Potts & Anor v DSHE Holding Ltd (Receivers and Managers appointed) (in liquidation) & Ors; Potts v National Australia Bank Limited [2023] HCATrans 48 (21 April 2023)

Last Updated: 21 April 2023

[2023] HCATrans 048

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S133 of 2022

B e t w e e n -

MICHAEL THOMAS POTTS

First Applicant

NICHOLAS ABBOUD

Second Applicant

and

DSHE HOLDINGS LTD ACN 166 237 841 (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION)

First Respondent

ROBERT MURRAY

Second Respondent

LORNA KATHLEEN RAINE

Third Respondent

ROBERT ISHAK

Fourth Respondent

JAMIE CLIFFORD TOMILINSON

Fifth Respondent

Office of the Registry
Sydney No S134 of 2022

B e t w e e n -

MICHAEL THOMAS POTTS

Applicant

and

NATIONAL AUSTRALIA BANK LIMITED (ABN 12004044937)

Respondent

Applications for special leave to appeal

GAGELER J
STEWARD J
GLEESON J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON FRIDAY, 21 APRIL 2023, AT 10.15 AM

Copyright in the High Court of Australia

____________________

MR N.C. HUTLEY, SC: If the Court please, in each of those matters, I appear with my learned friends MR S.M. NIXON, SC, MS M.E. ELLICOTT, and MS A. ZHENG for the applicants. (instructed by Clayton Utz and Hall & Wilcox)

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

GAGELER J: I note that in the first of the matters there is a submitting appearance for the second to fifth respondents. Mr Hutley.

MR HUTLEY: Your Honour, should I address in both matters?

GAGELER J: That seems to be a convenient course.

MR HUTLEY: If the Court pleases. Can I turn to the first matter, that is, the matter of DSHE, that the special leave question concerns the construction of 1317H of the Corporations Act – which is at 487 in the book – particularly, the words “resulted from” in 1317H(1)(b). The question is, that is, whether that is solely a required satisfaction of “but for” causation.

GAGELER J: And tied up in that is the question of whether the payment of the dividend can ever amount to loss or damage on the part of the company.

MR HUTLEY: Payment of a dividend consistently with 254T can. They are obviously the two questions, although they can be seen as distinct. One obviously informs the other.

GAGELER J: Yes.

MR HUTLEY: Now, the approach we say is a correct approach was the approach taken by the trial judge, which you will see at application book 205, paragraph 507. Now, you will see of course that the trial judge there was dealing solely with Mr Potts, because he found that there was no breach of duty by Mr Abboud. The Court of Appeal overturned that finding, but there was no analytical difference between the two positions because the breach in both cases was a breach in failing to pay due regard to 254T. But there, the trial judge held, and we say correctly:

In other words, the directors breached their duties because, as a result of their lack of diligence and care, they exposed DSH to the risk that by paying the dividends it would breach s 254T. However, unless that risk came to fruition, DSH suffered no loss as a result of the breach.

And we say that was the correct approach, the Court of Appeal rejected that. Now, the breach at trial was limited to the 254T position and your Honours will see that from 356 in the application book. In the Court of Appeal at paragraph 126, they identified the failures by directors as two.
The first one went away. It is the second with which the court was concerned, and that was confirmed at paragraph 128, at 357. Now, the basis of the contravention found against each of Mssrs Potts and Abboud – your Honours can see from paragraph 268, that is:

The basis of the contravention found against Mssrs Potts and Abboud involved a failure properly to consider section 254T.

The risks of harm which Mr Abboud and Mr Potts negligently failed to guard against was the risk of contravening 254T – and your Honours can see that at paragraph 152 in the Court of Appeal’s reasons at application book 364. The risk of harm is expressed in the middle sentence:

A failure to comply with legal obligations may give rise to a range of risks: reputational; litigious –

et cetera. Now, at 154, the court returned to that, and in the last sentence:

Payment of a dividend in contravention of that provision gave rise to distinct regulatory risks, together with the risks to relationships with current and future suppliers.

Now, there was no contravention of 252 in fact found ‑ ‑ ‑

GAGELER J: 254T?

MR HUTLEY: 254T, I am sorry. I hate this bizarre numbering.

STEWARD J: You are going to have to live with it.

