Appeal, the thing from which the appeal in this Court is brought, what you do have is a case where the corporate liability to the Bank, necessary to be posited – because obviously it was not held – for the purpose of Mr Potts’ fallback salvage operation is raised upon anything other than Mr Potts’ own conduct.

GAGELER J: Mr Walker, we are told there are three occasions when information was provided, and that on each occasion there was a material omission. Are you saying that one or more of those three occasions were occasions when it was not the company that provided the information?

MR WALKER: No, we have never taken that position. That was why we pleaded as we did. Of course, we admitted that if, among the kaleidoscope of permutations in the cross‑references, if Mr Potts engaged in alleged conduct then DSH, et cetera, would be in the position necessary to reach the first stage of concurrent wrongdoer. Of course, we then went on and say, but that would be by reason of matters, including attribution, agency, which means the statutory provisions will not be available. So, far from seeking to evade attribution, we embraced it.

GAGELER J: I am just wondering, specifically, what are the facts we are missing, in your submission? What are the facts upon which Mr Hutley relies ‑ ‑ ‑

MR WALKER: Right now.

GAGELER J: ‑ ‑ ‑ that are missing?

MR WALKER: There are at least two subject areas. They are distinct, though related. With respect to causation of loss by wrongdoing on the part of somebody who can be described as a concurrent wrongdoer, in this case the company – it has to be the company, that is the only one from whom it is sought – there are not the facts. By that I include, there are not findings in his favour at trial, undisturbed on the Court of Appeal, and, I stress, this is not an appeal in which any of them is challenged, nor is there an omission, that is, a wrongful omission, by a judge or a court to make findings of fact invited to be made, and material.

Again, this appeal is not brought by special leave permitting any of that to be done – indeed, an assurance that none of that was in play – which would show that it was, other than by Mr Potts’ conduct, attributed to the company that the company committed a wrong, an actionable wrong, against the Bank.

Now, I have to come back – this is not part of my answer to Justice Gageler’s question – but can I note in this connection, it is important to recall the way in which the company’s wrong was pleaded, that is, by entering into, that is, agreeing to give, the warranty – the 21.1(t) warranty. I will just flag that is significant for some of the matters I have just said. Coming back to finish my answer to Justice Gageler, it is this. That what we do not find anywhere, because of the combined approach taken in the courts below, without any shortcoming on their part, is an explanation of how, without turning one’s mind to and considering centrally the role of Mr Potts, the company committed any actionable wrong against the Bank.

Now, as it happens, even as recently as the outline in this Court for the appellant, Mr Potts is scarcely answered in respects upon which I am going to return. But, in our submission, it is clear from the findings in the courts below, and it is clear from the attempt to add extras other than Mr Potts on the part of him now, that there never have been findings below that, without Mr Potts, the company was liable.

And hence the pleading, because the pleading by Mr Potts in his fallback position, starting with the word “if”, looked forward to an outcome which included, not confined to, but included the centrally important allegations against, as it happens, Messrs Abboud and Potts. And so, what we do not have is findings and facts attributing non-Mr Potts conduct to the company, leading to a state of affairs upon which the Bank relied so as to produce actionable loss caused by that non-Mr Potts route. That is my answer.

GORDON J: I know after lunch you will probably deal with this, but could you just, over lunch, think about how that sits with all of the facts we were taken to at the very outset of Mr Hutley’s submissions? He took us though findings which were made, consistent with your observation that these people were not sued but they were in effect relevant players in the facts. And he took us though at the beginning a number of facts including, just to pick one, that Justice Ball had found at paragraph 411 that it was a likelihood that the emails he had taken us to reflected discussions within the company, including within – I think it was called management or senior management. I would be grateful after lunch if you could just identify whether what you have just put to us sits with those or what we do with those facts.

MR WALKER: Yes.

GAGELER J: We will take the luncheon adjournment at this stage.

AT 12.50 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.14 PM:

MR WALKER: Can I conclude my answer to Justice Gageler’s question about factual questions outstanding in a way that, we submit, defeats the appellant, given the terms of special leave? What might be called the quarantining point – or to pick up my learned friend’s expression this morning – the need to advance on the part of the appellant, the case that does not rely on Mr Potts’ conduct, could we point out that, no doubt because of the pleadings which had Mr Potts at their heart, there are no findings – so putting aside anything Mr Potts did – conduct attributed to Dick Smith Holdings was such as likely to induce the Bank into error, let alone that the Bank did rely on such conduct, let alone that the Bank suffered loss by any such conduct. Without that, of course, there are missing essential premises for any proportionate liability claim.

Indeed, for the reasons I will come to in a moment, their opposite findings – not challenged in this Court, where there are no findings of fact to be challenged and subject to recent developments, none to be made, for the first time – the three pieces of information, so called, relied upon in an attempt to quarantine the liability of the company, apart from that which comes from the attribution to it of Mr Potts’ conduct, are the subject of – as to two of them, as to opposite findings. As to the third, Ms Puja, to whom I will come, there are no findings because she was not conjured up by the pleadings, being the reflexive pleadings upon which the appellant had to rely.

GLEESON J: Mr Walker, assist me if at some point you would address any significance in paragraph 86 of the third – your commercial list statement, third amended commercial list statement, which refers to the provision of information on 28 April 2015, but which does not appear to be picked up in paragraph 133 of the response – it is page 92 of the book of further materials.

MR WALKER: Is your Honour referring on page 92 to the part headed the “The Claim by NAB” commencing in paragraph 85?

GLEESON J: Well, in paragraph 86 there is a pleading that “Abboud and Potts provided information”.

MR WALKER: Yes.

GLEESON J: But that provision of information is not picked up in the paragraphs that are referred to in 133 as something demonstrating contravention of 21.1(t).

MR WALKER: No doubt, but what matters, of course, is not so much what I will call that preliminary meeting where there are findings of fact that are not open for challenge in this court. Nothing said then was misleading.

GLEESON J: But the point that I am trying to address is that if the case that was run below was that that provision of information involved an omission in contravention of 21.1(t) ‑ ‑ ‑

MR WALKER: Quite, it would need to have been picked up in the pleading upon which they were reliant.

GLEESON J: ‑ ‑ ‑ one might have thought ‑ ‑ ‑

MR WALKER: No, you are quite right, your Honour. Yes, that is right, 28 April goes out for a number of reasons, one of which is what you have just noted. While on those two pages of the pleading, at page 93 of the book in paragraph 90, of course, one sees commencing the pleading of the very important involvement of Mr Potts on 6 May, which was, of course, the basis of the finding by which he was liable, without which, in our submission, it is utterly unrealistic to suppose the company could be liable.

That is why, in continuing the answer concerning what facts are missing, we emphasise there are just no facts found which would give rise to actionable conduct; “actionable” in the sense that it was not only in breach of a legal standard pleaded and adjudicated, but it also was relied upon as factual causation so as to cause loss, so as to present a cause of action for which there could then be a question of proportionate liability. So, they are not here, and they cannot be obtained in the case, limited as it was originally by the pleadings, and then by the forensic occurrences including our success only against Mr Potts, and only on the basis of the identified misleading statements, particularly on 6 May.

