DSHE Holdings Ltd (Receivers and Managers) (in liq) v Potts; HSBC Bank Ltd v Abboud; Potts v National Australia Bank Ltd [2022] NSWCA 165

Court of Appeal Supreme Court New South Wales Medium Neutral Citation: DSHE Holdings Ltd (Receivers and Managers) (in liq) v Potts; HSBC Bank Ltd v Abboud; Potts v National Australia Bank Ltd [2022] NSWCA 165 Hearing dates: 30-31 May and 1-3 June 2022 Date of orders: 26 August 2022 Decision date: 26 August 2022 Before: Leeming JA; Kirk JA; Basten AJA Decision: In matter 2021/314709 (Company appeal): (1) Appeal allowed in part. (2) Set aside order 7 made on 7 October 2021 and the orders made on 11 February 2020 insofar as they apply to the costs of Messrs Potts and Abboud being paid by DSH in proceeding 2017/81927. (3) In lieu thereof, judgment against each of the first respondent (Mr Potts) and the second respondent (Mr Abboud) in the amount of $11,826,000, to take effect from 7 October 2021. (4) The appeal is otherwise dismissed, with no order as to costs, with the intent that the parties bear their own costs of the appeal. (5) The parties are directed to provide within 14 days written submissions of no more than 5 pages, along with any evidence in support of those submissions, addressing the issues of the costs of the trial and the interest payable. Any submissions (of no more than 3 pages) and evidence in reply is to be provided within a further 7 days after that, with a view to all outstanding issues being determined on the papers. In matter 2021/311103 (HSBC appeal): (1) Appeal dismissed. (2) The appellant is to pay the respondents' costs. In matter 2021/289675 (Potts appeal): (1) Appeal dismissed. (2) The appellant is to pay the respondent's costs. Catchwords: CORPORATIONS — Directors and officers — Directors' duties — Duty of care and diligence — Whether directors breached s 180 of the Corporations Act 2001 (Cth) by voting in favour of the payment of dividends — Where an alleged contravention of s 254T was significant to the alleged contravention of s 180 CORPORATIONS — Statutory construction — Construction of s 254T(1)(c) of the Corporations Act — Whether "prejudice" to a company's ability to pay its creditors includes prejudice to the company's ability to pay the claims of its creditors as and when they fall due — Whether "ability to pay" encompasses the presence of trading stock which could be sold CORPORATIONS — Damages — Whether payment of a dividend can constitute "damage" under s 1317H(1) of the Corporations Act in circumstances where there has been a breach of a statutory norm WORDS AND PHRASES — "materially prejudice" — "ability to pay" — "damage" — Corporations Act, ss 254T(1)(c),1317H(1) CORPORATIONS — Capital raising — Application for loan facility — Misleading or deceptive conduct — Failure to disclose practice of over-purchasing to obtain O&A rebates — Failure to disclose actions taken to address overstocking — Significance attached to undisclosed information determined by all evidence CORPORATIONS — Proportionate liability — One act of two persons acting jointly causing loss or damage — Where officer is agent of company — Vicariously liable principal not concurrent wrongdoer — No acts or omissions independently attributable to company Legislation Cited: Australian Consumer Law, ss 18, 236 Australian Securities and Investments Commission Act 2001 (Cth), ss 12DA, 12GP Civil Liability Act 2002 (NSW), Pt 4, s 34 Civil Procedure Act 2005 (NSW), ss 100, 101 Companies Code (NSW) Competition and Consumer Act 2010 (Cth), Pt VIA, ss 87CB, 87CD, 87CF, 87CI, Sch 2 – Australian Consumer Law, ss 18, 236 Corporations Act 2001 (Cth), ss 9, 95A, 180, 254T, 254V, 256B, 257A, 260A, 1041H, 1041L, 1317H Cases Cited: Adler v Australian Securities and Investments Commission (2003) 46 ACSR 504; [2003] NSWCA 131 Australia & New Zealand Banking Group Ltd v Westpac Banking Corporation (1988) 164 CLR 662; [1988] HCA 17 