MR HUTLEY: Your Honour, it is kind of a nasty trick played on the ageing, in my view.

GLEESON J: Mr Hutley, Mr Walker’s submissions seem to indicate that all of the relevant facts that would go to a contravention have been found.

MR HUTLEY: Your Honour, the case was conducted on the basis that there was no finding and no attempt to have it found that there was a breach, that is just what I am taking your Honour to. If your Honours go to the primary judge’s reasons at 451, application book 184, he says:

One notable feature about the pleaded claim is that it is not alleged that –

In the relevant years:

accounts contained material errors . . . Nor is it alleged that by paying the dividends DSH breached s 254T.

And then he says:

Rather, what is alleged –

et cetera, and it goes on. The respondent did not challenge that proposition on appeal, and the Court of Appeal at paragraph 270, if your Honours go to application book 398, it records that Justice Ball had noted the DHS had not alleged 254T was in breach when it was paid, and they proceed to deal with causation on that basis. So, in other words, there has never been an inquiry, in point of fact, as to whether at the relevant date the payment of the dividend would have had the effect proscribed by 254T.

GAGELER J: Mr Hutley, if you were looking at the effect proscribed by 254T you would not necessarily automatically go to the full amount of the dividend as the measure of damages, I think.

MR HUTLEY: Quite. In other words, if you did inquire as to whether there was a breach, questions of degree would arise, i.e., is it all such as to have had the requisite effect? No such inquiry took place. You will find no discussion of it. What happened in some of the paragraphs which are we taken to by our learned friends was in the Court of Appeal’s consideration of the alternate basis which the trial judge determined there was no causation, namely, his finding at paragraph 508 of his reasons that he was not satisfied that, even if told of the relevant matters, the Board would not have declared the dividend.

STEWARD J: Can I ask you question, Mr Hutley. I may have oversimplified my understanding of the reasons below, but is the Court of Appeal saying that any payment out of money is damage?

MR HUTLEY: They cannot be going that far because one pays out dividends every day of the week. In fact, that is the fundamental function of a court – of a company to determine, and I will come to a recent Supreme Court decision which adverts to that. It is the function of the company to determine that which – that part of the amount of money available for distribution as dividends it decides to hold onto to meet its obligations to creditors.

STEWARD J: Well, let me ask you the flipside of the question, which is, is the payment of a valid dividend validly made in accordance with the constitution of the company and the Corporations Act, does that count as damage?

MR HUTLEY: We say it is not damage at all. That was the issue, which, in the Manchester Building Society Case, which your Honours will have seen the reference to, Lord Leggatt adverted to the fact that he did not consider it was “damage”. The question was reserved by the balance of their Lordships. They said it was not necessarily obvious that that is the case, but we do not need to determine it.

STEWARD J: That would be the same for any payment made by a company, like a return of capital lawfully done, and so on.

MR HUTLEY: We would say, yes. That is not damage.

STEWARD J: The company exists to pay dividends.

MR HUTLEY: It is a fundamental function of the company to pay dividends, and in that regard, we have given your Honours a reference to, again, the Supreme Court in the Inland Revenue Commissioners v Laird Group.

GAGELER J: This is the Supreme Court of the United Kingdom, is it?

MR HUTLEY: Yes. We still read their judgment.

GAGELER J: In a comparative way, yes.

MR HUTLEY: Of course, and the observations made in the judgment of Lord Millett, particularly at paragraphs 41 and 42 – and, particularly, 42 – about, in effect, the release of moneys by a company to – by way of dividend – we say there is no basis to conclude, in the absence of the finding of breach of 254T, that the company did not retain sufficient funds to pay its creditors. All the directors were doing in such circumstances were releasing funds due to the shareholders from their power to retain in the business, to paraphrase what was said by the Supreme Court of United Kingdom.

In that case, we say, therefore, a dividend per se cannot be damage, but also, you cannot – the approach of Justice Ball to the normative question of whether 1317H resulted from, it is informed by the fact that if there is not a breach, it does not result from.