It is to be remembered that there are findings that he well knew, no doubt because he was either the or one of the only true begetters of it. He knew about this, what I will call, rort in relation to the accounts and stock, something which was held against him by reason of the need in the circumstances when asked about what was being done concerning that which was revealed by the management account that he failed to reveal that which should have been revealed, thereby committing a contravention of the requirements as to misleading and deceptive conduct.

My friend has raised, in relation to liability of the company, and with respect, in particular, to the involvement of persons other than Mr Potts, that liability of the corporation may come about by an omission when one puts together what the company, as a company, with its composite mentality, knew, compared with a message conveyed, including by its silence, by a person otherwise innocent. Now, we say, in any event that is not within pleadings and is not the subject of any findings of fact – would require findings of fact which is beyond the nature of this appeal.

In our submission, bearing in mind in particular what happened on 6 May, where the Bank was given, in effect, a cock‑and‑bull story about what was in hand concerning this excessive inventory, and why it had happened, and how it would be dealt with, et cetera, it is impossible to divorce, quarantine, factually the reliance by the Bank to its consequential loss on conduct of the company by reason of shortcomings of Mr Potts, acting as the company’s officer, of course, and being its human emanation for the purpose of 6 May in the course of that wrongdoing.

Now, we know, because it is common ground, that Mr Potts’ conduct attributed to the corporation cannot be the basis – or that is, excludes the possibility of any proportionate liability in his favour by visiting concurrent wrongdoer liability upon the company. In our submission, there is a high artificiality then when one considers as what the Court of Appeal regarded as posing a forensic difficulty – to put it mildly – for somebody in Mr Potts’ position, who had spent most of the case saying, I did no wrong, and then has to turn around – as one does in a fallback position – to say, but if I did, so did someone else.

The someone else, being the company, in our submission, cannot be shown from the record – starting with the pleadings, going through both courts below, cannot be shown to have committed a wrong otherwise than by a narrative of conduct which centrally includes – on one view of it, solely includes – Mr Potts. Now, I will come back to Mr Abboud, to whom I have made references earlier. The next and most ‑ ‑ ‑

EDELMAN J: The question is not really whether the narrative includes Mr Potts but whether or not the omission is independent of Mr Potts.

MR WALKER: You are right. I was speaking loosely. Rather than narrative, I mean otherwise than by a demonstration of facts and liabilities following from those facts involving what Mr Potts knew, did and did not do.

GORDON J: That raises the question I asked you just before the luncheon break, because the facts which Mr Hutley relied upon in that context this morning seemed to be facts which were independent of Mr Potts. In other words, there is ‑ ‑ ‑

MR WALKER: I am going to come to them in just a moment your Honour, yes. I am sorry, did I cut you off wrongfully?

GORDON J: I am so sorry.

MR WALKER: I am sorry, I did not mean to cut your Honour off.

GORDON J: No, that is fine.

MR WALKER: I apprehend that is why your Honour asked me about those, and I will be coming to them. But I should say, with respect to them and to everything else in the case, it is just not possible to divorce the company’s liability for the purposes of proportionate liability from the position in which it was placed by reason of Mr Potts’ conduct. And it is not really unofficial, it is contrary to the facts to regard Mr Potts’ conduct as immaterial to the position of the company.

EDELMAN J: So that is really then a submission that, assuming that everything had been pleaded in relation to Ms Puja, and assuming that all submissions had been made in relation to her, that the company could not be liable as a concurrent wrongdoer based on any attribution of an omission by Ms Puja because it is not independent of conduct by Mr Potts.

MR WALKER: Yes. It is not just of Mr Potts. It would not then be independent of the company, either. My point is this: there is no pleading about Ms Puja’s conduct being attributed to the company in the reflexive pleading seeking proportionate liability, so that the only pleading – the pleadings have to be cut back according to how we fared at trial. Those are pleadings that were made before we failed on everything except Mr Potts. In our submission, you are left only with Potts because it is if – and to the extent that certain things are established, well, that was Potts.

Our point is, quite simply, that you cannot, without calling in aid Mr Potts, point to that liability against the company which clearly flows, as we admitted, from attribution to the company of Mr Potts’ misdoings. You cannot divorce that in the way necessary so as to satisfy the requirement of independence of liability and causation in the statute to which I am about to come.

GAGELER J: That is why you say the primary judge was correct in spending one sentence on this matter.

MR WALKER: That is right. Because if it really was that straightforward, once you got rid of Mr Abboud – who, for some reason – the plurality of Mr Abboud and Mr Potts obviously presented a possibility. As to Ms Puja, let me make this clear. Of course, Ms Puja’s conduct could be attributed to the company. It would have to be attributed to the company. That follows as night follows day. But it was not the subject of a pleading which was reflected in the contingent cut‑back version which was the issue before his Honour. It became ‑ ‑ ‑

GORDON J: Is that the same answer to the facts that Mr Hutley identified this morning? So, when he talks about ‑ ‑ ‑

MR WALKER: That is part of it, yes. I am going to say more specifically about them, but yes.

GORDON J: So that when Mr Borg writes the emails which attributes knowledge to a number of officers within it, again not pleaded for attribution purposes.

MR WALKER: Yes, and not – yes, and ‑ ‑ ‑

GORDON J: Not subject of a finding of either breach of duty or ‑ ‑ ‑

MR WALKER: Reliance, causation.

GORDON J: ‑ ‑ ‑ misconduct or – and then reliance, et cetera.

MR WALKER: Yes, all of that, all of that. As you know, it was found in a passage to which apropos Justice Edelman’s question to my friend, it was – excuse me, your Honours, I have lost a note – it was found at – I am going to draw attention to the trial judge’s conclusion to his Honour’s paragraph 574 in the core book at 231. In particular, I draw to attention the last sentence, apropos something my friend said when Justice Edelman asked about a no‑transaction analysis, and this cuts across something that we have written. I need to draw to attention that that last sentence, which concludes:

it would not have agreed to participate in the syndicate with HSBC.

rather suggests, as my friend suggests, the award of damages or compensation shows that a no‑transaction analysis was operating, but, for my present purposes, 574 shows how all of that flows from NAB’s reliance on Mr Potts’ conduct. My point is that what we do not have – bearing in mind the significance of Mr Potts’ conduct in the context to which I am about to come, what we do not have are necessary findings of facts to create now, artificially in light of what is conceded as required by the statute for proportionate liability, any way of showing that the Bank was liable for the same liability without the ‑ ‑ ‑

GLEESON J: The company.

MR WALKER: Yes, the company. The Bank is liable, but I hope only for fees. The Bank was – the company was liable on account of anything other than what was found with respect to Mr Potts.

EDELMAN J: Would it have been a sufficient pleading if paragraph 133(a)(ii), which says:

all information . . . provided by DSH or on its behalf –

in brackets: by agents, or by agents including Ms Puja, Mr Potts, and Mr Abboud. Just in relation to the pleading point. Is your pleading point that it is the failure to mention Mr Potts’ and Mr Abboud’s names specifically in brackets after “on its behalf”.