Australian Securities and Investments Commission v Adler (2002) 41 ACSR 72; [2002] NSWSC 171 Australian Securities and Investments Commission v Cassimatis (No 8) (2016) 336 ALR 209; [2016] FCA 1023 Australian Securities and Investments Commission v Healey (2011) 196 FCR 291; [2011] FCA 717 Australian Securities and Investments Commission v Maxwell (2006) 59 ACSR 373; [2006] NSWSC 1052 Australian Securities and Investments Commission v Rich (2009) 75 ACSR 1; [2009] NSWSC 1229 Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) (2008) 39 WAR 1; [2008] WASC 239 Berry v CCL Secure Pty Ltd (2020) 271 CLR 151; [2020] HCA 27 Brady (Inspector of Taxes) v Group Lotus Car Cos plc [1987] 2 All ER 674 Browne v Dunn (1893) 6 R. 67 Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25 Caron and Seidlitz v Jahani and McInerney in their capacity as liquidators of Courtenay House Pty Ltd (in liq) & Courtenay House Capital Trading Group Pty Ltd (in liq) (No 2) (2020) 102 NSWLR 537; [2020] NSWCA 117 Cassimatis v Australian Securities and Investments Commission (2020) 275 FCR 533; [2020] FCAFC 52 Connective Services Pty Ltd v Slea Pty Ltd (2019) 267 CLR 461; [2019] HCA 33 Day v SAS Trustee Corporation [2021] NSWCA 71 Devaynes v Noble (1816) 35 ER 781 DSHE Holdings (Receivers & Managers Appointed) (In Liquidation) v Nicholas Abboud (No 3); National Australia Bank Limited v Nicholas Abboud (No 4) [2021] NSWSC 673 Gould v Vaggelas (1985) 157 CLR 215; [1985] HCA 75 Hadgelias Holdings Pty Ltd v Seirlis [2015] 1 Qd R 337; [2014] QCA 177 Hagan v Waterhouse (1991) 34 NSWLR 308 Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd (2013) 247 CLR 613; [2013] HCA 10 Lee v Lee (2019) 266 CLR 129; [2019] HCA 28 Lewis v Australian Capital Territory (2020) 271 CLR 192; [2020] HCA 26 Lord Buddha Pty Ltd (in liq) v Harpur (2013) 41 VR 159; [2013] VSCA 101 Marks v GIO Australia Holdings (1996) 196 CLR 494; [1998] HCA 69 Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388; [2004] HCA 3 Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165; [2001] HCA 31 Re CSR Ltd (2010) 183 FCR 358; [2010] FCAFC 34 Re Hallett's Estate (1880) 13 Ch D 696 Robinson v 470 St Kilda Road Pty Ltd (2018) 263 FCR 572; [2018] FCAFC 84 Rosenberg v Percival (2001) 205 CLR 434; [2001] HCA 18 Scalise v Bezzina [2003] NSWCA 362 Segenhoe Ltd v Akin (1990) 29 NSWLR 569 Shafron v Australian Securities and Investments Commission (2012) 247 CLR 465; [2012] HCA 18 Sidhu v Van Dyke (2014) 251 CLR 505; [2014] HCA 19 Smith v Noss [2006] NSWCA 37 Suttor v Gundowda Pty Ltd (1950) 81 CLR 418; [1950] HCA 35 Termite Resources NL (in liq) v Meadows (No 2) (2019) 370 ALR 191; [2019] FCA 354 Tomasetti v Brailey [2012] NSWCA 399 Trevor v Whitworth (1887) 12 App Cas 409 Vines v Australian Securities and Investments Commission (2007) 73 NSWLR 451; [2007] NSWCA 75 Wambo Coal Pty Ltd v Sumiseki Materials Co Ltd (2014) 88 NSWLR 689; [2014] NSWCA 326 Westpac Banking Corporation v Jamieson [2016] 1 Qd R 495; [2015] QCA 50 Williams v Pisano (2015) 90 NSWLR 342; [2015] NSWCA 177 Woodhouse v Fitzgerald (2021) 104 NSWLR 475; [2021] NSWCA 54 Wormald v Maradaca Pty Ltd [2020] NSWCA 289 Wyzenbeek v Australasian Marine Imports Pty Ltd (in liq) (2019) 272 FCR 373; [2019] FCAFC 167 Yebdoo v Holmewood [2021] NSWCA 119 Texts Cited: Commonwealth of Australia, Inquiry into the Law of Joint and Several Liability: Report of Stage 2 (1995) Explanatory Memorandum, Corporations Amendment (Corporate Reporting Reform) Bill 2010 (Cth) Yuen-Yee Cho and Vishaal Kishore, "The 'material prejudice' test and the financial assistance prohibition" (2004) 78 ALJ 194 Commonwealth House of Representatives, Parliamentary Debates (Hansard), 26 May 2010 at 4132 Category: Principal judgment Parties: 2021/314709 (Company appeal) DSHE Holdings Ltd (receivers and managers appointed) (in liq) (Appellant) Michael Thomas Potts (First Respondent) Nicholas Abboud (Second Respondent)