Now, we say that is consistent with the learning of this Court in relation to damages in the field of negligence and particularly what was held from the Court in Wallace v Kam [2013] HCA 19; 250 CLR 375 in the passage which is at paragraph 24 at page 385 in the report, “A limiting principle”, et cetera. Section 180 is in effect a statutory form of negligence for directors, as the Court of Appeal observed at paragraph 119, application book 354. But the Court of Appeal in effect said, as appears from paragraphs 270 to 271 at application book 398, it is a straight causation issue, a “but for” test ‑ ‑ ‑

GAGELER J: A kind of “but for” causation with no further normative element?

MR HUTLEY: No normative – and no consideration of whether a lawfully declared and paid dividend can constitute damage at all to a company. We say those points, both the construction of the section and the fundamental question, as it were, the underlying question about the nature of a lawfully paid dividend, has never been considered by this Court and, as appears from the Supreme Court of the United Kingdom, has not been finally determined in the United Kingdom, and we have been unable to find any consideration of it by a court at this level anywhere.

Now, earlier authority, of course, which dealt with the predecessor position with respect to declarations of dividend – there are numerous cases such as Segenhoe, which your Honours will have seen, where often due to an accounting error by auditors which identified a profit in a set of accounts which did not exist, which then produced a dividend, the authorities were, as to the extent of the payment of the – to the extent that the payment exceed lawfully present profits, it was recoverable. Now, of course, there is ‑ ‑ ‑

GAGELER J: Mr Hutley, I think we understand these points very well. Would it be convenient to move to the next case at this stage?

MR HUTLEY: Certainly. Your Honours, now this has – this case has a single special leave question, and we say this, again, is one of general importance. The question to deal with concerns what is the relevant knowledge, source of knowledge, of a company in a misleading and deceptive conduct case, even when a relevant decision of the board – here, the decision to enter into the facility agreement, which facility agreement was then executed by officers of the company Mr Abboud and Mr Potts, which made a representation, and I am going to limit my consideration on the application to one representation only, and that is the representation which your Honours will find at 456, 21.1(t), which was a representation ‑ ‑ ‑

GAGELER J: Mr Hutley, is buried in what you have just said that, on an appeal, there might be a wider factual inquiry?

MR HUTLEY: No. There is absolutely no factual enquiry, your Honours will be pleased to hear, and I am pleased to say.

GLEESON J: Can I ask a question about that?

MR HUTLEY: Of course, your Honour.

GLEESON J: You have identified six or seven people to whom knowledge of falsity could be attributed, but I am not sure that there are facts that are found, or that there is evidence found that would support that.

MR HUTLEY: There are findings, but I am prepared to run it on the basis that your Honours only have to deal with Mr Abboud. Mr Abboud was the managing director.

GLEESON J: Well, you have got adverse findings in relation to that.

MR HUTLEY: I have adverse findings that on a day he did not make a representation.

GLEESON J: On 28 April.

MR HUTLEY: On 28 April. But I have got total findings that he knew exactly what Mr Potts knew, because he was the originator of the position which Mr Potts was seized as knowing at the time of his representation on 6 May. What the Court seems to have done is, because Mr Abboud was not found to have made a representation, they set his knowledge aside when they came to consider whether the company had knowledge when it made an undoubted representation at 21.1(t).

GAGELER J: So, we would, on an appeal, be concerned only with that representation?

MR HUTLEY: I am prepared to limit it to 21.1(t), because if I cannot win there, I cannot win. Now, there is a debate, we say it is a spurious debate, about (s), which our learned friends have developed, saying there is some factual dispute, or something like that. We think it amounts to a hill of beans, but (t) – that is just a straight, vanilla representation by DSH, that at the relevant time, namely, completion – at the relevant time, being the entry into the agreement ‑ ‑ ‑

GLEESON J: So then, there is no question about attribution of knowledge of senior executives as opposed to the board?

MR HUTLEY: There is a knowledge ‑ ‑ ‑

GLEESON J: I am assuming Mr Abboud was a member of the board.

MR HUTLEY: We say, with respect, your Honours, the question is not knowledge of the board or senior executives. The knowledge has to be the knowledge of DSH.

GLEESON J: But that only be through an identified individual.

MR HUTLEY: Quite. And it is undoubted that the Chief Executive Officer knew all the materials.

STEWARD J: Do you say that the Court of Appeal differed on their approach to Crowley v Worley?