MR WALKER: It is not so much in (a)(ii), which is really, as you know, just reciting the warranty, as in the detailed pleadings that you find in the chapeau, so called, of 133; the first words.

EDELMAN J: It is the “paragraphs 17”, “28 to 42”, and so on, that there is no reference in there ‑ ‑ ‑

MR WALKER: To Ms Puja.

EDELMAN J: ‑ ‑ ‑ in any of those paragraphs to any specific action by an agent of the company.

MR WALKER: There is. Mr Potts.

EDELMAN J: Yes, other than Mr Potts.

MR WALKER: That is my point. Sorry, there is Abboud, but I need to come to Abboud as the peremptory dismissal of the apportionment claim by the trial judge showed. He, if I may use this expression, was acquitted; that he was out of it. It was never run below that though the judge had done that with Mr Abboud nonetheless the company could be liable by attribution to the company of Mr Abboud’s conduct rendering the company liable. Whether or not that was open as a matter of principle need not be debated, and is not the subject of special leave, but it was not done. That is just a particular, along with Ms Puja, of the missing facts. The facts that were not found, indeed we do not think were sought and cannot be sought here now, in relation to roots other than through Mr Potts by which the company could be held liable.

The other important aspect of facts not found, the second class that I refer to in beginning my answer to Justice Gageler, has been the subject after some inquiries by your Honours to my friend. There is most obviously, lacking in the record before this Court, or the record generally, anything other than what our friends have written, and the references in it, to what we submit would be a necessary comprehensive, as well as nuanced, considerations and conclusions to be reached by the Court determining it concerning what our friends understandably called, going from the statute, comparative culpability. In our submission, that which is just given the respective responsibility of the putative persons proportionally liable obviously depends upon findings of fact, which in this case obviously could not leave out Mr Potts’ conduct.

And there – though we may agree for many purposes with what our friends have argued strenuously about the irrelevance of knowledge to many a case of misleading and deceptive conduct, there, of course, knowledge will obviously be important. The statute itself shows the significance of knowledge because it says of two kinds of knowledge, namely intention, intentional harm – this is 87CC(1)(a) and (b), or fraudulent harm, both of which involve states of mind, and knowledge, obviously, of likely consequences. Those are excluded from the scheme altogether.

In our submission, the spectrum available with respect to negligence will include, of course, short of fraud, cases where what you knew should have made you do something differently so as to avoid foreseeable loss to another. Obviously, in a case like that, there will be, obviously, a decision to be made concerning the comparative culpability, perhaps the cause or potency, et cetera, of the hypothetically parallel liabilities of two, that is concurrent wrongdoers, for the purposes of this scheme.

Now, in the event your Honours ever got there – we say you would not, but if you ever got there and there was a contest between the company, liable only because of Mr Potts’ delinquency, then his knowledge, which we do not need to catalogue, the submissions contain sufficient references to the fact that he well knew about this method of effecting, to put it euphemistically, the accounts by reason of having too much inventory; the rebates exercise. He knowing that, in our submission, means that it would be a travesty to suppose that the company, because of his wrongdoing, is to be treated as, as we understand the primary argument from our friends concerning apportionment, equally liable.

EDELMAN J: Unless, I suppose, you were to say that the company’s liability was dependent on attribution of knowledge by Ms Puja or Mr Abboud or other officers, which we did not really have in the case.

MR WALKER: That is precisely our point about the significance of attribution which we do not challenge as it would have followed, and the significance of what is pleaded, and the significance of what is proved and found. We are, after all, in the High Court.

GORDON J: Sorry, can I just clean off that. At the top of core appeal book 443 – I think I had misunderstood that paragraph. Is that, in effect, what you have just put to us compressed in the last two sentences?

MR WALKER: Very compressed, and I have tried to add more than that. It is not simply a matter of eschewing any claim that any particular officer had failed in his or her duty, it is also eschewing a claim that the company is in breach because of.

GORDON J: That is why I am putting to you.

MR WALKER: Yes, it is very compressed.

GORDON J: In a sense, is that what that is directed at, this is paragraph 446 of the ‑ ‑ ‑

MR WALKER: Yes, your Honour. Yes. And so, in our submission, the whole of the appellant’s stance before you concerning these matters, both as to what we submit is the factual infirmity of the appeal, not least because of the way in which special leave was sought, but also because there simply is not the factual record, in particular concerning reliance, that comes anywhere near making out causation of the same loss. I stress, this spills over to – it is separate but related, to the question of comparative culpability, which in our submission, neither this Court nor the Court of Appeal should be a forum in which the appellant gets, as it were, a second, might be a third, go at things. That is not what an appeal is for, with respect.

GORDON J: So, your submission is that it fails in the sense that the exercise, which is required by reference to comparative culpability, including the need to justly allocate responsibility, in effect, shows up the lack of material available in order to undertake that task.

MR WALKER: Yes.

GORDON J: And that then raises, as I understand your submission, as a matter of principle, the two categories of evidence that you have identified. That is, the two omissions that you have given in answer to Justice Gageler.

MR WALKER: Yes, that is right. As to the references Justice Gordon has raised, and using the passages in the trial judge’s reasons, 411, that is in the book at 164, refers to some Mr Borg emails “sent to or copied to Mr Abboud and Mr Potts”. Yes, there is a finding there that they reflect discussions, but what there is not is any finding there concerning anything which was, to use a very broad expression, nefarious. And 412 would rather seem to be the contrary of that.

GORDON J: First of all, there is no attribution as well. Do you not go on to add to that?

MR WALKER: Well, we can also say this is not the subject of appeal. I think on both sides there was, if I may say so, a kind of 18th century duellist stance taken that we would, all of us, hold each other to our pleadings strictly, whatever that may mean. That is not really my point. My point is that here we are in the High Court, pursuant to special leave, and it is simply making a case out of whole cloth for these things now to be resurrected because of the need, in principle and understandable and correct perception of things, to avoid implicating Mr Potts.

GAGELER J: And when did that emerge, Mr Walker? Was that only in the Court of Appeal that that became clear?

GORDON J: Sorry, I missed what you just ‑ ‑ ‑

MR WALKER: I have no recollection. It would be an utter pretence for me to remember. I do recall that our matters concerning what I would call attribution and proportionate liability were obviously argued, or others were arguing it here, I apprehend Justice Gageler is asking me more about when might one see our opponents trying to distance themselves from Mr Potts. I cannot date that; I have a feeling it is in this Court. That is not a complaint by us.

GAGELER J: I was thinking more of the acceptance recorded by the Court of Appeal at paragraph 442, which is common ground in this Court.

MR WALKER: It is.

GAGELER J: I was just wondering ‑ ‑ ‑

MR WALKER: It is acceptance of a thing that might have been very interesting. Look, I have to say I do not recall the conflict in the Court of Appeal having been eased by any such concession; but I am not complaining about things having happened thereafter.

GAGELER J: But was that a concession before the trial judge?

MR WALKER: Not that I can recall, but I was not there.

GAGELER J: It is inconsistent with the pleading as you portray the pleading, I think.

MR WALKER: Yes, it is inconsistent with their pleading, because we took the position, paragraph 10 of the reply, which made it clear that everything they said we cheerfully admitted. Of course, all that would be attributed to us, and then said, in effect, cadit quaestio; it cannot be proportionate liability because of.

EDELMAN J: But no one was challenging Tomasetti v Brailey or Robinson v 470 or any of those cases.

MR WALKER: No. So, we are not suggesting that there was heresy being committed concerning proportionate liability by the person whose conduct was the reason why, what I will call, their company was liable, which, if I may say so, would be a bit cheeky and scarcely consistent with what justice would be required. I am not complaining about or even claiming to detect any change of position, but in answer to Justice Gageler I think it has really become most contested in this Court, no doubt because all sorts of other things have fallen away.

EDELMAN J: But you are raising a related issue, which is accepting the common ground that the notion of independence that is required for proportionate liability of concurrent wrongdoers does not extend to liability based upon agency. You extend that to circumstances where the agent is not the wrongdoer themselves, or the principal wrongdoer themselves, but somebody whose conduct is caught up with, associated with, sufficiently involved in the narrative of that wrongdoer, here Mr Potts.

MR WALKER: I do not think that we are extending anything. We are responding to an argument which is focused by the appellant here, where they try to sidestep Mr Potts.

EDELMAN J: But as I understand, your submission is that you cannot sidestep Mr Potts, even though it is a different person like Ms Puja or Mr Abboud that is involved, because Mr Potts is central to the whole idea. So, in that sense, you are extending the limit.

MR WALKER: As a matter of argument concerning what “independently” means we do say that this is a case which, had there been the findings of fact that I have said there are not, may have been a vehicle to test the question whether A, B and C officers, rendering by attribution or agency, D, the corporation liable for their own wrongs, mean that none of A, B or C can claim against D for proportionate liability, even though each of A, B and C severally and sufficiently made D liable. Now, I am sorry to make it sound like algebra, but that was not, in fact, the way in which things were analysed because by the time we had the finding against Mr Potts only, the case against Mr Potts only, it was a relatively straightforward proposition, hence the judge’s, if I may say so, only slightly tongue‑in‑cheek, admirably concise disposition of it.

One other aspect of what Justice Gordon raised with us – if you look at the overstocking circumstances that you find referred to by the trial judge at 471, 472, pages 192 to 193 – the fact of there being overstocking was – for the reasons his Honour spells out in responding to the argument quoted in 471 – nowhere near enough to show that there was misleading by omission or otherwise. Anyhow, if I may say so – sauce for the goose – the argument would appear to require something in the nature of the knowledge that our friends otherwise say is somehow irrelevant for it to go anywhere. It is for those reasons that, no, the way in which our friend opened the appeal is not one which, in our submission, gives rise to any cause properly within the remit of this Court, to doubt the correctness of the outcome and reasons in the Court of Appeal.

Your Honours, may I then pick up, so as, as it were, to collect and advance the course of argument according to our outline – much of which has already been covered. Could I remind your Honours that it is not merely an artifact of the special leave order by which 21.1(t) is the focus of interest in this Court. It is an aspect of the way in which the case was decided and the extent to which factual material otherwise inappropriate for special leave might otherwise have been called up.

It is to be remembered that if you – conveniently you will find it in the Court of Appeal’s paragraph 443, at the book, page 441 – it is to be recalled that the case advanced under (s), (t) and (u) succeeded only with respect to (t) and only with respect to Mr Potts, in particular, at 6 May, out‑and‑out misleading, concerning how these matters of overstocking were being dealt with. But you cannot leave (s) and (u) aside. We know (u) cannot be left aside because of the words in parentheses beginning (t):

(excluding financial projections, estimates and forecasts) –

which you will find is the subject matter of (u). There is not a case of that now in terms of findings and conclusions. But (s) is equally important, because (s) is the full disclosure point and (s) is the companion to (t)’s reference to:

all information . . . provided –

having certain qualities to which I will come in a moment. It has parted with (s), which is not so much concerned with information provided as omissions from it.

STEWARD J: Do you really say, Mr Walker, that Mr Hutley is trying to fit his case into (t), which would have been more aptly raised under (s) but for its knowledge limitations?

MR WALKER: Yes, emphatically.

STEWARD J: That is what it really comes down to. So, when it talks about omissions in (t), to take the line item of the inventory that we saw this morning, you are talking about an omission which would make one of those figures inaccurate.

MR WALKER: Yes.

STEWARD J: It is about accuracy of information.

MR WALKER: Yes, and your Honour anticipates me. The next point I wanted to make briefly concerning (t) is this, and it has two limbs, as everyone agrees. They are temporally distinguished. One asks a question as at the date of the document, being the financing agreement, and the other is about the date when information was provided. It is a statement about things that have happened, leaving aside the parentheses, which do not matter, it is a thing about something that has happened by way of provision of information previous to the warranty coming into effect.

So, it is talking about the past. It is not conveying information itself, it is talking about previous conveying of information. It is making a statement about that by way of a promise. Now, we accept it is also representational, hence the cause of action. That is not in issue. In our submission, to continue my answer to Justice Steward, yes, (t) is asking about information provided – that is the participle – and its accuracy, and it, that is, the information provided, not being misleading by omission or otherwise in any material respect at the date provided.

In our submission, that is why, when you come to the three kinds of conduct in question, it narrows relatively clearly. We know that there is, by the appellant here, reliance in order to make the company liable on the information provided by Messrs Abboud and Potts – this is at outline 12 – at the 28 April 2015 meeting. But as we note and try to capture in outline 13, the trial judge rejected the case that what they had said and not said at that meeting was misleading, and your Honours are familiar with the milieu of that meeting and the nature of it and of the persons to whom statements were being made. In fact, it would appear that it is accepted, if you look at our friend’s submissions at paragraph 47, that what he said was not misleading.

That means, with respect, that the relevant component of 21.1(t) is not engaged, we think, and what your Honours cannot see is how one overcomes the – now surely concurrent – findings of fact. But bearing in mind the nature of that meeting – preliminary, et cetera – information neither conveyed nor could have been understood nor was understood as amounting to by omission the misleading statement, the misleading failure, to reveal the genesis of the overstocking; 28 April just falls away on that account. The second one was the provision of the accounts.

GORDON J: Management accounts?

MR WALKER: Management accounts. Your Honours were actually taken to them, I do not need to take you back to them. They are figures. It is not said that the figures are wrong. At most, we now have the proposition – rejected by the courts below – that the figures were misleading because they were not accompanied by what might be called a stern auditor’s note – the company including its own note to the effect that this figure has gone up – and it had gone up, that was accurate – and, by the way, you want to know, dig here, you should ask questions about this – it was misleading on that account.

That would go nowhere because they did ask questions on account of that. It did not mislead anyone. That cannot be shown to have caused the same loss so as to give rise to – on it – on that account, anything to do with proportionate liability. Of course, if the estimate of the worth of stock, or whatever, was in play, then it would be 21.1(u), and outside the scope of a possible case. There simply are no facts found, in short, concerning the actionability of the provision of management accounts.