MR HUTLEY: Can I take your Honours to their Honours’ reasoning, which is a little hard to, with all due respect, follow. Now, to realise that, one has to understand that in the case – and your Honours will see this from our reply submissions at paragraphs 4 to 8 at application book 543 to 545 – all these questions of, in effect, representation, reliance and, for that matter, what was alleged as to be false and misleading of the National Australia Bank was all agreed in the pleadings.

In fact, the only issue on the pleadings going to whether DSH could be identified as an appropriate candidate for proportionate liability was whether it had a source of knowledge other than Mr Potts – because the authorities say you cannot have concurrent liabilities where the state of the mind is relevantly of the same person, between a company and an officer.

GAGELER J: But, Mr Hutley, can I just be clear about the case that you would have us take up on appeal, which I think is narrower than I had had understood you to be putting it in your written submissions on the application – we would be concerned only with representation (t) and we would be concerned only with the attribution of the knowledge of Mr Abboud to the company. Is that correct?

MR HUTLEY: We would say – can I take your Honour, Justice – I am happy – if your Honours wanted so limited ‑ ‑ ‑

GAGELER J: No, no, no, I am trying to understand what you are putting to us.

MR HUTLEY: Sorry, your Honour. If your Honours were saying it was a condition of us getting special leave for it to be so limited, I am prepared to embrace it like a brother.

GAGELER J: And if we were not so stern, Mr Hutley, what would we be concerned with?

MR HUTLEY: You would be concerned with some findings of fact by the trial judge – which were not contested – that, in a sense, the whole of senior management knew all of the facts, which are the facts which render the relevant representation misleading.

GAGELER J: Still concerned with representation (t)?

MR HUTLEY: Solely (t). Happy with it.

GAGELER J: And who, beyond Mr Abboud, on this wider case?

MR HUTLEY: Can I just get the list? Because I just have to get the names to make sure I – if your Honours go to application book 536, paragraph 26 of our written submissions.

GLEESON J: Is it 517? Paragraph 28?

MR HUTLEY: How did I manage to get that wrong? As you do – sorry, your Honour, I have just misplaced that.

GLEESON J: I think it is 517.

MR HUTLEY: Yes. It is 517, paragraph 27. I do apologise. Yes. These are all the subject of uncontested findings by his Honour, Mr Borg sent emails informing the buying team Mr Abboud had increased OTB, Mr Bar‑Ami, the General Manager, sent daily updates to managers Mr Orrock of the amount of rebates, et cetera. So, the senior management knew of the policy and the fact that there was over-buying, not requirement.

So, the point is, in effect, the point which your Honour adverted to about Crowley, this is the knowledge, for the purposes of determining whether there has been a misrepresentation, it is knowledge of the company. And that, even though the relevant decision – that is, here, the decision to enter in the facility – may be, at a board level, it is not limited to that level to determine whether the representation in the agreement is misleading. That is the point.

But beyond that, the Court also set aside, as you will see from the Court of Appeal’s reasons, Mr Abboud’s state of mind. Now, that appears to have been because Mr Abboud had been exonerated from being a concurrent tortfeasor himself. But of course, the logic of that was not to exclude his mind for the purposes of determining whether the company
engaged in misleading conduct, but to make sure that his mind did become relevant for that exercise.

Whereas, the Court of Appeal has done the exact opposite. They have excluded him, apparently, because he was found not to have engaged in misleading or deceptive conduct. That itself is an important question. They then went on to say the only, apparently – your Honours will see this from 444 and 445, they then went on to say, at 457 – at 445 they turned their mind to the non-executive directors, in 444 and 445, and they expressed it in terms of them not having breached their duty which, with respect to the court, is irrelevant and seems to have been informed by their view, because there was a decision to enter into this agreement, which has the relevant representation, they one had to find a majority of the board to be fixed with knowledge before the company could engage in misleading, deceptive conduct. And we say that is just wrong.

GAGELER J: Mr Hutley, we would be assisted by hearing from Mr Walker at this stage, thank you.

MR HUTLEY: If the Court pleases.

MR WALKER: May it please your Honours. Can I take, first, in the first of the applications, to two questions which, we accept, are integrally related in the manner that the questions from the Bench expose, and my friend’s embrace of that connection. At its core that connection, in a plea for special leave, seeks to pose something which in the abstract has evident interest to people who care about company law, and a compensatory nature of something called damages, as to whether what my friend emphatically repeats as a lawful payment of a dividend could possibly fall as a head of recovery.