Now, your Honours know, that though Mr Potts provided them, our learned friends seek to overcome that by pointing out – which is correct – that the trial judge found that in providing them he was, in the jargon, acting in a purely ministerial way – he was not adding anything about the accounts, he was just handing them over. If that makes any difference – which we doubt as a matter of principle – what has to be said is, what you do not find is any finding of fact concerning anything wrong in those accounts. In our submission, the courts below are plainly correct in saying those are not accounts which when merely ministerially handed over would be misleading unless they were accompanied by an explanation of – and they single out one thing – one would ask, why not make explanation of everything else as well.

It is for those reasons that the management accounts – the second of the three – falls away. Then that leaves the one about which I have already said a bit, that is, the hapless Ms Puja – the third one. In our submission, as you can see from the way in which it is put in paragraph 53 of the submissions against us in this Court, nothing in what she said was inaccurate. It cannot be shown and there are no findings of fact which would support the proposition that it was a failure to add something which made it inaccurate.

In any event, in our submission, as you will see from the emails to which you have been taken, the inquiries were not such as to call from her on that occasion for any further going into the matters concerning that which was of obvious concern to the Bank – hence their inquiries directly to Mr Potts, and hence the significance for his liability and thus, by attribution, the company’s liability for what was not revealed concerning the circumstances which would put the lie to the notion that everything was in hand – that was being dealt with by orthodox trading.

Now, your Honours, I need to draw to attention that quite apart from those three that I have identified as being what we understand to be those which were said not to be Mr Potts’, relevantly – and they really will not stand scrutiny – in the Court of Appeal – and you will find the written submissions on this point, and that is in the appellant’s further supplementary book of further material. On its page 9, in paragraphs 63 and 64 of the written argument for Mr Potts below on this point, you find this:

the failure . . . was a failure not only on the part of Mr Potts –

I cannot help but interpolate, to note the concession:

but on the part of DSH itself.

Well, yes, that is attribution – and then – and here is the, as it were, embryonic quarantining – though not in terms:

Mr Potts was not the only officer . . . who was dealing with –

the Bank – and then, there are examples raised, and it is not proposed from anything your Honours have that those are not exhaustive examples and there is gold somewhere else. So, at that point – and you will see a resemblance, not complete, between those four and the three to which I have been referring.

You have Mr Abboud – and that is amply dealt with by the non‑actionability of 28 April. You have Mr Shroff – about whom, with respect, you have not heard a lot, and one can understand that, particularly given that we are now talking about (t) only and it was referring to projections. Then, we have (c), Ms Puja, to whom I have already addressed my remarks, and then, finally, the reference to some times during which the finance manager had lengthy meetings. In our submissions, none of that comes anywhere near to either seeking, let alone obtaining, factual findings that quarantined that which was attributable, or attributed, to the company by reason of Mr Potts’ conduct so as to show that the company was liable to the Bank otherwise than on account of Mr Potts’ conduct.

We try to draw all of that together – this is 10 in our outline – by going to the statute – if I can intrude the statutory provision into the argument for the first time. Your Honours, what might be infelicities in drafting are of no impediment to an understanding in this case, given the issues in this case. If one, first of all, goes to the definitions – the governing definitions in 87CB – we can see why – according to subsection (3) – the company is, obviously, a candidate to be a “concurrent wrongdoer”, bearing in mind our admission that, via attribution to it of, as it happens, Mr Potts’ misconduct, it would be so characterised. It is, however, only a candidate because then there arises the question as to whether or not that is:

a person . . . whose acts or omissions . . . caused, independently of –

in this case, Mr Potts:

the damage or loss that is the subject of the claim.

That is the only way it can work. It makes sense, bearing in mind what follows – in particular in 87CD(1)(a), the engine room of the scheme – what the court considers just having regard to the extent of the defendant’s responsibility for the damage or loss. It is, in a case of attribution to a corporation of a human act as misconduct, a large thing to say that the company is responsible for that which the other person – that is, the other wrongdoer – did because the other person’s actions are the actions of the company. A company does not stand apart from its human actors in relation to the conduct in question; it stands apart in terms of legal personality.

In our submission, the reference to “just” and “responsibility” in the particular context of the corporation and the attribution to it of a concurrent wrongdoer’s misconduct must obviously start with the proposition that it seems odd that you would even ask that question, and we do not ask the question because what possible meaning can the word “independently” have in the governing definitional provision if it does not require some greater separation of function and legal consequences than exists in the case of a person whose misconduct is attributed to the corporation?

We have noted that 87CI deals with vicarious liability. That is a quite distinct and different aspect of the scheme. It does not have any direct bearing on the argument in this case. I draw it to attention in order to emphasise that, though the word “vicarious” has been used particularly by the Court of Appeal in its reasons in a particular way, it is not vicarious liability in the way that expression is used in 87CI, which is a Schokman common law concept.

Could I take your Honours now, please, to the core book 442 at paragraph 445. I appreciate your Honours are familiar with it. Against one of the arguments my friend advanced with respect to it, could I just note that 445, as you will see by the reference halfway down, does refer to paragraph (t):

no evidence that any of the directors . . . had reason to believe . . . Nor was there any finding in respect of subpar (u) –

So, it covers the gamut. So, (s) is covered by the first sentence:

“reasonably considered . . . to be material –

et cetera; (t) is dealt with, (u) is dealt with. There is, with respect, no error shown by the Court of Appeal in responding to what it apprehended to be the arguments before it. This is not a failure to decide, or constructive denial of procedural fairness point at all. Then, in 446, their Honours note the dilemma that everybody with what I will call opposite fallback positions is placed in and that is the meaning elaborated of the reference in the last sentence of 446, to which I have already made reference in response to Justice Gordon. I am at a loss entirely to explicate all the words in 447, in particular the brief second sentence commencing:

For reasons explains above –

I will not linger on, but it is correct, the next sentence:

It does not follow that “if Mr Potts is liable to NAB . . . , it must follow that –

matters are true which are plainly intended to convey that so is the company liable. That is the only purpose of making that commentary. That is because, as we have always pleaded and argued, it simply will not be enough to point to Mr Potts being a different legal person from the company and say, there you are, you have your concurrent wrongdoers when you only get there because of something which is, to put it by way of massive understatement, not an independent means of liability on the part of the corporation; that is, independent of Mr Potts.

GAGELER J: Why is the Court of Appeal in that sentence focusing on the knowledge of the company?

MR WALKER: I do not know, your Honour, and there are a couple of ‑ ‑ ‑

GORDON J: Do you accept what I put to Mr Hutley, that it seems that they were looking at the – they were looking at (s) at that time and that quote sits in those paragraphs of the submissions dealing with paragraph (s) and not (t)?

MR WALKER: Yes. Those submissions start by referring to all of them and then it goes through them.

GORDON J: It then goes through them seriatim.

MR WALKER: Yes.

GORDON J: Yes.

MR WALKER: So, the proper answer to Justice Gageler is because that is what they were responding to, but that is not an entirely satisfying explanation of how it fits logically, no.