It is, of course, entirely beside the point that a payment away from anyone’s resources, including a corporation’s resources, is lawful, in relation to the question of whether it forms part of a claimable amount of compensation. The classic example, indeed, in corporate mismanagement cases would be a failure to take that which elementary standards of care would require with respect to the terms upon which you bargain with counterparties. That loss will, of course, be manifest by the lawful payment out, indeed, the enforceable payment out to those third parties in accordance with terms of contract, which, as between the director and the corporation, represent a delinquency by the directors.

So, lawfulness is no badge of immunity from payment out thus depleting the treasury of a corporation so as to be, on conventional rudimentary approaches, part of a claim for compensation.

GAGELER J: Mr Walker, putting these submissions in a category, is this category of submission going to the merits of the case ‑ ‑ ‑

MR WALKER: It has to be.

GAGELER J: ‑ ‑ ‑ and the correctness of the decision of the Court of Appeal?

MR WALKER: It really has to be, because I have yet to come to questions about why this is not a suitable vehicle, which stands to one side. There is involved in what I have said what I might call the significance, but only in a basal sense, of identifying that which can be recovered by way of compensation under the head of damages resulting from conduct. That is true at common law, it is true in equity, and it is true under a statute that uses phrases or concepts of that kind. But that does not make it a special leave case, indeed, it makes it a case which requires attention to the particular context, in this case statutory and factual, in which the matter is raised.

What we say concerning “resulting from”, which is just one aspect of the argument, is that, as we understand it, attention to what is required or, more to the point, excluded from a judicial application of that test, “resulting from” in a particular case, is related to the second question, can a lawful dividend be a head of damage, in a way that seeks to leave open some normative penumbra, if you like, where notwithstanding literally fitting within an ordinary and English and legal contextual understanding of “resulting from”, nonetheless, for some reason to do with what might be called an uneasy intuition that justice has not been done, there should not be liability.

Now, we are familiar in terms of common law causation with some such notion. We are not concerned with that here. Indeed, it can be said that the perceived policy merit of legislating rather than leaving it to the common law is precisely in order to circumscribe argument about the permissible connection before a company can be compensated for an officer’s delinquency.

It is for those reasons that when you look at the broader context, including those provisions which inform an understanding of the norm which has been set up by statute and the breach of which is at the heart of this part of the case, that is, a contravention of 1317H, the Court knows that the possibility of there being an excuse, maybe complete, is dealt with by 1317S and 1318; answers which under the statute are as broad as could be imagined so as, for example, to put paid to any notion that there is some penumbra outside the statute to which a person from whom such compensation is claimed can point to to say that, even though I either do not raise 1317S, 1318, or I do so unsuccessfully, nonetheless there is something beyond how they could have protected me from this exorbitant claim of responsibility and therefore I dub it a normative element and say that the Court has erred in this case for not considering it.

But this case is an utterly inappropriate vehicle for that. Those matters were pleaded, but not necessarily to be decided at first instance, and not maintained by contention in the Court of Appeal. There are no findings of fact which were able to be made in either of the Courts, including, as is permissible in the appeal, by way of rehearing to the Court of Appeal – which could be available to this Court in a strict appeal – in order to understand the possible application of those obvious statutory provisions that deal with some answer on a so-called normative basis to a prima facie demonstration of cause and effect, that is, the consequence that is resulting from. So, that is ‑ ‑ ‑

GLEESON J: Is not the question about, I think, the question that is being raised is more about the character of a dividend or the character of damage than whether or not ‑ ‑ ‑

MR WALKER: I think that, with respect – and that captures another way of linking the two points. So that, when I say they are linked, that does not mean they not each good and, perhaps, together even better, but that is – I accept that. I am trying to dismantle it in order to show that this Court really should not take this case on, because matters which might be said to be among the many matters that are intrinsic to an understanding of limited liability, artificial entities – and it is – that does not make a case a special leave application. Otherwise, it is the topics of the first week of a company law course for undergraduates which would be the stuff of special leave – that is just not right.