GAGELER J: Similarly, with the reference to knowledge or belief, reason to believe, in 445 ‑ ‑ ‑

MR WALKER: Absolutely, no, no. But those are not, in our submission, errors that have misled the Court of Appeal to make error concerning the possible application or, we say, the lack of any possible application of these provisions.

GAGELER J: Well, you would say they could have stopped with the first sentence of paragraph 445, I suppose.

MR WALKER: Absolutely. Your Honour has tempted me to reduce the Court of Appeal reasons to a very few sentences indeed. That is a nirvana that I will not achieve.

GAGELER J: Well, we have the trial judge down to one sentence, I think, Mr Walker.

MR WALKER: Yes, on the issue still standing today, that is probably right, your Honours. You will see in our proposition 16 that the ground is cleared, leading really to the outcome that there are not the appropriate findings of fact that permit the appeal to be upheld here, by reason of decisions taken, understandably, in the course of Mr Potts’ presentation. I have said everything I wanted to say, I think, about 17. It is the last sentence of proposition 17 to which I need to express the qualification I earlier suggested concerning Justice Edelman’s inquiry.

Finally, we come to what I think for me is about my second or third fallback, if your Honours were against me on, I think, one, two, and three. I have already put the argument that this Court cannot, with respect – and neither should the Court of Appeal be asked, with respect, to do something that has not been the subject of the comprehensive, nuanced analysis that would truly enable what, in any event, is the unrealistic decision that if it is Mr Potts whose attributed conduct renders the corporation liable, then Mr Potts should somehow get a 50 per cent discount. We do not have, again, no findings of fact to support some scenario by which Mr Potts is quarantined away from those whose conduct or misconduct is to be attributed to the corporation so as to make it – independently of Mr Potts – liable for the same loss.

It is suggested to me that in answer to the question, when did the concession or consensus concerning attributed conduct not being capable of making out a case of proportionate liability, when did that emerge in the litigation, I am told that at trial – which would explain why I have no memory – and in the respondent’s further material, page 274, there is closing argument on 5 February. My friend is suggesting that it is not just 274, it is also 279, 281, where there is – between the two counsel, there is the notion that no vicarious liability is relied upon, but one needs to understand the word vicarious, I think, in the context I have already tried to supply.

May it please the Court.

GAGELER J: Thank you, Mr Walker.

MR HUTLEY: Logically, the position starts as to the nature of the representation between 21.1 – a submission was made I think for the first time here that 21.1(s) does all the work that could be done in relation to non‑disclosures, and 21.1(t) has some falsification aspect – took up a remark from your Honour Justice Steward as it made it inaccurate. Now, 21.1(s) is completely different in form and structure to 21.1(t). Can I go 21.1(s):

persons acting under its instruction have, fully disclosed in writing to the Agent all documents and information known to it relating to it, its assets, the Finance Documents, and anything in connection with them which is reasonably considered by it to be material to the assessment of the nature –

et cetera. So, in effect, it is a representation about a state of mind on the basis of the state of knowledge that it has to be reasonably considered by it to be material; that is, at a point of time. So, that is wholly different in structure and the object of it is wholly different to (t), which is dealing with the character of information, and it is saying that information was accurate, is accurate; that is, factually correct:

and not, by omission or otherwise, misleading in any material respect at the date provided –

That is a representation at 22 June about the character of the communication which, by hypothesis, took place before then and that that information was not misleading, not that it misled anybody, not that it could have misled anybody, just that it was misleading and misleading means capable of misleading by omission. That speaks to the objective character of that information.

GAGELER J: The basic problem Mr Walker identifies is that you do not have a finding that on any of the three occasions the information provided was misleading.

MR HUTLEY: What we do not have a finding, because no finding was addressed, as to whether (t) was misleading, because the court never dealt with the case as put. Now, my learned friend says, because the court never dealt with the case as put, this Court cannot deal with it. Now, we made perfectly clear what the position was in the special leave application. Your Honours will see that in the application for special leave, which is in the respondent’s joint book of further materials at paragraph 11, 296 to 297; paragraph 25 at page 300; and 27 to 32 at page 302.

GAGELER J: Mr Hutley, on your construction of (t), it can only be misleading if the information earlier provided was misleading. Correct?

MR HUTLEY: Yes, yes.

GAGELER J: Your problem is you do not have a finding that the information earlier provided, on any of the three occasions, was misleading. You ask us to make that finding.

MR HUTLEY: Our problem – your Honour, I understand the difficulty, but this is a difficulty not of our making because we sought a finding about the information. We sought a finding about Ms Puja’s information, we sought a finding about the accounts, and we sought a finding about 28 April in the context of (t). With respect, to say that Justice Ball dealt with it within a sentence is a somewhat heroic submission, with all respect to his Honour. It is not unheard of that judges, at the end of a hugely long case, overlook, as his Honour did – and the rest of the paragraph makes it pretty apparent that his Honour did – the matter about 21.1(t). The Court of Appeal – it was put clearly to it.

If your Honours, for example, go – and the Court of Appeal, at least in argument, understood the point because Justice Leeming, for example – and I will just give your Honours a reference to where his Honour referred to it – Justice Leeming really, in effect, encapsulated the argument in one statement by his Honour. I will just turn up where that is in a moment, I have just lost it momentarily. His Honour appreciated that we were saying: in effect, information supplied, is it misleading by reason of omission? That is viewed – the representation is now that it was not. His Honour appreciated precisely the case we made.

GLEESON J: At the risk of acting like I am your junior, I think it is page 28 of the appellant’s further supplementary book of further materials, at line 11.

MR HUTLEY: Yes, your Honour, 28.

GLEESON J: Page 28.

MR HUTLEY: Thank you, your Honour, yes. In fact, your Honour will find his Honour, Justice Leeming, at page 26, at about line 15, where his Honour, in effect ‑ ‑ ‑

GORDON J: Sorry, where are we going?

MR HUTLEY: I am sorry, I was thanking Justice Gleeson. She had found for me Justice Leeming’s encapsulation of our case, which is at page 26, at line 15, and following, where his Honour appreciated our case. I am sorry, your Honour, you have taken me to page 28?

GLEESON J: Page 28, line 11. Justice Leeming says:

There are other examples of non‑Potts communications –

MR HUTLEY: Yes, quite. So, in other words, the Court of Appeal, in argument, appeared to fully appreciate our argument.

STEWARD J: Can I ask you this question, Mr Hutley. Your case is a case of a failure to provide information. It is a case of omission. Having regard to your construction of (t), what practical advantages did (s) confer then on the Bank?

MR HUTLEY: Because it brings it right up to date. The critical thing is it brings it right up to date. You see, (t) deals with omissions, for example, at the time and (s) brings it wholly up to date. In other words, no matter how many communications you have had in the past, as at to date is says it has under its – fully disclosed in writing:

which is reasonably considered by it to be material –

So when it says ‑ ‑ ‑

GORDON J: But you said that (t)b – or I call (t)b – the second part of (t) was doing exactly that function.

MR HUTLEY: Your Honour, but it also has:

which is reasonably considered by it –

It qualifies that obligation to, in effect, a state of mind.

STEWARD J: But having negotiated the terms of (s) which is dealing, one assumes, with the topic of full disclosure because that is what it says, and having limited in the way it has to knowledge and assessments of risk, why would the company then submit itself to such an open‑ended obligation as found in (t) without any of those protections?

MR HUTLEY: Because that is what, with respect, it says.

STEWARD J: That is what the document says. Yes.

MR HUTLEY: I mean, one can in effect say, your Honour, with respect, it may have been unwise, but the point is this is a representation and what is a reasonable meaning of it – and, in effect, the construction my learned friend puts on it, it simply will not bear. It is a pretty simple, straightforward representation. And if my learned friend wants to construe it by reference to (s) and says, you have to read it out of existence – because, in our submission, that is not what it says and anyway, your Honour, I would just be repeating ‑ ‑ ‑

GORDON J: Can I just have one more go about this (s) and (t) distinction. You took us to pages 9 and 10, or 11 and 12, which was the spreadsheet. There was another item in there which Justice Steward has referred to for inventory. There is no suggestion that that figure is false.

MR HUTLEY: No, I accept it is not ‑ ‑ ‑

GORDON J: There is no suggestion that it is incomplete.

MR HUTLEY: I accept that it is – to say it does not miss the target of (t) being accurate.

GORDON J: It is in (s).

MR HUTLEY: So, in effect, it is not inaccurate. But the similar situation about Mr Potts – nothing he said to the other side was inaccurate.

STEWARD J: But are not the sort of omissions that (t) is concerned with things which would render that information given to be inaccurate?

MR HUTLEY: No, misleading. Not inaccurate, misleading. And “misleading” can be different to “inaccurate”. In fact, the choice, it did not say by reason of omission, renders it inaccurate because, if it did, that would be satisfied by the first – that it is misleading, apt to cause someone to rely upon it, be led into error. Namely, for example ‑ ‑ ‑

STEWARD J: Would you expect in management accounts for there to be notes?

MR HUTLEY: Yes, there can well be.

STEWARD J: Final accounts, maybe.

MR HUTLEY: But, your Honour, the important point about it ‑ ‑ ‑

STEWARD J: Accounts published to shareholders and creditors, yes. But this is an internal document, is it not?

MR HUTLEY: No. They determined to actually hand it over to someone else.

STEWARD J: No, no. But the genesis of these management accounts.

MR HUTLEY: Quite. I accept that, your Honour. You Honour, we have made our submission about that document, but that does not deal, for example, then with Ms Puja’s communication, which, on any view – I know that my learned friend says, or asked, the precise question about inventory, and in effect, monitoring it. To answer that, in any way, accurately, one had to deal with this thing. So, we say, the submission about the construction of this, simply, with respect, is wrong.

Now, that kind of then throws up what is between ours. My learned friend has spent an enormous amount of time saying – and I will stay with Ms Puja, because she is the easiest – there is no finding that Ms Puja, on behalf of a company or on her own part engaged in misleading and deceptive conduct. We accept that. We do not say that does not matter, because all we are concerned with is the representation. The representation is a representation by the company.

There is no question of attribution; no question of what might be called the fuzzy question of Mr Potts being involved in that. It was found that the agreement’s entry was mandated by the Board, and your Honours will find that in a finding in the core appeal book at judgment 251. The representation was pleaded as a pleading of the company, and that was admitted. Therefore, all these issues about the status of Ms Puja – all the involvement of Mr Potts, in this vague way in which it is put about that communication, are simply irrelevant.

There was a representation by the company on 22 June about that communication. That communication, we say, was, objectively, at the time it was made, misleading, and that is the end of it. One never gets into questions about whether Mr Potts was somewhere hovering in the room when the document was sent out or the like. In fact, the whole case was conducted, really, on the basis that this independence concept, as the cases have said, is not factual independence, but legal independence.

In a sense, there ceases to be independence if the agency principle or vicarious liability produces the liability for the company, not because, for example, Mr Potts was in the room, and may have had some involvement with the preparation of the accounts. It is not because of that, or anything like it. The cases say – and that is why this point simply was not the way this case was run, and it is not the way that it is pleaded – but the mere fact Mr Potts had something to do with this company meant that you could never prove that there was the relevant independence. That was not the case that was run, and it is not the case that it is pleaded.

If your Honours go back to the reply, the reply does not say, just because of Mr Potts. What it refers to is the conduct for which Mr Potts was found liable. In 133, when it recites the paragraphs, with a minor exception in 44 and 45 where there is a reference to something which has nothing to do with the case now, none of those predicate statements had anything to do with Mr Potts’ conduct. They had to do with the state of the company; that is, the thing which falsified the representations which were pleaded in the balance of the pleading.

So, this agency point which my learned friend put out simply was irrelevant. Our problem in this Court – and I accept it, your Honour – is not that findings have been made against us, it is that no one has ever addressed the case that we have consistently put since first instance.

EDELMAN J: Well, in relation to some issues, there are findings against you. The 28 April 2015 ground ‑ ‑ ‑

MR HUTLEY: Quite.

EDELMAN J: ‑ ‑ ‑ in order to satisfy the point that (t) is misleading, you have to establish both that there was a misrepresentation or misleading conduct on 28 April 2015, and that it was material. You have findings against you on both of those aspects.

MR HUTLEY: Your Honour, firstly I have findings as to what was said on that occasion. I do not dispute one of them. There is a finding on that occasion Mr Abboud did not engage in misleading and deceptive conduct because people were expecting more, et cetera. I will not go over them – your Honours have seen them. We accept all of that. That, with respect, is a finding I do not have to challenge – I do not challenge; I accept it – expressly accept it.

The question is: what is the meaning of the representation under 21.1(t)? It is that all supply of information was not by omission misleading – not that the people who were at that meeting were misled or not misled by it – it is, look at objectively the communication – information. As at that date, was that information objectively apt to mislead? It does not matter if somebody would not have relied upon the information at the time. Assume somebody had said at the meeting, I am not going to rely on this information, I am going to wait for other things. This representation would have said, now you can rely on that if objectively it was by reason of material omission misleading. That is our point. And therefore, we say we are not departing anyway from the case, and that is why all these debates about what happened at the time of the communication are, with respect, misconceived.

Can I now deal with the point of the pleading. At no point, until today, has anyone said that we could not raise the arguments that we raised because they were outside the pleading, and no one has ruled that we could not. In fact, the Court of Appeal seems to have worked that we could run the case. In a sense, identifying the documents – the three events – was, we say, merely a particularisation of the information, and that is how it was conducted, and therefore, we are not outside the pleading, and no determination to that effect has been made anywhere.

At that point, we say, with respect, our learned friends are simply incorrect. Thus, we say that the constant – anyway, I made the submission, your Honours. We can point to liability under 21.1(t) without any reference to Mr Potts. In fact, each of the occasions we rely on are completely independent of Mr Potts; they ignore Mr Potts; they are an independent act, being the act under 21.1(t) ‑ ‑ ‑

GLEESON J: How is a ministerial act seriously independent?