Now, moving from the first ground which, we accept, has that relation to the second ground, moving from the first ground concerning “resulting from”, we then come to the “dividend” matter. In a nutshell, the reason why, as a matter of merit – not vehicle – that is not a case requiring this Court’s attention is that the argument against us is solidly based, we think, with respect, requires, for a success, that a satisfactory characterisation of the claim is that it is a claim for compensation for breach of 254T, and, as my friend points out, that was not pleaded or found.

Now the answer to that is, well, no, the claim was always pleaded as a claim for compensation for breach of section 180. The claim was – and these findings of fact are not the subject of any proposed appeal – the finding was that there had been a falling short of the standards imposed by section 180 in consideration of, among other things, the requirements of 254T with respect to a dividend. The other things do not matter. The focus is properly on what I am going to call financial prospect, which is a broad description of matters that are regulated by 254T.

What the Court of Appeal found is that but for the breach of section 180, there would not have been a declaration of dividend – lawfulness or unlawfulness does not matter. Because of that, including their subsidiary finding that there was no reason to suppose that it would have or could have occurred in any event later down the track – when things were better known or trading had cleared overstocking, for example – the Court of Appeal has made a finding of fact, which we do not understand to be the subject of any proposed appeal – and in any event is fact‑rich – that, had there not been the breach of section 180 – I stress, not 254T, but section 180 – neither would there have been consideration of the later payment of a dividend, and you can multiply the permutations such as nor of a dividend of a slightly diminished size, for example.

GAGELER J: That is another way of saying, perhaps, that they proceeded on a “but for” approach.

MR WALKER: No, no, no, this is simply tracing through the word for the phrase “resulting from” to the fact that what the compensation was claimed for was for the breach of section 180 and that the declaration of a dividend is, of course, a stage in place to the payment of a dividend, unless there is one declared and will not be paid – and a finding that by reason of section 180, considerations were omitted, conclusions were not reached which, but for the breach, would not have been omitted, which would have been reached without a dividend resulting, and for good measure – and there would not have been a slightly smaller one later, either. Now, those are factual matters.

GLEESON J: But for the breach, the harm is the dividend that was paid that would not otherwise have been paid.

MR WALKER: That was paid, that is right. And although ‑ ‑ ‑

STEWARD J: Accepting all of that, we still need to be satisfied that when the dividend was paid, and it is not suggested it was paid in breach of 254T, that the company suffered damage.

MR WALKER: An Appeal Bench ‑ ‑ ‑

STEWARD J: And the word “suffer” will have – may have some work to play.

MR WALKER: An Appeal Bench would undoubtedly need to look at that, but at the stage of special leave, where we have got that is the way the case was framed, those are the apparently unchallenged factual findings concerning what I am going to call a mixture of psychological and commercial fact, state of mind of the relevant decision‑makers, the state of the company in its trading milieu, when we have got that, in our submission, what we do not have is a case that throws up any abstracted or fascinating question concerning the notion of lawfulness as the badge – or unlawfulness, I should say, as the badge of payments out that can be claimed by way of damages ‑ ‑ ‑

STEWARD J: Well, that may not be ‑ ‑ ‑

MR WALKER: ‑ ‑ ‑ because that is obviously not right.

STEWARD J: That may all be right. The question still to come, assuming the lawfulness of the dividend: how did the company suffer damage?

MR WALKER: Now, as you know ‑ ‑ ‑

STEWARD J: How is it – how has it been injured?

MR WALKER: I have an answer, I promise, your Honour.

STEWARD J: All right, I will shut up.

MR WALKER: And I urge it as simple, and compelling on that account – our learned friends have earnestly written that it is, my words, simplistic – but it is this: the bank had the $12 million one instant, and the next instant did not have it. And bearing in mind that, whether you call it a trading or financial corporation, it is, on any view of it, an artificial entity dedicated to mammon. It is all it is about money.

STEWARD J: So, it is just the transfer of funds.

MR WALKER: Yes.

STEWARD J: Yes.

MR WALKER: And it is the most ‑ ‑ ‑

STEWARD J: So, my understanding of the Court of Appeal’s concept of damages was right.

MR WALKER: It is correct.

STEWARD J: Yes.

MR WALKER: I do not shrink from that at all.

STEWARD J: No, okay.

MR WALKER: Now, we say that does not make it a special leave point, because the proposition that the payment out of money which but for the wrong you would not have paid out is, with respect, underlying the notion of being worse off, which is at the heart of the concept of loss, which is that for which damages are meant to be a compensatory reflex. So, whether it is the medical bill I would not have paid for the injury, or whether it is the extra in the building contract I would have not have paid out except for the negligently certified work ‑ ‑ ‑

STEWARD J: Save, perhaps, though, because of the inchoate relationship a shareholder has with the capital and profits of a company.

MR WALKER: Your Honour, distressingly, that ventures into what might be called interesting areas, but it is, with respect, not one which this Court should be concerned with at that highly abstract level. That is the stuff of law reform, not by judicial imagination – because we can see from the provisions that are at the heart of this case that your Honours have not been given, as it were, not only the old hammer and tack but also large saws, this is a structure which has been set by these provisions in way that uses language, obvious deliberately, compensation, damages, resulting from, in a way which, in our submission, does not indicate anywhere that a payment out because it is a dividend – as opposed to a bonus to an executive, both which, of course, might be tied to a perception of trading results – it does not indicate any distinction.

Now, Justice Steward puts to me that a Greek epithet might be a reason for this to be an interesting matter. Strictly there is, of course, something distinctive about the relation of corporators – I will call them for convenience “shareholders” – and a corporation with a shared capital. But that is really only to go back to the definition at a rudimentary and now uninteresting level of what a corporation with share capital is and how it relates to the business of natural persons. That is, ultimately there may – hopefully always will – be a natural person at the end of the complex diagram tracing ownership.

As fascinating socially as it is, that is not a special leave point that has any purchase on the facts of this case. In other words, you will not see any record in the case below that suggests that this was a case which threw up, regardless of how the facts showed that the dividend paid out was – we have a looming $31 million deficiency, that is, in the capacity to pay debts as and when they fall due, and there is a paid amount of $12 million. It might have been an interesting case if there had been an exorbitant over‑claim, that is, a deficiency of $30 million and a dividend of $50 million – query whether you could possibly assert with a straight face that the loss in such a case would be the full $50 million.

That is not this case, and the payment out of $12 million where you had on the findings, which we do not understand to be challenged and which are fact‑rich, of $31 million deficiency – that, in our submission, means that that interesting question, interesting in the sense that Justice Gageler noted in raising it with my friend, that really does not arise here and there is nothing in the reasoning of the Court of Appeal that would give any comfort to anybody that they will get, as it were, the dividend that then boomeranged back, notwithstanding that it did not have an impossible effect. It is for those reasons, in our submission, that there are both vehicle considerations as well as merit considerations with respect to the first case.

With respect to the second case, in our submission, it comes down, I think, to this. The way the case was run below has Mr Potts accepting that he cannot require compulsory sharing by the corporation damage by his delinquency, by saying, and one aspect of my delinquency is attributable to the company because of the senior position I occupied, in other words, the very circumstances which highlight and rather demonstrate the causal quality of his delinquency as a senior officer in causing the corporation loss. The notion that a person in that position could turn around and say that I did cause you loss, but I caused it as the representative of the company and, accordingly, you can share liability.

Now, that was not accepted blow, as you might expect. Because, as a matter of what I might call common-sense ethics, if I can still use that epithet, and an understanding of the statutory provisions for the concurrent liability, a claim that another person be concurrently liable cannot call in aid by attributing to the other party their own shortcomings. Now, properly analysed, the shortcoming is not knowing things, the shortcoming is making a statement which is at odds with what you know. And there was a painstaking thoroughness with which below Mr Potts disavowed any notion that anyone other than him, Mr Abboud, in particular, had committed any such wrong.

So that the device which is proposed for this second case is one which again requires looking to the particular facts of the case but otherwise presents as the startling proposition in abstract form that cannot be correct that if I, with knowledge, do something which is an actionable wrong to the detriment of the corporation, nonetheless, if those who also had similar commercial knowledge, financial knowledge, but had nothing to do with the representation, if they can be also said to supply the corporate mentality, then lo and behold, the corporation damaged by the action I alone took of making representation notwithstanding that knowledge will render the corporation liable in some way on the basis that they are a concurrent wrongdoer. But they are only a wrongdoer because of the person who puts such a bold argument.

STEWARD J: Does that mean it was wrong to attribute the knowledge of the senior managers in Crowley v Worley to the company?