MR HUTLEY: It is, with respect – Mr Potts, relevantly, was no different to his PA having sent it. Absolutely no different to the act of his PA. We say that that is it. He was not vouching for them. There was no evidence even suggesting that he was involved in their preparation. He happened to be the human being who signed the email. That is what the finding was directed to, and that is why his Honour did not go on there to consider in any way it was misleading, because he said he was in no different – could have been just wholly accidental that he was the person to whom the email was put in front of, and put his moniker on it. That is why it is independent in any rational sense of Mr Potts.

EDELMAN J: There are two senses in which that submission could be made. One sense would be to say that the financial accounts were themselves misleading because they did not contain an auditor’s note or some qualification, in which case the submission is effectively that they are inaccurate. The alternative submission is that there was nothing wrong with the accounts themselves, but what the omission was was the failure for somebody presenting the accounts to present them with an additional piece of information. If it is that, then it is not truly ministerial.

MR HUTLEY: Well, except for the fact there is – because it was found wholly ministerial, Mr Potts was not addressing the form of the document. He was quoad himself. He just as likely was given the document without any reference to the fact of what was behind it, of just sending this. That is how ministerial it was. His Honour just dispatched it by saying, in effect, he has no association with the document in any meaningful sense.

EDELMAN J: So, if it is then – if it is the former of those two possibilities, to take Mr Potts entirely out of the equation, there really does need to be an analysis of what is required in the accounts, whether it would have been permissible to include an auditor’s note, what the form of an auditor’s note would have been and so on.

MR HUTLEY: Well, it could be – it did not have to be an auditor’s note, it could have been a note from the company ‑ ‑ ‑

EDELMAN J: Or a note from the company.

MR HUTLEY: ‑ ‑ ‑ saying, by the way, as we say, the profit and the inventory is inflated by this policy.

GORDON J: So, the inventory is not inflated. The inventory is actually true. The fact is that they have acquired the inventory included in their accounts. The inflation is the taking up of the O&As as a rebate by means of a reduction in advertising expense in order to improve profitability.

MR HUTLEY: Well, that was misleading in that respect.

GORDON J: I mean, assuming that that is the proper accounting ‑ ‑ ‑

MR HUTLEY: That was the finding.

GORDON J: Yes.

MR HUTLEY: They are the findings. There is no debate about the findings. In a sense, the whole structure was designed to, in effect, inflate profit. The consequence is you became very significantly overstocked with potential harms to the company of being significantly overstocked, and, in a sense, the submission was made – to send the accounts of the company flat like that was a material omission in relation to those accounts to make them misleading. It was not, as it were, in the ordinary course.

That company had a form which was, as it were, pumped up by an aberrant conduct, and that was the case which was put. That was actually the case which was put by the NAB against Mr Potts, and it only lost, we say, because the court found that Mr Potts was not – was purely ministerial. The judge did not go onto it. It is the exact case that the company was being put by the company against Mr Potts. It only failed because Mr Potts was wholly ministerial.

Now, again – and I accept, your Honour, if findings had to be made, we say the findings are manifest by merely comparing the findings of the documents, the consequence follows. If this Court cannot do it, then there was an error in the Court of Appeal in its failing to do it and it should be sent back to the Court of Appeal to address these questions.

GORDON J: But you would say that there is an error in the trial judge. You must say there is an error in the trial judge.

MR HUTLEY: We did say there was an error in the trial judge, it was said – the Court of Appeal said they were going to deal with it, and perpetuated the error, and no one has dealt with it. It cannot be the case that we lose in the High Court, having made clear our position through special leave because two courts, have, as it were, failed to do what we say they were required to do.

EDELMAN J: But would that not mean that, if it were to be referred back, it really needed to be referred back to the trial judge to make ‑ ‑ ‑

MR HUTLEY: The Court of Appeal could do it, with respect ‑ ‑ ‑

EDELMAN J: The Court of Appeal has not had the opportunity, for example, of making primary findings of fact as to Ms Puja’s state of mind, or the circumstances surrounding any of the conduct – if you are right – in (a) and (c).

MR HUTLEY: We say – firstly, I do not think that Ms Puja gave evidence, so her state of mind could never – that could only be relevant – the state of mind is to the evaluative judgment on the proportionate liability.

EDELMAN J: Precisely.

MR HUTLEY: I accept that. But if no evidence was sought about that, then the Court has to do the best it has with what it has, cannot go back to the trial continue. If people did not investigate that, one has the evidence one had, and people made their forensic choices in the light of that. In fact, there is a reference in the Court of Appeal’s judgment – which I am indebted to Ms Zheng for, at 376 – where all the parties agree that the court just had to do the best that it could in relation to all this on the material before it. Your Honours will find that page 416 of the core appeal book.

Our position is it is, with respect, beyond extraordinary that if your Honours find there has been a continual failure to do that which we say was called for, this Court can say, we cannot do it and therefore the appeal is dismissed. That simply, with respect, is not consistent with the grant of special leave, which made clear that our complaint was that no one had done that which we had asked them to do. What that does, procedurally, whether it is dealt with by your Honours – and we say your Honours are in as good a point position as the Court of Appeal is to make the findings about the availability of proportionate liability – as anyone, the matter has been fully argued – and we say that your Honours are in as good a position to deal with the question of the respective responsibilities, again, I mean, of course it is a matter for the Court in that regard.

EDELMAN J: There is one issue on respective responsibility that I suppose is motivating my concern – if you are right about everything else – of sending it just back to the Court of Appeal, and that is that an assumption underpinning all of your submissions in relation to the proportionate liability question and the apportionment exercise is that you can take an omission in one circumstance – such as the omission by Ms Puja, or the omission by Mr Abboud, and aggregate that with the knowledge of other company officers for the purposes of apportioning liability. That is a very, very large question, which has not even been explored in this Court.

MR HUTLEY: I do it at the level of the representation and 21.1(t). That is the level at which the misleading conduct took place. That is the
misleading conduct. No-one sued, for example, nobody sued Dick Smith. Our learned friend said nobody sued Dick Smith because there was no money. That is right. Nobody sued Dick Smith. Of course, the reflexive liability - - -

EDELMAN J: I do not think you can separate the two, because the culpability under (t) depends upon the nature of the breach that it is picking up, and the nature of the breach that it is picking up is going to involve these sorts of arguments.

MR HUTLEY: It could, and if there is no knowledge, because I do not believe sending it back to the trial judge – Ms Puja, for example, gave no evidence. We are where we are; but I cannot say to your Honour that Justice Ball would be in a better position to look at these things than your Honours, and I am not in a position to make that submission. He might be, and if your Honours thought it was appropriate to go back to the trial judge, so be it, because I accept that he could be. But there has been, in the predicate, failure in the steps.

I think I have dealt with the submissions, your Honour. Thank you, your Honour.

GAGELER J: Thank you, Mr Hutley. The Court will reserve its decision in this matter and will adjourn until 10.00 am tomorrow.

AT 3.43 PM THE MATTER WAS ADJOURNED