MR WALKER: No. It will always depend upon the framing of the claim and, obviously, the facts. But leaving aside the particular facts and assuming we have got to the point of attributing knowledge – they have the knowledge – the framing of the case here requires the question, would treating the corporation as a concurrent wrongdoer for the purposes of apportionment by reason of attributing the knowledge of innocent people to the corporation diminish the call on the resources of the avowed wrongdoer to pay the compensation to the corporation? That would appear odd, because there is nothing wrong about knowing things. It only becomes wrong if in context and according to narrative you have misrepresented them.

GAGELER J: This is not quite addressing the attribution point. This is at a higher level than the attribution point, is it?

MR WALKER: I am sorry, your Honour, I am not sure which is higher and lower.

GAGELER J: I am not quite sure that I am understanding – is this directly responsive to Mr Hutley?

MR WALKER: Yes, it is.

STEWARD J: Your point is the knowledge of innocent people should not be used to spread the liability?

MR WALKER: Cannot sensibly be used, once you accept the principle that the wrongdoer cannot, by attributing his wrong to the company, as the company’s act – I am trying to avoid the word “vicarious” because I would rather leave that for cases where the person against whom it is alleged is truly not a wrongdoer. The point here is opposite; namely, the corporation is a wrongdoer. Your Honours, I have been facing red now for a while. I do not know ‑ ‑ ‑

GAGELER J: Well, you are dealing with two cases, so ‑ ‑ ‑

MR WALKER: Twice as fast, perhaps, your Honour.

GLEESON J: Can I ask a question? Your observation about the facts, is that wrapped up in that last sentence of the Court of Appeal at 446 when they say:

Mr Potts eschewed any claim that any particular officer of DSH had failed in his or her duty.

MR WALKER: Yes, that is one of the ways in which it was rigorously put to one side that against any of those persons, named or otherwise, but Mr Abboud is at their forefront, that they had done anything wrong. Now, that does not only embrace no wrong against the company, but it must mean that, so far as they as a human actor is concerned, that their actions were not a wrongdoing by the corporation.

This is, if you like, the plum pudding approach to the question, interesting but only anthropologically, by which we attribute mentality to an artificial person. It can be made up, we know, according to context and circumstances by resort to putting together different locations and qualities of information. So, the clerk may know the figures and the manager may know the commercial atmosphere; neither knows both. It means that there will be a real question in particular cases as to whether that means the corporation knows both.

In this case, we were spared all of that, and there is not proposed any special leave point or any point worthy of special leave concerning the well‑known legal technique of attributing for the purpose of a corporate mentality. This is in the specific context whether the attribution, so‑called, is for the purposes of rendering for the statutory contribution rights, rendering the corporation, lo and behold, a wrongdoer because of the knowledge of persons not said to have done any wrong, and, in particular, not said to have committed the misleading deceptive conduct, that is, the misrepresentation which the claimant for such contribution, ex hypothesi, accepts he is liable for. That is how it rose, and that is why it is not a special leave point, either on as a matter of merit or as a matter of vehicle.

May it please your Honours.

GAGELER J: Mr Hutley, there is one question that Justice Gleeson would like to ask.

GLEESON J: Mr Hutley, it would just help me to understand what you say about whether that last sentence at paragraph 446 reveals that your claims are ultimately doomed to fail.

MR HUTLEY: This is – no, this demonstrates the confusion of the Court of Appeal. We are dealing here, at (t), with misleading and deceptive
conduct. That is a representation by the company, which is misleading. It does not depend on fault. That has been the law with respect to section 52 and its analogues since the beginning – that is where the Court of Appeal went wrong. They got tied up in – questions of fault might become important when one gets into the degree of contribution as concurrent wrongdoers. Now, we do not say anything about that, we have said that that should go back to the Full Court. But the confusion was, is to exonerate somebody at that level with a vanilla misleading, deceptive conduct case. They made a representation, it is common ground it was misleading.

GAGELER J: Thank you, Mr Hutley.

MR HUTLEY: Thank you, your Honour.

GAGELER J: There will be a grant of special leave to appeal in both matters. In the matter of Potts v National Australia Bank the grant will be limited to the case with respect to representation (t).

AT 11.10 AM THE MATTERS WERE CONCLUDED